Looking for feedback before ditching my expensive swiss bank

Hi, I’m 25-30 years old and was a while back sadly in the position to inherit some money (~450k CHF). Up to now, it was managed by a Swiss bank with high fees and relatively low return. I started looking into self investing and found the MP :slight_smile: I now made an Interactive broker account and put myself a portfolio together and would like to know your feedback on the portfolio and my ideas before pulling the plug on my old bank.

20% Cash on a savings account with some interest rate (maybe some day when interest rates go up: CSBGC3 (iShares Swiss Domestic Government Bond 0-3 ETF (CH))
14% ESGV (Vanguard ESG U.S. Stock ETF)
14% AVUV (Avantis U.S. Small Cap Value ETF)
25% VSGX (Vanguard ESG International Stock ETF)
18% AVDV (Avantis International Small Cap Value ETF)
9% EMCR (Xtrackers EM CarbReduc&ClimtImprvs ETF)

Some explanations on my thoughts when building my portfolio: I wanted some ESG criteria in my portfolio, this are the reasons for ESGV, VSGX and EMCR. In addition to that, I was also inspired by the factor investing strategies of Ben Felix from youtube, which also already was featured here in the forum. The small cap Value ETFs AVUV and AVDV together make 40% of the Equity part.
I also wanted to get somewhat closer to a GDP weighted portfolio rather than a pure Value weighted, because I think 60% US stock like eg VT offers seems like too little diversification. Because of this the Equity Part contains 34% US Stocks, 46% Developed ex-US stocks and 20% emerging markets. (VSGX contains 26.8 emerging markets with the addition of EMCR I arrive at the desired value). Is the EM Part too big? The US part too small? The small Cap Value paort too big? I’m not really sure and looking for opinions.

Save up for a mortgage?
Because I might want to buy an Apartment or a House in ~5 years I’m planing to increase the cash/low-risk-CHF part every year by 2% to 30% in 5 years. In this way, I’m not too dependent on a good market situation when I require an estimated 200k for a mortgage payment. Do you think this is a good Idea, or would you do something differently?

2nd and 3rd pillar
Since I mostly studied up to now, the 2nd and 3rd pillar are currently negligible in my portfolio. However, I’m planing to invest monthly ~500CHF in the portfolio and I will have to start taking them into account when rebalancing.

I also have some random questions which I gathered on my search journey:

Interactive Broker 500k insurance limit
What do you do, when you reach the 500k insurance limit from interactive brokers? Do you just take the risk and hope IB stays afloat, do you transfer some Equities to another Bank or something else?

Do I need Home Bias?
I have no home bias in the Equity part of my portfolio, I only have some Swiss shares in VSGX (I know this is not tax efficient for Swiss shares, but they only make 7% of the ETF) I also haven’t currency hedged anything. I read that currency fluctuations are expected to be much smaller than stock price fluctuations and I think that there is no reason to increase costs to prevent a minor fluctuation in an asset where I’m ok with it having fluctuations as long as it is expected to rise in value. However, I have my home bias purely in the “risk free” part of my portfolio. Is this enough home bias? I feel like I missed something, because I’m reading everywhere about home bias from 20% to 50%. I don’t really understand why, since this is clearly a bet on the home market doing better than the world (or at least that it will not suck). In addition, the value of the large Swiss companies with international focus got corrected when the SNB lifted the CHF Euro corrections so that no advantage of holding them over non-Swiss companies. However, as I already said, I feel like I missed something, and maybe you can help me in finding what I’m missing.

Irish vs US ETF for International and emerging markets
In my portfolio I have only US ETF. For me, it is not clear if they are better regarding the tax situation and TER over Irish ETF and I could not really find any good material on this. Interestingly on my research I found that the few US ETFs on emerging markets tend to have a higher tracking error than the European counterpart(EG VWO vs VDEM). However this might only be right now, with the crazy situation in Russia or just the volatile markets. At least some vanguard funds performed even better than the benchmark over the last 15 years so its probably not a systematic problem. But I might be missing something here.

Thank you very much in advance for taking time and giving me Feedback
Gre

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Yes, Irish ETFs can’t beat US ETFs in lower total costs of investment (TER + withholding tax on dividends received by the fund + your tax on dividends distributed by the fund). So if you feel fine investing via US ETFs, just go with them. However, stocks index funds in 3a sheltered account (I have finpension) on non-US stocks are more tax efficient than US ETFs. I did some estimations here.

Numbers have changed, I did recalculate few things for myself recently, but the qualitative results have not.

For your other questions you can find lots of useful information if you search this forum.

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All three are as big as you like(d) them.

I don’t expect that ETF to ever be better than a good savings account after fees. You have to go for bonds with longer duration or more credit risk. CSIF Bond Switzerland AAA-AA could be an option (current YTM 1.24%), however, it’s a mutual fund and I don’t think it’s available at IBKR.

This is a fairly heavy SCV tilt. It may or may not be worth it in the long term, however, the expected volatility is higher and the investment horizon should be very long term for this. With potentially selling part of this portfolio in 5 years to buy real estate, 40% SCV would be too risky for me.

