My first portfolio with plans to retire in the EU

Investing / Portfolios
1

Hi everybody :slight_smile:

This is my very first post here. I’ve been reading thread for a while and, now that I’m ready to implement our first (long-term, passive) family portfolio, I’m keen to hear your honest opinion about it :slight_smile:

My wife and I are swiss residents (French/Italian), but our goal is to retire at around 70 years old (in about 30 years from now) in an European country (either France or Italy).

These are the assumptions/constraints in preparing the portfolio:

  1. Majority of our assets are in euro, as they came from an inheritance in France (120k EUR).
  2. We moved in Switzerland around 7 years ago with no savings (now around 50/60k).
  3. Our risk appetite is high. We are 40/42 years old respectively, with no debts (but not owning any apartment either) and no plan to have kids. We can save 25% of our monthly income and have a very decent life.
  4. We cannot afford buying any apartment where we would be happy to live in. That’s why we plan to retire either in France or Italy.

This brought us to the following portfolio (broker == IBKR):

Cash: we will keep around 60k CHF aside in case of need.

Fixed-income: 40%

  • (% TBD) 2nd pillar → on top of the monthly contribution, we are considering to “buy back a percentage per year”.
  • (% TBD) iShares Core € Govt Bond (SEGA) → our goal is to retire in the EU and we already have euros :slight_smile:

Equities (all ETFs): 60%

  • (20%) 3rd pillar: VIAC - global strategy.
  • (80%) IBKR:
    - VT 80% → we currently have VOO and QQQM, but we realized it’s much easier moving directly to VT to have the best diversification.
    - CHSPI 20% → home bias + keep a % in CHF in case we would need to spend a big sum at once.

What do you think about it?

Our main doubt remains SEGA. We assume that soon or later interest rates will go down, and this makes EU bonds very interesting to invest on right now (that’s our opinion of course, and we might be terribly wrong!). Moreover, with inflation being historically higher in the EU than CH, swiss bonds wouldn’t help us staying on top of it.
Finally, beside the opportunity in itself, I couldn’t find out how it works tax wise ( are there any withholding taxes for bond’s interests?). The ETF is domiciled in Ireland, and bonds are spread around the whole Europe, with I imagine withholding taxes on each of them.

Looking forward to hearing your thoughts :slight_smile:

2 Likes
2

Going by your assumptions, you don’t.

Also, if you “need” to spend it, you may reconsider holding it in an equity ETF, rather than cash. I believe you already have a pretty generous cash cushion with your 60k CHF (the equivalent to about a year or more in costs of living).

I’m not sure why you would want to have any home bias at all. You’re currently - I assume - earning employment income money in Switzerland - isn’t that enough of a home bias?

Home bias may somewhat protect you from future increases in cost of living (food, rent/accommodation). May be particularly useful when you’re (pension) income does not similarly increase with cost of living, after having retired. But since you have a plan of retiring outside of Switzerland, why do this - why keep a home bias in investments?

With CHF appreciating against the Euro has it (historically) has, you just as well may. And pay lower taxes on the (lower) nominal interest rate.

That is somewhat speculative though - I agree that holding bonds in your (future) “target currency” is sensible (as long as it’s a developed market currency, at least).

2 Likes
4

Why have extra fixed income at all with your timeline?

Also there are typically no withholding taxes on bonds.

I would invest 100% in VT and call it a day in your situation.

1 Like
5

Welcome!

You’re probably less interested in these details, but I’ll ask and comment anyhow.

What does “buy back a percentage per year” regarding your 2nd pillar mean? Do you mean further voluntary, tax deductable contributions to your employer’s pillar II? If so, you should check whether you actually can make additional buy-ins (if it’s not listed on your yearly pillar II certificate, you can inquire with your pillar II insurer at any point in time).

Also, regarding your lumping pillar II into the Fixed Income portion your strategy:

  • Mentally, I do the same. I kinda think of it as “the fixed income (FI) portion of my portfolio” similarly to you, but …

  • In reality, your employer’s pension fund will invest all the pillar II money of your company in a mix of FI and equity and real estate with the goal of maximizing the return for the overall collective of the population of your current colleagues (with the hard limitation of being able to provide cash flow required for the pensions of your current and future retired colleagues at any time, including downturns, hence their need for actual FI in their mix).

  • Your pillar II will shield you from market risk (volatility). Should not matter that much given your investment horizon*, just wanted to point out that pillar II protects you much better from volatility than FI. Your pillar II will behave with bond like returns but it has a fixed floor, i.e. no negative returns ever and at least a minimal positive return set by the government.
    For perspective:

    • my pillar II portion parked at a Freizügigkeitskonto tanked about 20% in 2022. It just only this month got back to the original sum that I paid in at the end of 2020.
    • my pillar II portion taken to my new employer’s pension fund (start of 2021) instead easily sailed through a couple of volatile years, growing slowly but steadily, never taking a hit, and at the beginning of 2024 was up 8.5% compared to the beginning of 2021.**

  • Category “Wishful-Thinking”: your pillar II could also have better returns than the mandated currently 1% for the mandatory portion of your pillar II (and some ridiculously lower number than 1% for the above mandatory portion …).
    Ok, maybe I should change my Shroom medication … but someday, this will happen!
    <insert old-man-shakes-fist-at-the-clouds meme here>

* Except if you want to retire in a year like 2022 and your personally held FI securities have just tanked alongside with equities instead of behaving the opposite way as it was described in every textbook on 60/40 portfolios …
** This includes new (tax free) contributions by myself and by my employer.

1 Like
6

That’'s really a great point you made. I’m indeed earning from an employment income in Switzerland, and I haven’t considered it in the whole picture. In fact, the more I think about my arguments about an home bias, the less it makes sense :joy_cat: (also considering that my VIAC global investment has already swiss stock in there…)

I did a quick calculation of the % allocation of currency throughout the my net worth, and I found this interesting distribution:

  • CHF: 49%
  • EUR: 23%
  • USD: 29%

I think we’ll probably shift them to VT and leave our CHF based assets in the 1st/2nd/3rd pillar (+ the cash aside).

7

I’ve already checked, and likely for me, I can make yearly voluntary contributions to my 2nd pillar :slight_smile:

I’ve heard before about the fact that it cannot go negative, but I admit I forgot about it. I’m now wondering whether my plan to invest in EU based bonds might not be the best option, given my risk appetite and my plan to buy back the 2nd pillar…

8

Check your pillar 2 performance. This could be the difference between avoiding paying into it until as late as possible, or shovelling as much money into it as you can.

1 Like
9

I think your asset allocation of 60-40 is reasonable. Some might consider it as a lower risk strategy vs 100% equity but it is individual preference. You can always choose to opt for a higher equity allocation but you need to manage your own risk tolerance.

I am assuming 40-60% refers to asset values at any given point of time and not breakdown of your yearly contribution.

Just couple of points to think about

  1. Fixed income -: you only have government bonds. Perhaps you should also consider investment grade corporate bonds to have a good mix and also a bit higher yield

  2. Home bias -: you are planning for CH bias but looking at your situation, it seems like you might be better off with a European bias. VT already have 15% Europe. So if you want to have more than 15% then perhaps best to use a VEUR type of ETF to increase allocation to European equities

  3. You should calculate if you are better off putting your fixed income into VIAC (non taxable account) or IBKR (taxable account) … you will need to consider variables like (marginal tax rate, withdrawal tax rate, wealth tax, expected return etc)

3 Likes