Investing for income

As a percentage it sounds like a good return, indeed.
But 6% of let’s say invested 100CHF/share is not the same as 6% of 50CHF, if the related stock loses value in the process.
Although some companies (some “aristocrats”) define their dividend as a dollar/CHF amount (and wish to keep increasing it to keep that status), not purely as %.
Nothing is guaranteed in any case, as @Wolverine’s post above depicts.

As an alternative idea for diversification - which of course requires a lot of due diligence and risk management - how about finding some opportunities for private lending / personal loans?

I think I found the critical flaw in your plan :slightly_smiling_face: My recommendation: Take 5-10 ideas that you like, and see with some historical samples how they worked out in practice. Once you understand the why and how of those, you should be set to define what you like and dislike about them. Once you have your preferences narrowed in, you can start looking in more concrete terms what you want to do.

I think historically, the index is basically at the top for 80-90% of the time. So I’m not sure how much your argument is worth. But I understand your feelings and am not investing too much at the moment either.

Nope, that doesn’t work that way. 1) you can get the withholding tax back. 2) I was talking about dividends counting as income whereas non-dividend gains are not taxed as income in Switzerland.

3…

I’ll take your 100 CHF and pay you 5 CHF dividend per year. And maybe, after 10 years, I’ll say ‘oops, nothing left.’ (Of course I’m exaggerating a bit, but that’s more or less it) That’s the proposition you ‘like’? Seriously, please look into how dividends influence stock prices a bit more.

See, you even agree yourself that this doesn’t make very much sense

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If history is anything to go by, then an ETF tracking a stock index or (better yet) a whole basket of stock indexes is really your best bet for an average annual return of 4-6%. You can check this using this historical return calculator based on Swiss stocks indexes:

Bonds would have been an option in the past, but today only junk bonds pay that kind of interest, and coupons are taxable to boot. With dividend stocks you have the risk of the stocks losing value, which would eat at your capital. P2P loans may be an option in the future, but so far there is too little historical data to create a clear picture of average returns.

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Didn’t we discuss this before (Crypto Cash & Carry Trade) and it boiled down that there are arbitrage opportunities that yield around 10%?

Sorry again for being sloppy :slight_smile: and thanks for aligning me, once again.

Of course you are exaggerating. In times where a dividend stock price is falling you just scoop up more like a good value investor (if the stock is still actually a value pick, that is. Insurances are a good candidate after global meltdowns), for the promise of eventually returning dividends.

What I’m not so comfy with is that everyone suggesting anyone else to buy SP500 ETF all-in, but you even said yourself that you’re not at ease with investing anymore. So what gives?

What do I do with a 6-figure amount that used to be my life savings for quite a while?

  • Putting it all into the SP500 feels like a Russian roulette

  • DCA-ing it into the SP500 feels like the same, but slower (I see this the most probably outcome)

  • Buying Swiss property - I’m already well invested here in capital investment objects, and I can’t buy where I’d like to live (nor do I want to live where I could afford :stuck_out_tongue: )

  • Buying bonds seems kinda useless for now

  • What else comes to mind?

Answer for yourself the following questions:

How much of this 6* figure sum do you actually need per year for your mother or other expenses? Is it 1 or 2 or 10 per cent?

  • Do you have some flexibility with how much money you can withdraw?
  • Is this just nice to have “additional” income, or is it the actual base of living expenses?

Historically, safe withdrawal rates of portfolios are around 2.5-5 per cent (inflation adjusted).

I would only worry about overvaluation if it is significantly more than this that you need to withdraw per year.

If it’s within that historical range, you don’t play Russian roulette. You are just going with an empirically well established method which outperfoms holding cash in two thirds of the time.

You might want to go for something more diversified like VT which covers more of the world or a Vanguard LifeStrategy which has a lower share of equity (20-80 % depending on your liking).

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Thanks for this mix!
Do you know a vehicle that lets me do this setup and just pay into it, other than TrueWealth for 0.5%?

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The safe withdrawal rate from a portfolio to survive retirement at age 65 is usually said to be ~4%. And to survive for perpetuity more like 3%. Buying shares with 6.9% yield would be too easy. A high yield like that in a low interest rate envrionment implies that investors expect the yield to decrease in the future

Did you already consider increasing the mortgage on the property to gernerate cash to invest? Of couse would only make sense if the property has a steady and high rental yield as % of property value

Well… I misrepresented the facts a bit to show some more empathy for your situation. The main reason for not investing is that I don’t have an income for like 8 months. But I’m also trending more and more towards a more active style of investing because I don’t like to own obviously bad companies in my index just because their share price is >0 CHF.

I think TeaCup really hit the money:

but I also would add that you show some strong FOMO for sitting on cash. May I recommend some reading? Have a look at this: The Safe Withdrawal Rate Series – A Guide for First-Time Readers – Early Retirement Now I think this is the most complete overview of the state of the art that exists.

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I don’t know what you guys are talking about exactly, but that allocation by TeaCup doesn’t really make sense to me.

The first 3 points are basically a mix of passive stocks and bonds, but build in an unnecessarily complicated way.

Why not just buy 60% of Vanguard UCITS Life Strategy 80?
Or 40% Vanguard All World and 20% extra Cash or Bonds?

I agree it seems a bit convoluted - but I give the benefit of the doubt :slight_smile: I myself would have also ended just using Vanguard LifeStrategy 60 or 80 for instance and be done with it.

