In search of valuable advice to put our money at work

My wife and I are looking to invest CHF 12 to 15k a year for the next 30 years (this sum will increase in the years to come) and are looking for some valuable advice. A friend told me about your forum. I’d like to thank you in advance for your feedbacks and apologise if I’m posting in the wrong section.

My wife and I, both aged 35, bought a flat at the beginning of the year. To do this, we withdrew our 2nd pillar savings and pledged our 3rd pillar A savings as collateral for indirect repayment. The amounts in our third pillars are tax-deductible to the maximum. These are insurance-based 3rd pillars with a large guaranteed portion in the event of death.

We are now considering investing the money we previously set aside for the equity of our flat. We’re real amateurs in this field. We’re looking for a simple solution that doesn’t require a great deal of knowledge or frequent action on our part, while keeping management costs to a minimum. A third pillar B has already been proposed to us by a broker, but this solution seems to involve a very large number of intermediaries and therefore high fixed costs.

I’m extremely curious to read your feedback and thank you in advance for your valuable advice :slight_smile:

If you are looking for taxable account and mainly thinking about Stocks/ Equity exposure, then my suggestion for simple start would be following. However, if you are looking for low risk assets like Bonds or something, then please ignore the following. You can always decide have a mix of Stock-ETFS and Bonds.

Following is driven with assumption that Invidual stock picking is not of interest for you. You can also do that but it is not recommended for new investors. Watch this video for some insights Hence all of the info below is about Index funds which is passive investing and targeted towards achieving market average returns.

  1. Decide which broker you like -: if you want Swiss broker for specific reason then you need to consider higher costs , stamp duties and custody fees . If you are okay with international brokers , I suggest Interactive brokers. Review of brokers

  2. Decide your regional allocation strategy. Typical suggestions are

  • One ETF strategy -: buy one World ETF. I think best place to start is one ETF strategy. You can learn more as you go along

  • Two ETF strategy -: buy one World ETF + one Swiss ETF to allow home bias. For example 90% World / 10% Swiss

  1. Decide which ETF domicile you want.
  • US domiciles are better from income tax perspective
  • IE (Ireland) domiciles are better from estate tax laws perspective. Nothing to worry about but just to be aware of
  1. Decide which type of ETF you want -: accumulating or distributing. Distributing would give frequent payout which you can use or reinvest. Accumulating will automatically reinvest.

To keep life simple , following are examples. If you mainly use Swiss CHF to invest, then maybe the ETFs with CHF denomination would be better for you when using Swiss brokers. For interactive brokers , forex is very cheap, so I wouldn’t worry.

Broker -: Interactive brokers
ETF -: VT or SPYI (for world ETF) , CHSPI (for Swiss ETF)
This would be the most income tax effiicent and cheapest option

Broker -: Swissquote
ETF -: VWRL or SSAC_CHF or FWRA (for world), CHSPI (for Swiss ETF)

There are also other brokers -: Degiro, Saxo, Neon, Cornertrader etc. There are many different combinations of things possible. The suggestions above are the ones I use myself. I am sure others can suggest more things. All the best. If you have more questions, please feel free to ask.

In the end, do not invest in anything you do not understand clearly. This is very important. Investment comes with its risks, they need to be understood. Diversification can help reduce risk but it would never eliminate it. If you are in mood of some geeky stuff, watch this Is investing risky?

P.S -:

  • SSAC and FWRA are accumulating . Rest are distributing.

  • VT is domiciled in US. SPYI, VWRL and SSAC are domiciled in Ireland. CHSPI is domiciled in Switzerland

  • To learn about what I mean by US Estate tax , please read the thread. Please read it completely as there is a lot of debate. Again, nothing to worry about but something to be aware of. Are US ETFs worth the (estate tax) troubles?

If you decide on Interactive brokers or Swissquote, I can share discount voucher. For other brokers most likely someone on forum can help. Just that you know when you use voucher , you will get discount but also the person sharing referral.

5 Likes

Before doing anything, you need to understand the risk/volatility you’re willing to take. Equity investing will feel very different from a savings accounts or even real estate.

Having your portfolio be down XX% isn’t uncommon, so only invest amounts that will you sleep well at night when that happens.

3 Likes

This is a valid advice, but I usually formulate it as:

Invest in a global stocks market portfolio (can be one fund) money that you won’t need next 20 years. Once invested, never touch it until your retirement.

The second thing is the difficult part :grinning:.

3 Likes

I mean you could also invest with a shorter timeframe, say anything 8+ years is fine for stocks imo. You could also save for a house this way for example. You just need to have a long and flexible timeline. If not other safer investments are needed.

It‘s perfectly fine to invest in stocks for other stuff than retirement, just that caveats apply.

1 Like

:clown_face:

You may want to look at your insurance-based pillar 3a first.

