Introduction + ETF strategy advice needed before putting big money in ETFs

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7

Yes, bought. Not a professional gallerist, more like a part time job.

8

Don’t you have a swiss 2nd pillar? It sounded like you’re employed in Switzerland.

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9

Yes, that’s the 70k (BVG), I forgot a “komma”, that’s why you misunderstood, sorry.

10

Yes.

Yes.

You should be highly confident that US will outperform the rest of the world going forward to have this allocation.

Understand that more holdings doesn’t mean a more diversified portfolio.

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11

I see. I was going to encourage you to produce more of art, but if you are selling what you had bought before, it may make sense to keep it as an asset until you don’t have an employment income anymore.

Depends on the type of art though, if it is something that is hyped now and may go out of fashion, I would rather try to dump it while it is hot.

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12

Hi goodhope and welcome!

tl;dr:

  1. getting started is good, it helps you get familiarized with the fluctuations of the stock market.

  2. make sure you are using the right vehicles for your investing objective (time horizon).

  3. a simple idiot-proof strategy as linked by @Dr.PI is good enough, potential optimizations can occur latter and shouldn’t lock you in overthinking and prevent you from getting started.

  4. staying the course is of paramount importance to success. Make sure you are psychologically and financially ready to handle the downturns that will inevitably happen.

Long version:

Your questions are legitimate. I would, however, also take the time to point out that questioning our investments is frequent and can prevent us from thoughtfully following our plan (it does that for me). What helps me is to thoroughly think them through before buying, writing down my rationale for doing it and getting back to why I did it in the first place when the questions arise. Chances are the reasons that made me buy it haven’t changed so I can brush my doubts aside and keep on going.

One of the most, and maybe the most, important factor of success when investing in stocks is our ability to stay the course, which means preemptively putting guardrails to keep our emotions in check and mitigating the risk of having to sell assets due to other factors (unexpected expense, lack of income, etc.). This is part of the questions you’ve asked yourself so your mind is in the right place.

I count 15 years for 100% stocks myself, others use a rule of thumb equating “long term” to roughly 10 years. To note that, for retirement concerns, assets keep being invested throughout retirement. A new retiree would still have an investing horizon of 15+ years for part of their assets.

If you will need the funds for a real estate purchase before then, there are 2 options:

  1. You are able and willing to postpone your real estate purchase if the markets are down when it would occur and you don’t have the own funds available for it. Or you are willing to reduce your expected budget to account for a potential (heavy) loss in stocks. In that case, if you are actually in peace with your stocks having potentially lost 50%+ of their value when you would want to use them to buy real estate, investing in stocks might be acceptable.

  2. You will need the assets at a given time and:
    .
    2a) can’t tolerate any kind of loss for it: don’t invest that money in stocks, period. Medium term notes may be appropriate, you can find some yielding 2%+ for a 5 years term or 2.5%+ for a 10 year term.
    .
    2b) can tolerate the potential for some amount of losses and value the potential upside of having your money invested more than the consequences of a potential loss. You may then choose to invest your cash in a mix of stocks and bonds with a more conservative allocation the closer you get to your horizon.
    .
    I’m using Lazy Portfolio to get a rough estimate of the historical length of periods with losses for the various mixes, in USD. Investing in CHF makes those numbers not representative but I use it to inform my own personal decision about what kind of risk I am willing to take chasing returns:
    Balanced Lazy Portfolios: All Country World

Note that:

  • the bond funds used are either USD denominated or hedged in USD and roughly intermediate term.

  • there have been bigger crashes and different market conditions before 1970, longer periods of losses may have occured before. See this chart for a visualization of the drawdowns that have occured to the S&P500 for example: https://www.visualcapitalist.com/sp-500-market-crashes/

  • CHF and USD don’t behave in the same fashion. Positive returns in USD may become negative returns when evaluated in CHF.

  • the benchmark should ideally not be “no loss” but what a risk-free vehicle (like medium term notes or government bonds) would offer over the same time period.

  • I would ideally try to match the duration of my bonds/bond funds with the term of my expected expense, that is, for bond funds, active management moving assets to a lower duration fund should occur as time passes.

  • the past is no guarantee of the future.

VIAC or Finpension is, in my opinion, a matter of personal choice. Pure financial parameters favour Finpension but other factors like the behavior of both companies may make one lean toward VIAC (or Frankly.). It does for me.

A VT-like allocation is a solid choice for your assets. Since 3a assets have tax advantages, you may however optimize your allocation further by putting the countries where you gain the most advantage in the 3a and keeping the others in your taxable brokerage account. It’s more hassle and absolutely not necessary but it is an available optimization that would be expected to increase your returns (saving on costs is one of the few ways to guarantee better returns): Splitting the world

Unless they are providing you with a service you value relative to their costs, I’m joining @nabalzbhf and @Dr.PI in that you can handle your investments yourself and save the costs for very marginal increased hassle.

