Mustachian portfolios

[hedgehog]

@jrmycohen

However if you believe equities are over priced, better to get higher taxes on dividends or coupon than risk a capital loss on equities.

Corporate bonds tend to go down with the rest of the market in a downturn. If you intend to sell these bonds (to buy equities when they go down, right?), you’re betting on the rates falling further (in crisis time, ha!) and bonds rising and that they’ll even be buyers for these, which is less certain for HY variety. If you’re after their high returns, you should be rather holding them to maturity to collect all those dividends, and have you looked at the spreads and default rates recently?

@jrmycohen

As of today, the current CAPE ratio for S&P is much higher than it’s historical median. When that occurs, history shows that there is a high probability for low/negative return over the following 10 years. However, history may not repeat itself and we are no fortune tellers so our approach is not to exclude but to significantly underweight S&P.

It’s an interesting point, but I’d be worry of any analysis that doesn’t take into account bond yields. CAPE has become very correlated to bond yields which have been falling for good 30-40 past years: Shiller CAPE Versus the Risk Free Rate, Charted - DQYDJ, so the cause of high CAPE could be as well just the historically low interest rates.

@chestwood96

How does the taxes with VT work? Since it does not do ESTV reporting (at least not that I can find it) go I have to get all the numbers for the Tax-declaration myself? Also how do you get the info for the DA-1? Other than that I am pretty sold on VT.

It’s a distributing fund, not accumulating, so there should be no troubles with it even though ESTV didn’t collect data on it. Accumuling funds not in ESTV list are a much bigger concern as then it’s your burden to prove what part was pure capital gains and what part was reinvested income, and if you fail, then potentially they may want to just tax you on all the gains.

[derpinator]

@hedgehog

It’s a distributing fund, not accumulating, so there should be no troubles with it even though ESTV didn’t collect data on it. Accumuling funds not in ESTV list are a much bigger concern as then it’s your burden to prove what part was pure capital gains and what part was reinvested income, and if you fail, then potentially they may want to just tax you on all the gains.

Well I am mostly interested in the autofillin for the tax-declaration which is based on the ESTV as far as I know (I actually have not tested that jet). Do you have VT yourself and if so how do you handle that? Taxes really seem like the hardest part to me.

[hedgehog]

Yes it’s a more manual process to fill in the numbers for them, but not really that hard. Just sum up all the gross dividends times applicable exchange rates. AFAIK you’re supposed to use the official ESTV’s Tageskurse for the previous business day. It’s no big deal if make small mistake. For DA-1 you’re supposed to attach brokerage statements anyway so they can see the original numbers and correct stuff if they don’t like something

[derpinator]

Well if I manage to do this it could be quite lucrative with he lower TER and much lower transaction costs as well as possibly recoverable tax. Well the worst case is me bugging you next march XD.

I will have to see what I will do about the Saxo account, I will probably just sell and eat the losses.
Wired how my contact still did not answer my email about the custody-fees while answering questions about account creation pretty much instantly.

[jrmycohen]

@hedgehog

Corporate bonds tend to go down with the rest of the market in a downturn

Corporate bonds do tend to be correlated with the rest of the market in a downturn and indeed liquidity (including for high yield) reduces in crisis time, so shifting to equities at that time may reveal costly.

That said, as you note, corporate bonds still take advantage from lowering interest rates and still present a lower drawdown risk than equities.

Consequently a period of crisis would indeed reduce your asset value (well, investing presents that risk), however you would still be in a position to take advantage of the lower equity valuations when that happens thanks to lower drawdown on you bond portfolio (including corporate bonds).

Still, no one has a crystal ball on valuations and that is why we still invest in more risky bonds holding a credit component - the same way we still advise some S&P 500 allocation if someone is to invest.

Particularly on credit spread, I suppose you refer to their current tightness. It surely doesn’t make for an ideal situation. That said, it doesn’t render our above mentioned belief invalid and while spreads are low the steepness of their curve still allow for increased additional income in an index environment.

@hedgehog

CAPE has become very correlated to bond yields which have been falling for good 30-40 past years

We agree that low interest rates strongly impact CAPE.

That said, if we refer to your link you still see a high correlation between starting CAPE and return over the following 10 years.

Also, we could think that on a fundamental valuation point of view it makes sense in the first place, i.e. discounting CF models.

Yet if we are to observe continuously low interest rates, this would be for structural underlying reasons (demographics, potential growth expectations…) likely to create adjustments on the CAPE due to consequently depressed prices.

In any case, this is very interesting and something we will definitely dig deeper into in the future. Thanks!

[nugget]

@jrmycohen
thanks for sharing all this stuff sorry for getting all these partially harsh replies, but i join in for the most basic points you already read.
the common ground in this forum is

• reducing the cost to the far, and adding 1% in fees roughly correspond to quadrupling expenses or even more!
• having a simplistic few-fund-lazy-portfolio (which comes back to the previous point)
• the DIY-mentalitly is quite strong here, so even less incentitive for people here to pay somebody to do typically <10 transaction yearly. this corresponds to the cost of a CHF 10-20k account with simplewealth (depending on broker…). above that, the expenses point of view clearly favors the DIY approach!

so what could you offer that is valuable to the people here? access to institutional-only-index funds? cheap robo-advising? What do you do better or how do you distinguish from truewealth, who does the same for half of your fees?

