Bojack's road to FI

#1

Inspired by @Julianek post, I have decided to also share my current FI plan, the uncertainties I still have, and hopefully get your feedback.

Expenses: (monthly basis)

  • flat rent: 1’000 chf (shared with my partner)
  • utilities: 200 chf (aka nebenkosten, shared)
  • food and utensils: 40 chf x 30 days = 1’200 chf
  • health insurance: 200 chf
  • transport: 100 chf
  • holidays: 300 chf
  • total expenses: 3’000 chf

Income: (monthly basis)

  • salary: 133 chf x 140 hours = 18’620 chf (I work flexible hours, this is the average)
  • after taxes: salary x 86% x 75% = 12’000 chf (estimate, I assume 14% social and 25% income tax)
  • savings: 9’000 chf
  • saving rate: 75%

Portfolio:

  • broker: Corner Trader
  • VUSA.SW: 70’000 chf (Vanguard S&P 500, traded in CHF on SIX)
  • VEUR.SW: 35’000 chf (Vanguard Dev Europe, traded in CHF on SIX)
  • cash: 55’000 chf

Concerns:

  • I wanted to keep things simple, so I chose Corner Trader. I purchased the Vanguard ETFs on the Swiss Stock Exchange in CHF. I was hesitating a lot, because Interactive Brokers is much cheaper, and the US-based ETFs have much lower expense ratios. I was, however, afraid of the US. It is a different juristiction, there is the estate tax, It was too much for me to handle. I’m still not sure it this was the right choice.
  • I would ideally buy VT, but it is not available in Europe. There is VWRL, but with an expense rate of 0.25%. So i went for VUSA (0.07%) and VEUR (0.12%), which anyway cover over 70% of the global market cap. Moreover, when the dividends first came, CT did not levy withholding tax on VUSA, but 20% on VEUR. I don’t get this… How much would they take away for VWRL?
  • I still have not purchased any bonds. Bonds are there neither for returns nor for risk reduction. They reduce volatility. People have been discouraging me from buying bonds in the current situation. I might stay 100% stocks and only buy some bonds when I reach FI.
  • I have entrusted all my portfolio to Vanguard. I’m not sure how smart is this, I just base on what I read online about them.
  • My cash pile has been growing lately, as I hear all around that we are due for a crash. I’m not sure if I should buy more stocks or wait. Actually, I would be happy if the crash happened already, because then I could buy cheap once the prices would reach the bottom.
  • I have considered buying real estate in the past, but then I learned that mortgage loan is actually a leverage, which increases your return, but also increases risk. Without this leverage, a rental flat is not so attractive anymore. Plus, there are already real estate companies in the ETFs that I own. Finally, I would not like to have the burden of taking care of a flat.
  • That being said, I feel very uneasy having all of my portfolio in a digital form in some ETF, handled by some broker, everything in the cloud. I work hard to save all this, how can I ensure that it doesn’t evaporate? My main worry is not about market crash, it is about a hack or a glitch.
  • I am not a Swiss citizen and I would like to reduce my living costs after I retire. I would like to see some of the World, live a bit in many parts of it. I still don’t know how to solve it.

To finish off, I have built my strategy following a series of great blog posts that I really recommend: http://jlcollinsnh.com/stock-series/

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#2

Well, these are very good numbers! With a 75% saving rate you should reach FI in less than 10 years! Even if we are conservative and push the limit to 33 times annual spending (i.e a 3% SWR) and only 2% returns on the stock market, you’ll be there in 10 years :slight_smile:

Regarding your concerns :
-In Europe, Interactive Brokers is not under US juridiction, but UK. So no estate tax, until you have 5 Million USD stashed. Plus, VT is available at IB!
-There are a lot of indexers here who would be very happy to advise you about which ETF to choose

  • Your concerns about a digital broker are understandable, but it would be the same if your money was lying on you bank account… those are just 1s and 0s on a hard drive in a server, lying on a shelf somewhere in the world… Sometimes it feels strange as well to me… there is a duality between the fact that all my net worth is digital (and in a way, absolutely immaterial), and the fact that these 1s and 0s are the very fact that will allow me to retire early and do whichever activity I fancy most :slight_smile:
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#3

Are you sure it is as simple as this? VT is a US-based asset after all, and thus you may be eligible for the estate tax (https://www.irs.gov/individuals/international-taxpayers/some-nonresidents-with-u-s-assets-must-file-estate-tax-returns). Then you’re depending on bilateral estate tax treaties, which exempt you up to 5 millon USD for US-CH treaty, but I am not Swiss, and I’m not sure what my situation will be when I die :stuck_out_tongue_winking_eye:. And anyway, are you sure your IB account is legally in the UK? (not just the website domain :wink:).