If you have read US boards/sites/articles, that’s a mix that may have been recommended (global diversification (VT) with a home tilt (VOO) and expected better returns with small cap value (AVUV)). Having several funds can give the impression of having more diversification but it is actually the assets they are holding that make their diversification. VT holds 9553 different stocks of companies located in more than 41 countries and is arguably close to the maximal diversity you can achieve in the stock market.

You may want to add tilts to your portfolio but I would only do so if I knew exactly why I am doing it, what the results I expect are and what the risks I am facing to get them are (for example, small cap value have historically provided their outperformance in bursts separated by long periods of underperformance, someone who didn’t wait 10-20 years and gave up on the tilt before the next burst didn’t capture the overperformance and actually underperformed a broad index without tilt).

There are other reasons why one would want to hold more than one fund (diversification around fund domiciles for legal/fiscal reasons, diversification around fund issuers or others). There again, I would only do it if I knew why I was doing it. It shouldn’t prevent you from getting started in my opinion.

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14

Hi and thanks a lot for your simple answers, I will initiate the closure of the robos and the move to Finpension from BKB and Viac.

I have read the other thread and your comment, thanks for that. I don’t mind taking a higher risk for some % of my portfolio and also the extra work when having 2 or 3 ETFs. Is your answer (VT only) then still the same or does the 3ETFs I mentioned make sense in that case? Actually it can be any 1 or 2 others for me, VOO and AVUV are just the ones that sounded good for me, but I can replace them if it makes sense by any, also with a higher risk. I could also do 80% VT and then whatever makes sense.

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Yes, that’s the plan. I will still sell, but only passiv, meaning If I get a request and if the price is ok. I’m also still buying by the way, that’s why I can’t invest all my mentioned cash in ETF.
My plan once I retired is to still work as an advisor for 30 percent or so, otherwise I get bored. Also selling art and pay the rest with what I get from the 3 family house + dividends. My partner is 10 years younger and has not so much money, we want to quit our jobs at the same time, so I need to calculate that as well.

16

Hey, thanks a lot for that. I will reply later, first need to fully read and especially be sure to understand it as a newbie.

17

It looks like you don’t have an “active” investment plan with your tilts, so better not to do it. More ETFs doesn’t mean more diversification!

Specifically with your ETFs: I can understand why one might add AVUV if one is convinced in small cap value long term overperformance. But adding S&P 500 fund, which is already like 60% of VT, is doubling down on US large caps. First, they will be highly correlated. Second, many investors are complaining that US and US tech giants are having too much weight in market weighted indices, and you are increasing their weight even more.

Anyway, stocks investment seem to be a side gig for you. All in all, I think VT ony and a similar portfolio for 3a account are suitable for you.

18

Thanks again! Yes you are right, no active investment plan, only what I have in my mind and followed the last decades. The ETF thing is compared to my other “plan” a pretty new idea. Real estate was for me always the way to go. What I had in cash, I invested in buying art, but the artist died like 10 years ago and there is not so much to buy anymore.

Ok, I think I’m convinced :-).

Regarding the 3As, as mentioned, I will move Viac and the bank 3a and do the “VT” at Finpension.
The robo money goes to IB
The VOO’s I bought yesterday, I will switch to VT, I guess this is an easy task.
AVUV I will skip if it is not recommended for me and I’m not sure if I know what I’m doing in this regards.

That brings me to 125k VT + 4k/month. With 30k I will increase my rare earths portfolio. Any good ETF…advice for something where I can put the last 20k? I know it might sound stupid for some, but I would like to have something with chances for a better performance, accepting a higher risk. More a short/mid term thing.

19

Ok, understood, thank you. I’m usually not emotional and acting fast when things change. The stock topic I will skip, because I don’t know what I’m doing.

This means basically VT only, the 5 VOOs from yesterday I will switcht to VT and then Introduction + ETF strategy advice needed before putting big money in ETFs - #18 by goodhope

I can still adjust if I feel the need to do so and are more experience.

20

So you want more volatility with a hope to get higher returns?

