Why not? 1k of savings a month is better than what a majority of swiss households does? This particularly as Fallguy fully invests into the 3rd Pillar and has a fairly healthy second pillar amount already. He is fully set for a good retirement with no financial regrets. Yes, he won’t retire by 40 but in reality who does that anyways? Why does the savings rate matter, the household is financially sound and he only raised the question of how / if / when to invest. I see no need to further optimize an already frugal live.
2 Likes
All bonds in that ETF are in EUR or EUR-hedged. I wouldn’t recommend that to people paying their expenses (mostly) in CHF.
This is due to part time……once I go back full time…savings will hike up
So what do you recommend ?
I’m not aware of a comparable ETF for CH investors (passive and low fees). The closest equivalent would be the combination of 80% VWRL and 20% AGGS (iShares Core Global Aggregate Bond CHF-hedged).
Probably repeating what many others have already stated (I just skimmed through the comments): it really depends on your stomach (aka psychology)!
My advice in short:
Start with DCA for a while (maybe 3-6 months, YMMV) and if during that period you find out (about yourself) that losses in your tranches (or overall invested money) don’t bother you at all, invest the remaining amount lump sum if you still feel you’re up for this.
The worst that can happen is that we’re entering another fierce bull market and you have a little bit of FOMO for a while.
The best that can happen (IMO) is that you learn about your actual risk tolerance with your own skin in the game and can decide for yourself what investment style is best for you.
My advice at length:
Research seems to indicate that lump sum outperforms DCA, but I believe your own psychology plays a very and even more important role.*
A recent Vanguard paper on cost averaging versus lump sum summarizes this well:
- "Lump-sum investment strategies beat common cost averaging investment
strategies two-thirds of the time, according to historical and simulated
market data. - Despite the expectation of lower returns, cost averaging might be considered
for investors with very high aversion to both risk and losses who might be
tempted to hold a lump sum entirely in cash. - Even without a lump sum to invest, investors can benefit from maximizing their
time in the market by using retirement account front-loading and withdrawal
sequence strategies, or simply by not delaying when funds are available for
investment"
They say that cost averaging is for folks with a “very high aversion to both risk and losses”.
I would qualify that with: it’s one thing to read (or write) a paper that has analyzed a boatload of historical and simulated data and to then conclude that on average you fare better with the lump sum invested; it is an entirely different thing to personally experience being one data point with a the lump sum investment where you’re in the one third camp of doing worse, especially if you do significantly worse and loose say, 20k or 30k of your 150k within a year or two. It shouldn’t matter in the long term, but how will you feel and react?
I consider myself relatively risk tolerant (I for example allocate a significant portion of my portfolio in stock picks), but I would never** have the stomach to do lump sum investing.***
Good luck!
* The research typically analyzes theoratical allocation in lump sum versus cost averaging. It does not look at actual investments that were lump sum versus cost averaging and thus completely factors out psychology or data on when lump sum investors (or cost averaging investors, for that matter) chickened out and sold (or stopped averaging in and sold also and stayed in cash for the money not yet invested).
Actual data on this is messy and doesn’t lend to clean statistical analysis as required for research papers…
** Well, if I had insane amounts of money, say fifty or a hundred million, where I’d still be totally fine after taking a 50% hit, maybe I would have the stomach to lump sum invest … in reality, I’m not there, and I’m sure if I were there, after an unpleasant lump sum experience just once, I’d avoid it forever.
*** E.g. I kind of had to lump sum invest my second pillar into a Freizügigkeitsstiftung when I quit my previous job around late 2020. It’s since down about 5% (and was down 11% at its worst). I cannot express adequately how much I hated observing this, even though I know that typically things will work out just fine with my investment horizon of 10-15 years.
In practice, I just hated it and wished I had been able to cost average invest the money myself as I did in my actively managed portfolio, which not only didn’t take a hit in 2022 but was actually up.
Classical loss aversion behaviour … to quote Jason Zweig from his Devil’s Financial Dictionary:
LOSS AVERSION, n. Classical economics presumes that people will wager an equal amount for a chance to win $100 or a chance to avoid a $100 loss. After all, either result would leave you $100 better off. Experiments by psychologists, however, have shown that people are loss-averse: Imagine being asked to bet on the toss of a coin. If it comes up tails, you would lose $100. How much would you have to win on heads in order to be willing to take the gamble? The typical person insists on a number between $225 and $250, showing that the pain from each dollar of loss is more than twice as intense as the pleasure from each dollar of gain.