VT is also available on Corner Trader. But the withholding tax is handled in a different way (this stuff is really complex). I don’t know, I guess Vanguard did not create their Ireland-based ETFs for fun. They are suited for Europeans and they follow these UCITS regulatory requirements.

#4

The US-CH estate tax treaty applies to swiss residents, not citizens.

Swapping out of US funds into IE if your situation changes is possible any day the stock market is open!

[quote=“Bojack, post:3, topic:389”]
VT is also available on Corner Trader. But the withholding tax is handled in a different way [/quote]
Yeah it’ll be 30% either way: either 30% US tax for non QI broker and file tax return with IRS if you want it back, or 15% on US side + 15% on CH side. Swiss brokers suck

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#5

Yes, what I meant to say is that I do not hold Swiss citizenship, so my residency depends on the permit.

If I remember, when you file this W8BEN form, you only get back 15%, not the whole 30%?

They suck mainly due to the stamp duty. And this difference is easy to calculate. If you makes trades for 1’000’000 chf in your lifetime, you will pay 1’500 chf of stamp duty (0.15%). In your lifetime! That’s not such a big price to pay.

Here is a nice article which sums up nicely the reasons to invest in the Irish ETFs:

https://www.bogleheads.org/wiki/Nonresident_alien_with_no_US_tax_treaty_%26_Irish_ETFs

#6

Yes, US will get their 15% one way or another.

But W8-BEN is not a sufficient condition of having just 15% withholding, your broker also needs to be a “Qualified Intermediary”. Those who aren’t have to withhold 30%, and you’ll need to jump through hoops and loops to get 15% back that the income tax treaty entitles you to. I believe the procedure is to file non-resident US tax return. The swiss would only reimburse you 15% per treaty at the most plus any local withholding, and tell you to talk to IRS for the other 15%

So when it’s over you can just sell stocks any business day and buy whatever you want or just take cash on your way out of Switzerland. Makes sense to do it anyway for capital gains tax reasons we discussed in another thread.

Also as an, I presume, EU citizen, you can actually stay in Switzerland indefinitely even with no job

[quote=“Bojack, post:5, topic:389”]
They suck mainly due to the stamp duty. And this difference is easy to calculate. If you makes trades for 1’000’000 chf in your lifetime[/quote]
That’s a very bold assumption that sum of your trades will only be that much. So far in several years I already turned my entire portfolio 2-3 times over searching for optimal mix. I’m invested now quite a lot in individual stocks that I do intend to hold for years and don’t envision rotating them anymore, but ETFs come and go easily at least for me. With IB, cost of trading is negligible. But for swiss brokers swiss stamp tax duty and much higher trading fees make this a lot more expensive.

Main case made there is for countries who don’t have income tax treaty with US with good terms (i.e.15% wht) and have to pay 30% on US dividends with no prospect of getting any of it back. Going through IE funds allows them to piggyback on IE-US treaty and reduce US taxes to 15%. Switzerland does have such a treaty, so this reason doesn’t apply.

Another thing is possibly different withholding tax rates from non-US countries when emitting dividends to US vs IE, but I don’t really think it makes a significant difference.

A disadvantage of IE funds vs US is that 15% is withheld from the IE fund and you have no way to claim it back in CH. Whereas for US funds you can get a tax credit for it with DA-1 on your CH tax declaration, which makes everything tax optimal, at least for ETFs predominantly invested in US stocks and assuming your CH tax rate > 15%, which is the case with any reasonable job.

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#7

No, usually they suck as soon as you buy an asset quoting in something different than CHF.
If you want to buy VT for instance, you will have :

  • Stamp Duty : around 0,15%
  • Brokerage fees : usually not the highest part of the commission
  • And mainly forex fees : I have not been able to find a swiss broker charging less than 0,5% of currency conversion fees (perhaps De Giro, but it stands to be confirmed).
    My point of view is that the biggest business of most brokers is not brokerage per se, but currency conversion.
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#8

to add to julianek’s post:

the minumum commissions are at least one order of magnitude higher for swiss brokers vs. IB : 20 (CT), 9 (SQ) vs ~1 for IB. if your trades are big enough to not bother about minimum commissions, then it is like 0.1-0.2 % of your trade vs 0.01 or such with IB. IB even has a maximum commission (crect me if I am wrong?)

