Aside from Pillar 2 and annuities, what are some lower risk investment options that have high likelihood to return your capital and low volatility while still giving you a positive CHF return?
Bonds are the obvious answer, but currently the yields may be very low or even negative (and taxed as income).
What would be options for a step up in return if you’re willing to take on more risk and volatility than bonds, but not so much as stock investments?
The current SBI Corporate yield is 0.93% p.a., which seems to be the highest yield of the SBI index family. The current duration is 4.4 years. I think the next step up would be Swiss Real Estate funds.
If the investment doesn’t have to be liquid, some Kassenobligationen are a bit better than bond funds. 2y Cembra is at 0.75% p.a., 10y 1.25% p.a. That’s fully locked but at least you also get the deposit insurance of up to 100k. Some special savings accounts might also still be better than bond funds.
I guess you’ve already seen Short guide to CHF fixed income options.
Following are few options, bonds have low yields right now due to exceptional strength of CHF. Everyone trusts Switzerland (atleast people who don’t live here)
SBI AAA - BBB 1-5 (duration 3 years) -: most likely post tax yield is negative now
SBI AAA - BBB (duration 8 years) -: post tax yield is positive but low
SBI Corp (duration 4.4 years) -: @jay mentioned it already
SWIIT -: yields are around 2% before tax. Correlation to global equities is less than 0.5. But medium term volatility is something to be aware of. I would consider them as long term investment
High yield bonds -: high yields but I think they are more correlated to equities. But they do have good yields at this moment.
Medium term notes (Cembra has highest yield)
Currency hedged foreign bonds -: here you need to deduct the hedging costs from yields
Thanks. Very interesting. I don’t know if there’s a step in between, but I guess that after SRE funds, you might be looking at low-volatility stable/boring companies.
Another thing I will start doing is paying what they ask me on the tax payment slip even if I think it will be lower. They seem to offer quite attractive interest rates for Federal Tax.
The reason I’m thinking about these investments is that I’ve been using Pillar 2 as a kind of stable low-risk investment and once this is withdrawn, I’d like to keep some of it low risk.
I have to check what options are available in VIAC and Finpension, but I know real estate funds is one of them.
some local regional banks offer better fixed term rates than cembra. However, they might not accept customers from other cantons/ regions (to be checked)
I have one with the Caisse d’Epargne Riviera where a 1 year fixed is still at 1%
As of now. Yes
Now that I understand you are mainly talking about money that resides in VB. You might have more options because some VB funds also have fixed interest rate which is higher than normal banks.
I wouldn’t call Real estate funds as low risk. They also have good amount of volatility. In my view Equities and RE are both risk assets. See below
Maybe you can simply follow what a pension fund typically do. It’s 30-40% each in stocks, bonds and real estate.
If bonds are not interesting , you can always just leave it in cash
For taxable, I would say CHCORP might make sense.
Current YTM: 0.8%
Current coupon: 1.39%.
Using 30% marginal tax rate, the income tax is 0.42%.
TER is 0.15%
You are left with 0.23% p.a., with the inherent risk of corporate bonds and the time until maturity and duration around 4.5 years. Well, it’s still positive! 
For tax sheltered, there are more options and you are not punished due to the difference between the yield and coupon.
You’d need a share but this could be an idea
It sounds like such a bad deal, right?! It feels worse than just holding cash.
This is a bit crazy: what do you think of giving away part of your money to get between 5 and 6.8% return until death? It’s the pension on the mandatory part of the pension fund and it can be accessed after the age of 58.
negative: income tax, lost principal, lost opportunity cost if markets perform well, no inflation adjustment
positive: cash flow, better return than a bad market, longevity bonus
Do you see other points?
What’s a bit confusing to me is that why S71DY (SBI corp yield) is 0.97 & the YTM for CHCORP is 0.8%
Any idea why that would be ?
@Dr.PI
Depends on what happens in next 4.4 years.
If interest rates go to negative then CHCORP will end up being more profitable than Cash.
But if inflation spikes or Swiss recession hits, CHCORP might not fare that well because corporates will be under pressure and risk of default increases
In summary the risk free rate will be zero in 10 days from now. So anything above zero will need some sort of risk taking
I would actually love to take part of my pension as an annuity paying 5-7%. Though there are a few problems I see:
The biggest problem is that I don’t think this option will be open to me as I don’t expect to be employed way before I’m 60 due to being fired or FIRE’d.
There could be a tactical solution to this by becoming a contractor via payroll provider (easier than getting a permanent job). Assuming they all only offer mandatory pension schemes, it could be feasible to get a temporary job around age 60 and take early retirement as and when permitted by their pension fund.
I understand this is specific to age and skill set and might be too difficult to engineer. I’m about to go that route but haven’t made up my mind if I want to have cash flow or just capital after my (hopefully successful) stint.
Anyway. I missed the option that was staring me in the face the whole time: paying off my mortgages!
