Investing a larger sum at 20 years old (still in school so I can't invest for at least 5 years)

I do realize that I can access it before the age of 65, that’s why I wrote “can’t easily access it” :wink:

However, the biggest benefit of the Säule 3a is the tax savings. My total income this year will not be more than 25k (my contract ends this june and I will go to school for a few years). So wouldn’t it be smarter to use a simple ETF like VT or VWRL, given that I don’t really have a big income to deduct my taxes from?

You’re right that it will probably work out just fine doing it the way you described in your second point. For me it’s more a question of which is the better investment long-term given that the tax deductions aren’t really big for me.

Can you elaborate on the pillar 3b option or send me a link? To be honest, I didn’t really understand what I mean, but I don’t want to make it too complicated anyway.

Another twist - to avoid dividends and taxes on them - instead of Vanguard ETFs, just park your cash with BRK.B. :smiley:

Just a different name for any „free“ savings/investment you do, i.e. unregulated in withdrawal conditions - like your IBKR account or the standard savings account at the local cantonal bank. :wink:

Just to add (meant to to earlier but forgot):

IBKRs inactivity minimum for clients under 25 years of age, such as the thread starter, is only 3 USD/month. That would calculate to only a 0.18% per year in fees - as opposed to 10 USD and 0.6% for older clients.

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That’s actually a really great point in favor of IB! Thank you for that :smile:

If I go with Degiro, I will have access to VWRL, which is IE domiciled.

But going with IB means that I could use VT or VTI+VXUS and benefit from the optimised taxes thanks to them being US domiciled fonds. Relevant thread

Did I get that right, or have I missed something?

By the way, what’s the full name of IBKR? I suppose it’s InteractiveBrokers, but what’s the KR behind it?

Interactive Brokers :smiley:

Yup, to sum up: IB with VT is perfect default choice for a Swiss resident, especially if you’re under 25 and/or you’re capable of getting fast to 100k. For random folks, who don’t obsess about FIRE and/or can’t save much, Swiss and European brokers like CT, SQ or Degiro are probably good enough.

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Also since the 3$ inactivity fee is just enough for one currency conversion (2$) and one or two transactions of VT or something (@<0.5$ each) so you should probably rarely need to pay more than the 3$ per month.

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I’m afraid I dont understand. What is the correlation between the inactivity fee and the currency conversion / transactions ?

All the transactions you perform on the platform are counted towards the “inactivity fee”.
(E.g. for me - inactivity fee is 10$; I exchange chf-usd and buy 3 funds = cca 3$ altogether; I only pay the remaining 7$ extra for the inactivity fee)

But if I understood correctly you would do a lump sum and then wouldn’t pay in for months/years; so it doesn’t matter that much to you.

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The inactivity part XD.

This is a completely flawed argument. The tax savings of not having to pay tax on dividends is what is significant in the long run.

Even if you had 0 income tax rate today (i.e. no tax saving by paying into the 3A), the 3A will come out ahead in the long run. You’re throwing away tax-advantaged space that you can never access again by not paying into the 3A now.

You’re limited to about 7k per year that you have taxable income, which reduces the amount you can use. That 7k can turn into 380k minus 3A withdrawal tax in a 3A with average historical returns versus only 290k if you have to pay tax on dividends (and that’s not even taking into account the tax deduction initially).

If you want to throw away about 60k then go ahead, but don’t say you weren’t warned.

You have no reason for having to access this money before 65. If you need it in the short-term: it shouldn’t be in stocks. If you need it long-term, you can just use your income (and keep the tax-advantaged money in a tax advantaged space).

I’d argue against this. I did a sample calculation where the outcome was that the tax advantage you mention is “only 0.2%”. Sure it’s just one case and YMMV, it depends on concrete numbers so maybe my calculation is too simplistic…

But let’s assume 0.2% tax advantage is realistic, that must be compared with 3a investment cost, which is easily 0.3% more expensive than outside 3a (viac vs IB is probably 0.4% more expensive).

So I think it’s really relative… imv the big advantage of 3a is the initial income tax saving (and the saving effect it has on people)

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That’s conjecture.

3a places substantial restrictions on investment universe (the sum of all investment opportunities) and portfolio allocation by law. And there are additional opportunity costs compared to other investment opportunities by a de facto restriction of available brokers and funds.

