Need portfolio advice

Hi there,

I need some help choosing a portfolio.

A few words about me:
37 years old
Married, father of two
Mechanical engineer
Swiss resident and Swiss citizen

My financial situation (all in CHF)

  • 470k invested in our house
  • 100k in Swiss pension system (2nd and 3rd pillar)
  • 100k in cash ready to be invested
  • 40k in the stocks of the tech company I work with

Other aspects

  • I’d like to invest the 100k I currently have in cash in ETFs
  • looking for long term investment, I plan to hold my portfolio until my retirement in 15-25years.
  • I consider myself quite risk tolerant. Have seen 20% drops my funds before and did not get overly nervous about it (didn’t feel like buying more, though).
  • Given that I have a lot of low risk assets (house, pension), I’d go for 100% stocks.
  • looking for low cost and low tax options. I just opened an account with Interactive Brokers and plan to use it to buy ETFs.

Choice of ETFs

  • I thought about going for 60% VXUS and 40% VTI but I don’t really have a clue.
  • Is that a sound choice for a Swiss investor?
  • any recommended alternatives?
  • Maybe adding some emerging markets? Or small caps?
1 Like

Go for VT ETF - it’s a global ETF that has everything (all caps and all world, including EM) and it’s market capitalization weighted. It’s a reasonable default choice for Switzerland-based long-term investors.

The first thing you should reconsider is owning 40k in the stocks of the company where you work. You are running a concentrated double risk because if your company goes bankrupt you may loose both your job and 40k. I would first of all get rid at least of some of these stocks and diversify in this respect.

6 Likes

The VT is not a bad choice as a widely diversified fund. Buy and forget.

However, you have to be aware that the fund is 55% USA and largely ignores the most dynamic regions in the world, aka Emerging Markets. I would personally invest 20-30% of my money in an ETF like the Amundi ETF (ISIN LU1681045370). It has a cost of 0.20%. Personally, I would also include some alternatives like active long/short funds, but thats only because I work in the industry and see that stuff every day.

All the best
Gondolin

1 Like

Not correct. VT does include Emerging Marktets. “Seeks to track the performance of the FTSE Global All Cap Index, which covers both well-established and still-developing markets.”

Buying VTI + VXUS does however mean you will own more companies (around 10000) and the TER will be lower compared to VT. It’s a solid choice but you’ll have to keep an eye on balancing.

@Gondolin - the best EM ETF you could currently buy is probably the Ishares EIMI, as it’s one of the only one including EM Small caps and China domestic shares with a very friendly TER of 0.18%.

2 Likes

Ok, when I say „largely ignores EM“ I meant that it is a very low exposure for EM and Frontier markets - 11% for the former and 0% for the latter. I think this is too low given the dynamic development of these economies. But each to his own. As I said, not a bad choice for somebody who does not want to worry about his/her exposure.

Cheers
Gondolin

Well, either VT or a mix of VTI+VXUS will result in the same exposure to EM as both weight according to market cap.

I know what you mean however. I also intend to overweight EM and Small cap companies in my portfolio, but only slightly.

60% MSCI World + 20% MSCI World Small cap + 20% MSCI EM IMI is my target and to do that I will use HMWO + WSML + EIMI.

2 Likes

There’s a difference between “ignores” and “not overweights”. Speaking of FM, I opened a thread here about it and the conclusion of the discussion was that’s it’s quite controversial to invests in these markets. I’d say it’s not a sane default choice for inexperienced investor.

I know you’ve withdrawn your post, but this allocation lands a weighted TER of slightly below 0.2%. A market cap weighted allocation would result in TER of 0.18%.

1 Like

Thank you all for your comments!

I think I’ll stick to my original plan of VTI+VXUS.

One additional question: how is the tax situation with US domiciled ETFs vs Ireland or Luxemburg domiciled ones?

To my understanding (from researching forum posts) the situation with US domiciled ETFs is the following:

  • On dividends I pay 30% US withholding tax.
  • These 30% I can reduce to 15% with the W-8BEN form.
  • The remaining 15% I can get back with another form (how is it called?) with the Swiss tax declaration.
  • I then pay normal income tax (Einkommenssteuer) in Switzerland on the dividends and wealth tax (Vermögenssteuer) on my net worth.

Is that correct? What is different with non-US domiciled ETFs?

please refer to another post, probably already on the wiki :slight_smile:

It’s called “DA-1” form.

Nikster,

just curious, why would you make your life difficult with a US based ETF and not choose a European or Swiss based one where tax is much easier ?

All the best
Gondolin

Because the European ETF pays 15% of US withholding tax on the dividend and it’s lost. Just to visualize it, on a portfolio of 100’000 that’s 300 lost each year.

And the additional effort is not really much bigger. The W8BEN gets taken care of by registration at the broker. The DA-1 you just fill out together with your annual tax declaration. Maybe 5 minutes extra effort.

2 Likes

Ah, ok, now I get it. But would the withholding tax not only be for US stocks, i.e. some 55% of the global stock universe ? Sorry for the dumb questions, my tax knowledge really sucks…

The withholding tax for the 55% of US stocks is paid by the fund (L1TW), then you pay the the withholding tax for dividend from entire fund (L2TW). However, in case of Switzerland-based investors that use for example IB (broker classified as “qualified intermediary” which also help you with W8BEN form), you pay only 15% of withholding tax, and that you can later reimburse from Swiss tax authorities with DA-1 form (in other words, use as a tax credit for the Swiss tax).

Read more here:

Yes you are right, my example of 300 CHF would only work for 100% US ETF, like VUSA. For VWRL, you lose 55%, because your fund is in Ireland and it has to pay withholding tax to USA. Plus, if any country has a less favourable tax deal with Ireland than with USA, then you also pay. But on this I do not have any detailed info.

I agree with your opinion, however I also keep more than I should in my company`s stocks. The reason is that each 3rd year they give 33% to the number of the stocks. As this is a special package deal, I considered that the risk worth the value. So there can be cases where it is good deal to keep stocks of your company…but of course if the stock price would fall 70% and I get fired, then this was a bad decision :).

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