Hi there,
in a couple of months I am liquidating a big part of shares I own in a company for about 1M CHF. This is part of a previous agreement and something I cannot delay (meaning leaving the money invested in this company). What’s the best way to invest this money?
I was thinking about a simple ETF (I know and invest in ETF like VT) or something more complex like hiring an independent advisor that could help me build a more sophisticated strategy. Given where markets are what would you do?
On my needs: I am 35 and I don’t need the money immediately, I am planning to start a business at some point in the next 6 months and I already have cash reserves, so the objective would be to leave this milion invested at least for the next 5-8 years and grow it YoY.
87% of 5 year periods have been positive and 94% of 10 year periods have been positive for US stock market returns. I couldn’t find data for 8 year periods but it doesn’t look too bad.
Of course it will always depend on Tobias’s personal risk tolerance.
It depends on what you need the money for in 5-8 years
Investing 100% in VT already de-risks vs. your current holding of shares in a single company
Regards whether to take more chips off the table, if you have a specific and clearly defined need in 8 years then it might make sense
Otherwise the most common reason people have is “I might like to buy a house”. Keep in mind the most likely outcome of staying invested in equities is that you will be able to afford a more expensive house.
ps Don’t forget to count for any 2nd pillar assets that should continue to grow at low risk
Thanks Barto and everyone else for the constructive answers. 5-8 years is not a strong deadline for me but I am sure that in the next 10 years I might need that money to 1) buy a bigger house due to family etc 2) move somewhere else (what if we relocate to the US or some other part of the world?) or 3) I could start another business or invest in my own business if needed.
That’s why I would like something that allows me to wake up in 5-10 years and give me the ability to use that money for something else, while having gained a 20-30-40% of that amount in that period of time.
I’d probably do a balanced portfolio of stock / fixed income (or cash), potentially using a 2nd pillar as well (since you could cash it out to buy a house/going abroad/starting a company).
It’s a bit more tricky. First of all, you have to use the same provider for all employees. So it’s not only your own pension, but the pension of others as well.
2nd, P2 contracts are usually binding for 3 years. The only company which doesn’t have 3y year contracts (standard is 5y btw) I know is Vermögenszentrum. So even if he wanted to use valuepension, he might not be able to switch.
Yes, but the odds of the principal shrinking are there. When we say that investing in stocks comports risks, it means the risks are there and can manifest. It is very important to take a very cold look at our situation and expectations and accept that, in 8 years, we could be 50% down from now (let’s say we’ve gone through the current downturn, have had another big leg up and are right back in a 2008-like crash).
For a 6-8 years time horizon, with a worldly diversified portfolio of stocks and bonds, 40/60 is the highest I would go. Lazy portfolio provides rolling returns for common portfolios, though in USD. I’d deduct 2% for US inflation for a quick and dirty evaluation of “real” returns that could (there again, in a very dirty way) potentially translate to what a swiss investor could potentially target:
I’d keep in mind that the series are “biased” by the 2000-2009 period, so returns for 8-10 years are lower than shorter term returns, which I’d really just take to mean that the risk of short term returns being lower than they’ve been historically up to now is there and should be taken into account.
Adding gold, limiting the investments to the US (I don’t recommand it but don’t have an example of a portfolio with globally diversified funds on hand) and tilting toward small caps has historically allowed for shorter timespans and better minimal returns on those time periods. An exemple with the Golden Butterfly: http://www.lazyportfolioetf.com/allocation/golden-butterfly-rolling-returns/
I’d diversify through stocks, bonds, gold and cash-equivalents (“high” yield savings accounts, term deposits or Kassenobligationen). The exact mix would vary based on the personal situation.
I wouldn’t hire an advisor to make things more complicated than they need to be. Sophisticated doesn’t mean better, what it means is more opaque.
Disclaimer: I don’t have 1M to invest and wouldn’t know how it feels to have 1M in the markets when things go sour.
Usually when you get a windfall is generally recommended to sit 12 months on it before making any move. This is recommended to avoid rush into investment or spending.