on top of that you lose 0.5% with almost any currency exchange with swiss brokers. if you save money in CHF and invest in USD, this costs you one full per cernt of your wealth. this clearly dominates the reasoning why swiss broker are inferieur

[edit]
in terms of CT this is especially annoying, since dividends are paid out in USD, then automatically converted to CHF, and then you re-invest them after once more converting them. makes 1.5% loss on dividend money

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#9

You presume correctly (Polish). But my B permit is for 5 years. How can I be sure they will extend it? I will try to get the C permit when possible, I guess it is valid for 10 years? Although I read that for Eastern European countries the precondition is 10 years spent in Switzerland. But then again, after 10 years with C permit, I will need to extend it, without the certainty that it wll be granted. Or am I missing something?

I really want to follow the logic of “buy it and forget about it”. So it means buy once, sell once (little by little, when you retire). But sure, I cannot deny the ultra low fees of IB (which makes me think, the passive IB investors have to piggyback on the active ones. you could bring a million dollars to IB, make a huge buy and then let it sit for years, not generating any costs).

That’s why I purchased Vanguard ETFs which are traded in CHF at SIX. No conversion fees. Sending money to Corner Trader is also for free.

One more thing, about our portfolios being digital and all. I heard that some brokers provide you with an insurance up to 500’000 usd in case you lost your shares. Have you heard about it? Do you know how it works and what is covers? Does IB have it?

#10

As an old EU member citizen you’ll get C after 5 years just by asking. Maybe they’ll ask you to do an easy german A2/B1 language exam, maybe not, a Belgian friend of mine got it without anything, no language test, no proof of job, just for having a good passport and being a good resident and paying taxes for 5 years.

Once granted it’s valid indefinitely, they’ll keep renewing it and can’t refuse to. By law it cannot be tied to any conditions like having a job. There are very few reasons for which it can be revoked, mainly: leaving country for 6+ months, reliance on welfare, crimes or other serious offences against public order and safety. If you plan to do anything on this list you might want to get a swiss passport then first to guarantee yourself a place in CH, otherwise you can just stay with C in CH until you die, many people do and don’t bother getting citizenship

You’re talking about SIPC protection. It’s complicated:

As a swiss resident you’ll be a customer of IB UK, which does NOT have SIPC coverage. It has UK’s FSCS cover, up to around 85k GBP at the moment (comparable to swiss 100k CHF and better as it covers broker fraud, which swiss don’t AFAIK).

IB UK is affiliated with US’s IB LLC, which is a member of SIPC. For the part of your assets that IB UK keeps in custody at IB LLC, you may be covered by SIPC. Assets kept only at IB UK will only be covered by FSCS

http://www.sipc.org/for-investors/investor-faqs/#affiliated-non-us-broker-dealer

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#11

Sorry for the curiosity, but how the hell do you make almost 20k CHF a month while working 80%? I thought I was doing pretty good with 75k a year (before taxes), living at my girlfriend’s who owns her apartment. Yet you are saving about twice as much as I do each month.

#12

I am Polish, so not old EU. In this case I guess it’s 10 years, not 5?

https://www.sem.admin.ch/sem/en/home/themen/aufenthalt/eu_efta/ausweis_c_eu_efta.html

I also checked on some other forum, and they say that it is possible to get it earlier than after 10 years, but you may need to write a language test.

Thanks for clarification. So if you keep it at Ameritrade or Schwab, then you are protected by SIPC? And what does this actually cover? Someone hacking an account and doing damage to your portfolio? Do we have some kind of protection in Switzerland, for Swiss brokers?

Coming back to dividends, I just checked, and in the last year I have been receiving dividends that match the ones published by Vanguard up to a cent, and Corner Trader did not charge any withholding tax on it. Is that expected? Where is the money lost then?

  • VUSA / Ex-Date 2017-06-22 / Dividend 0.19401 USD / NAV 46.20 USD
  • VWRL / Ex-Date 2017-06-22 / Dividend 0.55696 USD / NAV 77.04 USD
  • VEUR / Ex-Date 2017-06-22 / Dividend 0.53629 EUR / NAV 30.61 EUR

Here are the US-based ETFs for comparison:

  • VOO / Ex-Date 2016-06-27 / Dividend 1.01000 USD / NAV 221.62 USD
  • VT / Ex-Date 2016-06-30 / Dividend 0.46600 USD / NAV 67.48 USD

Could someone holding the VOO / VT verify how much dividend ended up on their account?

