# 3a solution from Finpension
**URL:** https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522
**Category:** Banks, Insurances & Third Pillar
**Created:** [October 8, 2020, 2:00pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522 "2020-10-08T14:00:27Z")
**Posts on this page:** 20
**Page:** 10
### Author:  [@ma0](https://forum.mustachianpost.com/u/ma0)
#### Post date: [December 18, 2020, 8:37am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/205 "2020-12-18T08:37:57Z")
How do you multiply?
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### Author:  [@dbu](https://forum.mustachianpost.com/u/dbu)
#### Post date: [December 18, 2020, 8:39am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/206 "2020-12-18T08:39:38Z")
> [@GdOeS](#):
>
> how exactly this will improve the returns
No guarantee for that.
TeaCup was just (I assume) talking about the market cap dimension of the VT, if you wish to more closely replicate it.
Small cap (value) _could/should_ outperform the total market (in theory, but hasn’t in a while).
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### Author:  [@xorfish](https://forum.mustachianpost.com/u/xorfish)
#### Post date: [December 18, 2020, 8:47am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/207 "2020-12-18T08:47:56Z")
Hedging is pretty cheap but not worth it for stocks.
The expected exchange rate change is not the cost of hedging.
Here is a good article about that:
[https://www.alfredberg.com/portfolio-currency-hedging-101-impacts-and-costs-what-you-need-to-understand/](https://www.alfredberg.com/portfolio-currency-hedging-101-impacts-and-costs-what-you-need-to-understand/)
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### Author:  [@GdOeS](https://forum.mustachianpost.com/u/GdOeS)
#### Post date: [December 18, 2020, 10:31am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/209 "2020-12-18T10:31:31Z")
Thanks again, I understand now. I will adjust it to something like:
71% CSIF (CH) III Equity World ex CH Blue - Pension Fund ZB
13% CSIF (CH) III Equity World ex CH Small Cap Blue - Pension Fund DB
12% CSIF (CH) Equity Emerging Markets Blue DB
02% CSIF (CH) Equity Switzerland Large Cap Blue ZB
01% CSIF (CH) Equity Switzerland Small & Mid Cap ZB
01% Cash
Let’s see how it goes. Btw, my portfolio hasn’t underperformed (yet 🙂) because I made my first finpension deposit yesterday, so my first actual investment will be only at the beginning of January (therefore I still have some time to adapt the strategy).
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### Author:  [@nabalzbhf](https://forum.mustachianpost.com/u/nabalzbhf)
#### Post date: [December 18, 2020, 10:42am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/210 "2020-12-18T10:42:44Z")
> [@ma0](#):
>
> How do you multiply?
In the chart view, just do \*USDCHF for example: [https://www.tradingview.com/chart/?symbol=AMEX%3AVT\*USDCHF](https://www.tradingview.com/chart/?symbol=AMEX%3AVT*USDCHF)
you can compare it to VWRL, the graph matches: [TradingView Chart — TradingView](https://www.tradingview.com/x/X7Vp6QiZ/)
> [@mabi](#):
>
> My question will be a bit off-topic here but I was wondering on your statement above: does your statement also apply to US treasury bond ETFs?
The general wisdom is that bonds should be hedged otherwise it defeats the purpose of being a non volatile asset (but then expected returns will be the local yield, so -0.7% or so for CHF).
There’s bunch of e.g. vanguard papers on that topic.
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### Author:  [@wapiti](https://forum.mustachianpost.com/u/wapiti)
#### Post date: [December 18, 2020, 10:53am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/212 "2020-12-18T10:53:27Z")
The risk with a 1% or 2% allocation that the portofolio will regularly to buy/sell to adjust the allocation.
I know that you can allow some deviation with valuepension, I don’t think it’s possible with finpension
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### Author:  [@ma0](https://forum.mustachianpost.com/u/ma0)
#### Post date: [December 18, 2020, 11:25am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/213 "2020-12-18T11:25:29Z")
Thanks. A bit off topic, but I’m not sure what I am watching. If it’s the daily price multiplied by the daily exchange rate, it’s not so important, is it?
