You kind of mixing together two different things: asset classes and geographic exposure of your stocks investment.
and
are stocks + maybe some other asset classes in VIAC strategy. Here you indeed has some home bias because of the construction of VIAC strategy. You can adjust it, this is your decision.
and
are cash and cash like stuff. I was analysing quite a lot this question and always came to the same conclusion: if you are Swiss resident, cash should be in CHF only. So here you are doing everything right, I would say.
Now the question is the assets allocation. What is the proportion of value in âstocks" and âcashâ positions listed above? I guess after you take everything into account, there are too little stocks.
Ok. Maybe I didnât really get the concept of a home bias. So, the home bias is really about investing in stocks in your own country, not much about the swiss franc. But then I donât really understand the concept, as the big companies in SMI and so are mostly international companies, with business all over the world. A âbetterâ home bias would be a SMIM or SPI Mid, with companies actually making business in Switzerland, right?
About your question:
I use the predefined VIAC 100% Global strategy, that is 99% stocks, 39.2% swiss stocks.
So I guess my true home bias is only in the 3rd pillar from VIAC.
VT is 100% global stocks.
home country stocks usually have preferential tax treatment (itâs easier to recover the potential witholding tax). Others are way more qualified than I am on that topic but I donât think it holds too much for Switzerland: we have fairly good tax treaties with other countries and our own home witholding tax of 35% is fairly high (we eventually get that back with our tax return but since it is stuck in prepaid taxes until then, thereâs an opportunity cost to that).
investments in home country companies fuel the countryâs economy, which makes our global situation a tiny bit better, which may make local life a tiny, tiny bit better overall and somehow secure your employment a tiny, tiny bit more depending on its exposure to market and economical downturn risks.
Fixed income investments serve mainly 2 purposes that I know of:
providing a flow of reliable income. That income is less reliable if it is subject to forex wild fluctuations, hence it should be issued in the home currency or currency hedged (being denominated in the home currency isnât enough, if it is issued in a foreign currency, it is still subject to currency exchange rates risk).
providing more stability to the overall portfolio by mitigating the fluctuations created by more volatile assets. It is less stable if subject to forex wild fluctuations, hence I would currency hedge it too.
I would say so, yes, though many of these companies also do a fair share of business on the international scene.
Swiss stocks are generally very defensive and only worth investing during low growth/high inflation times like last year. A global portfolio (turquoise) , the S+P500 (orange) and the NASDAQ (yeallow) easily outperform the SMI long term.
The dollar as a reserve currency is slowly devaluing against the CHF but as the only global reserve currency will still be important for a very long time, so donât worry too much about this
Whatâs the timeframe of your first chart? I seem to recognize the 2020 dip as well as 2018, which would mean it doesnât include 2008 (nor the other bull and bear markets before that). Am I right?
Thanks. Thatâs still only one 20 years period, Iâd consider it more indicative of recent than long term behavior though, indeed, I wouldnât count on Swiss stocks for outperformance.
OK this charts starts before 1997 so we have included the .com crash, you can do this yourself with most time frames over 4-5 years and it will outperform. Switzerland is considered a defensive and slow growing stock market, maybe ok for retired people that need more stability in their net worth in but not recommendable if you just start out, have a long time horizon and can stomach some volatility IMO
Long message short: Be aware of your home bias, a world index offers far better returns than a CH only focus,
My concern was more whether someone would consider a US tilt due to recent outperformance. The past may reproduce itself in the future, or it may not. The current ~60% in major global indexes would seem plenty enough for me.
Regarding home bia, Iâd consider factors like taxes and investing costs (which are knowns) more than performance (future performance being unknown). Iâd also not consider it as a useful way of currency hedging:
Stocks are shares of real companies, their intrinsic value is not dependent on the currency they are traded in. Their profits depend on where they make their sales and pay their employees but individual investors canât hedge that, thatâs the job of the company itself (to adequately protect their revenues from currency fluctuations in regards to their expenses).
Investing in NASDAQ is survivorship bias aka Fear of Missing Out at its best. To date, the BET on NASDAQ has worked out on two ends - High Beta/Growth Shares were a good investments and the strange sector (Tech et all) you get when investing into NASDAQ.
IF you want to keep gambling, and speculating on specific sectors or High Beta Stocks - you can just as well invest into SPI Extra. Yes, you will get another sector (that has equally performed well)⊠but at least you donât jump on the bandwagon of what loads of dumb sheep currently do.
To make it even remotely comparable youâd have to find CHF-quoted accumulating funds of S&P500 / SMI / ACWI/VT/whatever.
Or otherwise compute absolute returns and then eliminate the effect of an ever-appreciating currency.
And when you do that youâll be back to square one: hold high-dividend payers in pillar 3a, hold high-growth investments in pillar 3b/after-tax investments.
Historically, I own the CS one but if I started fresh - I would now probably directly buy the Swisscanto one. Important to note however that the CS one has a tad better performanceâŠ
hedge against the neighbor who does it getting richer than you off his home-biased investments
high risk-adjusted returns especially in times when the rest of the world doesnât, mainly due to its index composition
I had made this point further up in Guidance needed to reach FI - #8 by preparations (please donât interrupt threads like this, itâs bloddy annoying) - a lot of the Swiss stock market consists of the compounding trinity Novartis/Roche/Nestle, and both pharma & food companies (and tobacco, but theyâre only domiciled in CH not listed here) will help you maximize portfolio growth rates over the long term.
Moving and finding a less successful neighbor might be more efficient than trying to hedge all the potential strategies they could have. You can be the most successful investor in the neighborhood if you choose carefully.
Edit: of course, but Iâm sure the above comment was made in jest, the best way to win portfolio size measuring contests is not to play.
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