Funds for retirement - target 2035

[FRD]

Hello all
Thanks in advance for your help on these many questions

I’m going to be 53 in July 2024.
I’m french, living in Switzerland for 4 years and expecting finishing my professionnel life here.

So I have of course a second pillar, and a third pillar with around 32’600 CHF in it.
This 3rd pillar is in UBS, with nearly 18’000 in an UBS fund UBS (CH) Vitainvest - World 100 Sustainable U and more than 14’000 in a saving account with 0.9% interest rate
I will move that to VIAC or Finpension probably very soon, especially because of the fees that are huge compared to those ones

I want to invest some regular amounts to save money for my retirement and I wonder if the “target date funds” that can be found for example here could be a good solution : The Best Target-Date Funds for 2024 | Morningstar

I would choose the 2035 target funds

Any opinion on these funds ?
The fact that most of them are mutual funds and not ETFs has any influence ?
Maybe is it more about the fact that they are actively managed

A lot of them look to be not accessible with IBKR ? Do you know why ?

And do you have some opinions about the morning star rating ? Is it a good reference ? something reliable ? I would probably pick one the gold medal ones

[Tony1337]

Target date funds are not available for us in europe.

You can‘t invest in US mutual funds, we can only invest in etfs.

Also US target date funds invest in USD bonds and USD hedged bonds, that‘s a big nono as a CHF investor.

There are some very new target date etfs, but also geared towards US investors having USD currency.

You would need to do your own glide path (meaning rebalancing every X period to your set path by buying/selling).
Also for sure account for your total portfolio here (pillar 2/3, the annuity that comes as AHV)

This will steer your self-managed portfolio part higher on the equity site as a consequence, as pillar2/ahv are basically like bonds.

I I were you I would do a simple 3 fund style portfolio:

• home bias etf: I like SLICHA here
• world etf: VT
• bond etf hedged to CHF: I like GLAC here

On the weights: something like 1/4 to 1/3 of SLICHA 3/4 to 2/3 VT on equity site.

For total weighting: you can orient yourself on how target date funds do their glidepaths, to get an idea: Understanding Target Date Fund Glidepath Ranges

I personally would never go below 50% equities and just end at 50/50 (for total portfolio)

At your current age I could see starting at 70/30 equities/bonds and end on 60/40. Or make it super easy and just keep it 60/40 static from the start til retirement. Could also work.

Then when you get the pillar 2 paid out, just incorporate in your portfolio fully and could keep it 50/50. Or if continous annuity, see it as a big bond.

Just to give you an idea here on what you should think about when setting it up yourself.

Side note: I would completely ignore the Morningstar rating. The only thing this tells you is, if the fund performed well in recent times compared to its peers in the category. Loosely defined and essentially menaingless.

[FRD]

Thank you for your answers, Tony.

I now understand why

Also US target date funds invest in USD bonds and USD hedged bonds, that‘s a big nono as a CHF investor.

Why is this a major disadvantage?

as pillar2/ahv are basically like bonds.

My third pillar will probably be invested in a 60/40 ratio with the move to VIAC, so over the next few months, the ratio will be more like 25/75. So I can concentrate on equities until this ratio reaches my target.

This three fund style portfolio looks more like 2. Why choose an home bias ETF ? Any advantage to this ?

[Tony1337]

@FRD

Why is this a major disadvantage?

Because this introduces huge currency risk to your portfolio. Currency exposure in fixed income/bonds is best exposed to your local currency, because that is the currency you consume in. Currency is also way more important for nominal value assets like bonds.

There are effects for stocks as well, but as stocks are hard assets producing cashflow that is somewhat tied to inflation, they are not as important to be in your local currency (but can still have some effects)

Just imagine the situation in which the CHF appreciates compared to the USD (which it historically also has done, but there may be more extreme period like the later half of last year for example).
You introduce lots of currency fluctuation when not having CHF bonds or bonds hedged to CHF.

@FRD

This three fund style portfolio looks more like 2. Why choose an home bias ETF ? Any advantage to this ?

There are quite a few reasons for a home bias.
Currency is also one of them, as well as a hedge to local inflation. There is quite a bit of research on a home bias being optimal for a retirement portfolio.
In Switzerland specifically there are also some small tax advantages for swiss funds/stocks: no withholding tax on dividends (you can fully claim it back, with no caveats) and also a small amount of the dividends is distributed as capital gains that are tax free.

A good video on home bias, that summarizes some of the research and arguments: https://youtu.be/jN8mIHve1Ds?si=YjBWYDs0EXSxuyBm

I‘m a huge proponent of some home bias nearing and during retirement.

[Dr.PI]

I have not seen any “easy” (passive, reasonably priced, well tradable) target date funds in CHF. If any exist, they are probably shitty expensive actively managed funds issued by Swiss banks for the benefit of these banks.

So most probably you have to do it yourself.

While you may want to calculate target values of different assets yourself, it can be implemented, for a fee, with a robo advisor. Finpension is probably the best option.

Finpension invest – a new robo-advisor for non-3a ETF investments

finpension will launch a robo-advisor solution for non-3a investments “soon”. According to what they told me via e-mail, they are currently waiting for a FINMA license to be granted. Should be interesting. Up to now, TrueWealth was the only solution that combined free and 3a assets, but underusing Swiss pension funds IMO.

Experience with RoboAdvisors: TrueWealth, Selma, Finpension, Avadis

Hi, I have a relative who is going to retire soon. They will take part of the 2nd pillar + 3rd pillar as capital. So far they have let UBS manage what they had and it is … as you could expect. They are not knowledgeable and don’t want to deal with investing themselves but would be ok to try something else than UBS. I saw a few old posts but was wondering if anyone had recent experience with TrueWealth and Selma ? Thank you

To do it completely by yourself, you can check fixed income options in CHF.

Short guide to CHF fixed income options

The benchmark for fixed income is going to be the risk free rate, aka SNB rates: Current interest rates and exchange rates ( currently ~1.5%). Anything higher than that will mean some risk is incurred (e.g. interest rate risk, the value of the holding will go down if interest rates go up and vice versa, or default risk esp. for corporate bonds). While risk free rate was negative, the clear winner were cash accounts at Swiss banks (since many of them did not apply negative interest rates), but s…

For individual one time lump sum investment a Swiss government bond with the maturity date close to your target date can be an option, although I think the yield is suboptimal (indeed). Mid term notes of Swiss banks with a maturity term of 10 years and, later, shorter ones, should be a good option with more work for you and more yield, from my point of view. Both should not or cannot be touched until the maturity.

Bond funds will take an intermediate position with respect to duration and liquidity. Bank accounts and money market funds are the shortest duration and most liquid fixed income instruments.