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### Author:  [@GdOeS](https://forum.mustachianpost.com/u/GdOeS)
#### Post date: [December 18, 2020, 11:32am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/214 "2020-12-18T11:32:07Z")
Ok, I don’t know that either, as I have no experience with Finpension yet, but let’s see. I am anyway planning to make my contributions every month from now on, so they will have to buy/sell/adjust the portfolio monthly in any case.
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### Author:  [@nabalzbhf](https://forum.mustachianpost.com/u/nabalzbhf)
#### Post date: [December 18, 2020, 11:32am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/215 "2020-12-18T11:32:11Z")
Yeah it’s not important 🙂 it’s for people who might be confused by the whole quoted currency thing 🙂
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### Author:  [@mabi](https://forum.mustachianpost.com/u/mabi)
#### Post date: [December 18, 2020, 1:00pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/216 "2020-12-18T13:00:10Z")
> [@nabalzbhf](#):
>
> The general wisdom is that bonds should be hedged otherwise it defeats the purpose of being a non volatile asset (but then expected returns will be the local yield, so -0.7% or so for CHF).
This really makes bonds uninteresting as hedged or not hedged you loose and your money is not working for you as it should. So in that case and for the time being cash is still the better alternative, but I guess that’s the topic of another forum post hehe.
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### Author:  [@Mr.Chef](https://forum.mustachianpost.com/u/Mr.Chef)
#### Post date: [December 18, 2020, 2:38pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/217 "2020-12-18T14:38:08Z")
yes exactly, my bad…
Can I just ask you if with VIAC or Finpension is possible to invest on VT, or is it just possible to recreate a similar one? thanks
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### Author:  [@GdOeS](https://forum.mustachianpost.com/u/GdOeS)
#### Post date: [December 18, 2020, 7:50pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/218 "2020-12-18T19:50:28Z")
Not at finpension… in there you have a limited range of funds, as you can see here:
[https://finpension.ch/en/3a/strategies/index-tools/](https://finpension.ch/en/3a/strategies/index-tools/)
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### Author:  [@Runner](https://forum.mustachianpost.com/u/Runner)
#### Post date: [December 19, 2020, 1:33pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/220 "2020-12-19T13:33:00Z")
@Mr.RTF and @xorfish Thanks for your comments on hedging. I am building a personal portfolio in Finpension for my 3rd Pillar and I wasn’t sure whether or not I should chose the hedged version of the funds of the version which is not hedged. If I understand you correctly - I would summarize the matter as follows:
1. The hedged funds (equity) are more expensive than the funds which are not hedged
2. The cost of the hedging (i.e. the difference between the costs of hedged version of the fund and the costs of the unhedged version of that fund) will likely be greater than any loss likely to be attained through currency exhange over the long-term
3. Its not possible to predict currency movements therefore hedging may be an unnecssary expense - if for example I am invested in a ETF which is US dollar based and the US dollar strenghtens against the CHF then this will actually benefit my portfolio; hedging would only be useful if I know the US dollar will weaken against the CHF (which is impossible to predict)- over a long period the costs for hedging would likely be greater than any loss sustained through currencies exchange differences.
Is my summary correct? Is there anything else I am missing which I should consider?
From what I understand it only makes sense to chose the hedged version of an equity fund (US dollar based) if you know that the US dollar will weaken against the CHF. Since we cannot predict currency movements, hedging makes little sense.
Thank you for your valuable comments.
Kindest regards.
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### Author:  [@xorfish](https://forum.mustachianpost.com/u/xorfish)
#### Post date: [December 19, 2020, 2:02pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/221 "2020-12-19T14:02:14Z")
> [@Runner](#):
>
> The cost of the hedging (i.e. the difference between the costs of hedged version of the fund and the costs of the unhedged version of that fund) will likely be greater than any loss likely to be attained through currency exhange over the long-term
Not quite. The hedged fund will do better than the unhedged fund if the foreign currency does worse than what was expected. However it will do worse if the foreign currency does better than expected.
