I’m brand new here (1st post). If my post is in the wrong section, I apologize.
Works in Switzerland (will be here for at least 5 years)
I have money I want to invest (~5k and then maybe 1k/month from my paycheck)
Here is what I would like to do:
Achieve the highest annual return from the extra CHF I have in my pocket after monthly expenses
Minimize Swiss taxes
Minimize US taxes
I’ve read through a lot of the past posts and no one seems to have found a good solution for my problem.
I’m already investing in the USA (Schwab account) and I have a Roth IRA back there as well. I’m looking to keep my earned CHF separate (I don’t want to deal with currency conversion for investments). People have recommended Swissquote and CornerTrader, but Ive heard/read they have rejected US citizens. I’ve also tried opening a 3rd pillar at PostFinance and they turned me away. People have also reccomended IB, but they have a $10 monthly fee, and since I’m a passive/long-term trader, I’ll never meet the $10 in commissions I need to spend a month. I’m currently looking into VIAC for a 3rd pillar, but as I can only invest ~6k in them a year, what about all the extra cash I want to invest (I will be converting some to USD to add to my Roth IRA, but not the Schwab investment account).
Another thing to keep in mind is that the US government taxes both my 2nd and 3rd pillars (along with any gains on my foreign investment accounts), and so the tax exempt 2nd/3rd pillars may benefit my Swiss taxes, but certainly not my US ones.
All in all, finding a “vehicle” for my money where I can earn some good returns, where I also am minimizing taxes on both sides (or at the very least the Swiss side) is proving to be super difficult (in my eyes at least).
Sorry if I seem uneducated about all of this (I feel like I am) and I am leaving out some valuable information. If you need some clarifications, please let me know.
the combination of few people affected and very complex situation…
the only reason you mention not to open an IB account is the <120CHF annual fee. in terms of broker costs this is still less than everything else in switzerland unless you limit yourself to 2-3 transactions per year, with swissquote maybe a few more.
since any 2nd & 3rd pillar have their cons, i’d guess you are best off with DIY. check out the IB option.
Sorry, but what? At IB it’s just two clicks and is basically for free. At Schwab I think you just send them the CHF and they convert it automatically. You talk about it like it was some rocket science…
This would reasonably mean investing in shares (etf/funds), maybe reits. For shares, a timeframe of 5 years would not be optimal risk-wise. Reits can be sensitive to raising interest rates, too.
My conclusions from this:
when outside of Switzerland, neither Swiss tax considerations, nor Swiss brokers or Swiss 3a pillar funds would be of much use to you
as you keep your attachement to the US (I assume), managing capital gains in your long term investments should have a considerable priority
Some other thoughts:
Switzerland does not tax capital gains of long term private investors, but taxes dividends and interest at the normal tax rate. European stocks pay much higher dividends than US or Japanese. US stocks are not cheap atm, though.
If you are taxed normally, it matters a lot in Switzerland, where you live.
you get a considerable risk free return by just opening a 3a bank account, paying in the max amount and taking the money out when you leave after 5 years. There are no fees and the Swiss tax savings should not be taxable in the US (? not sure how it works with Steueranrechnung?).
It’s very hard to open a bank account in Switzerland as a US-Person. My brother (Swiss) has a green card and could just do it with Postfinance.
IB is also much cheaper, especually with smaller amounts. With CT, each order can easily cost between 10 and 20 francs at the minimum.
Good for you, I think pillar 2/3 are pointless for americans anyway as they don’t count for US taxation which is a much bigger concern than swiss taxes. Whatever you’ll save on swiss you’re just fork over to IRS so why bother!
Don’t see why would they want to do any business with you either then. US passport holders are a big regulatory burden for every financial institution out here, only a few big ones take the risk to deal with your kind.
Also, it’s probably a “PFIC”. I’m not sophisticated enough in US taxation to know the difference but I catch a drift from US colleagues I sometimes have lunch with that it’s some kind of a curse word.
Only if you’re broke with less than $100k to invest in which case I think you have more urgent matters to take care of
Otherwise IB or Schwab is a no brainer. IB’s better if you’re earning in CHF and need to regularly exchange currency of your salary - savings on bank currency exchange margins alone will pay for it if you have to pay those $10/month. Schwab charges more to convert, like 0.3-0.5% or so, which is much more than IB’s 0.002% but better than random bank’s 1-2% margin
Exactly. And he will probably have to exchange his CHF to USD eventually, so why not do it at the beginning. Just forget about Swiss brokers or investing in CHF, that’s a bad idea.
Btw, I don’t want to get into details, but do American expats have to pay American taxes on top of the taxes of the country they work in? Or do they get a “deduction” and only pay the difference? In any case, it sure looks like it sucks to be an American expat. Is that the only country in the World, that does that? The whole rule seems just straight criminal to me. Uncle Sam basically telling you “I own you, no matter where you live”. Creepy.
I like the sarcastic way in which you often break news to people
But how about a reality check?
True, the average wealth in Switzerland is 545’000 USD. But the median is 107’000 USD.
