Newbie starting out - critiques welcome ;-)

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Hi all,

Newbie here. Early 30s, current nw in the low six figures. No current assets invested.

Main goal is FI in the next 10-12 years (assuming current employment and savings rate stay stable, which is a big IF). Saving rate is currently around 65-70%. Target number is between high six figures and 1M. Feels a bit arrogant to even think I can plan so far in advance, but I guess it’s good to have a goal, for starters.

A few aspects I couldn’t figure out at this point, and for which I would really appreciate any inputs/critiques:

  • Lump sum vs DCA: I would tend more towards DCA, but have read contrasting opinions about it; do I assume correctly that DCA would put me in a better position to gain from any dips or corrections coming?

  • % of total nw to invest : how much, as % of NW, should I ideally have invested one year from now (not planning any big purchases in the short term)?

  • Currency : investable assets are in USD: assuming inflation rises in the coming decade, and putting aside the unforeseeable nature of the currency market, it seems the dollar is in for a long-term depreciation; what’s the strategy here? convert now to stronger currencies? (too early for me to figure this out now, but I probably won’t be retiring in CH);

  • Broker : IBKR would be my first choice, but I have to admit that what happened during the GME saga left me kind of worried; not sure how to assess and incorporate broker risk it into the overall strategy; no CH-based alternative looks interesting though;

  • Asset allocation : will try to keep it simple while also diversifying in terms of asset classes and geographical distribution; starting from Ray Dalio’s all-weather portfolio I would expand to include non-US equities and non-US bonds and rebalance to 50% stocks (moderate risk tolerance), 25% fixed income and 25% commodities (including GLD);

  • US ETFs and PRIIPS : if this is actually applied starting from 2022, would I still be able to increase any positions held at Jan 1st 2022? or would I need to reach a full position with, e.g., e.g., VTI and VWRL, within the next 10 months?

  • Market timing : while I understand market timing is close to impossible, I can’t deny the past few months in the markets have made me anxious, even if just watching from the outside: just wondering whether keeping a full cash position and wait until Q1 to end (as if Q1 could bring some clarity) would make any sense…

Is there any other aspect I am not considering at this stage? Just want to make sure I do my due diligence before making any moves. Any inputs/critiques truly welcome.

Thanks!

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Whatever you pick, assuming it’s a short time range (max 1y), it won’t matter much, don’t spend too much time on it, do what makes you feel better.

Really depends on your liquidity needs, probably good to at least have some emergency buffer for unplanned expenses.

Check the forum, it’s been covered many times. It doesn’t really matter if you’re investing in equity (or it’s a lot more complicated than just the ETF denomination or the companies domicile).

Keep in mind when starting from US-based portfolio that you probably don’t want to invest in non CHF bonds/fixed income (those are meant to be in your “home” currency otherwise it defeats the purpose).
Which if you care about CHF probably means using cash (since bonds have negative yields), or some other asset class.

Decide your allocation, and your investment plan and ignore the market, esp. for such long time horizon. Nobody can predict the future (except that over a 10 year period, you’ll likely have to weather a few crashes, but nobody knows when that will happen).

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Yes. It would also put you in a worse position to benefit from gains.
It’s a classic trade-off.

The question is if you plan to hold bonds - or any other assets that promise to “pay back” a predetermined amount in USD. Stock prices will simply be following the currency exchange rates between USD and your target currency (CHF/EUR?). So will gold.

Maybe, maybe not. Opinions and interpretations are differing on this.
It doesn’t matter much - you can buy very affordable alternatives (European ETFs) today.

If you are thinking about timing the market or cost averaging, I think you should decide the amounts you feel comfortable to invest in equity now and for the foreseeable future. Not rush into US ETFs now, simply because that window may close at the end of the year.

To rephrase:

…country of domicile of the funds you’ll be investing in.

Then, after you’ve laid out your general investment plan, optimise for fees and tax efficiency (we’re talking small fractions of a percentage point a year).

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Been quite some time from the original post and I realize I haven’t thanked nabalzbhf and San_Francisco for their answers, my apologies; I found your considerations very useful in setting up a basic investment portfolio, but some of original doubts remain. Maybe time for a quick update and re-assessment, hopefully this is a useful exercise for other users as well.

