Comparing VIAC and AXA fees

[jay]

@Wolverine

Another option, which VIAC allows but can also be set up with separate accounts at different providers, would be to keep that guaranteed part in a 3a bank account, without fees and potentially with some interests. So, all fees should really be counted against the performance of the invested part, and that’s what should be compared with the alternatives.

While this is good from the perspective of minimizing fees, it doesn’t allow you to easily maintain a fixed percentage of stocks based on your investment strategy as there obviously is no automatic rebalancing between the stock and cash accounts.

Very limited and manual rebalancing would be possible by (monthly or quarterly) adjusting new contributions. However, that would likely not be sufficient after a significant stock market correction or crash. If both accounts are at VIAC, you could change the strategy of the cash-only account to have cash and a bit of stocks to restore the overall investment strategy. However, this would still be a cumbersome manual action.

If you don’t have an investment strategy with a fixed percentage of stocks, it’s no concern. Otherwise, I wouldn’t recommend this approach.

@GalaxyTraveler

It would probably make sense to contribute towards the invested part in the first years and the guaranteed part at the end in order for the invested part to stay longer in the market, hence higher returns

If you don’t invest 100% in stock because of your current risk assessment/profile, you should contribute to both parts from the start (but see my comment above). However, for many people it makes sense to start with 100% stock in 3a and gradually lower the percentage as you get older. For that strategy your idea could make sense. It may not be optimal after a stock market correction towards the end of your contributions, though (at such a point you normally buy ‘cheap’ stock as part of rebalancing).

[GalaxyTraveler]

Hi @jay , are you speaking about the rebalancing of equities vs cash or the various equities between eachother (for example US, emerging markets, small cap, etc)? How would you rebalance with VIAC? Or are you suggesting avoiding the 3a pillar altogether and investing directly with IB?

I’m new to VIAC so I don’t know exactly how it works

[jay]

I’m speaking about rebalancing of equities vs. cash. If you have equities and cash in the same VIAC account (or multiple VIAC accounts all with the same strategy), VIAC will automatically rebalance your investments once a month (if necessary) according to your investment strategy. See How does the VIAC Autopilot work? – VIAC

This rebalancing can only work within each VIAC account. I.e. if you had separate VIAC accounts for cash and equities, there would never be transfers between these accounts and thus, the ratio between equities and cash will likely change over time.

I’m not suggesting to avoid 3a at all. I have VIAC accounts myself but I use the same strategy in each account (mix of stock, cash and other investments) such that the stock/cash ratio won’t diverge much from my plan. This results in slightly higher fees compared to the option described by @Wolverine, however, the difference is not that big and proper rebalancing is more important to me.

[GalaxyTraveler]

Thanks for the clarification @jay . So it might be less of a hassle to pay slightly higher fees to keep a balanced portfolio rather than going the strategy @Wolverine suggested.

Keeping the same 60% stocks strategy throughout all 5 VIAC accounts, the resulting fees would be around CHF 13’800 as shown in my first post while going the @Wolverine way (maxing out 100% stocks in 3/5 of the accounts and the rest 100% cash) would result in around CHF 11’500 in fees. I might consider paying an extra CHF 2’300 over 32 years if it simplifies the process considerably.

[Wolverine]

@GalaxyTraveler

So you’re saying that I can put the 40% cash or guaranteed part into one VIAC account which would be free of charge and only pay fees on the other 60% investment in another account (which would be put into Global 100 strategy)?

You can put any amount you want to keep safe on a bank 3a account at most any bank (it will be at the WIR Bank if you use VIAC for that, but you don’t have to). It will earn next to 0 interest but in most cases not carry any fee either. As @jay points out, choosing a conservative strategy on your accounts would probably be more interesting, I was simply noting that keeping cash on a bank account shouldn’t warrant any fee and those should be counted against the invested part in your comparisons.

@GalaxyTraveler

It would probably make sense to contribute towards the invested part in the first years and the guaranteed part at the end in order for the invested part to stay longer in the market, hence higher returns

True. That’s what most life strategy funds do: start heavily invested and progressively reduce exposure to equity risk as the date when the money will be used gets nearer. If you are young, won’t need the money in the short term (own home acquisition, self-employment or leaving the country for good) and can stomach the market volatility (your funds can loose 50% or more of their value for prolonged periods of time), using a “100%” stocks strategy right now makes a lot of sense.

Risk assessment is often described as balancing a mix of Need, Ability and Willingness to take risk.

Need is the returns you need to achieve to reach your goal (i.e.: how much money will you need in retirement, taking into account how much of it can be reached simply through saving).

Ability is usually a mix of safety of employment, dependents, other resorts in case of hardship (family, friends, insurances,…). The further away from the time you’ll need the invested money, the greater your ability to take risks.

Willingness is your own taste for having money in the market. It may also account for your ability to stay the course in a market downturn.

Risk tolerance changes over time (getting older, making children, children moving away from home and being able to sustain themselves, deterioration of health, change in employment/salary and many other factors). You can change your investing strategy to match this over time too.

Basically what @jay wrote.

@GalaxyTraveler

So it might be less of a hassle to pay slightly higher fees to keep a balanced portfolio rather than going the strategy @Wolverine suggested.

This.

[GalaxyTraveler]

Thanks again for the help. Just wanted to give an update on my situation: I cancelled the contract with AXA and transferred over to Finpension (going 99% equity with my first account). Of the around CHF 10’000 paid in, I got 5’500 back.

Quite an expensive lesson but happy I finally got out of it.