However I still wish you to be successful with your business, to spread the word of indexing and let the financially incapable folks have a better time than with UBS/CS/ZKB/… private banking!

[wapiti]

You can ask the tax administration to add fund/ETF. I have done that for VBR (Small Cap Value Vanguard). They are very efficient, I have asked on Sunday and on Monday, they told me that the VBR ETF had been added.

[nugget]

they told me that the VBR ETF had been added.

that is so cool since i own this one too!

[Alex]

While I agree that this probably isn’t the ideal audience for @jrmycohen’s services, that doesn’t mean his contributions aren’t useful. For example, I’m doing my own thing with IB, but I’m also helping my girlfriend set up a TrueWealth account (which I heard about through the Boggleheads forum). She doesn’t want to be as involved, but she does want to save intelligently.

I think there’s a value to hearing about what services are out there, and there’s certainly an educational value to discussing the investment decisions. Obviously we wouldn’t want blatant advertising or spam, but I don’t think that’s been the case so far.

[derpinator]

@wapiti

You can ask the tax administration to add fund/ETF. I have done that for VBR (Small Cap Value Vanguard). They are very efficient, I have asked on Sunday and on Monday, they told me that the VBR ETF had been added.

Who exactly would I have to ask, is there a specific address for this? If this is possible I really see no reason to with go VWRD over VT.

Who would have thought, flexibility and Swiss Bureaucrats is not something you usually hear together.

[wapiti]

https://www.estv.admin.ch/estv/de/home/die-estv/kontaktformulare/kontakt-dbst.html

[derpinator]

Well it is worth a try, let’s see what happens.

[Grog]

But what are the real dividend tax advantages of a total world fund based in USversus based in IE? I mean us equities are 55% of a total world fund, but they give only around 1.8 % dividends. The rest of the nations (45%) can give up to 3-4% dividend that are taxed maybe worse in US than in IE, because maybe IE has better tax treaties with more countries. So did anybody ever did the calculation of the overall dividend flow to US based fund vs IE based fund? For pure us equities like s&p500 etd is clear that us fund is better, for a total world it probably is, but how much better? Just wondering.

[derpinator]

Just heard from the Tax administration: VT is now ESTV listed. I am really impressed with the response time.

@grog
Interesting, but where would you get the data for that?
Maybe we could ask vanguard directly?

Are you sure Ireland has better tax treaties than the US, I would imagine the biggest industrial nation has some reasonable tax treaties?

[Mobius]

Hmm, comparing the reporting page for VT and VWRL, I see that VT has a gross return of 2.31% vs 1.977% for VWRL. In a previous post above, I had referenced a much lower yield for VT, which I think I took from here: http://www.dividend.com/dividend-stocks/uncategorized/other/vt-vanguard-total-world-stock-index-etf/. Not sure why such a big difference, honestly. Even purchasing it at the highest price in the last 52 weeks wouldn’t bring the yield that low

Which means that if the ESTV numbers are correct, it would make a lot of sense for me to move my VWRL:swx investment from CT to VT at IB.

[Grog]

Well remember that VT is different than vwrl. At least 5% small stocks more that could account for the difference. They don’t even follow the same index, although similar. And in 2016 the ftse global all cap (VT index) returned 0.4% more than ftse all-world (vwrl), but in reality you say that VT was only around 0.33% better? It looks to me that VT then did a worse job in tracking the index than VWRL.

EDIT: I see now that you probably are thinking about dividend yield. I don’t know if that is such a good idea; as said they are different index. I think the best thing would be to compare each ETF with the basis index and see how they do from a total return perspective.

VWRL:

VT:

and here all the index:

What I am trying to say here is that once you got down to 0.25% TER, and looking to improve of some percentage point to 0.11% and doing dividend optimization, then it’s important to understand that VWRL and VT are not the same thing and the things that make it different (small stocks, country of residence and so on) may have a larger impact. Look at the variability. Sometime the fund is 2% better than the index, sometimes 1% worse! The impact of management for securities lending is a more important factor than some tax treaties, just saying… I can’t even find out why the benchmark in VWRL is reported as 8% but then the FTSE all-world grew 8.6% in 2016.

I am very interested in switchinig to US etf and IB since it seems so easy, but I guess I am too lazy and I really like buying stuff on the swiss exchange, although probably it is not rational.And I like CT.

[derpinator]

@Grog

VWRL

I knew it could not be that easy.

Where did you get that data? I would like to do the comparison using VWRD instead of VWRL since that would at least take the currency conversion out of the equation.

[weirded]

It would be nice but I fear it’s not possible…

You can find the data here

The ETF official currency is USD. I’ve already tried to contact Vanguard to know something about currency conversion rate with no luck…

[hedgehog]

Conversion rate markup is part of bid-ask spread. Just one part of it, another thing you’re paying for is arbitraging markup for the market makers.

Buy the most liquid, most highly traded ETFs, all other things equal: spread will be minimal due to natural competition.

[wapiti]

Like said before in this thread, it makes sense to buy an U.S etf when the underlying securities are traded in U.S.
In the other cases, like all-world index, the advantages are not clear enough
Let’s not forget that 15% or 30% of taxes are applied by U.S on dividends. It’s possible to be refunded by the tax administration, however this amount would be blocked during months and can not be reinvested in the market.
That’s why I have chosen VFEM instead of VWO for emerging markets.