My current allocation looks like this:

Equities: 86%, of which:

  • VT 44%
  • VTWO 15%
  • VXUS 12%
  • VSS 12%
  • LIT 3%

Bond (BND and VGSH): 6%
Gold: 3%
Cash: 5%

Rationale for VXUS and VSS is to have more exposure to non-US equities (both large and small-cap). LIT was a mistake so far. Rest is pretty standard. I keep DCA-ing monthly with the same allocation (except bonds).

My main doubt today is more of a currency conundrum:

  1. the above portfolio is in USD, I currently live in CH but unclear if will retire here (unlikely but too early to say); as a EU citizen I should probably be long EUR too (I guess?);
  2. from other posts in the forum I gather it’s fine to hold a brokerage account in USD, but I have more liquid assets (savings account, money market fund) which I am struggling to decide to convert (again, to which currency) or put to use in alternative ways;
  3. following the same reasoning, I should probably sell bonds, if I’m not planning to use USD as main currency?
  4. I am also considering opening a 2nd brokerage account with a Swiss provider and fund it in either CHF/EUR; may be a good opportunity to gain more exposure to non-US ETFs and solve the currency issue?

Apart from that, I feel like I’ve been too conservative in my allocation and that I should probably invest more; at the same time I found DCA-ing working well for me psychologically (I buy monthly, on a fixed date +/-1 day, regardless of the price at the moment).

Any opinions/comments?

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The question that you should answer is rather: how did you feel in March, September and October 2022?

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I wouldn’t get too hung up on the Euro.

If you were a Turkish or Argentine citizen, would you go long on the Turkish Lira or Argentine Peso. Or any other… no doubt these are both countries that can be good to retire to? Their currency though? Not so much.

Keep in mind that capital gains are tax-free - and so are gains in purchasing power by holding Swiss Francs (historically one of the strongest currencies in the world). Pocketing high interest income in Euro, Lira or Peso is not.

Though do diversify - maybe not so much in currency (as in holding cash or bonds) as in investments.

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Keep in mind that a well-diversified equity portfolio largely obviates the need to worry about currencies. A Vanguard equity ETF is a basket of stocks - shares of companies that operating in many different currencies. The fund’s trading currency is merely a unit of measurement.

If 86% of your investable assets is invested in equity funds, I definitely don’t think that’s overly conservative.

Going back to this: For the last three big stock market crashes (2001, 2007, 2020) world indices recovered to their previous highs within 5-7 years. So I believe one can fully invest one’s net worth (from 100% cash to 100% equity) over that period.

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But I wouldn’t have the same outlook on EUR than on ARS, would you? What am I missing?

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This is very useful indeed; I guess it also answers the doubt about being too conservative by currently not having more than 25% of total NW invested (did not mention that sorry).

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Welcome, @ulysses!

Well done on your savings rate and your goal setting!

Others have already answered more eloquently in more depth and detail, but this is what I would say to my younger self in my early 30s on the topics you look for input:

Literature says Lump Sum, human psychology IMO says clearly DCA.

You’ll regret big losses on Lump Sum (due to bad market timing luck) much more than missed additional gains when doing DCA instead.

As much as you’re willing to invest while still being able to sleep well.

It’s actually related to the above question: DCA will help you with calibrating what your drawdown tolerance is. With Lump Sum, you’ll also find out, but possibly in an ugly way.

Doesn’t matter.*

I’ve posted on this before, feel free to search the forum on my opinions on this.

* Assumption: You invest mostly in developped markets and a fair percentage of your companies are not purley local businesses.

Only IBKR for retail investors.

CH based broker fees will just strip you off double digits of additional % returns (with your time horizon).

This would be less true it you Lump Sum invested now (but still true for investing your further returns from the Lump Sum).

I’ve also posted on this before, feel free to search the forum for my opinions on this.

No real advice here as this should be very specific to your personal plans and something that you need to be comfortable with …

… except to diversify until your risk tolerance has been tested and you feel more confident to concentrate.

I had to google PRIIPs …

… and now I feel conflicted: as an investor myself in lots of financials and a bunch of insurances I’d like people to buy into Packaged retail and insurance-based investment products (PRIIPs) as those companies will strip more fees off people buying those products, the companies make more profit, and as an investor in those companies I’ll make more return that way … as a forum colleague I would say: no way! US ETFs is the way.

Doesn’t work for markets. Can work for companies:

Doesn’t work in the short to medium term (months to a couple of years).
IMO works for longer time horizons (but really only really on a company basis, not on a buy-the-market basis).

Slightly Off Topic:
Hence my stockpicking portfolio (although my main motivation for my stockpicking portfolio is growing cash flow, but I’ll take capital gains due to opportunistic market timing as a nice side effect).

