You’ve had some good feedback here already and have clearly put a lot of time and thought into constructing this. My thoughts for your consideration:
Avoid dividends as much as possible in Switzerland.
There are two ways you make a return in an investment:
- Increases in price of the fund
- Dividends paid by the fund
For all intents and purposes these returns are equal. A company can decide how to return its net profit/investments to its shareholders. It can either do so through company investments or share buybacks which should increase the price of the fund, or by paying out dividends with cash on its balance sheet which will lower the price of the fund.
In Switzerland you have two tax drags which you should try and minimise as a smart investor.
- Wealth tax
- Dividends taxed as income
Wealth tax is unavoidable (unless you are investing through a 2p or 3p which is a reason to try max these before anything).
Dividends taxes are really incredibly unfavourable in Switzerland.
- You get taxed on them as though they are extra income so at your marginal income tax rate (maybe 40% at CHF100k+ income).
- They are also taxed through wealth tax (maybe 0.5% more).
- They reduce the value of your fund as the companies have less cash on their balance sheet. This means you get less tax-free capital gain returns.
- Finally, in some cases you may have un-refundable WHT so could lose 0%-30% more in worst cases.
For the reasons above, in Switzerland it is beneficial to invest in funds with lower dividends and more capital appreciation.
As REITs and Bonds are generally more highly (or completely) taxed as dividends you may want to reconsider allocations of those entirely.
Too many ETF funds
Diversification is great. It is the one ‘free lunch’ of investing whereby you can increase return/decrease risk without sacrificing the other.
However, to achieve ample diversification you don’t need to invest in 9 ETF funds.
This will make things significantly more confusing for you, your taxes, and any rebalancing of your portfolio. It will also likely lead to lower returns due to extra fee drag.
You have picked your 9 ETFs to get exposure to:
- 25% USA Mid-Large Cap
- 10% USA Small Cap
Unless you have picked your 25% / 10% weightings for a specific reason, why not just go for Vanguard’s VTI which captures the entire US market (small/mid/large)?
- 5% USA Tech Focus
Doubling down on tech is appealing looking at the past decade and the promise of tech going forwards. If that is your choice thats fine, just remember a lot of growth value is priced into these stocks already.
- 20% Europe Mid-Large Cap
- 5% Europe Small Cap
You have given Europe a weighting close to that of the USA when in practice its market cap is closer to 1/3. If you are choosing to overweight Europe as a long term strategy thats fine, if not I would lower it.
- 10% Pacific excl. Japan (mostly Australia & Hong Kong)
This is not really an Asia ETF, it is mostly Australia and Hong Kong. Again, putting 10% of your portfolio into these is overweighting them significantly compared to their market caps on a global stage.
- 5% EMs
5% in EMs is fine. No comments.
- 10% US Mid-Large Cap High Dividend Companies
See my points above about the Swiss costs of dividend stocks + you are overweighting these by investing in them twice.
- 5% Europe Socially Responsible
Personally, I think there are better ways to have a social impact than investing in equities a bank has deemed to be socially responsible. There is simply too big of a grey area/subjective view on what or what isn’t socially responsible. Sacrificing returns/less diversification/over allocation/higher fees makes most of these unappealing. Better just to invest normally and donate some returns. ¯\(ツ)/¯
Alternate ETF Diversification
Why not just pick the ETFs frequently advocated on here? Either VT for total world small/mid/large caps. Or VTI + VXUS if you have specific weightings of US and ex-US you want to stick to (VT will just take their market cap weightings over time).
If you wanted to over allocate to tech stocks or EMs after that then add some QQQ or EIMI into the mix, just make sure you have properly considered these allocations in advance and that they are long term allocations you intend to stick to.
To add to this, if you do decide on weightings then make sure you rebalance to them in the long run. This will allow you to “buy high and sell low” rather than allowing your QQQ to skyrocket to 30% of your portfolio with extreme returns before crashing back down for example.
Finally, right now your mix of ETFs misses out on several markets (e.g. Canada) and over/under weights most of the others.
Keeping portfolios simpler is preferable for many reasons as an investor. Complicating them leads to worse returns/risk in 90%+ of cases.
REITs / Other diversification
Right now you have diversification across equities but not across asset classes.
As retail investors unfortunately we don’t have access to the great asset class diversifiers which maintain equity level returns (venture capital, leveraged buyouts, absolute return, timber, etc.)
Probably the best we have access to are:
- US equities
- ex-US equities
- REITs
- Bonds
We have already discussed equities enough, really just decide whether you want to stick to market cap weightings of countries/sectors/market caps or whether you think that the market has priced them wrong and want to overweight tech for example.
On REITs, if we were in the US I would say absolutely add them to a portfolio. Because we are in Switzerland and the returns are very tax inefficient I have personally decided to skip on them. Perhaps I could be persuaded if I found a great fund (good returns, good tax efficiency, low/no dividends) but I haven’t seen one yet.
On Bonds, treasury bonds are a decent diversifier (other than as a hedge against interest rates) but have too low returns. I wouldn’t bother unless you are creating a bond-tent as you near retirement or a big purchase (i.e. a house you really want in the near term) and need lower volatility.
Corporate bonds are very correlated to stocks and have lower returns (incentive misalignment vs shareholder structure). Again, I would avoid them unless lower volatility in the near term is an absolute requirement for you.
Diversification with 5% positions
As a rule of thumb, any diversification of less than 5% is fairly pointless in terms of volatility reduction. So I guess 5% is on the edge of pointlessness :P.
Focusing on REITs as your diversifier, I would either up the % or remove it entirely. As a 5% position it will have negligible effects on your volatility. I’d suggest either 0% or 15%-20%.
Domestic equities (small/mid/large caps) are heavily correlated so pretty irrelevant % wise. Here you are just over/under allocating vs market cap.
Foreign equities are slightly less correlated so a good diversifier to add. Again, note the comments on over/under allocating vs global market caps.
This reply got rather long-winded but always fun to theory-craft portfolios! Happy to discuss any of the above in more detail