Assistance on investment-decision - All-in with a bang?

Hello everybody

About us:
We came in touch with FIRE about three months ago and are “on fire” for it ever since. We are 40, Swiss, married and have one little kid. Retrospectively, we have of course made some bad financial decisions, which seem now obvious … (especially we left out savings and investment opportunities). Thanks to the many helpful blog and forum posts, we have already made good progress regarding our saving rate (increase from historical 15% to budgeted 25% this year, although we reduced our % of work due to the child care for the junior).

Our approx. financials in kCHF

  • Cash: 250
  • Trading account (diversified with mutual funds and some stocks → reallocation pending in 1/3 Swiss passiv stock index etf and 2/3 world passiv stock index etf): 130
  • Third pillar (all VIAC global 100): 190
  • Second pillar: 450

Important decision - Long-term investment of the excess cash of kCHF 200 (safety cushion of kCHF 50 already deducted)

  • Topic 1 - Potential real estate ownership (back-up)
    • With a likelihood of 90% we will stay tenants. However, 10% chance remains that we will buy real estate for ourself 5-10 years from now
    • Working assumption: We want to buy a house for kCHF 1’000 in five years and need hard equity for the mortgage of kCHF 200 (but don’t wand to liquidate any of our longterm investments)
    • Based on my internet research it should be possible to pledge (verpfänden) my 3a account. Has anybody practical experience how this works? → Do you have to change the 3a accounts to the “bank” you get the mortgage? To what percentage the “bank” accept all-stock-3a as hard equity?
    • Furthermore, does such a pledge also work with the “normal” trading account or is it limited to 3a?
  • Topic 2 - Timing investment excess cash of kCHF 200
    • For the future, we will invest the excess cash per month monthly
    • I fully agree with the concept against market timing, but we are really emotionally struggling to go all in with the kCHF 200 with a big bang …
    • Our provisional plan would be to go in with TCHF 50 and with kCHF 4 per month over the next 36 months (in addition to the excess cash per month)
    • It would really help us, if you could share you personal view (if you were in our situation)

Thank you very much for your feedback?

ps. if I missed potential posts in the forum to these questions, please leave a link

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I talked to Ubs about mortgage this week and you can pledge your 3rd pillar if invested in their account and invested in UBS vita 100 fund, for example. So if you decide to buy in 5 years you would just need to transfer your VIAC to more expensive UBS.

They can also take into account 2-3% of your other invested assets as income for affordability calculations

There are good comments from cortana in this thread

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Hi HammerOnFire and congrats on your achievements so far!

What is your asset allocation?

I’m asking because, often, when we write “should I invest this money”, what we think is “should I invest 100% of it in risky assets like stocks”. It doesn’t have to be. Money can be invested with a 60/40 stocks/cash allocation, real estate can be added to the mix, your own business and human capital is an investment too, it boosts your future earning potential.

I find it important to always be 100% invested at my target asset allocation. Thinking about DCAing your lump sum could be a sign that you’re trying to invest it at a more risky allocation than you’re truly willing/able to sustain.

Money you’ll need in the short and mid term should be accounted for, life projects are part of it. The safety of your streams of income and the needs of your dependents should be taken into account too but you should be able to invest whatever you want to invest at your target allocation whenever you have the ability to do so. DCAing over a few months is fine. DCAing over 3 years tells me you may think you have need of some of this money during this period. It’s OK to plan for it and not have all of your money in the stocks market in a conscious and planned way.

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Thank you very much for your input, we will reconsider our “risk capacity”

Allocation (current → target)

  • Cash: 250 → 50 (caveat regarding future real estate, but this should be manageable based on the post of @Barto )
  • Stocks (3a and trading account): 320 → 520
  • Bonds (2nd pillar/pension considered as bonds): 450 unchanged

I think that should (kind of) answer it for you.

There will inevitably be voices arguing for “all-in” investing on purely statistical grounds, if you haven’t encountered these arguments on the forum already. Not unlikely coming from people whose entire investing career has all been during a bull-market, basically (though I don’t mean to sound like an old fogey here).

PS: Also, good input from wolverine, I think.

2nd and 3rd pillar aren’t very easy to access so, in case something goes very wrong, with your plan, you’d have your 50k cushion, then you’d have to sell stocks. Is that part of why you’re not at ease with the idea of a lump sum for these 200k?

It sounds to me that you don’t practice a percentage driven allocation but, aside from your potential real estate venture, would put your new contributions in stocks. Is that right?

I like to keep a small percentage based cash allocation in my taxable portfolio, with a lower cap at my emergency fund value, so that I can better realize that, as my stocks go up, so do my liquid immediately accessible assets. I can invest in a riskier way, and feel good about it, because doing so improves my safety net, at least in my mind.

If you think that your future might hold (un)expected expenses for projects, your child(ren), your family or any person or thing you care for, I’d consider building a cash/stocks allocation through my taxable and 3a accounts. Right now, buying stocks with those 200k would turn a 44% accessible cash position into a 9% one (taxable+3a, so accounts where you can manage the allocation in order to move cash out if necessary). That can be scary.

Would it help to consider, either:

  • to hold a percentage allocation to cash (let’s say 10%) with a minimum cap of 50k, that would allow the size of your cash cushion to grow in the future?

