A lot of people, myself included, quite like getting regular income from the portfolio.
However, this isn’t very tax efficient.
Has anyone done the opposite and tried to eliminate income so that all return comes from tax free growth? If so, how has this gone, did you experience any difficulties, suffer any forced selling incidents and what did you invest in?
What have you learned that might be useful to others?
I think non income strategies typically have zero expected real return (like commodities , gold etc). I am not saying these items cannot deliver positive returns but that’s mostly speculative.
But strategies which might help you are the ones which focus more on less dividend paying stocks. For example BRK.B , QQQ is a good example. You can also choose to invest actively in stocks with ridiculous dividend yield like Goog, NVDA etc
I have to say though if you try to avoid income too much (from equity exposure), you will end up getting less diversified.
I don’t pursue it personally. But I try to keep high income assets in tax sheltered environment as much as possible. For example CH stocks
Pure or near-pure growth stocks would have been a great investment in the last decade or two e.g. Mag7 BRK.B.
Bitcoin too.
Actually there is a difference between growth stocks which have earnings well in future versus stocks which payback via share buybacks.
They might not always be same things.
For example ZOOM was growth stock because it didn’t make any money.
Sometimes I feel there are two types of companies -: one which is profitable and other one which is called Growth 
If only we knew this before the decade started.
Most good companies pay a dividend. Avoiding dividend entirely means lower returns
Is your point basically saying: should I concentrate my investments in funds / stocks / other assets that generate little or no income in exchange of higher growth?
If this is the question. Boglehead people will tell you: no as you should get a broad base index
However as Swiss investor, I would want to benefit from the fact of having no capital gai tax. What I do is to put 3/4 of my investments into VT-like and 1/4 or sometime more in triple ETFs that I believe pay little or no income/dividend to benefit from this. So a sort high tilt.
Disclaimer: bear in mind the risks.
You knew this already, but I do the opposite of your potential proposed opposite, and maybe there’s useful conclusions for your exploring the opposite from me doing the opposite of the opposite, so to speak …
It feels like magic, especially since our slavery human capital employment income fell1 to about a quarter of total income. The remaining income from the portfolio just magically fills up the rest, working like clockwork.
It’s like a well, never drying up, gradually increasing the amount of water it provides.
Very true.
I have contemplated an approach more capital gain oriented, but I feel psychologically safer with the taxed but more reliable income oriented approach.
In theory, capital gain oriented approaches should be more attractive in countries like Switzerland with no capital gains tax. But …“In theory, there is no difference between theory and practice. But in practice, there is.”2
Anyway, everyone should adjust the dial towards what they feel comfortable with and – ideally – live through a couple of market swings to test what they actually are comfortable with.
Lastly, without wanting to get political: I am fine paying income tax on those dividends.3 I feel being relatively wealthy and not (or wanting to reduce) paying taxes is … just not for me personally.
[1] Mr. now works 10%, Mrs. just went from 40% to 60%.
[2] In my son’s portfolio, which I manage, I do prefer non or low dividend payers over higher paying ones if two or more attractive options exist. Since he’s just turning 20, his runway is a little longer and he only looks at the portfolio about once a year when I remind him of it, so there’s a little less redemption pressure …
[3] Of course you have to live in communist Basel Land, while I just have to endure the moderate marxist Zurich.
I try to keep income at around CHF 24k per year. While not 65 years old and without salary, this is mostly from dividends. After reaching AHV age, I’m planning to reduce the dividend income and take the pension as capital. That way I will pay very little income tax (CHF ~1k). Wealth tax will be a multiple of this and unfortunately unavoidable while living in Switzerland. Perpetual traveller could be a solution between 65 and 75.
It’s not unavoidable: there are reduction strategies using real estate and real estate funds. Also parking it into pension avoids wealth tax.
Buy BRK.B and be done with it.
I moved my index fund investments from VT to VUG + BRK.B a few years ago for this reason.
45% marginal tax rate in Geneva means I’d much rather have cap gains from those than 2% dividends with a VT or equivalent. Can win or lose on performance of course..
Is there any way to hold BRK.B in an Ireland wrapper, so as to not risk US estate tax?
Tell me more. For real estate I would be taxed at a favorable rate (e.g. 800k instead of 1m market value). Does this apply to real estate funds as well? Would they calculate NAV below market value? Also, I read art is difficult to calculate at market value and thus can be taxed at (a lower) purchase price.
Real estate funds with direct ownership are mostly not taxed (wealth and income)
I don’t rememeber exactly, but when I last looked at it, the RE funds was something like wealth tax value being 1% of market value.
Basically every dollar invested is essentially wiped out for wealth tax purposes.
Of course, the last way, I didn’t mention is to move to a canton with substantially less wealth tax. e.g. I could move next door to SO.
Throwing this one out here. Approx 4.1% tax free yield and no wealth tax. Direct fund for commercial properties from Swisscanto. ISIN CH0111959190
What I find good is that this fund is not trading at very high premium. Kind of shows the situation of perception about commercial real estate
I don’t know why, but when I used a now defunct Swiss broker, they never quoted my dividends paid on my annual summaries. So I would manually work this out and give it to my accountant for years, before I found out that these dividends were not subject to taxation. I still don’t know why.
Interesting, thank you.
Where did you find the info regarding the tax free yield and wealth? Can‘t find it…