In my opinion, GDP weighting doesn’t make sense for global stocks. A large part of the revenue of US-listed companies comes from outside the US, so the correlation between US-listed stock and the US economy is not as big as you might think. In emerging markets the listed companies may be more tied to the country, however, emerging markets have additional risks. You’ll find a lot of opinions about such weighting, of course. I myself don’t claim to know more than the market, so I use a market weighted ETF such as VT to cover the global stock market.

This is a difficult question. If I was sure I’ll use the whole amount for a house in 5 years, I wouldn’t invest in 80% stocks right now. However, if the probability of having to use the money was small (e.g. because I expect to have enough in pillars 2 & 3a by then), a stock investment would probably make sense. Options include reducing the equity allocation or maybe investing part of it in Swiss Real Estate funds. This depends on your personal situation, including expected income and savings rate.

Securities are segregated assets. Even if IBKR were to go bankrupt, you wouldn’t lose anything. That’s assuming there is no serious misconduct at IBKR, however, that’s why it’s good that IBKR is regulated, not just as a broker but also as listed company. I have my assets at two brokers, IBKR and Swissquote (and Viac), however, the majority is at IBKR and I’m not worried by the insurance limit.

3 posts were merged into an existing topic: Splitting the world

Special due diligence needed to avoid greenwashing.

Xtrackers solution is owned by DWS, an arm of Deutsche Bank.

In yesterday’s news:

German police raid DWS and Deutsche Bank over greenwashing allegations

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Not adressing your portfolio, but rather the 2nd pillar / home buying topic:

If you know today that you’ll likely buy real estate in the next 5 years, you can massively tax-optimize by doing voluntary pension fund buy-ins.

Given your 2nd piller is fairly empty, as soon as you have a job with a decent income, there should be the option to do a voluntary contribution to the 2nd pillar. Once paid-in, you contribution is locked for 3 years, after that you can withdraw it again for a WEF Bezug in case you need it for real estate. Buy-ins are 100% deductible from income tax, therefore this is quite a good tax optimization method. And, since you want a low-risk portion anyway, why not put it into your pension fund where it will generate a guaranteed minimum return every year. Keep in mind the withdrawal limitations though, the capital is locked away if you decide not to buy real estate. Additionally, legislation for withdrawals might change in the future, so this is not 100% risk free.

Contributing maximum into pillar 3a with VIAC/Finpension should be a no brainer at this point (given tax benefits, 97% stocks passively managed, ability to withdraw for real estate).

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Thank you very much for all your responses. Based on your feedback, I changed up my portfolio a bit and also dug deeper into the 2nd and 3rd pillar mortgage thematic. I raised my low risk part to 25% still with the goal of raising this part by 2% every year to a max of 35% in 5 years. I think of my portfolio as split in two parts. The one which I might use for the mortgage upfront payment where I aim for 65% in low risk assets and the other one where I have a 25-30 years time horizon, where I’m having 10% in low risk.

Low risk part
With the low risk part, I will partially buy into my 2nd pillar. I haven’t finalized my decision on how much, but the upper limit is such that 100k is reached in 5 years. This is because it is not possible to pay the first 10% of the mortgage with the 2nd pillar (assuming a 200k = 20% upfront payment for a 1M mortgage it would be 100k = 10%) So I cannot use more than 100k from the second pillar. I think I will even aim for a bit less than 100k just in case I will not end up buying a house. Otherwise, the Low risk part in the 2nd pillar would be too large for a remaining investment time of 20-25 years. Anyway, once I know wether I’m going to buy a home I will reduce to a ~10% low risk part. I’m not sure if this will be possible due to the rising obligatory input deducted from the salary, but this is a future me problem :smile:

Equity part
I also slightly changed up my allocations in the Equity part. I moved a bit closer to market capitalization with 46% in the US, 34% in developed ex US and 20% Emerging market. The Xtrackers EM ETF got replaced by the Irish based iShares MSCI EM ESG Enhanced UCITS ETF, just to have not all depend on the US, for the Developed ex-US I’m too lazy to put together a complicated all world portfolio consisting of multiple local ETFs. Here I’m staying with the KISS philosophy and stay with US based etfs due to the lack of european Developed-ex-US ETFs (even though the SCV part definitely is not going well with KISS :sweat_smile:)
However, I reduced the Small Cap Value allocation to 20%, my gut feeling and your comments told me that this is a more appropriate value and the total TER also comes down a bit.

Portfolio sumary
25% Savings account and 2nd pillar
26% ESGV (Vanguard ESG U.S. Stock ETF)
9% AVUV (Avantis U.S. Small Cap Value ETF )
25% VSGX (Vanguard ESG International Stock ETF)
6% AVDV (Avantis International Small Cap Value ETF)
9% EDM2 (iShares MSCI EM ESG Enhanced UCITS ETF)

Total TER: 0.15%

Bond funds vs savings account
About bonds, I’m still a bit undecided, but for now I will go with a savings account. Currently, in this rising rates environments, bond funds seem more volatile than some stock ETFs. I will have to rethink about this once things start to stabilize, but in the last 5 years, a savings account was about on par with many bond funds. Maybe now even would be a good time to start with bond funds, since they already have priced in the rising rates. What are your opinions about this? Do you use CHF/non-CHF bond funds or even currency hedged bond funds? I guess for many, the 2nd pillar is considered as low risk asset or so if this part is big enough, additional bonds are not even required. However, any rebalancing is always only in one way.

5 posts were split to a new topic: Canada-based ETFs