  • to hold a higher percentage allocation for now (let’s say 20%, so 114k), when you are most vulnerable to a market downturn and direct future contributions to stocks only until you reach an allocation closer to the one above (say 10%), from which it would start rising up again?

The second option would be pretty close to DCA but I feel it takes into account your potential needs better. With your DCA solution, you run by the assertion that 50k cash should suffice for your needs but you are uncomfortable with it right now. The situation in 3 years could be basically the same that we have now: all time highs with people talking of doom and how this can’t go further up for long all around. It sure was like that 3 years ago. Would your level of comfort be better then?

My proposals aim to ease you toward an allocation that you feel comfortable with, and then keep it. You can adjust the % as you realize that it’s being too conservative or too reckless. Starting the discussions by assessing the size of the cash cushion you’d really be comfortable with (since 50k doesn’t seem to be it right now - but could in the future) could also ease the discussions with your partner. I find 100k now and growing easier to internalize than 200k now and 50k in 3 years, myself.

To make my reasoning clearer: as I understand it, right now, you are more limited by the fear of loosing money/not being able to access cash when you most need it than you are about missing out on profits that you would need in the future. To handle that, I’d say you need to put some thoughts toward what of a cash cushion you want to have now, what you intend to use it for and how you want it to evolve in the future.

We’re not talking about retirement yet, we’re talking about needs that may arise in the next 10 years. Families with kids have those, things happen, I’m guessing that’s part of the things you’ve weighted when choosing to DCA. That cash cushion needs to be liquid and accessible, this is why I’d leave 2nd pillar assets out of the allocation reflexions for now. They can enter later on, when you’ll feel safe about your short term risks.

Pillar 3a, on the other hand, can be part of the allocation because if you need cash and it’s in your 3a, you can sell stocks in taxable, buy stocks in your 3a and thus, preserve your allocation while still having access to the cash you need, so, for this purpose, it can act as a single portfolio.

If you want ideas on how to invest more conservatively in the current environment, I’m a big fan of VIAC’s strategies so taking a look at them could give you some ideas in order to mitigate some risk without using negative yield bonds (I’m particularly fond of the Global Account Plus, Global 20, Global 60 and Global 100).

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Great post all along, very instructive. Do you know if you can access the detail of those strategies even if you don’t have an account in VIAC? I took a quick look but couldn’t find the information.

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They are listed and available with the factsheets on their page:

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Thanks a lot. I missed it.

Made me realize I can just open an account as I would need it at the end of the year anyway… ^^

First of all: Thank you very much @Wolverine for your insightful feedback!

Maybe I have used the wrong terminology. I used the word cushion as emergency backup → 50k is 50% of our yearly expenses today (hopefully more in the future). I will put more thought in this amount as well as the consideration to have it variable as you mentioned below.

However, the (mental) struggle is more with the idea to go in at once with 200k.

Correct

Was not aware of this view → Will definitively consider it

Also seriously to consider ;o)

Today all 3a is in VIAC Global 100 and I am totally fine with it (3a was always in products with the highest stock allocation possible at the time.

However, while setting up my asset allocation (assets; currencies, regions) I discovered that the Global 100 is not global at all (approx. 39% Swiss). I am currently not sure if I (a) should manually adjust it to a “real global” and invest in Switzerland via an SPI ETF or (b) increase my VWRL in taxable to match my geographical allocation. Any thoughts on this?

Thank you @Barto for your real life example. Does UBS accept then 100% of the investment in UBS Vita 100 3a for the calculation or less → MigrosBank let you only take 60% to 90% of their 3a stock solution into account …

After having put more thought in it, we intend the following set-up:

  • Basis: 3a and taxable accounts (i.e. without pillar 2 which we consider as bond)
  • Deduction of a conservative safety cushion of fix TCHF 50 (one half of the current annual expenses)

Target asset allocation for the remaining investment amount:

  • 30% cash: Based on current risk tolerance → for better sleep and flexibility (real estate or market opportunity)
  • 5% handpicked stocks: for fun, watches (UHRN) and pyjamas (CALN) ;o)
  • 65% passive stock ETF (VIAC Global 100; VRL; ishares MSCI EM IMI)

Target regional allocation (excl. 30% cash):

  • 25% CH
  • 45% US
  • 15% EM
  • 15% Rest of the world (residual percentage)

Thank you very much for your inputs!

That was the example I gave the advisor and he implied 100% but we did not go through a purchase yet. Perhaps @Cortana knows as he posted on this topic

Regards keeping cash to be flexible and not risk investing the deposit for a potential property purchase. I did this for years but of course this has an opportunity cost. If you are keeping approx 250k cash, the alternative could be to invest at average stock market return ~7% which is 17,500 chf /year which also increases with compounding.
Apologies if this is obvious or you have a definite plan to buy within 12 months. I am just saying it because I know a lot of people who have taken this approach for years and who have not yet bought the house (prices are too high…) and who never realise that their cash deposit could be working to pay the rent.

[edit: I just saw you mentioned 50k cash above. I saw the ~250k in another post but assume that is your current cash before increasing your investment]

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Thank you for your post. I completely agree with your considerations. We intend to go now with a 50k cash-cussion and 30% cash in die asset allocation. The cash in the asset allocation is based on our current risk tolerance and not mainly driven by the real estate topic (we have nearly 200k in 3a which we could use as equity)

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