#13

[quote=“Bojack, post:12, topic:389”]
I am Polish, so not old EU. In this case I guess it’s 10 years, not 5?[/quote]
Ok, yeah you’re right, Poland is not EU-17. You can still get it after 5 years, just would need a language test and they may have a right to refuse it for some reasons, whereas old EU should get it unconditionally

[quote=“Bojack, post:12, topic:389”]
Thanks for clarification. So if you keep it at Ameritrade or Schwab, then you are protected by SIPC? [/quote]
Schwab’s arrangement AFAIK is similar to IB, you’ll be a customer of Schwab UK with FSCS/SIPC depending on where assets are actually kept, stocks should be in US though and enjoy SIPC. Cash - I wouldn’t bet on it.

http://www.sipc.org/for-investors/what-sipc-protects

https://www.esisuisse.ch/en/faq

Cash only. Securities not covered, they are supposed to be held in your name, but if broker misplaces them, all bets are off

US brokers normally register all stocks in broker’s name (“street name”), that’s why it’s important to have SIPC protection for some peace of mind. Another aspect of protection is US requirement to keep fully paid customer assets segregated, that should also help a lot in case of broker failure, and auditors should check it regularly. Not sure if we have anything like that in CH.

0% withholding is just from IE side, their government allows withholding tax free distribution to some countries and CH meets their criteria. But 15% from US stocks was withheld at some point when the payment crossed US-IE border, before it was paid out to you. US always gets at least 15%, one way or another. Check funds’ annual reports to know exactly how much they paid themselves in withholding taxes. Or as a concrete example, compare dividend yield from these two funds, practically identical except domicile: VOO and VUSD.

Advantage of US funds is that the 15% will be withheld on a payment to you and you can get
get a tax credit for it on your CH taxes as double taxation relief. But noone will compensate you anything for the hidden taxes that IE funds suffered.

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#14

I work 100%. There are 260 monday-fridays in a year. 25 goes for holidays. around 10 goes for public holidays. That leaves us with around 19 working days per month, so 152 hours. I put 140 hours, because I take a bit more holidays, but not 20%! You have a salary, I have an hourly rate. It means lower job stability, because it can be ended at any time. There are no paid trainings, team events, company cars, benefits, kindergartens etc.

#15

I see, thanks. Sorry, I didn’t mean to imply you were taking more holiday than you actually are. You are in fact working about the same hours as I do (42.5*0.8 = 140/4), but I agree it’s a completely different paradigm and shouldn’t be compared like that. Nevertheless, 9k CHF of savings every month is very impressive, congrats!

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#16

“But W8-BEN is not a sufficient condition of having just 15% withholding, your broker also needs to be a “Qualified Intermediary”. Those who aren’t have to withhold 30%, and you’ll need to jump through hoops and loops to get 15% back that the income tax treaty entitles you to. I believe the procedure is to file non-resident US tax return. The swiss would only reimburse you 15% per treaty at the most plus any local withholding, and tell you to talk to IRS for the other 15%”

If the “Qualified Intermediary” is Swiss, dividends from U.S securities will be taxed at 30% and you can get back 15% from the Swiss adm.
If the “Qualified Intermediary” is US (like IB), dividends from U.S securities will be taxed at 15%, because you will have signed the W8-BEN, when opening the account and the 15% remaining can be refunded by the tax administration (it would depend on the amount, the canton and some other factors, that nobody can clearly state)

Honestly, SIPC or FSCS has absolutely no importance, because this only applies to cash and not to securities. If you open a brokerage account is to trade securities, otherwise, you can open a standard account with a Swiss bank

#17

No. US withholding will be 15%. The extra 15% is imposed by CH for a total of 30% as well. I explained already. But there is a difference nonetheless. 15% US + 15% CH in case of swiss QI broker you can recover fully with just DA-1. In case of non QI there’s 30% from US, DA-1 only gives you 15%, and for the other 15% if you want it back you have to file non resident tax return with IRS

No, both cover securities too. Esisuisse is the one that only covers cash.

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#18

Nobody can forecast a crash. And if it does happen, you will not be able to know when it will have reached the bottom. I would keep buying and stop worrying about timing the market.

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#19

Totally agree. Just figure out your risk-adjusted portfolio and schedule a monthly contribution to investments and do it regularly not matter what market conditions are at given point of time. If there’s a market crash then just buy more than usual. If you think it’s market top, then just buy a little bit less, but keep buying. Otherwise, you’ll lose money by missing opportunities when the market makes big, sudden changes.

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