Seeking some advice on my current investment portfolio. For the past two years, my IBKR portfolio includes ≈85% VT and ≈15% CHSPI, on advice from other forum and blog posts (ex1, ex2). As I also see many others saying “VT and chill”, I wonder if I should sell of the CHSPI holdings and go all in on VT and completely remove the ‘home bias’ in CHSPI.
Apart from my IBKR portfolio, I max out my 3a pillar with Finpension each year.
For details, I am in my early 30s and investing long term. I am fine with risk, but want to minimize portfolio management to the minimum. Hence my monthly investments into IBKR and Finpension.
Appreciate any advice from others who might have some insight into this!
Personally, this year I started to put some money into SLICHA and I’m aiming for an allocation between 90%-80% VT and 10%-20% SLICHA.
The reason is that I have an allocation of 20% in the Swiss market and 80% in the world market (excluding EM) in my 3a.
My personal situation is a bit special because I have very little money in my 2nd pillar (less than in my 3a), which is why I invest a little more in the Swiss market.
So in my opinion, you can continue to invest in the CHSPI if it suits you well. Otherwise, if you feel that having a home bias is not in line with your strategy, you can sell your CHSPI and reinvest the money in VT or elsewhere.
If you have the standard strategy of Finpension, you already have a sizable home bias probably.
In general most academic literature on the topic of home bias agrees that it is a good idea.
In general recommendations range in the realm of 20-35%. For Switzerland 20% is probably fine, as it‘s a very international market already, but that‘s just my personal opinion.
There‘s a multitude of reasons why, to name a few:
expropriation risk
favourable tax treatment (no withholding taxes and some of your dividends, like 10%, will be distributed as capital gains = tax free)
hedges against local inflation
currency
psychological
I would aim for a total of about 20% over your 3a and taxable account (I dont count 2nd pillar as anything regarding home bias, it‘s basically just a savings account in most cases)
And I‘m also a fan of SLICHA, as the normal spi index is extremely overweight in the top 3 companies.
Which is exactly the opposite of what one should do .
3a with finpension is very tax-efficient for non-US and non-CH stocks. You rather go World ex CH in finpension and more CH in the taxable part of the portfolio.
My approach before leaving Finpension to Viac for hypothek purpose was:
100% VT IBKR
99% Swisscanto SPI Extra on Finpension
This avoid the 0,25% TER of SPMCHA or SMMCHA, bad trading spread and there are more stock inside.
Yes I know mainly mid cap with large exporting outside CH but probably less than SMI wich is anyway included on VT for about 3%
Maybe it’s not the best practice tax wise but probably the best for fees and simplicity
Would you? What about the (much) higher dividend yield of CHSPI compared to VT?
Wouldn’t you prefer to hold lower-yield stocks / equity funds (i.e. VT) in your taxable portfolio - and high-yield funds (on Swiss SPI) in your 3a portfolio?
EDIT: CHSPI may “pass through” its dividends in full (without loss of non-refundable withholding tax, and to be ultimately taxed at your personal income tax rate), while All-World ETFs would lose some non-refundable foreign withholding taxes have suffer. That said, VT would presumably also “pass through” the large component that are U.S. dividends similarly.
Perhaps best would be to calculate your Swiss allocation including your 3a. Right now you are only looking at your IBKR portfolio. This can give you a good idea of where the overall homebias is.
Some information at link below. Have a look and decide how much Home bias you want.
If US WHT tax is not under discussion (VT is as tax efficient as 3a) , I think it doesn’t matter what the dividend yield is. What matters is what the total return is for the Portfolio within 3a.
Remember 3a attracts withdrawal tax at the end of tenure. So lower the number inside 3a, better it
However if one can take advantage of tax efficient pension funds then it’s another calculation.
I don’t understand.
You said that if we can assume that most markets would result in same return. Which I tend to agree.
I was mainly talking about 3a portfolio. If CH, US or world market have 7% gross return each. The breakdown could be different (dividend / capital gains)
Why would it matter what is the portfolio inside 3a?
Whatever mix you have of CH, US and World, the final number would be same. Isn’t it?
I’m speaking of how you distribute your assets between pillar 3a and your taxable portfolio - what you prefer to keep where.
All other things equal (and same gross returns), buying and selling a non-dividend paying stock like Berkshire is preferable to buying and selling a high-dividend stock with similar gross returns. If you benefit from a tax exemption on capital gains.
Example:
You buy two companies (stocks) A and B at price 100, both of them earning the same 10 (per share) from their operating business.
Company A distributes the full 10 to you, while company B retains all of its earnings.
You hold for 1 year, during which interest rate is zero, and then sell the companies / stocks.
Your personal tax rate is 30%.
Gross return of both companies/stocks: 10%
Holding A in a taxable account, and B in a tax-sheltered account, you pay a tax of 3 on the dividend distributed to you and nothing on B.
Vice versa, holding A in a tax-sheltered account, you pay no pay tax on the dividend and nothing B (tax-free capital gains).
Will you pay a tax on the lump sum withdrawn from that tax-sheltered account upon retirement?
Yes. But (!) at a discounted rate. And assuming same gross returns from your investments A and B, you’ll pay the same amount of tax. Whether you hold stock A or B in the tax-sheltered account, it will have the same balance upon withdrawal.
Ahh okay. Now I understand
Yea I agree.
Higher dividend portfolio in 3a and lower dividend portfolio in Taxable. Assuming both portfolios have same gross returns (dividend + capital gains)
I’m currently in the “VT and chill” camp. Mostly because I’m lazy, but also because I already have a huge exposure to Switzerland if you consider 2nd pillar and future earnings through employment. If Switzerland is doing fine, I will probably continue to have a well-paying job, will not have to write off 2nd pillar money and should in general do fine as well (). If Switzerland stops doing fine I will be glad to not have piled on top with a home bias.
This logic changes post-fire. So when not in employment and 2nd pillar money being in my control, a ~20% home bias is probably a good idea. Maybe more if still renting, maybe less when combined with home ownership.
I think if Switzerland does not fine, you are fine either way, as that would probably mean lower cost of living. And if it does really well, it hedges against cost of living increase.
As per Cederburg, I think it is not 100% conclusive on why a home bias is so beneficial in his study. Certainly currency is one of, if not the, biggest factor. But probably not the only factor.
Having a part in a hedged etf can definitely also be an idea. I think in the RR episode he talked about replacing part of the home bis with a hedged etf, but no fully replacing it.
I could definitely see having the home bias as 50/50 hedged etf/ home market etf, as being a solid solution overall.
As Corey Hoffstein likes to say, in investing “halvsies” is often the right approach.
Thanks for yours (and everyone else’s) replies – highly appreciate all your input!
I calculated my CH allocation across Finpension 3a and my equities at Interactive Brokers, and it comes out to 27.6% of the total value. Attaching a screenshot.
It‘s more the question of what you want? Of want to target a lower % home bias, just reduce your ibkr position. Or contribute more to VT.
Also consider future contributions. Are your ibkr contributions likely to outpace your 3a etc.
You can also make a rebalancing spreadsheet. Put in your target home bias % and let it spit out how much you contribute where to bring it in line to your target.
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). If Switzerland stops doing fine I will be glad to not have piled on top with a home bias.