It doesn’t matter if it overlaps as long as the fees are reasonably low.
At least it’s diversified across 3 different institutions.

I don’t think an ETF tracking the S&P500 would be the common recommandation among here. If anything, we’d tend to recommand upping your allocation in VWRL. Thinking about it, why have you overweighted the US in your allocation (and then, why VOO -S&P500- and not VTI -total market-)?

Not leaving the world of stocks, there’s the options of:

  • geographical over/underweighting. I’d count emerging markets here.
  • investing in small or mid cap, value or not, geographically selected or broad.
  • sector investing, including more defensive sectors which might suit what you’re searching for (consumer staples, utilities, healthcare,…)
  • factor investing

Then you have commodities, which includes precious metals, which could be selected separately or as part of a broad commodity fund.

RE mutual funds are another option.

My own plan includes an allocation varying depending on my age and net worth (very agressive at the start, more conservative as I grow older and my net worth grows), including:

  • Swiss stocks.
  • Foreign stocks.
  • Real estate (homeownership, rental, commercial, agricultural, physical and funds).
  • Bonds equivalent (2nd pillar, I don’t know yet if I could get myself to invest in negative yield bonds, I guess I’d use cash for it for the time being).
  • CHF
  • Precious metals (Gold - physical and ETFs -, physical silver).
  • Currently debating adding a selection of cryptos as a small percentage to it.

None of it, except, I guess, the 3a investments, would be S&P500 related.

I guess the conventional wisdom would still be to go for VT or VWRL and CHF, with some real estate thrown in at discretion. This is close to what VIAC does for its standard strategies.

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But you would just be rebalancing very similar things (mixed funds with high stock percentage), so I doubt you would get any advantage. It’s not the same as having ETFs for different regions or so.

There is also a Vanguard LifeStrategy 60… If you use that instead of the Avadis maybe it’s more obvious that it’s silly.

  • Vanguard All World (100)
  • Vanguard LifeStrategy 80
  • Vanguard LifeStrategy 60

You would be buying exactly the same stocks, but mixed with arbitrary ratios of bonds.

I guess that would give you 3 different risk levels that you could choose everytime you buy… But it kinda ruins the clarity of seeing what total ratio of stock to bonds you have.

I don’t believe in a global spread. The SP500 has a winner bias across the years. VWRL and VT just has several hundred of extra “bad companies” in there that didn’t make the cut.

Not convinced about Gold/Commodities either, debating about starting a small crypto ETF bit though.

My target investment pyramid has the following structure:

  • Real estate 30% (direct ownership of residential properties)
  • Equities 35% (spread across MSCI Quality, Fundsmith, SSON, ARKK, SPI and stock picks)
  • 30% bonds (mostly my 2nd pillar now)
  • 5% cash

Happy to get critique about it.

I am not in your shoes of course, but I think purely mathematically if you hold around 60% of your new money in stocks (your usual allocation or whatever) and 40% in “cash”, rebalance by regularly withdrawing necessary amount and reallocating (that also means selling stocks when they go up), that would produce income in the range you want. 6 figures is not 7 figures, so concerning the cash part, there are still saving accounts with positive return rate in CHF, there are Kassenobligationen that you can sign regularly in small amounts. They all are insured up to 100k CHF per bank.

I am not Warren Buffet, but I would bet 1 VT unit that this strategy will produce better results than an obscure combination of asset allocation funds, target date funds etc, which imply bonds with negative interest rates or/and in foreign currencies and a rather high management fee on the non-stock part.

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How? You are literally owning the exact same thing. Also any rebalancing effect can’t be significantly big.

To me it sounds like you are saying that this portfolio

  • 20% Stocks
  • 30% Bonds
  • 40% Stocks
  • 10 % Bonds

is better than

  • 60% Stocks
  • 40% Bonds

What am I missing? Explain…

Your focus used to be on income. Now there is a myriad of funds being discussed.

The discussion here has become quite technical. The question that I am asking myself is:

What does this mean exactly? :

Some questions that need to be answered are:

  • What does “mostly” mean?
  • Is it her only source of income for basic living expenses?
  • Or is it meant to be a top up for nice to have things, like travel or nice new furniture?
  • How long are the funds supposed to last? 10 years, 50 years, eternity?
  • Do you want to sell some shares every month yourself and transfer the money manually?
  • Or do you want to sell only when the market is “good” and you have some dividens lying around?
  • Or do you want an automated solution?

All of these factors determine the solution you are going to implement. Your fund selection criteria should come last IMHO.

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Great points.

Also may be worth to explore whether there is a simple “annuity” option in your mother’s country (like in the US/Canada).

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that means I need to “find” about 6% a year of the sum that I can transfer out of the portfolio. The rest can be in bitcoin for as much as I care :slight_smile:

no, thanks God, she’s receiving a fair 1st pillar payment. But this is making is much easier for her.

statistically speaking, about 10-15 years. but as she’s my mom, I’d rather not even think about this :grimacing:
I’ll turn it to a “children’s fund” afterwards for our kids.

Not really, but I can if I have to. I get your points before (not just yours). I can sell if needed.
Automated would be better, so it’s fire-and-forget

If you find a fund where you can open an account with that should work. IIRC Fundsmith offers automatic withdrawals somehow and I’m sure they’re not the only ones. Or you could look into scheduling transactions at different brokers

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