Here is an except of ChatGPT answer to my question:

The factors you mentioned—size, value, momentum, etc.—are derived from the academic literature on asset pricing and have been shown to explain differences in stock returns over long periods. When we look at their impact on volatility for a given investment universe like the MSCI World, we can summarize as follows:
Size (Small minus Big or SMB): Historically, small-cap stocks (those with a smaller market capitalization) have exhibited higher volatility compared to large-cap stocks. Therefore, a portfolio tilted towards small-cap stocks may exhibit higher volatility relative to the market.
Value (High minus Low or HML): Value stocks (those that appear cheap relative to some fundamental measure like book value) can exhibit varying degrees of volatility. In some market cycles, they may be more volatile than growth stocks (those with high valuations relative to fundamentals), especially during economic downturns when the financial health of value firms is in question. However, over extended periods, the volatility difference between value and growth is not always as pronounced as the size factor.
Momentum (Winners minus Losers): Stocks that have recently outperformed (winners) or underperformed (losers) the market tend to continue doing so in the short term. Momentum portfolios, which go long on winners and short on losers, can be highly volatile. This is because momentum crashes can occur when market trends reverse suddenly.
Other Factors: There are several other factors that researchers have identified over the years, such as profitability, investment, and low volatility. The volatility implications of these factors can vary based on market conditions and the specific factor definition.
In general, for the same investment universe like the MSCI World, a momentum-based strategy might exhibit the highest volatility, especially if it includes a leverage or shorting component. However, it’s essential to note that volatility is only one dimension of risk, and investors should consider other risk measures and the potential for returns when evaluating any investment strategy. Furthermore, the relative volatility of these factors can vary over time and across different market conditions.

So, a Momentum tilt, i.e. MSCI world Momentum Index could be such riskier investment, a relatively gentle one, because you still invest in a globally diversified large and middle caps portfolio.

A more riskier investment with higher potential gains could be an IPO fund. Then leveraged ETFs, then Bitcoin, then other crypto :laughing:.

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Do you truly want to make single lump sum invest? Consider a DCA approach. Keep your 4k/mo recurring, add 2nd recurring with 2-4k bi-weekly or monthly for x-occurences until the cash is ‘invested’. Unless you believe stonks only go up, noone knows anyway :woman_shrugging: :chart_with_upwards_trend: This way you avoid potentially buying the top, and gives you more time to ‘ease’ into equities, while the idle cash sits at IB. Easy to set-and-forget and IB handles FX conversion CHFUSD as needed.

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22

I see another option if you need cash down the road. Instead of investing, you could make a voluntary contribution to your pension fund (provided you have a gap there). This will save you income tax, freeze your money for 3 years and can be withdrawn to purchase your future primary residency.

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23

Hi, I reached the maximum answer limit yesterday, sorry for the late reply.

Thanks, I will have a look at that, I actually stumbled a couple of times during my research over “Momentum” but didn’t know what it is. Sounds like something that would fit :-). Bitcoin I did years ago, still have some K, but nothing really I would do again, maybe too old now but you never know :-).

Now starting to move money from Liechtenstein to CH and then to IB :+1:
3A paperwork stuff I will postpone to next week, maybe the Viac loss will go to 0 until then :grinning: (currently minus 500). Robos also next week, they did perform pretty good so nothing to regret.

24

Hi, that’s a good point. I actually didn’t want to put it as a lump sum to IB, but for other reasons. I like your suggestion better. Monthly recurring + once a month or bi-weekly 5 to 10k.

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Hi, you mean the 2nd pillar, right? I heard about that, but never really looked at that. I thought 3A ist the best tax improvement. Currently I pay about 700/month in 2nd pillar. Also I thought, that I can only use 3A for real estate.
I shortly checked and know now that I’m wrong, thanks. Because I’m already 50, I could only request the full amount for another 6 weeks :-), but I don’t have the final redidence, yet. I did not find out so I have to dig deeper. The official website gives a 404 Error.
Also the tax advantages are not clear to me, I need to research as well. The question is, if this is a better advantage than putting it in VT, also I would need to consider the tax topic when I request the money.

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The withdrawable amount should still be sizeable, even after 50. It’s not that a trap door suddenly opens… :smiley:

Whatever you contribute to pillar 2 is fully deductible from your income. Some people have huge gaps and could be paying tens of thousand francs while saving 10-20% of it in taxes. So it is a matter of comparing a one-time benefit of 10-20% with long-term revenues on and short-term risk of VT ETF-Investment.

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Got it, so I have to weigh up and of course inform myself. I’m not married, so it is important for me, that my partner gets the money when I die. With 3A this is not a problem, but I’m like 95% sure, that I also have such a document from Axa for my 2nd pillar.

I see a risk, that I can’t use 2 + 3a for my plan. As long as I don’t live in the house, it is actually not allowed to use it when buying. On the other hand, I have used 3A already twice for the same thing and no one questioned it. But there is a risk that someone really looks into it when I request it again.

Difficult decision, 50k to 2nd pillar with the mentioned risk or to VT :thinking:
I somehow need to be able to see the diffences in numbers, so that I can make a decission. What would you do :-)?