14 posts were split to a new topic: Mandatory Expenses once FIREd
For fun money I would do it opposite - 3x leveraged ETF or 3x inverse leveraged or something like that.
Easier done with CFDs on indices. Cost is only 1-2 points on major indices. With volatile markets like we have now, careful stoploss and take profit points and lots of self discipline one can grind profits day after day.
Just to go back to the topic.
Anyone has experience with some exotic product?
I’ve seen a lot of ads about products that guarantee that if it falls under 100% of the value, they will reimbourse you, otherwise the gains are all yours, until it gains more than 30%…
Sometehing like that. No idea how they are called, but I think they are mostly linked to 2-3 stocks.
2 posts were merged into an existing topic: Mandatory Expenses once FIREd
These are structured products. I am reluctant to talk about it because I know the industry and I consider this mainly gambling, but yes they are quite fashionable among swiss asset managers and private bankers in particular.
All structured products are usually a combination of a bond and an (exotic) option. The main issuers of such products in Switzerland are EFG Bank, Vontobel, Leonteq, Cornèr Bank, Raiffeisen, UBS and so on.
There are a hundreds of different kind of structured products, but the one you are describing here is a “Capital Protected Certificate with Participation”, of which you can find an example here.. This product started in 2017 expires in 2022 and works like this:
- There is an “initial fixing date” (Here 18.10.2017) at which you record the value of the S&P500. Here it was $2561.26, which is called the initial fixing level. The product contains as well a “strike level”, here set at 125% of the initial fixing level, so it is $3201.56
- At issue date (25.10.2017), you invest $1000 in the product.
- At maturity, (18.10.2022), the issuer will pay you differently based on the three below scenarios:
- if on 18.10.2022 the S&P is at or below the initial fixing level, then it pays you back the denomination ($1000)
- if on 18.10.2022, the S&P is above the initial fixing level but below the strike level, the issuer pays you back your investment plus the performance of the S&P
- if on 18.10.2022 the S&P is above the strike level, the issuer pays you only $1250.
As you can see it is just a bet that in 5 years the S&P will not appreciate more than 25%. And it is just that: a bet.
By an large the most popular category of structured products are called “barrier reverse convertible”, of which you can find an example here as well.
It works like this:
- The product has one or several underlyings, (here 3: Amazon, Netflix and Spotify), of which you record the price level at an initial fixing date (here it will be 17.12.2018). These levels are called initial fixings. There is as well a “barrier level”, here setup at 50% which means that during the lifetime of the product we will monitor if any of the underlyings falls below 50% of its initial fixing. Finally, there is a strike level, here setup at 100% of initial fixing.
- At issue date, you invest $1000 in the product
- During the whole lifetime of the product, you get an almost tax-free guaranteed coupon of 16% per year (of these 16%, around 3% is taxable and 13% tax-free)
- At maturity, you get paid back differently based on these scenarios:
- If at maturity no underlying has fell below the barrier level (50% of original price) during the whole lifetime of the product, then you get back your initial investment, so $1000
- if such a barrier event has occured, then
- if the worst performer end up above the stike level (i.e he went down to 50% and went at least above 100% of initial fixing), then you get back your $1000
- if the worst performer ends up below the strike (let’s say the worst performer is netflix, and ends up at 53% of its initial fixing), then you are not paid in cash, but in shares, for an amount of roughly $530. so your loss is 47% of your initial investment, but you did get some fat coupon.
It is hard enough to analyze one company to figure out what it is going to do, but three is almost impossible. Plus you usually do not have the choice of the companies baskets, so your fate is tied to the worst performer of the basket.
Furthermore, don’t dream: these companies usually structure these products so that the price is breakeven for them (i.e given a high volume, they will not lose nor gain money). On the other hand, they add their juicy commissions (around 2% of the subscription, up to 7% sometimes) so that the investment is not that interesting after fees…
The first one seems like a good-ish offer if you are unsure about the market. Their fees might be the problem.
Not really mustachian these products.
You have to understand the risk:
Your risk is the underlying asset (The price of the shares involved in the derivative product)
Your risk is also the insolvency of the institution responsible for the derivative product.