Having said that, if you are financially literate and feel comfortable with the risks then you can go ahead in a shorter timeframe. But pls still write down exactly what you want to do if you are using a phasing approach (so no room for error)
Coming to your question:
I would put 600k around summer time or right after into VT
DCA 15-20K each month for the next 24 months into VT
for any major drop in the S&P500, I would doable the monthly contribution to take advantage of lower prices
A variant if you like is to have 80:20 and only invest 80% in stocks (and 20% cash) at the split / phasing above.
I don’t know. Not talking about insider trading or anything illegal, but… you may know something about that particular company and its business that puts you way ahead of most other market participants in their appreciation of the stock, which‘ll set you up for outsized gains on the stock (or also known as doin‘ a Bojack on this forum).
The overall market is very unlikely to double or triple in a short period of time. A single stock though? Quite possibly. Doesn’t seem a bad bet to me, if you’re willing to take that risk.
You will likely not have that insight for 10 or 20 stocks at once.
In the past I considered starting my own business and becoming an entrepreneur. I just feel that if you have a 1M pot then investing it and making it work for you is a no brainer in comparison
In 10 years 1M CHF will probably be 2M. In 20 years it will be 4M. Risk decreases over time too
If you have property and 2P you may have enough diversification across asset classes already
If you own an LLC, you still have to employ yourself (as a normal employee). You as the owner is a different entity than you as an employee. Afaik, the only option you have to differentiate between employees is to have different plans for management and normal employees. You still have to use the same P2 provider. Just writing about it I think that 1e plans might be possible with other companies - would need to check that though.
I am dealing with a similar dilemma as the OP. My girlfriend has saved up 200k and soon will receive a Vorerbe in the amount of 400k from her parents. This is not enough to buy a nice flat. She has also no financial understanding and I guess also no interest to learn. I did convince her to invest in pillar 3a, but now she’s checking it often and tells me “it’s now down 15%”, to which I’m just rolling my eyes.
I think it would be the best for her to open an account at IBKR and use 500k to buy VWRL, but I think she is too afraid to do that and would be too concerned about the price swings. At the same time she would totally consider buying real estate. I can imagine a few reasons for this:
you can’t check the price every day
price swings aren’t as dynamic, real estate price either keeps going up or down for years
you own something physical, which is also your shelter
that’s what many people are doing, so there is the comfort of conformity
That being said, I think it would be comparatively risky to put all that 600k in real estate and take 400k mortgage on top (I guess that’s the max she would get), just to be able to afford a nice 1m flat. I think the stock market has been beaten enough, so that in the next 10+ years it should beat the Swiss real estate market. But of course, in the short term of 1-2 years we can still see continued drops.
To sum up, I don’t know what to advise her. Should I push her to go into stocks? Or should I just mind my own business, after all we’re not married.
Well, most of my gains have evaporated at this point. If I only switched from VT to TSLA now, there wouldn’t be much difference, sadly. But that growth stocks would get hurt more in a recession is to be expected. I also expect a faster recovery from growth stocks. It surely is a more bumpy ride. I think, if you go for VT, you’re taking the averaged out mix of risk tolerance and investment horizon of all market participants. Clearly growth stocks come with a larger time frame and larger volatility, which ought to be compensated by the market with higher expected returns.
I still do believe that VT is a good choice for most people (I also still do hold a large position in VT), but I do think if you get REALLY deep into what a company is doing, you study their quarterly earnings, and read up on them on a daily basis, it is justified to put a large chunk of your wealth into that company. After all, most entrepreneurs have 100% of their wealth locked into their business. Talk about diversification.
That + you save on rent, which is tangible right away. I guess this instant gratification of not paying rent anymore makes the big difference. Quarterly dividends which stay in a brokerage accout somewhere (and might get reinvested automatically), you do not feel them as much.
On how to handle the situation on disagreement, I would just let it roll. I mean what can happen ? In the end you might not have the best return available per unit of work, but both of you won’t die poor neither, on the contrary.
With 600 k as initial capital, my opinion is you can go pretty far… but I guess that is a perspective problem. Is that including 2nd pillar ?
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