Even worse if you look at the data from ESTV. 56% of people have taxable wealth below 50’000 CHF, 75% less than 200’000 CHF.
I guess maybe the difference is that the first report includes money in the pension fund?
So if we follow your guidelines, we should classify at least a half of the Swiss society as “broke”. I’m not saying it’s not true, it just comes to me as a shock, that so many people in such a rich country don’t bother with any savings.
Average swiss household disposable income is 7k per month. So with a frugal enough lifestyle most would have a respectable nest egg in no time. Why most choose not to save and instead live from paycheck to paycheck beyond or at the limit of their means escapes me, but I guess I suck at human psychology
Double taxation treaties should take care of it so that you only effectively owe the difference
There’s also Eritrea, but I suppose as an Eritrean emigrant if you never intend to return you can just tell their tax man to f**k off. Not so easy to say that to IRS when U.S. is controlling most of world’s economy. Everyone pays, even the former London mayor whose only fault was being raised in US until the age of 5 or so
An average disposable income per household is hard to translate to median disposable income per person. But a person earning 5’000 gross per month, should get 4’000 on hand. Being frugal with such an income would mean to me spending 2’000, saving 2’000. So in 4 years you get 100’000.
But of course, life is much sweeter if you spend 4’000. You can afford all the iPhones, Starbucks, manicures and holidays. And I guess the basic assumption is: “This is the lifestyle I can afford. I don’t need to save money, because I pay into my pension fund, health insurance, unemployment insurance, so I got all bases covered.”
Doesn’t IB have a larger spread though? And you don’t get the mid-market rate? I thought about currency conversion once with them, and settled on Transferwise as you get the best possible rate, with relatively low fees (<0.5%).
No, you get something like about 0.5-1 pips (that’s 4th decimal digit after the point in currency rate) on major pairs, that’s practically nothing and within range of minute volatility, you can see bid/ask’s last digit flipping as you wait
Best? Dude, you’ve been scammed! These fees are enormous compared to IB. That’s like 50 pips! On IB you pay practically a flat $2-3 commision to exchange up to $100k or so and get those tight 0.5-1 pips spreads
That’s only because it’s weekend I guess, I’m sure they’re much lower during normal business hours
Can I ask how often you make a trade (buy/sell) per month? Maybe I’m being naive with how often I expect to make a trade, but with long-term investing, I’m almost under the concept of “set it and forget it” (meaning I won’t really be trading too often).
Even with the money you’re saving with IB when it comes to currency conversion, the fact that you’re paying 10 USD/month defeats the purpose of using it’s low commission rates in the first place. The only time where IB would be cheaper is if you’re constantly trading/converting currency and I don’t foresee myself doing that. Maybe I’m interpreting all of this wrong, so if I am, feel free to explain it better.
Don’t worry, you’ll likely pay a lot more at any swiss broker even if you trade only a couple of times a year. Buy/sell $100k worth of securities at any swiss => you have to fork over $150 (0.15%) to the tax man in stamp duty alone, convert currency (as the most tax optimal funds are USD denominated) - another $500-1000 goes down the toilet and the broker will charge something for the trade too which will definitely not cost pennies like at IB. Most swiss also like charge a pretty penny for record safekeeping, i guess on gold plated hard disks…
Haha. I’m sure they have those solid state drives by now
Okay, so let me just verify this with you then. Lets go with the assumption that there is a good chance I want to have a home in Switzerland, retire here, etc. You think it would be best to take essentially all my CHF savings (beyond emergency funds), convert them to USD, invest them, accrue some wealth in USD. Finally, when I need some CHF (whether that be before or after retirement), I would sell what’s necessary, convert the USD back to CHF, and then do what I need to do with it in Switzerland?
Fund’s trading currency doesn’t matter for equity funds, don’t you get it? What matters is where are the firms’s in which you’ve ultimately invested making their money. For a world index fund, that’s all over the world. (Which is heavily USD weighted though no matter what.)
The point of converting to USD exercise is just so that you’ll have access to the most tax efficient and lowest cost index funds in the world. They don’t make 'em in CHF. Also much easier for your US tax reporting obligations I suppose as they are not “PFIC”.
I totally understand that. I guess part of my brain is stuck on the fact that you want to diversify your portfolio, which includes the currency you invest in. In case one currency takes a turn, you have another one to support you. I’ve been told this from multiple people/places and I think that’s why I’m being so hesitant about “converting it all”. Does currency diversification not really matter?
Well you just have to understand the real risk in your investment. For equities that’s not necessarily the nominal currency in which you buy things.
For example, take Nestle - they only have like 1-2% revenues from Switzerland! Any guess where this stock will head depending on CHF’s gyrations? You have more exposure to INR through them than CHF. Other top Swiss Market Index companies are similar, global pharma. Another example that might be closer for you is Philipp Morris International (PM). It’s a US company with 0% exposure to the american market, that part of biz is handled 100% by Altria. Dollar goes down, it goes up.