Recently doing some cleaning in my archives I found a fact-sheet for a reverse barrier from Lehman Brothers. The participants have lost their hardly earned money.
Thanks everybody for your time and feedback.
Tldr: A lot of the suggestions are products which attract gamblers and not investors. Nothing for me.
So the best thing I got out of it was the blog and book recommendation for Luis Pazos (a specialist in high dividend investing). There I found Ares Capital Corporation (ARCC) which is a Business Development Company and pay a dividend of 10%.
They pay 20% but their currency loses 40% a year or so. So no thanks.
I have read the book about REITs from Luis Pazos https://amzn.to/2SaJnBv
but I have figured out I will stay away from REITs.
I invested in 2016 in Bitcoin with part of my fun money and cashed out partially. So for me it went well. But I still keep some for the future.
The ETF is from Germany. Not the best option for a swiss guy. And the payout 3-4% is too small to consider it.
Thanks for the Links. I read both of them. I also read both books from Luis Pazos in the last week.
I found the idea of Business Development Companies very interesting. I like what they are doing and I may consider investing in one of them. https://ch.marketscreener.com/ARES-CAPITAL-CORPORATION-40449523/
10% Dividend is awesome and exactly what I was looking for. However, I still have to look more in detail in their numbers etc. before I invest.
“I know it is wrong and still want to do it”
Very good point! I have 90% of my portfolio in VT and VTI and this is for me peace of mind. But Index-Investing is in fact pretty boring. So I give myself a mental outlet where I can do with the rest of my money whatever I want. So it is all about psychology. I sleep good and also have the freedom to try something else besides index investing. If it doesnt work, then ok, I learnt something and I at least tried. When it skyrockets it is also good - I have some more “Fun money” and also put the rest of it into VT and VTI.
But in the end I want to keep 90% of my portfolio in VT and VTI.
“Get a better paying job”
I like my job and it is also paying very decent. But I like to have also side incomes to diversify and also again it is about psychology.
“Gamble at casino”
I never go into casinos and I dont bet with money.
4.3% is not worth it for me.
I have also read about that. I rarely trade and when always without leverage and in really small abouts. So no.
A friend of mine watched some youtube videos and also started with CFDs. He lost really fast a lot of money. So this is pure gambling and speculation. So no thanks.
Derivates and structured products. They are very complex and I dont understand them. So I stay away from them.
Thanks again for the feedback and the questions. It is always good to learn something more (also about yourself).
So I give myself a mental outlet where I can do with the rest of my money whatever I want. So it is all about psychology.
I still do not understand your point. Do you want to outperform the SPX by taking on more risk with fun money or what exactly is your goal?
You seem to not want to take more risk but instead invest in high dividend yield companies which in turn means a worse performance compared to VT.
A quick look at Vanguards website reveals a yearly 8.4% of VIG (High Dividend ETF) compared to 14.8% for VOO (S&P 500) … so you would be losing money every single year to a quite substantial degree. Why?
If on the other hand if you want to invest the “fun money” in more risky assets, it would make sense. Maybe you can outperform SPX for a year? Maybe two? Especially in times of high volatility it seems possible. But high dividend stocks won’t get you there.
On another note. Investment books are such a scam. There seems to be a book for every investment strategy. So one guy write a book to invest in gold, the next one in real estate, next one in shipping companies and then even more esoteric stuff like Bitcoin, Bitcoin Mining, Weed stocks etc. It seems like the only one making money with all these strategies is the author selling books.
These books are designed to scam retail investors.
Next thing on my bucket list is writing a book called “Buy low and sell high - how to make money in the stock market”
Edit: lol someone had the same idea and just self published it https://www.amazon.com/Buy-Low-Sell-High-comprehensive/dp/1535293551 (Do not buy!)
Yes, you should look more into details, because this look a lot like gambling to me. On yahoo finance I found the following details about the stock you just picked:
Market Cap: $6.497 billion
|Cash Flows from Business||-$2.048 billion||$707 million||$360 million||-$650 million|
|Dividend paid||$642 million||$477 million||$471 million||$449 million|
So, yes, you have a 10% dividend yield. On the other hand:
- the company has lost cash significantly in two of the last four years
- the company has paid a dividend bigger that the cash it earned in three out of 4 years.