Investors who have been “on a roll” of recent profits often forget how painful losing money is. They will soon be reminded, to their keen regret."
5 Likes
Thank you very much @TeaGhost for your extensive analysis, really appreciated !
My points here:
- I was planning a cash cushion of 50k (btw, additional tax cushion separated from this)
- Leaves 173k as investment cash for stocks/ETFs
- If I classify 2nd pillar + cash cushion + metals as “Bonds” (pretty secure money), and 3rd pillar via VIAC 100 Global strategy + investment cash + BTC as “Stocks”, I have a ratio of 60% in bonds and 40% in stocks.
- With the bogglehead strategy in mind as suggested by HRH @_MP
, suggesting to align the %age of bonds to the persons age (in my case 48% of bonds, since I am 48), I have way more bonds than the potential for stocks. - From this i derive that all the investment cash should go into stock EFTs only, ideally with a low TER and global diversification.
Result:
- Global ETFs: VWRL or preferably VT (lower TER) plus
- CH Market ETF: UBS SMIM
@TeaGhost: What do you think about going 100% into these stock ETFs without additional bonds ?
I am pretty motivated to keep track of my finances more than ever before, especially after getting to know this blog 
Will check out Findependent and Avadis.
Do you have specific experience with one of these ?
Good suggestion - especially to test/learn myself on how I react depending on how the market behaves.
Yes, looks like it…
Findependent (and also Avadis) are nice services, but their costs are similar and too high.
At Findependent, quarterly costs are CHF 200 plus initial setup of around 600 (@140k lump or DCA).
This would eat up a significant share of the dividends.
Result: DIY via a broker.
This is what I will do if I were in your position:
DCA your 220k cash cushion over 22 months by investing it every 2 weeks at the same day and the same hour. You will invest 5k every two weeks (or 10k every months).
If you are not really confident with US-domiciled ETF, just go with VWRL. I will also split the 5k investment with 4k in VWRL and 1k in CHSPI (if you want to have a more bias with swiss stocks).
With your 1k monthly saving, put it in BTC if you believe in it. Like this, you will invest all your cushion in the next 2 years and look after 1 year if you can strugle the volatility.
Whats your experience with US domiciled ETFs ? I think the only headaches relate to US estate tax paperwork for the heirs, otherwise I only see advantages (lower TER, higher dividends than VWRL)…
Which specific CHSPI products can be recommended here ?
CHSPI (ISIN CH0237935652) is already the product recommended;
https://www.ishares.com/ch/individual/en/products/264107/ishares-spi-ch-fund
I have VT and I’m ok with it, but there is other mustachian that prefer to handle with IE-Domiciled ETF and at the end the difference isn’t really significant.
Look above or you also have UBS SPICHA.
Avadis is excellent in that they have four funds they rebalance on a monthly basis, and are very very tax-efficient. Their relatively low dividend yield means relatively moderate amount lost to WHT, which is higher with VT+CHSPI combinations.
You can argue with the cost (0.62% TER) but given those benefits and how easy they make it to stay with them for the long term, it’s definitely worth it especially in the beginning (<250k invested).
You have figures here to make it graspable ?
Well, this TER kinda eats up the benefits of ETFs vs actively managed funds I find…if I think of paying 800 CHF annually for management fees only…bye bye dividends and compound interest…
You could look through their past returns PDF and then check the distribution column (typically in
April)
I’ve previously estimated that the tax advantage is worth 0.2% p.a. (for my own purposes), and the rebalancing benefit can’t be estimated directly but high enough to make the 0.62% worth it… in the beginning
When you primarily go with VT or VWRL (80-90% in the portfolio), IMO rebalancing is not required since you are covering the worlds economy and it can’t get better. So why not save on that ?
800CHF on TER p.a. x say 15 years = 12kCHF that don’t compound…
And what’s does „in the beginning“ mean? You can’t exit Avedis and transfer your portfolio to another broker if you see that the costs are eating you up…