Mustachian portfolios


#162

You are right, I have not thought about how this 0.1% will grow thanks to the 8%. Please forgive me for spreading ignorance so confidently :wink:

I guess this formula should be correct (works in google search):

100000 * 108% ^ 20 = 466095

And if we got the extra 0.2%:

100000 * 108.2% ^ 20 = 483665

That’s even more than you got, so forgive me, no pennies indeed! :astonished:

However, I guess where I wasn’t totally wrong, is that splitting VT makes you save 0.1%, but you can achieve much more by focusing on increasing your savings rate or income.


#163

And it is to our (my) advantage that you are reminding me (us) of not loosing sight of this key point.

In fact, with a savings rate of 75% and your nice monthly savings amount, you are so well set on the way to FiRe that not even the gyrations of the stock markets will change that much. Whether the returns are 4 or 8 percent in the next 10 years pales in comparison to your contributions.

You would probably even welcome a lower yield, as the assets would appreciate less quickly, getting you more bang for the buck.

Please understand that I find it simply interesting to deepen my understanding of the workings and effects of the financial stuff.


#164

This will sound like an easy question for all of you, but what is the rationale on your side for keeping your investments on SIX exchange? I assume the choice to keep CHF as currency is to avoid FX costs?


#165

Hi @Joey

My reasoning behind as European investor is the following : I am of the opinion that global portfolio is the least risky way of investing. There is no accepted economic theory that i am aware of that buying some part of the global portfolio is less risky than buying the global portfolio. You can argue that as an American investor you may want to tilt towards US equity which is fine because in my opinion is the only country in the world where you can have a home country bias yet have a very diversified portfolio in terms of industries as well as individual stock holdings. However as a European investor I believe Holding Total World is the logical end-point of a diversify , less risky equities strategy. Now in theory you can implement this strategy in many different ways :

Is true that the combine ER of VTI + VXUS is lower than VT but Vanguard’s VT expense ratio has been dropping, so the argument that you’re better off with several funds to build the equivalent as time passes it has less importance. Also you can argue that when deciding between two or more funds, it is wise to consider Occam’s Razor: Other things being equal, simpler explanations are generally better than more complex ones. In favor of VTI + VXUS is that you have the possibility to tilt towards US market. In fact
many American investors think than US equities will continue over-perform overseas equities…
You could also split VTI in Vanguard FTSE Developed Markets ETF (VEA) + Vanguard FTSE Emerging Markets ETF (VWO) Compared to VXUS, by holding VEA + VWO you appear to get a larger number of stocks, lower overall expense ratio but VXUS has more “simplicity”, but if that is the goal and you are ok with less stocks and higher ER, wouldn’t you just be using Vanguard Total World Stock ETF (VT)?
The point I trying to make is that there are many roads to dublin .The world cap protect you against the risk of guessing wrong, and I think will return a solid return . In the long term and in practice any of the implementations of this strategy will be ok.

Now regarding US domiciled ETF vs Ireland domiciled etf , is a long-discussed topic in this forum and I agree with the opinion that as a Swiss residents we can benefit from swiss-american tax treaty and US domiciled ETF + non Swiss brokers (in my case IB) is the perfect combo to optimize taxes.

Currently if you want to mimic VT using VTI + VXUS you need to allocate 55% VTI and 45 % VXUS.

26

Then, when is time to rebalance your portfolio the objective is to maintain a consistent world cap allocation of your equity classes , changing the allocation if the have deviated away from world cap ratio back into line


#166

Thanks for the great answer! I understand it a lot better now! A few additional points/questions

1- Sorry for the lack of clarity. As of now, I only use Postfinance (which I understand is based on Swissquote) since they offered free trading costs of 500 CHF and it was the only platform I have ever used in CH. Am I right to assume that it would make less sense to purchase VT through a swiss broker? Also I have the feeling that there are high FX costs. Just tried and did the maths and it was roughly 1%!
2- I read the forum on tax but not sure about that one: ok there is a 15% withholding tax on VUSA for the dividend. However I would assume that this is also applicable for VWRL at least for the US stock part? Since I believe VUSA TER is 0.09% VS. 0.25%, in the end the difference would be little in terms of costs between the two ETFs no?
3- As far as the strategy is concerned for someone like me who would like to be really passive, what do you mustachians think? Is it important to always invest the same amount of money at regular time intervals or it can warry? I was thinking of a fix sum every 6 months to absorb variations.
4- I am a bit scared of the CHF getting stronger over time and then eating the profits made by the ETFs? Is this reasonable or in theory this would be offset by purchasing at regular time intervals long-term.


#167

Honestlly, this is the lesser evil. SIX exchange for lower stamp duty and CHF for currency exchange fees.

I’m well aware that IB (and US domciled ETFs) would be overall cheaper but simplicity of Corner Trader made me start investing, that’s most important. Also, I used up my capital for an apartment purchase so I have no significant initial amount to start with. It will indeed take me some time to reach and exceed 100k. I will eventually open an IB account and perhaps keep both in parallel. I have calculated that with higher trading costs and higher fund TER compounded for 20 years I’m looking at a difference of around 20’000 CHF in favor of IB or in other words 2.5% of my capital in 20 years.

As a side note, the cowboy approach of US administration to finances (introduction of FATCA etc.) adds a layer of insecurity which I’m not ready for at the moment.


#168

Hi all , my portfolio :
Broker : interactive Brokers
Asset allocation: 75% stocks / 25% bonds.
VXUS - Vanguard Total International Stock ETF (45%)
VTI - Vanguard Total Stock Market (55%)
AGGH - iShares Global Aggregate Bond UCITS ETF EUR Hedged


#169

That’s it, I would say.

