Investing for a 2 year period worth it?

Investing / Others
1

Hi all,

I’m a fairly new joiner to this Mustachian community and i have been reading a lot of material lately, but i haven’t come across anyone else with my situation. So I would need some help to figure out what’s the best alternative for me in my situation.

I’m a late Mustaschian bloomer that’s in my early 30s and i want to place my saved money(10K Swiss franc) somewhere where they can passively grow for 2 years. I also have the opportunity to put away around 4.5-5K Swiss franc per month to this same location.
I have read alot about people that places there money in the US stock market, but i don’t want to enter the complex bureaucracy of the American tax system, so i want to place my money on the Swiss market or somewhere where i am taxable in Switzerland.

The thing is that i most likely will leave Switzerland in 2 years and i want to take my money with me when i leave.
So my questions is, is it even worth it to invest the money for such short period of time? Or would you just stash them in a normal account?
If yes, where could i put my money and see them increase? Any good ETF based in Switzerland? or anything else?

I really appreciate all the help i can get. Cheers.

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My recommendation is to de-couple your investment with your home address. Owning a global index fund (US or EU based) in a globally recognized broker is not dependent to your address in any country. (Unless you are moving to a country where holding foreign assets might get you in trouble - maybe Iran?). When you move you may leave your account in your broker or transfer your assets to another broker if you want.

The duration of your investment should be dependent on your cash needs. If you are going to buy a house or an asset in 2 years and need the money back, then probably investing in stocks would be risky. I would then park the cash in a saving account which will not get you much return. You may experiment with some corporate or emerging market bonds, but at this rate and duration I do not think it’s worth it.

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You don’t. That’s largely unfounded.

If you‘re holding US stocks or investment funds (as a non-US person), they will be taxed in the country that you are tax resident in.

To document that you are, in fact, non-US, and thus benefit from lower U.S. withholding tax, you might want to file form W8-BEN with your broker every couple of years - which is a simple, straightforward one-pager stating your personal details and country of tax residency. This is routinely done by European investors and European brokers.

Second, for U.S. stocks/ETF you might want to file form DA-1 with your Swiss tax authority to reclaim/deduct U.S. the remainder withholding tax - but again, that’s a straightforward form - and it doesn’t have anything to do with the U.S. and their tax system.

The latter applies to U.S. securities, not, for instance Irish ETFs that invest in the U.S. market.

It doesn‘t matter and wouldn’t change a thing. Your personal taxation depends (with only few exceptions) on your country of (tax) residency, not which „market“ the stocks are from.

If you want/need to take in cash (or on your bank account) the full amount that you‘ve saved, or if you have a fixed savings goal, don’t invest in the stock market. It’s far too risky to lose a considerable part, especially within a timeframe of only 2 years.

Irish funds are usually regarded as more tax efficient for investments in U.S. or World indices and are in no way more complicated than Swiss funds (but rather simpler to handle).

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I think the only scenario earning money with bonds is the interest rates going even lower. With rising interest rates and long bond durations, you can loose a LOT of money.
I am no bond expert but for me there’s too many negative scenarios related to bonds.

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Fair. I meant holding 2-3 year $ bonds until maturity, this way you do not care about fluctuations in between. Of course it is risky, you bet on the solvency of argentine, turkey, brazil etc. definitely not well diversified, but there is no return without any risk. This is the only fixed income play I see with some returns.

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how do you handle the currency risk?

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$ denominated bonds. $ to CHF I do not handle, in this specific case the funds will not be used in Switzerland. so no need to think in CHF.

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Thank you so much for your reply and your honest feedback. In my ideal scenario i would want to save the money for a 15-20 year period. But my future in Switzerland is uncertain and i might have to move back to my EU country in 2 years.

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Thanks for your feedback.
What do you mean when you say “De-couple” my investment from my home address? How do i achieve this? Becaue i assume you mean i by doing this, could invest for 2 years in Switzerland, move back to Sweden while my assets remain in the global broker., and then keep investing from Sweden for another 8 years?

In this same scenario. Let’s say that i save money for 2 years in Switzerland and 8 years in Sweden and then i suddenly die. Does this mean then my children could get chased by the US tax authorities for various reasons? since i own US based funds?

Sweden is also the most heavily taxed country in the world, so i would also have to research Swedish tax treaties with the US. So i’m not overtaxed when i own US based funds.

