If you’re the owner, aren’t you self employed? (and do not have to use the same provider as other employee).
(I actually don’t know)
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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.
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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.
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Shouldn’t that just be rebalancing your portfolio?
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My thinking is:
- if you don’t need the money, I wish to grow it as much as I can - so stocks
- outside Switzerland, I would have a more balance portfolio with bonds. As long as bonds are giving me zero here, then I prefer to hold cash
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 can edit previous post
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.
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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
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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.
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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.
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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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True!
Well, but this decision can have huge consequences for the ability to retire early.
- you keep it all in cash and watch it slowly lose value due to inflation
- you do invest in real estate but then are bounded to a location and still have to work a long time to pay off the mortgage
- you invest in the stock market, and it either grows 4x in the next 10 years and you can retire, or maybe it stagnates and goes nowhere and you end up regretting that you didn’t buy a flat
Well, find me a decent flat in Zurich for that money, that you will want to keep for decades. Or even for 1m, including 400k mortgage.
No, so we can add 100k on top.
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@Bojack. Money can be a source of issues between partners. I recall reading on the “Millionaire next door” that financial independence is correlated with the couple’s similar attitude to spending.
I would extend to investment up to a point.
What happens if she invests the whole amount and market stays down -20% for another 5+ years, this will strain the relationship.
I am educating my wife about investment, she is not much interested but partially receptive. What I do is to use a much lower risk profile for her investments and keep a larger part in cash.
Going back to your points:
- I see 600k into a property and 400k or more into mortgage as a very safe way. You don’t sell real estate very often and she may get rents. Therefore she may not even feel price fluctuation
- if she has little attitude towards risk, so be it.
- alternatively you can have her investing 100k into stocks, 500k as cash deposit and 500k as mortgage. Still low LTV and she can vibe the stock market at lower exposure level
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Is that hers or yours goal ? From previous posts of yours, I recall that RE was your goal. Her goal might be “only” a decent, comfy life.
As I said, perspective. I guess I would be happy with much less than you would be (I am actively looking into the tiny house possibility in Switzerland). I see 3.5 rooms/101 m2 from 1.2 MCHF just by typing into immoscout, and assuming you don’t have/want kids, that should be enough (+ a more thorough research might get better options).
Furthermore, as you keep separate finances, it would be fair you add in rent from your side, which allows for a bigger flat, since she increases her income (not sure if this is practically possible).
Also, having 600k as dry powder for an incredible RE opportunity which might come along the way is not too bad for a starting point. It sure gives you some flexibility which you would not have otherwise.
Finally, her money, her choice as long as you do not have combined finances. And you cannot impose life choices IMHO.
Side note : it is a deeply personal topic, I am just some dude on the internet. Not saying how you should do stuff, just looking into different perspectives. I have a similar issue, since my family in law is asking why we do not buy real estate (and parts of my family as well). I only get some weird looks when I explain opportunity costs, that their nominal gain on property price is mainly inflation, too much risk by putting everything in one object, that the rent to own ratio is out of control in CH etc.
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She would like to gradually reduce her workload. Maybe start with 80%, then reduce further. I mean, most people don’t get up all pumped up to go to work 
.
Neither do I, but yeah, if we move to her flat, I should be paying rent. Many people don’t do that, though. Because it’s somehow tactless to “make money” off of your close ones.
I ran the numbers and I guess she could even get a 600k loan with her current income.
I will have to re-check, but I find it that whenever you dig into these postings, then either the place looks bad, or the location is not too sexy. To me, buying real estate comes with the stress of getting yourself anchored to a location. Because if you decide to move, it will cost you a lot of effort and money to sell and buy a new place. And using it as rental property means you need to pay back the 2nd pillar etc.
I think, as long as she works, she will live in Zürich. So buying a flat here makes sense. But if she invested in the stock market, and saw some big gains, she could retire early and we could move to Ticino, or wherever, and we could afford a considerably higher standard of living at the same cost.
Actually, it appears that this is not the case, as long as you lived there first for long enough : Bundesgericht: Aus der PK finanzierte Wohnung kann vermietet werden | Handelszeitung
How much is long enough is another question, but I guess if you rent out and buy somewhere else, it should not be a problem (basically just transferring the wealth into a new property.
Looking at gross income you state above, she would still have a very comfortable for a single person. With the starting capital she has now, she could achieve the first goal right now.
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Regarding flats in Zürich, I had a look at homegate, sorted by newest offers.
Yeah… there isn’t much choice under 1 million…
Well, I think you should push her to educate herself about investment and provide corresponding materials. Argue that doing something without understanding is not good and if she has money, it is better to learn how to use it effectively. Or if she doesn’t trust your knowledge, convince her to talk with an asset manager, Vermögenszentrum looks reasonably priced.
For now I would also suggest her to fill the 2nd pillar as much as possible. She gets tax deductions, it is growing slowly but doesn’t decrease, and in 3 years you can use this money to buy a property if you find one.
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You can also try to convince her that she can have an immediate income from dividends that is automatically adjusts to inflation and market conditions while doing nothing and selling none of the assets. Taxwise not very effective, we know, but with 600k invested in for example
Would provide around 1.5k per month before taxes.
I am distrustful of such advisors. I think they could potentially give worse advice than me, but they would be regarded with higher respect than me.
I don’t think going for high dividends achieves anything than an illusion of making money.
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You sort of answered the question. 6% of 10-year periods have been negative for US stock market returns. There is no sure way to know whether the following 10 years will become part of the 94% positive or 6% negative. Given the current situation, I’d say anything less than 10 years is pretty risky, but for an 8-year term I personally would still consider investing some of my assets (20% or 30%) in stocks. But I’m an eternal optimist.