2 Likes

That’s perfectly the idea! We plan to keep 2/3 of our savings capacity “within reach” and to invest the remainder over a period of around thirty years. We are well aware that there will always be fluctuations in the short/medium term, but that we should be fine in the long term if we diversify our investments sufficiently.

Thank you all for you valuable advice!

Thank you so much for your detailed and very useful answer. I found the Ben Felix videos particularly interesting.

Based on your feedback, we would indeed be interested in investing in an accumulating EFT until we retire.

Spontaneously, I would tend to choose a Swiss broker. If we end up opting for Swissquote, I won’t hesitate to come back to you about the discount voucher.

Is a third pillar A insurance-based policy such a bad idea if you are planning to invest over 35-40 years in a solution that provides security and is tax-deductible? I should point out that we are both Swiss and have three children. The idea of benefiting from life insurance and being freed from paying premiums in the event of incapacity was important to us. This solution gives us security and the freedom to invest the rest of our money more freely.

All the best and you are welcome.
By the way, one more thing to be aware of

Purchasing stocks / ETFs via Swiss brokers also attract an additional duty called Stamp duty. This duty is not applicable to international brokers. This was well described in the link I shared but just wanted to be sure you captured that.

Applicable fees for Stamp duty for buy/sell transactions

Swiss brokers
Swiss securities -: 0.075%
International securities -: 0.15%
Applicable to stocks, bonds. ETFs etc
Exclude Funds

International brokers
No stamp duties

Yes.
Keep insurances and investments separate.

In the meantime, ask the person who sold it to you how much commission flows to them in the first year or two from the money you paid in (and which is being used to feed it; i.e. lost).

1 Like

In general, buying an insurance is not a bad thing. As the word suggests, it is a cost for an unplanned event. As far as I understood, the 3a insurance model works like follows. Every X CHF you add to the scheme, is distributed as following

  • A -: commission of the broker selling the insurance
  • B -: cost of insurance itself
  • Here you need to compare costs (A + B) vs. other options of insurances for similar coverage
  • In a way, (A+B) is not invested, it is cost of insuring yourself
  • After covering A + B , the remaining amount R (R = X - A - B) is invested in an investment scheme and it has its own TER and annual costs (if any).
  • Now you need to consider the quality of investment scheme vs other options

Based on anecdotal information, my understanding is following

  • A + B is very high compared to buying an insurance directly outside of 3a scheme
  • Expected investment returns of “R” over the period of insurance time is lower than typical 3a investment plans offered by Finpension, VIAC, Frankly etc. This is mainly due to available choice of funds. But again, my information is anecdotal, so you should check which scheme your money is actually invested in.
  • Thus it might be a better solution to buy an insurance separately and invest in 3a investment product which is not linked to insurance. This gives you clear information on costs of each product and also flexibility.
  • Another topic to be aware is possibility of staggered withdrawal of 3a capital to reduce lump sum taxes. With 3a investment options, you can open 5 (or more) different accounts and withdraw over a 5 year period around retirement. I do not know if this is possible in 3a insurance scheme or not.

As long as you understand all of the points above with Pros and Cons, you would be fine.

P.S -: My comments are not based on my personal experience because I do not have a 3a insurance.

It is a bad subobtimal idea if

  • you pay much, possibly hundreds or thousands more in fees, kickbacks and costs and/or
  • have a worse investment performance on your invested funds (high opportunity costs)
    compared to keeping insurance and investments separately

…as was said by others already.

  • In your personal and financial situation, you very likely should or need to have additional insurance (on top of your occupational insurance, primarily 2nd pillar, that is - though we don’t know what it’s like)
  • I also have little doubt that you don’t know the true costs of your pillar 3a product (I‘ve never met anyone that did when or prior to signing that contract)
  • What we do know: that these pillar 3a products that combine life/disability insurance and investing very often entail very high costs. Which they not only fail to mention in their advertising/marketing - I think that these products more often than not are deliberately designed to obfuscate those costs.

I would not be surprised if you could save more on costs for the CHF 7056 you pay into pillar 3a each year, while still retaining sufficient insurance coverage - than we could help you save on the 12k to 15k - basically double the amount - you plan to invest independently each month. At least once you‘ve read @Abs_max first comment above, that is.

One of the forgotten points about the bad combo 3a+insurance is that if something happens, you get the insurance money only. If you have an insurance separated from the 3a, you get the insurance money AND the 3a stays intact. Maybe isn’t always like this?

1 Like

Turn 180 degrees and run Forrest run. Insurance 3A is terrible (in a nutshell: your investment will perform terribly vs the market, you’ll make shady salesmen rich, you overpay for things you already have). 3B is even worse, if they manage to catch you, because you can commit A LOT more money than a 3A.