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Thanks for clarifying further. Let’s say you open a Degiro account now, from Switzerland and collect Ireland base ETFs. When you move to Sweden, you keep your assets and account in Degiro, and continue to invest the same ETF from Sweden. Instead of sending monthly CHF you will send SEK, but you will continue to hold the same Ireland based ETFs. Degiro operates in all EU countries, I am sure most of the online brokers and even lower cost US option IBKR operates in more than 200 countries.

Holding Irish ETFs is already a decent low cost EU way of investing for most investors. If you are unsure of country X vs US tax treaty, this is already more than enough for most. And if you die your assets go to your legal heirs. For Swiss residents US funds offer some tax advantage, but if you do not want the hassle (which is not that difficult), you may keep EU based funds.

In any case moving from one country to another does not change your rights of owning any stock or ETF. it’s yours no matter where you live.

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Great information, thanks.
So if i open a Degiro(or IB) account and transfer money there. It does not matter which country i’m a resident in? The money will just be on this “international account”.? Unaffectedm, even if i move to Sweden or not.

I “hear what you say” about the US based funds not being complicated, but considering my options i’m more interested in the Irish ETF alternative. I’m thinking of investing maybe 30% of what i initially planned to invest.
Do you know any really good Irish ETFs?

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Note that if/when you move out of Switzerland you’ll want to redo all your investment anyway (to avoid capital gain tax in the new tax residence country).

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yes, as long as you are living where degiro or IB operates changing address is not an issue. you will have to declare your new residency, that’s it. If you move to a country that is not within your broker coverage, you may transfer the assets directly to new broker.

On Ireland based Etfs I would recommend VUSA for US market or VWRL for total world index funds . depending on your preference. Both offers wide level diversification on global businesses and are cost effective.

Good luck!

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Thanks! Just one last question for the beginner over here :).
Even though VUSA is for the US market, it is still based in Ireland and therefore eligible for Irish tax and not US tax, correct?

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Yes, it’s an ireland based fund. I suggest you read: Tax optimisation for ETF investing it gives a good overview of fund domiciles and tax impact.

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The question is whether you need the money to spend (on further education, starting your own business, family, real estate).

If you don’t need it, as others have already said, you can just continue your investment after moving residence (though you might want to sell to save taxes on capital gains before moving).

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I’m trying to figure out how much of my total capital i want to save. I’m thinking that i want to secure my buffert account with at least 10K Swiss franc first. Which i almost already have. Then i want to save money to invest in a real estate in a few years. But other than that, the rest could go to investing in the ETFs. So all the money that goes to the ETFs will be money that i can put away for a 20 year period then.
What would be the ups and downs of selling before moving versus letting the money reside on the account untouched? in your personal opinion.

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This is not really a question of personal opinion, is it?
Investing and selling before moving gives you a chance to gain money but also a chance to lose money, depending on how the market moves. That’s always the issue with investing, however over a long period of time you can time the selling, which is not possible in your case as far as I understand?
It ultimately comes down to your own preferences and risk tolerance…

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I was speaking of selling listed securities and rebuying them again (or something similar), because capital gains are tax-free in Switzerland (for non-professional personal investors), unlike many other countries.

Example:

  • You buy securities at a cost of 10‘000 today in 2020.
  • You sell before leaving Switzerland in 2022 for 15‘000 (for a tax-free profit of 5‘000, due to capital gains being tax free in CH)
  • You buy again in 2022/23 for 15‘000 (though)
  • You sell in 2025 at 20’000 - your new country of residence taxes capital gains at an effective rate of 30% for a profit 3’500.

If you don’t sell before leaving Switzerland, the whole 10’000 of capital gains (for the 2020 to 2025 period) might be taxed by your new country of residency.

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Really, thank you so much.

Like i said before i’m new at this and all of this is for some reason, really hard for me to understand.
" * You buy securities at a cost of 10‘000 today in 2020.

  • You sell before leaving Switzerland in 2022 for 15‘000 (for a tax-free profit of 5‘000, due to capital gains being tax free in CH)"

Even if i buy Irish ETF funds that of course are domiciled in Ireland, will it be tax free in Switzerland? I guess since i’m a resident here and therefore taxed here, but want to double check.