New Mustachian, a bit afraid of taking the leap, wisdom needed!

Dear fellow Mustachians,

this is my first post but I’ve been already following the forums for quite a while. First of all, let me thank everybody for all the wealth of information that can be found here, I couldn’t have started my journey to FI without everything that I’ve found here!

I am Spanish and I have been living in Switzerland for 7 years with my wife. We currently both work and have a 1.5 year-old kid (with all the expenses). After reading a couple of books on personal finance, I’ve been reading around this forum and other similar ones and I’ve realized that our approach to finance and retirement was far from optimal. Although we have always tried to invest some money, and we currently have a fund plan with PostFinance, we’re clearly paying enormous fees and underinvesting.

To remedy this situation, and after informing ourselves as best as we could, we’ve done the following:

  • Put together all our finances in a detailed Google Docs and calculated our NW, along with our asset allocation.
  • Written a IPS with our our goals.
  • Started to keep track of our expenses, prepared a budget and planned for savings of ~35% to start with.

Our investment plan basically boils, at the beginning, to something very simple: 60/15/25 distribution between International ETFs, Swiss ETFs and bonds/cash, keeping the number of ETFs to the minimum. In particular, since we own a PF Fonds Suisse, we are planning to only acquire one international ETF. After quite a bit of research, it seems that the best option is to invest in the VT ETF with IB (we’d be investing more than 250k CHF). However, even after reading the forums I have three big doubts:

  • Given the new regulations I may lose access to US-based ETFs, in which case VWRL could be an option (with the advantage that is in CHF). Since we’re so close to 2020, does it even make sense to buy VT?
  • Isn’t putting more than 250k on a single fund too risky? I mean, the fund is diversified by iself, but I think I’m not confident enough to diversify myself yet, so I don’t to complicate things too much at the beginning. Also, my wife is more “risk averse” so it seem easier to convince her to buy only one
    *We had a meeting with a couple of wealth managers (they contacted us through work), and instead of EFTs they recommended life insurance/3b pillar, saying that it will grow a healthy 5% per year with virtually no risk. I have read in the forum here that this is not a good idea, but I am not sure I fully understand why. Can somebody help me understand why this is not a good idea?

Also, in terms of investing, and since I’m not confident with IB yet, I guess it’s better to invest in steps, maybe starting with a small sum of around 20k. I have to say it’s quite a big change from my usual dabblings with the stock market (I’ve been doing this for a while, but always through my bank/intermediary, so much safer), so any tips would be greatly appreciated (I’ve already seen quite some on the forums!). However, I want to ramp up fast so I can avoid monthly fees.

I also would like to ask about the forum’s expertise about asset allocation. We’re currently 7/15/78, so there’s clearly a lot of work to be done (I currently count 2/3 pillars also as bonds in the NW computation). However, due to our work we may go back to Spain in a short timescale (less than 4 years), and in that case we would like to use the money in the 2/3 pillars to give a downpayment for a house(*). Then, my reasoning would be to keep a bias towards cash/bonds (50/15/35) such that when we spend the pillars it will rebalance to something like 65/20/15, and then we can accumulate a bit more cash before investing again. Does this strategy make sense? It could also be we don’t leave Switzerland at all, in which case we would start rebalancing by moving the 3rd pillar to an ETF and investing a bit more cash.

So, these are my doubts, sorry for the long post, and hi again to everybody!

Thanks in advance and I look forward to many fruitful discussions,
Albert

(*) Incidentally, does anybody have experience/knowledge in using the 2/3 pillar for a downpayment of a house when leaving Switzerland for the UE? At Postfinance they told me it’s not possible, but I’ve read in many places that it is.

2 Likes

You might want to get back to them and inquire detailedly about their offering. Absolutely make sure you get the contractual paperwork, and mandatory documents for the life insurance. Read them and try to understand them thoroughly, including what costs are involved. Also, try to get a grasp about returns in different market conditions. Then report back.

EDIT: To preempt your reporting back: Chances are you won’t be able to.

Taking the term literally, life insurance itself can make sense if you have to insure against risks. Your remaining family being unable to pay the mortgage due to your premature disability or death, for instance.

These “life insurance” investment hybrid policies seem a crude a mishmash between insurance against risk and a fund saving plan to me. In my opinion, these products are intentionally designed to obfuscate high fees, charges, kickbacks and commissions and (often) sub-par investment vehicles. Often in rather complex layers, behind a facade that suggests you won’t be paying insurance premiums “for nothing”, without getting something back.

That might be the appeal for some. The suggestion of killing two birds with one stone: To 1) obtain risk insurance and 2) make regular savings and receive investment returns, with just one contract and monthly payment.

Not sure about PostFinance, but straight from the government web site:

“Möglich ist Wohneigentum in der Schweiz oder im Ausland (beispielsweise bei einem Grenzgänger), es muss sich jedoch immer um den Hauptwohnsitz handeln”

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Welcome to the forum! Many questions, so I try to keep it short:

I may lose access to US-based ETFs

See this thread, especially summary by @wapiti :

Is Switzerland in the EU? No
Does European laws apply to Switzerland? No
Is there a similar law in Switzerand? No, ( at least not yet)

Isn’t putting more than 250k on a single fund too risky

No, funds don’t have an inherent risk themselves that could lead to bankruptcy.

they recommended life insurance/3b pillar

In >98% of cases that is bad advice, @San_Francisco already mentioned valuable points.

maybe starting with a small sum of around 20k

I’d suggest using the cost average effect and go for 15 to 20 kCHF/month to spread your 250 kCHF + new savings over 1 to 1.5 years. Especially as we are close to all-time highs, otherwise you inadvertently are timing the market. Don’t worry about paying some minor fees along the way, ramping-up too fast is a bad idea.