Towards, or away. I’m not sure if it’s smart to put half of the portfolio into a single country.

That’s not quite right. North America includes Canada and Mexico. The correct split is 51% US and 49% exUS. Here the proof:

https://www.msci.com/documents/10199/f7349d88-8c6f-46dc-bf0d-f2e02e1f5be5

Well, if people opt for the Swiss brokers and SIX-listed ETFs, it’s for the sake of simplicity. I agree, if you have a bank account at PostFinance and open a depot there, buy som VWRL on SIX, then it’s really easy.

But of course you pay a price for that. You have higher broker fees, you have currency exchange fees, you have stamp duty for using a Swiss broker, you can’t reclaim withholding tax from USA. 1% for currency exchange is just unacceptable. It’s a huge cost.

The withholding tax is not included in the TER. It is deducted from the dividend. You can check on Vanguard’s website that it pays e.g. $1.00 per share on March 24 2018. But when you have VT, you will only get $0.85 and $0.15 will go to uncle Sam. When you own VWRL, you will receive the whole dividend, but it will be 0.85 from the start. The withholding tax that Vanguard paid to USA for the US-part of the ETF is hidden.


#170

Actually, I’ve got a question. Here’s a chart from MarketWatch, which compares the relative price change of VWRD vs VT and VUSD vs VOO. As you can see, the two pairs are almost glued to each other.

So why are the European versions not lagging behind due to higher TER?

And why does VWRD not differ a bit from VT, due to not having small caps?


#171

When I was looking into VWRD I noticed it had an excellent tracking difference of ~-0.25%, so effectively “negating” TER. This might be reason. I’m not exactly sure what the TD of VT is though, I think something around 0.09%

It could also be that the charts are shown without TER?


#172

If I understand correctly, the chart is showing the price, the closing price from the exchange. On one hand, it makes sense that it’s identical, VOO and VUSD track the same thing. But where is the TER?


#173

Interesting riddle. I would like to rule out the uncertainties linked to the chart. Could you give us the aggregate returns for each fund (1/3/5 years)? From factsheet should be good enough. I can’t do it myself atm.


#174

Ok so in the end, whether you own VUSA or VWRL, it does not make a big difference from the tax perspective. Could it be interesting to keep a little bit of VUSA on top of the VWRL in the portfolio since the TER costs are lower and to increase the US exposure a bit? or it makes no sense at all due to too much overlapping

for instance taking the example for Glina. That could give 50% VWRL, 20% VUSA + Small caps and Gold


#175

I checked the documents and i can’t see where you actually see that returns are identical. could you please elaborate?


#176

If you look at the graphs, they all start at the same point (100 USD) in 2003.

By 2018, the MSCI World Small Cap rose to 562.60, while the MSCI Emerging Markets rose to 590.99 but it had a way bumpier road along the way. The MSCI World returned 374.80 with least volatility.

As to trading costs and TER, my calculations show that an additional initial investment of 500 CHF in first year covers 20 years of compounded trading cost and TER difference between IB and Corner trader so this is indeed perhaps a bit overblown in proportions. As a matter of fact, this has convinced me to sell one of my camera lenses so that I don’t feel bad for investing via Corner. :slight_smile:

Edit:
Oh and by the way 50% VWRL, 20% VUSA only makes sense if you inted to heavily overweight USA. The VWRL already includes 51% US.


#177

If I am not mistaken, I see that you chose an accumulative fund for the WOSC ? Any particular reason for that? I believe that VWRL is income ETF.

Just for my interest, how is your investing strategy? Every 3/6/12 months? A fix sum everytime on each of the 3 ETFs?


#178

As mentioned, the only alternative MSCI All World Small Cap is the Ishares WSML, but it’s not on SIX and not in CHF.

The WOSC, same as VWRL is listed in ICTax, https://www.ictax.admin.ch/ so the tax authority knows exactly what to charge for dividends. I don’t think it makes any tax difference if you own an accumulating or distributing ETF as long as you are in the wealth accumulation stage. It is also my understanding that the TER is relatively high due to US withholding tax which is levied at fund level, but don’t take my word for it.

I have a monthly payment to my trading account, but purchase shares every 2-3 months to minimize trading costs. Only 1 ETF per purchase. I’m aware that this will cause some portfolio balancing errors at first, but I’ll manage.


#179

Browsing thru the various discussions on the advantages/disadvantages of accumulating/distributing funds specifically for Swiss residents, I have a query.

I plan to invest in VTI, VXUS and VOO (overweight on large and mid cap for now) by making monthly investments thru Degiro, in a consolidated portfolio combination of

VTI (ISIN: US9229087690): 50%
VXUS (ISIN: US9219097683): 30%
VOO (ISIN: US9229083632): 20%

Question which I have is, from a Swiss resident perspective, what is better (accumulating vs distributing) if one chooses to invest in US domiciled funds?

Are there different ISIN ids for accumulating vs distributing versions of VTI, VXUS and VOO?

Any suggestion or criticism on the above portfolio is also welcome.

Apologies if the query seems overly simplistic. Thanks for your time and effort in replying!


#180

US funds don’t accumulate dividends

Taxes aren’t part of TER

VTI and VOO are largely the same thing, you’re way overweighting US (70%) compared to its place in the world (~55%), is that what you wanted to achieve?


#181

VTI + VOO definitely makes no sense. VTI = 75% VOO + 25% medium and small caps.