Mustachian portfolios

Yes, taxation is an important aspect of bond ETFs and in the current low interest rate environment it’s typically even worse than your example as the funds mostly consist of bonds with a higher interest rate (as issued back when the rates were higher) trading at a premium.

E.g. BND has a SEC yield of 1.34%. However, the distribution yield is 2.07%. The expected gross return is close to the former (in absence of rate changes) but you pay income taxes on the latter. At a 35% marginal tax rate the expected net return would only be around 0.6% before any currency risk.

For CHF bonds the tax effect is even worse. E.g. Swiss Gov Bond 7-15 ETF has a YTM of -0.16%, which would be bad enough. However, it still has a distribution yield of 1.72% which you’re taxed on. The net return might be around -0.76% and that’s before deducting the ETF fees.

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Never worried, or thought, about it since I am not interested in bonds with negative interest rates… but, would that actually be tax deductable?

Why would it be? They are not passive interests (you don’t pay them)

The nominal interest rate of these bonds is still positive or 0%¹. They are sold at a premium (above the nominal value of the bond), which results in an overall negative yield to maturity. From the tax perspective the loss is capital loss (decrease in value) and thus, nothing that you can deduct as private investor.

Professional investors who have to pay capital gains taxes should be able to deduct such capital loss from bonds.

¹ At least that’s the typical case. I don’t know whether there are exotic bonds with negative nominal interest rates.

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Is there any other reason to chose the combination VTI + VXUS over VT except the funds being more liquid and having lower TER ?

If you replicate VT with the combination you should have the same returns I guess. I like that VT does not need rebalancing, but in case I go with VTI + VXUS I would probably rebalance every quarter or semester (how often do you do it ?).

Based on Vanguard Website if you go 57,90% VTI and 42,10% VXUS it will roughly give you the regional exposure of VT.

My Current Portfolio :

  • VT
  • VIAC Global 100
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That was my reason, plus that both fonds are going more in depth (capturing approx. 90-95% of the market instead of around 85% if I remember well, didn’t check the exact value), and that I wanted to underweight the US a bit.

If I would redo it today, I would stick to VT for simplicity. Most of the VTI funds is international anyway (Microsoft, Alphabet etc.) and just happen to have their HQ in the US, and the extra 5% or so of the market represents nearly nothing in the end portfolio, since the market cap of the companies are so small. Basically, it won’t make a noticeable difference in CAGR before a long time, and then, who knows which one will be better.

Personnaly, I keep both of them at around 50/50%, with no rebalancing until I reach a 5% threshold difference from the initially chosen balance.

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I wouldn’t split it unless you want to deviate from VT’s allocations.

Though then, why would you only do that for the US vs. rest of the world (and not for Emerging Markets, Europe, Japan or China)?

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Thank both of you for your answers.

Any specific reason for this ? It has lower TER and is more liquid.

You are right asking why not to do that with the other. It is for simplicity reason. I am ok to rebalance between 2 portolios, but I prefer not to do it with more. I also think in term US vs the rest of the world. I don’t mind having the EX-US grouped all in one. It is purely subjective.

There shouldn’t be any rebalancing between funds needed at all, if:

  • the funds track a market cap weighted index
  • you allocate precentages according to the total maket cap of the tracked indexes
  • the funds are distributing (or have negligible differences in dividend yield)
  • their difference in TER is negligible in absolute terms

VTI & VXUS would work

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Here is my current portfolio.
Just started in 2021 (unfortunately, way too late with age >30) with a 20+ year horizon.

My thought process/strategy:

  • keeping it simple (only a few ETFs)
  • keep it wide (not just US large caps)
  • where possible ESG indices (ESG Leaders & ESG Enhanced fit perfectly)
  • currently 100% stocks
  • still quite some cash in a deposit account (I guess, I will need to move that into bonds and more stock ETFs soon)

Any opinions?

  • Too much home bias?
  • Too little Europe (ex Switzerland)?
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Very good! I just don’t understand why you have to consider such detailed allocation if you have only 3 ETFs.

Include your second pillar. Everything will change a lot.

Yes! Pension funds already heavily overweight Swiss stocks.

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It will be interesting to know the weight of all the other assets (cash, bond, equity).

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Not sure if MSCI Switzerland offers enough diversification. It’s only 40 constituents.

Maybe SPI would be better. Or a combination of SPI Extra and SMI.

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Very good points.

I currently completely ignored my 3a pillar VIAC in my strategy. (except for picking MSCI Switzerland IMI to complement the SMI ETFs in VIAC)
And of course my (currently still) large cash assets that I will need to shift into stocks over the next 6 months.

I will definitely increase my US/EU and EM positions and not any more Swiss stocks.
And also somewhere include my cash,bond,equity in my portfolio, to have a better overview of all my assets.

How would you do this? I barely understand the 2nd pillar statement. I have no clue what asset allocation is realistic?

A pension fund has an asset allocation, they earn money on these assets, pay pensions, create reserves and so on. So inside it is a complex portfolio. But from outside, for you as a user, its function can be understood as that of bonds. You get some small, guaranteed non-negative return.

So a simple way is to count 2nd pillar as bonds allocation in your portfolio.

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unless inflation eats it all up and some more…

Hello,

As always, apologies for the question bc as far as now, I have not found the answer and I may have misunderstood the article from MP…

Regarding this ETF ISIN CH0111762537 commented in the article:

Cannot find it in IBKR…? Is it simply not available?

Thanks for any help.

Br.

Did you try with it’s ticker? For example: SMMCHA or SMMCHA.SW

If not on IBKR, it is always available of DEGIRO. I have some of my portfolio allocation into that very same ETF on DEGIRO.

https://misc.interactivebrokers.com/cstools/contract_info/v3.10/index.php?action=Conid%20Info&wlId=IB&conid=80486947&lang=en&ib_entity=

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