In other terms, it’s auto-eating itself. I would not be surprised if not much remains in a few years. Plus, don’t ever expect the price to go up in a substantial way in the future… So you will get return on capital but not return of capital. Looks totally healthy to me (sarcasm).
If I understand correctly, @essential wants to find a company (or even better, an ETF) that:
- pays 10% dividends
- does not go down in value
The day you find such an ETF, please tell me. I’ll create a company that does nothing else than investing in this ETF and reinvest dividends in the ETF (the company is likely to be a holding for a nice tax treatment of dividends). That will be the easiest way to consistently beat the market (7% average over the last century) without doing much Plus, since the value of the ETF does not go sensibly down, it will be with much less volatility!
A quick look at said website reveals that these figures are annual returns since inception of the respective funds. Which in case of VOO (S&P 500) was in 2010, whereas for VIG (Dividend Appreciation) was 2006.
That’s comparing apples to oranges, and we don’t need to spell out more than (the year number) 2008 to see why: VOO hasn’t been through a major bear market (crash), while VIG has been. 5-year and 10-year returns on the other aren’t that much different.
I think it’s an interesting question to ask: What would the difference in returns be, if we had a bear market or crash, which will happen eventually?
The website answers that question actually. Last year VIG did better than VOO that is why the return is now more comparable. But if you look at the 5 year return it is still higher for VOO.
Also keep in mind that VIG is less diversified. So if anything happens to the top 10 companies in the index then it has a higher downturn risk.
I hold two companies which I believe fit in this description, although the current stock valuation is low and therefore dividend yield high which is a result of temporary events.
- British American Tobacco.
TUI is above 7% dividend, while BAT is now around 6.7% after recent price recovery.
I also know two non-dividend focused ETFs which could fit the criteria
- PAK (Global X MSCI Pakistan)
- NGE (Global X MSCI Nigeria)
The corresponding indices trade at a weighted P/E ratio of around ~6 which is very low, also historically, while dividend yield exceeds 6%. There’s not a lot of room for these countries to get much cheaper IMHO, although I’d wait for the dust to settle after the recent India-Pakistan dispute.
You can also look at Ford. The yield is currently 7%
There is EWA (MSCI Australia) with 5.53%
The catch is the 45% financials component and a huge housing bubble in Australia, thus a potential for a fat loss if it crashes.
there are some good ETFs with pay high dividend. I have also an “fun-money-” part in my portfolio and I have found that the “SDIV - Global X SuperDividend” ETF is the best for me. The Yield is above 8% at the moment, and the best part, the ETF pays monthly. So now I have a monthly Income through the ETF. I use it to cover my 10 USD brokerfee from IB, since my Portfolio isn’t big enough to get the fee cut out
Unfortunately the ETF has a TER of 0.58%, and as you know you need to pay taxes on the Dividends, but for me the monthly payout is it worth. (And we are talking about fun money after all)
If you want go a little bit higher, there is P2P-lending. Bondora and Mintos are the big 2, but there are many others. Mintos starts at 12% for “secured loans” and it goes above 15%+ for unsecured loans in Bondora. I’m Investing in Mintos for about 2 Years now and never had a bad experience. But you need to know the risks of P2P-lending.
And if you want having real fun, there are some spicy high yield leveraged ETNs from UBS ETRAC
I think the name of the MORL-ETN says it all: “Monthly Pay 2xLeveraged Mortgage REIT ETN” with his yield of 21% and monthly payment. There are a lot more in the UBS ETRAC-family with different underlyings, but you need to absolutely understand in what you are investing.
Its tempting and risky, but in the end of the day it depends on you where your fun money goes in.
At first I thought this is interesting but then, 8% minus 30% marginal tax is 5.6%/year. 5Y return of the SDIV is -25.8% or -5.16%/year. How is that working out for you? And that is in a period of a great bull market.
Hi, I have only been living in switzerland for a few years and I was on withholding tax so I am still not fully aware of the swiss tax system. Therefore, I was wondering why what essential wants to do doesn’t make sense from a tax perspective.