Hello Mustachians,
Long time reader, first time poster.
I wanted to clarify with you guys a couple of things regarding portfolio.
I have over 150k invested in ETFs on DeGiro and more precisely:
120k invested in iShares Core MSCI World UCITS ETF (IE00B4L5Y983 - IWDA on London Stock Exchange) - accumulating, TER 0.20%
30k invested in iShares EURO STX50 (IE0008471009 - EUEA on Amsterdam Stock Exchange) - distributing, TER 0.10%
Now the world etf is an accumulating ETF and the Euro50 is distributing and I have to say that I like the idea of distributing ETFs, getting that dividend makes me smile every time and seems that the money is real.
Therefore I’ve been looking to move that World ETF to something else that’s also World but distributing. HSBC seems to have exactly the same MSCI world index but at lower TER (0.15% vs 0.20%) and it’s distributing. - here the details
Looking at the return rates it seems that it’s a much better deal, the returns seem to be exactly as my iShares world etf but there’s the additional dividend. So it seems much better. With the distributing I’d be getting a bit over 2000 CHF in dividends.
Am I not understanding something here?
Any chance somebody could help me out here?
Does moving it make sense ?
Dividends are overrated and doubly so in Switzerland where you pay full income tax on them. Some of the best and finest companies don’t pay any dividends, but are instead “compounding machines” - they reinvest money at higher rates of returns into growing their own business, which is generally much more tax efficient for you the shareholder.
Distributing vs accumulating fund shouldn’t in principle much matter in Switzerland, you are supposed to get taxed on the dividend either way. More important is the index composition, domicile (US cheaper for tax reasons as you can easily get a credit for US withholding) and TER/tracking error. But then with accumulating funds there is a small timing advantage: if you buy after the fictional dividend date, you save yourself taxes for the whole year.
If you plan to reinvest in the same fund, it doesn’t seem optimally efficient. You’ll have to do the actual reinvestment yourself (usually), you’ll pay additional commission and fees on reinvested dividends. And on some funds the accumulating share seems to have marginally higher returns than the distributing.
It just seems - as you might very well know - a bit irrational to prefer the distributing shares in this case. Though obviously you can hardly argue with that warm fuzzy feeling…
quick question: as a Swiss investor when you invest in an ETF where the base currency is USD (e.g. S&P 500), why would you go for a CHF share class? You probably lose an average of 2-3% on hedging alone…
hedging is very expensive.
There are also some CHF share class for USD funds where there is no hedging. But there is no point since the currency risk is the same.
It is better to hold an ETF in the original currency.
From what I learnt on this forum thank you all, a Swiss investor should always privilege distributing ETFs instead of accumulating. Swiss taxes on the virtual dividend of the accumulating ETFs are dull. Hence, a clear vision of taxes is allowed when dividends are directly issued to the investor.
Since distributing ETFs will contribute to the total income with their dividends, why an ETF like SCHD should be avoided ? Because this is a high yield dividend (more consequential money in our hands) ?
Therefore, we should only focus on distributing dividends with lower dividends to lessen the impact on our global income ?
Is this what are you suggesting ?
Thank you oslasho for your swift reply.
Yet, many respectable members from this forum and other blogs hold that distributing is better than accumulating tax wise, as with US etfs, for instance, we can recover the WHT.
I do own SWDA (on Degiro) and SCHD with other distributing US ETFs (on IB).
I am wondering if I need to terminate SWDA (40k) and redistribute everything on my IB ETFs to optimize. I aim to cash part of these money out in 20-25 years.
Not really as with distributing funds you have to pay fees to buy new shares with dividend income and maybe currency conversion cost which you don’t have with accumulating ETFs. Also when owning an Irish ETF the withholding tax gets reduced from 30% to 15%.
Meaning the (mostly) lower TER of US ETFs has to cover the above costs. In the end US ETFs propably still win cost wise but it’s not like a terrible mistake to own Irish domiciled accumulating ETFs.
If an accumulating version of Vanguard’s VT was available, all those respectable forum members would flock to and praise it (not without at least some of them doing the math up to the last cent to confirm).
Trying to understand the tax implications of VWCE and VWRL. Performance wise they appear the same assuming dividend reinvestment, but looking at ICTax, does this mean VWRL had bigger dividends to be taxed as income (example with 100 shares)?
VWCE (IE00BK5BQT80): CHF 175
VWRL (IE00B3RBWM25): CHF 195
Just a small portfolio example, but does it mean the accumulating version is more beneficial from a tax perspective?
I don’t think 100 shares in VWRL and VWCE are equivalent. You should start with the equal amount in CHF and calculate how many units of each of the ETFs it corresponds to.
The total CHF value is quite close you can see above 9,931 vs 9,997.
Even when increasing VWCE to 101 shares to get almost the same CHF value as VWRL, the dividend income becomes only CHF 177 (vs 195 in VWRL):
So with basically the same total value, VWRL has higher dividends to be added to income tax? Am I understanding something incorrectly?
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