while the yields of High Yield Bonds aren’t that high anymore, they are the only kind of bonds I consider worth holding. At near 0% interest rates or yields for other bonds, I’d rather prefer to hold cash, because I can rather easily move around, even out of the country.
tax shelter: bonds’ coupon yields are higher than dividend yields for most indices or individual stocks, that’s why I overweight them under the tax shield of a pillar 3a account.
45% cash position (the numbers above of course don’t add up correctly): Due to constraints mandated by 3a, I can’t go higher than 60% foreign currency. As both Emerging Markets and High Yield bond funds at VIAC are denominated in USD, that’d be my upper ceiling for bonds as well. I maxed out on (emerging market) government bonds at 35%, then added High Yields to a rate that I felt comfortable with. I can still allocate 10% to other foreign currency (equity or gold).
Yes, I do consider equity valuations very high - and somewhat of out of touch with (macro)economic reality lately. I do anticipate and brace myself for lower valuations, by overweighting cash. I may be wrong - but the worst regret for me is the one I anticipated in advance.
For now I can only justify to myself broadly investing in stock indices by either
a) having the conviction that this time it’s different, for real
b) closely monitoring and being able to get out (liquidate positions) at any time
I don’t have the first and VIAC rebalances only monthly, don’t they?
The new double-tax treaty will allow for 0% withholding for 3A’s, whereas current tax treaty only allows 0% for pension schemes. But the Yanks are being slow as usual with getting that signed. Broken legislative processes and all that.
Ok, not a link to the treaty, but a link to a reputable source below which says "Als weitere Bestimmungen des nun genehmigten Protokolls erwähnt das SIF die Befreiung von Quellensteuern der Dividenden an Einrichtungen der Selbstvorsorge – in der Schweiz die Säule 3a – ab dem 1. Januar 2020 (vorausgesetzt, das Änderungsprotokoll tritt im Jahr 2019 in Kraft). "
I’m very new to the FIRE community and still reading/trying to understand a lot.
However, I’ve been putting every month enough money to max out my 3a this year.
My question is, should I just take the recommended option by VIAC and change when I understand better or wait until I understand better and do a custom package ?
Assuming a 2% Dividend, this results in a withholding tax 0f around 0.068% for next year. Down from 0.163% from this year. VIAC told me that the new fund for US equities will also be 0.02% cheaper than the iShares Core S&P500. Overall, VIAC will be 0.115% cheaper thanks to the tax treaty.
Great! Let’s then hope they implement this starting 1.1.2010!
This could actually change the mustachian picture for the best place/broker to hold your US stocks, for some, perhaps, as:
buying IE domiciled ETFs has of course 15% (== unrecoverable) L1WT for US stocks
buying US domiciled ETFs has 0% L1WT but with IB carries the infamous inheritance (estate) tax issue - unlike in 3a of course - besides the L2WT “hassle”
but buying US stocks in 3a would then have 0% L1WT
So if you opt to allocating different geographies with different brokers (in and outside 3a), then holding in particular the US part within 3a starts to become an interesting option. With VIAC the only problem left then is the outrageous FX spreads (up to 0.75%, 2 times, once at buy once at sell) they pass on from CS to us…!
Similarly it would be advantageous to hold Japan stocks in 3a, if the domicile is Switzerland as is the case with VIAC. As according to this list from Mizuho CH funds (should?) have 10% L1WT, similar to US funds which also have 10%, but unlike IE funds which seem to have 15%.
Where did you see this? As per the mentioned Mizuho list CH funds should have only 10%… (but maybe that has changed starting 1.1.2019?)
Check the actual transaction receipts you get for actual purchases. Mine where usually 0.75%.
I find their wording shockingly misleading, they say:
this assumes their pooling and netting works in your particular ETF on your particular rebalance day in your particular direction (buy vs sell). Currently people are mostly only buying, so forget this for now!
what is “annual cost”: compared to overall assets you hold or just the portion you buy - this is unclear. If they mean overall assets this would be borderline false marketing. If it’s just the portion you buy then see point 1.
what does “over all strategies” mean? it means they might have averaged this number over Global 100, Global 80, 3a Plus, everything. Of course Global 20 has less FX cost, they joking? What good is this “over all strategies” even when all you want is an honest information over how much you pay?
“over all strategies”: also, mind you that 40% is always CHF based, so anyway you only have 60% FX based stuff, so this “over the strategy” thing is really thowing sand into people’s eyes, sorry
My reply was due to his age and given he probably won’t touch that stash for the next 40 years (unless other 3 ways of getting money out of 3a), full stock exposure makes most sense today.
Thanks a lot for your answer. I would then have a few questions regarding the bonds positions.
The CS Global High Yield is mainly composed of low quality bonds, but that is obvious since it is high yield. It is composed of corporate bonds and 70% in US. I would then think that if there is a market crash, this ETF would suffer a lot. However, it is only 15% of your allocation so I guess it is fine for you.
For the emerging market one, do you feel safe with this position during a crash? I was thinking about it so I am happy to get your opinion there.
Interest from 3a account is going down from 0.3% to 0.2% as of coming August 1st, I got a notification when I opened the app today.
If you’re invested in Global 100 it won’t affect you much (1/3 of the interest you previously received from 3% of your portfolio is gone, because 97% is invested.)
I concur. I’m certainly not holding that portion of my holdings as portfolio diversification in hopes of being negatively correlated to the stock market (that is "balancing out negative performance in equity), as bonds are often sought out for.
Holding them mainly for the fixed income they hopefully provide, even in more or less sideways (stock) markets.
I certainly don’t expect them to become beacons of stability in my portfolio. The ride might be a wilder one. But it’s all relative.
Governments are pretty likely to pay back their debt. Defaults or haircuts are relatively rare, even for Emerging Markets countries. I certainly prefer EM bonds over any kind of EUR bonds. The EUR just seems fundamentally broken to me as a currency, and its risk underestimated - not appropriately reflected by interest rates and bond yields.
Also, with regards to bonds, I should be rather highly invested in investment-grade bonds as part of my first and second pillar (AHV and Pensionskasse).
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