Does this strategy make sense?

Yes, keeping bond/less risky asset allocation is important when planning to buy real estate. For simplicity, look at your portfolio without pillars 2/3 and go for target allocation with that portion. Review asset allocation after buying real estate.

using the 2/3 pillar for a downpayment of a house when leaving Switzerland

Not an expert, but in general if you leave the EU indefinitely (or at least with the intention to not return) you are free to use your pillar 2 as you please. Technically Postfinance is correct in saying you can’t use pillar 2 for a downpayment in the UE, as this does not count as “WEF-Bezug” and is not permitted under that umbrella, but irrelevant as you would dissolve your pillar 2 completely. You also mentioned Spain, in that case the “WEF-Bezug” works in principle as it would in Switzerland.

I’d suggest to include non-financial assets to your allocation (the house is a good start for such an extension). With only financial assets you are 100% exposed to central banks’ experiments.

In most cases, I would say life insurances aren’t that useful.
Pillar 2 and AHV are already covering the risk in case of death and incapacity , giving pension to your wife and children.

It would be a lot better instead to buy a life insurance to “insure yourself” by investing in ETFs.

saying that it will grow a healthy 5% per year with virtually no risk

This is a false statement. Either the company offers a return each year of 5% (like a bank account), which is impossible in the current market. The rate is around 1%. Either your account is tied to funds (stocks, bonds) in this case they can’t ensure you a 5% returned as it’s market dependent.

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I know you can withdraw the 3rd pillar if you leave definitly CH regardless of what is the usage you give the money (you will need to put it back should you return).

About the 2nd pillar I am not sure. I know you can use it for buying primary residence in CH or if you work here and buy close to the border as confirmed by the link of @San_Francisco . It seems to say you are allowed to buy in another country as long as it’s your main residence (then they give the example close to the border). I see a door open there. Best ask to the CH authorities than your bank.

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According to what would you need to refund pillar 3a?
Obviously, if you return to Switzerland just a few weeks after having „left definitely“, chances are tax authorities will consider this an abuse of the law.

But I‘m not aware of anything that says you have to refund pillar 3a after having spent a reasonable amount of time abroad, without a premeditated return.

In practice, you’re likely to get away with, within reasonable limits - though also to depend on the practicalities of the case (what time did you spend abroad, returning to the same municipality and tax authority, etc.).

Doesn’t have to be near the border, can be anywhere (Spain, UK). Though if you continue to work in Switzerland, questions might arise whether it’s your primary residence, if too far away.

Ex-EU/EFTA you can withdraw the full amount of pillar 2 anyway.

Are there any specific laws for 2nd/3rd pillar withdrawal after leaving Switzerland and returning? Could I go to Thailand for 1 year and return with no worries about paying it back?

https://www.admin.ch/opc/de/classified-compilation/19930375/index.html#a5

You have to leave Switzerland for good, otherwise the withdrawal would be illegal (as in your case, as you plan to return).

I’ve read that the tax authority might tax you on it… though it seems impractical to force you to pay it back (see here, page 79 and seq.)

Second question would obviously be: Just because might be relatively “rich”, don’t forget that you can’t just go and settle in every country you please. Are you sure, you qualify for a long-term visa in Thailand?

2 Likes

You are probably right. This has likely been my bank advisor… :boom:

Dear all,

thanks a lot for all the input! I put together all the info, open an IB account and made bought my first batch of VT :slight_smile: I have a question about this: I converted CHF to USD using FOREX and then I acquired ~10k of VT. I was expecting a commission of 10USD, but I only got charged 1. Does this make sense?

Following the advice, I will ramp up buying 20k every month until I catch up, at which point I will invest according to my IPS.

Again, I just wanted to thank everybody who took the time to give their help.
Albert

PS: I’ve worked out a neat expense tracking system that combines Google Sheets and Telegram bots, simpler than what YNAB does but which is working wonders for my wife and me because it’s very simple and doesn’t require an extra app. Would people be interested in it?

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What’s your github account? :slight_smile:

You will see at the end of the month the 10CHF expense. You spend what you spend now and at the end of the month you’ll see the remaining amount detracted (10chf - actual expenses = amount detracted at the end of the month)

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Make sure to actually have some cash left to pay the monthly fee, otherwise they automatically sell something.

Yes, thanks for the reminder! So I understand the comission of 0.1% with min 10 CHF is applied month wise?

Which 0.1%? I believe you can think of it as two separate things:

  1. You pay commissions according to their pricing, 1 CHF (per transaction) minimum on your forex transaction, apparently.
  2. At the end of the month, they will sum up your commissions for the month and charge you an activity fee for the difference:

"If monthly commissions are less than USD 10,
Standard Activity Fee = USD 10 – commissions."
https://www.interactivebrokers.com/en/index.php?f=4969

(Though maybe they should rather call it an inactivity fee)

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Oh, sorry, I explained wrongly:

Then, at the end of the month I will be charged the inactivity fee, but I understand it’s waived the first 3 months. Did I misunderstand?

In your link, for US etfs it says 0.005 per share (min 1 USD, max 1%). Maybe you looked at the wrong place?

You can easily get charged even less - just switch to tiered pricing and it will be something like 0 33. :wink:

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Oh true, I may change, thanks! Question is: why does fixed pricing even exist if tiered is cheaper? I guess depending on what type of products you buy?

I think if you buy positions for a bit over 5k on some exchanges, there might be edge cases where fixed is a bit cheaper. I think I had one case where I bought for 7k on London Stock Exchange and it cost me 6.50CHF, instead of 5 or so.

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