Because deviations from expected currency exchange rate developments are random, you do not improve the risk adjusted return of equities.
However this point does not hold for bonds. Currency hedging reduced the volatility of bonds without affecting the return in a meaningful way. So currency hedged bonds have a better risk adjusted return than ungedged bonds.
However, bonds currently have a very low expected return, so it is questionable if they a good addition to a Swiss portfolio.
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### Author:  [@Runner](https://forum.mustachianpost.com/u/Runner)
#### Post date: [December 19, 2020, 2:21pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/222 "2020-12-19T14:21:49Z")
Thank you @xorfish
My portfolio will have 99% equity (so i am not concerned with the effects on bonds for the moment - such a portfolio structure suits my current personal situation)
> [@xorfish](#):
>
> The hedged fund will do better than the unhedged fund if the foreign currency does worse than what was expected. However it will do worse if the foreign currency does better than expected
Sure, that is the way i had understood it (sorry if my written description was not clear); you said it much more eloquently and clearly than I did 🙂
> [@xorfish](#):
>
> Because deviations from expected currency exchange rate developments are random, you do not improve the risk adjusted return of equities
Again very eloquently and clearly said!
This is the key point from my perspective which suggests that for a portfolio which has high equity exposure (as in my case which will have 99% equity) it makes sense to chose the unhedged version of the equity funds.
Thanks again.
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### Author:  [@dbu](https://forum.mustachianpost.com/u/dbu)
#### Post date: [December 19, 2020, 5:20pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/225 "2020-12-19T17:20:51Z")
> [@ProvidentRetriever](#):
>
> I have bonds even though they have 0 or negative returns, and keep rebalancing to maintain my risk exposure to stocks.
Why not do the same with cash?
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### Author:  [@Lonair](https://forum.mustachianpost.com/u/Lonair)
#### Post date: [December 20, 2020, 9:56am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/228 "2020-12-20T09:56:50Z")
Hi all, very interesting discussion, thanks. I understand the principles, but struggle with finding data and as a result calculating the % myself as you do above. I understand we need to look at several dimensions, e.g. not only the countries coverage, but also type of stocks taken into account (e.g. large, mid, small) if the funds do not have the same scope (which we could check if we would have transparent data and definition of small, mid, large). But how do you guys find and crunch the data to arrive to some figures? I have open the vangard VT webpage and I don’t find any breakdown about large/mid/small… Equity World ex CH Blue factsheet also don’t show such breakdown…
Really struggling to put theory in practice, mainly due to data (non) availability.
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### Author:  [@wapiti](https://forum.mustachianpost.com/u/wapiti)
#### Post date: [December 20, 2020, 10:30am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/230 "2020-12-20T10:30:33Z")
The hedging is done on a monthly basis. It has little impact on the term.
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### Author:  [@xorfish](https://forum.mustachianpost.com/u/xorfish)
#### Post date: [December 20, 2020, 10:34am UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/231 "2020-12-20T10:34:53Z")
Hedging protects against the unexpectee currency exchange rate change.
If the market expected a ~10% weakening of the USDollar against the chf in these 5 years, then nothing unexpected happened and hedged and unhedged should perform similar.
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### Author:  [@paul](https://forum.mustachianpost.com/u/paul)
#### Post date: [December 20, 2020, 1:59pm UTC](https://forum.mustachianpost.com/t/3a-solution-from-finpension/4522/233 "2020-12-20T13:59:32Z")
The way I read your chart is that the unhedged version underperformed until 2020, in this time CHF and USD didn’t vary too much and the underperformance is mostly due to the costs of hedging.
Starting from 2020 CHF crashed USD by around 10% and that’s when the hedged found started to recover.
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