  • So you want to invest all of of your 3a money in a (USD-denominated) broadly diversified Global/World fund? Well… you can’t!
  • Is it free of administration costs and/or custodial and safekeeping fees? Certainly not. Is it less expensive than other brokers? Most probably not.
  • What if VIAC closed shop tomorrow. Next year? In five years? What alternatives are there, for people who want a broadly diversified equity (ETF) investment? And how much do they cost?
  • You’re almost inevitably going to be overexposed to Swiss investments and the Swiss Franc. What if the Swiss economy goes down the drain or crashes? For whatever reason. A local black swan event, maybe: Say…Zurich receives 8m flash floods by a dam breaking at Sihlsee? Or higher, due to mudslide, glacial retreat in the alps? Basel gets all but destroyed by a catastrophic earthquake in the Rhine plain. A nuclear plant blows up? How long will it take you to get your funds out? Out of 3a only a few days, if I you can trade somewhere, and the databases have been backed up somewhere. With 3a? Weeks, months, if not longer. But will they or emergency legislation even let you?

…any your calculation there assumed similar (pre-tax) returns for both 3a and outside investments. Which is unlikely, often even unattainable due to restrictions imposed by law and products.

They keyword here is: “with average historical returns”.
I ask: average returns for what?

Certainly not MSCI World or similar, as with 3a you wouldn’t even allowed to allocate all of your funds to that.

right, however that would only lower the 3a tax advantage - so if you so want take those 0.2% as a “maximum advantage”

I believe buying a house or an apartment is a very valid reason to access funds when younger than 65.
As might be taking up self-employment - especially when having a good business idea.

Strawman argument: 3A shouldn’t be your sole investment, it’s just a component. You can build a diversified global portfolio even with your 3A entirely invested in Swiss stocks, even easier if your 3A is part-Swiss.

The cat is out of the bag. Now that VIAC have shown what’s possible, competition is only likely to increase.

What if the nuclear station next to Valley Forge PA explodes? What if the US introduce laws confiscating the property of all non-US citizens? What if IB go rogue? What if New York (stock exchanges) get destroyed by nuclear attack?

Again straw-man argument since no one was arguing to have your entire portfolio consist of only the 3A.

Even then: Swiss returns over more than a century are strong, more so when taking into account currency efffects. That’s not guaranteed to continue, but institutuons and laws are necessarily a large influence on that and aren’t going to change anytime soon. You aren’t likely to shoot yourself in the foot with a Swiss bias (it’s a stupid idea diversification-wise, but not that terrible).

Me: “[Can’t] invest all of your 3a money in…
You: “3A shouldn’t be your sole investment [anyway]
Whose argument is the strawman’s argument here?

Notwithstanding that the question wasn’t really an argument in itself but a mere example for my argument: 3a will confine your investment opportunities, limit possible allocation and restrict your withdrawal options.

An argument that still stands.

Especially in light of you having claimed…

…3A would “come out ahead in the long run” (come out ahead against what, I ask?!), even going so far as to equate other (inferior) choices to “throwing away 60k”:

And this was the center of my argument: The comparison between 3a and non-3a (implicitly) assuming same average returns is unwarranted.

You’re not going to have the same average returns. Not even pre-tax, as you just can’t duplicate many asset allocations in 3a that you could otherwise pursue out of it.

I don’t think there will ever be a consensus that everyone will agree on, regarding what would constitute a best-diversified global equity portfolio (component). However, MSCI is certainly one of the most popular approaches or “approximations” to that. Which you will be able to dedicate only a minority of your 3a funds to. Countering that with you shouldn’t have all of your funds in 3a and a Swiss home bias would be good anyway sounds like… well, it was you who came up with the allegations of straw-man arguments.

I would agree with you on that, that a Swiss home bias seems quite sound and might turn out well. However, the assertion “laws aren’t going to change anytime soon” pales against a 45-year time horizon here. 45 years ago, the Soviet Union was still going strong (though not really economically). For Switzerland, all it might take is a more serious dispute with the European Union over corporate taxation or trade. Everyone is free to painting out possible scenarios for themselves.

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To the topic of 3a and dividends discussed here:
Just noticed that Viac, to my surprise, per 30.04.2019, reimbursed withholding taxes on most (maybe all) funds. Nice.

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