To me, broad, low fees ETF are the default, to invest in any other way, you need a specific reason and to be able to tell why.
I’m investing in individual swiss stocks because:
I trust my government to bail me out more than I trust a foreign one to bail out foreign investors and I am willing to take concentration risk in exchange for this perceived safety.
Swiss indexes are already highly concentrated. Replicating the SMI, for example, can easily be roughly done on a retail level. As an accumulator, I can “rebalance” with the input of new money, making paying additional fees an unnecessary part of my investing process. For investing in the swiss market, any TER is unnecessary fees in my view.
Individual stocks allow me to invest in the companies of which I understand the business model the best.
I can register my shares. Voting rights are an inherent part of shares and I can’t fathom myself considering I’m buying “part of a business” if all I’m buying are its assets and no decision power, no matter how small. I want to own businesses so individual stocks are, in my opinion and at my level of investable wealth, the only way to go.
I’ll diversify geographically following the same principles once my wealth reaches a certain level (500’000.-) and I feel no longer fine with the concentration risk I’m taking.
As you can see, not all of these reasons are financial and few of them are about increasing my returns. I’d invest part of my money in a very broad low fees ETF if I felt I knew better the risks I perceive with them (risk of seizure by foreign governements, risk of mismanagement by the fund managers leaving me with the total loss of my capital). I’m more about minimizing my losses than maximizing my gains so I’d not invest in a high fees product no matter how well the fund manager has done in the past.
What? Care to share any evidence for this? It’s a well established fact that investing globally according to market cap weights results in the most efficient stock portfolio.
Of course you could add bonds and other asset classes. But this is a FIRE forum. You need the highest possible stock allocation to reach your goals in a “short” time.
You raise an interesting point on asset allocation. But I must admit the complexity bamboozles me a little. VT is over 50% North America, for example, but most of those companies are international so have exposure to the world economy. FTSE 100 companies, if I recall correctly, get 70% of their revenues from outside the UK (but you have other diversification issues there, as the index is heavy on oil, financial and miners and low on tech). It’s a puzzle alright.
I think the important thing is to diversify, and I’d defend the people who do that by having VT as the only equity fund as I think it gives great diversification, simply. But being 100% equity can be a roller coaster ride, so is not for the faint-hearted, and the relative stability of some bonds can help ease us through troubled times. (When in doubt, I put on a Youtube video of Jack Bogle. He explains it all like a kindly uncle.) Buy the haystack, friends!
Interesting assets, TeaCup, thank you. Looks like you have a focus on yields, which is understandable. It seems to me that many people on here have more of a focus on growth (as many are relative youngsters and are quite early on in the accumulation phase of FIRE) which explains the emphasis on shares (and geared real estate, but to a lesser extent).
I must admit, everytime I look at things like high-yield bonds and senior loan ETFs, the yields never look exciting enough for the potential downside.
My position is that it’s all down to individual objectives. I know someone whose objective is capital preservation. Doesn’t care about income or growth, and just wants to sleep well at night knowing his stash is safe. So his choices will obviously be different from the young worker aiming to build wealth for early retirement.
Anyhow, looks like you’re as negative as most people here on this 130/30 thing (he says, dragging the conversation back to the subject). So there you have it, ItalianEngineer. Good luck all.
FAANG, is very scaring. We complain of having around 60% in the big three in the Swiss market, but the FAANG+Tesla represent somehow even more, taking into account the variability they could have
I’m personally not that conviced on the statement that for FIRE you need only growth. Very important parameter for me is the max annual drop as well the covariance matrix (for whom know what it is…many people I guess here anyway).
First, I love the FI but I’m tremendously scare of the RE (do you imagine staying all day long 24/24 7/7 365/365 at home with your wife in a year in which the S&P500 is losing 20%…people no!!!).
Second, I was never fun in my life of following the path indicated by all other people. Obviously it is the easiest way, yet it does not warranty you you want to arrive where you want. I like vey much to explore and critically analyze various options.
Btw, I finally decided to open an fund investment plan with CS for this 130/30 fund, with 125 CHF/month, I give 1-2 years and let’s see what happen. Overall, it is not that crazy amount over 2 years, so even if that goes extremely bad I should not die.
On the porfolio otpimization, I’m very much in line with @TeaCup, saying that a proper analysis has to be done and not blindly going to VT.
The concentration in the Swiss index is high, but I’m not sure if you are right about VT. My googling skills reveal the top ten holdings in VT are about 14% in total, which includes F,A,A, G & T but not N. (Full disclosure: I do not have any VT. I’m a VWRL + others sort of person.)
If you are concerned about diversification, do you realise that your 130/30 fund has the top three holdings making up 40% of assets (Nestlé, Roche, Novartis)? Might be cheaper to shadow-track it yourself.
Yes, the top 3 are still big portion. Sahdow-tracking it is something I do not want to do (on top of it, it is going to cost crazy with CS, since I want to keep part of the investments out of Degiro) and that anyway that can only be done when too late, or ain any case 1 month after is needed. The promise of the 130/30 is, in fact, that it is manage actively in order to long 130% the best positions and short 30% the worse performers, Timing here is key…and that’s why they get paid.
As I read also in other threads, I’m not the only one concerned by overwarming of the stockprices and FAANG+T are the ones pulling the markets up like crazy.
Not considering my 2P and 3P, I have around 20% of my actual portfolio invested in CH (around 18% in stock, out of which around 5% in the 130/30, planning to up to 10-12% in 2021 and 2% in public+corporate bonds), so that’s not extremely crazy for the moment. In any case, I do not want to overpass the 25% in the CH market.
Regarding the Swiss market, I really like the concept of the SLI, with the capping at 9% or 4.5%, when looking at higher diversification. 30 companies instead of the 20 of the SMI it is also a point in these regards.
It is going a bit against the 130/30 index
I was telling above, but this is kind of personal fact: I’m black or white man. If I go fully passive and fully diversified I want to be going truly in these direction. If I go active (paying an additional fee for the management), I just want the highest return and do not care much of what they do.
Perhaps a more grey approach would be good…but that’s not me sorry
Finance is very much influenced by psicology (Shiller dixit) and we need to sleep in peace
I think it’s the other way around…if you go active you’d better have a very good understanding of what they do and have solid arguments for why it’s going to deliver, other than “they did well in the past”…
“not caring much of what they do” is the whole reason for the existence of passive funds …
Yes and not. Meaning that, as discussed above, the fee is partial fixed and partially dependant upon the spread between the return of the 130/30 fund and the SPI. In theory that’s kind of incetive for the fund manager to properly perform.
On the other hand, you are right: you better get informed and study before just delivering your money.
P.S. As also discussed above, I’m with you about active funds from big swiss bancks (UBS, CS, …) behaving very bad and never in their life even try to copy the performance of the benchmark. That’s kind of legalized scam, in my humble opinion
It’s an incentive for the fund manager to take more risks. In the best case, both the bank and the customer win. If it goes wrong, the bank still wins (helloooo fixed fee) and the customer takes the loss.
Fully agree… CS is not yet making volunteering
Let’s hope the fund manager is paied by CS only with the variable part, so that himself is forced to try to overperform.
An CS…in Italian we say the following: the dealer never loses (il banco non perde mai). I think it applies very much
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