This somewhat ties back to your initial question about lump sum vs DCA, but what I would really recommend is to get a feel for your own behavior and feelings about your investments over a longer period of time, a few years at least, ideally including a recession or at least a significant market correction.
That’s a little hard to time, I’ll admit. :slight_smile:

It’s easy to stick to the backtested proven textbook approach when the wheather is fine, but it’s a different thing to sticking with it when the market recedes 20% or more, seemingly effortlessy erasing within a few weeks a good portion of your low six figures saved up so far … typically at a market mood where at that point, things seem to be only getting worse!

I am somewhat grateful for the Corona crash, as it surfaced to me the market risk I am able to bear, but I would not wish onto anyone any future crashes (though they will happen for sure)

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I wouldn’t - and neither would you, probably :wink:

That said, a case can obviously be made to not invest in (or overweight) some countries’ currencies - even if you do plan on retiring in that country.

The future of currency exchange rates isn‘t certain - but (unlike comparing two stocks) relatively predictable over the long term. At current interest rates, it’s highly likely that the Swiss Franc will appreciate against ARS or TRL - and probably EUR as well.

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Thank you @Your_Full_Name for your extensive reply and apologies for the delay, but I’m trying not to stress over this topic and re-evaluate things on a quarterly basis, hence my replying only now. Fortunately the past two years have already provided answers to some of my original doubts, while a few questions still remain, but I appreciate you taking the time to confirm what other users have suggested.

I understand the financial implications of operating with a swiss provider in terms of fees and tax stamp duty are considerable.

From a purely diversification standpoint, however, the rationale for opening a 2nd account alongside IBKR would be (a) provider diversification (institution/country); (b) investing directly into CHF based products (no currency conversion fees which I would incur in with IBKR, since account currency is USD); (c) opening the account in CHF only and setting the whole currency debate for good; (d) overall diversification, to avoid keeping more than 100k on bank account(s).

Feel free to challenge my assumptions, I am basing this on what I’ve read so far and I’m sure I’m missing something.

Definitely looking forward to a bear market sooner rather than later, to really test my tolerance :- D

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Agree with the diversification angle, though keep in mind that your securities at any bank/custodian remain yours even if the custodian goes belly up (no 100k limit as with cash).

There’s an entire thread on IBKR versus other brokers (including diversification IIRC). I’ll link to my post on fees in that thread, feel free to read up.

Careful what you wish for … :wink:

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I think only point (a) is valid. And it can be a good enough reason to pursue IB + Swiss broker strategy. I myself use IB + SQ although right now majority of assets are in IB. Might change this in future by moving securities.

(B) and (c) IBKR doesn’t fix you to the currency. You can fund IBKR account with USD or CHF or Euro. And you can buy any product. Most products that are sold on SIX are also available on IBKR. And in most cases even cheaper . For example you can fund the account with CHF and buy VWRL and you can also fund the same account with USD and buy VT.

(D) -: 100K is for cash component. I don’t think it’s valid for securities.

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I think only point (a) is valid. And it can be a good enough reason to pursue IB + Swiss broker strategy. I myself use IB + SQ although right now majority of assets are in IB. Might change this in future by moving securities.

Probably I just have to wait to reach a certain amount in IB, I wonder whether you had a certain threshold that prompted opening a 2nd account (no need to disclose it, just if you thought “after I reach X on IB” I should probably start diversifying).

(B) and (c) IBKR doesn’t fix you to the currency. You can fund IBKR account with USD or CHF or Euro. And you can buy any product. Most products that are sold on SIX are also available on IBKR. And in most cases even cheaper . For example you can fund the account with CHF and buy VWRL and you can also fund the same account with USD and buy VT.

Meaning I can have separate sub-accounts in different currencies? My account show USD as primary currency, but if that is the case great.

(D) -: 100K is for cash component. I don’t think it’s valid for securities.

Yes I meant for cash outside of the IB account that’s not worth keeping on a bank account.

Thanks!

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  1. You can have sub accounts with different primary currencies

  2. You can have one account and fund with different currencies. I have an account and I sometimes fund it with CHF and sometimes with USD. Primary currency is USD but that is not impacting anything

Basically primary currency doesn’t do anything specific. It’s just the currency in which all positions are displayed in your statements. The underlying positions remain in the currency in which they were purchased. For example if you hold VT and CHSPi and your base currency is USD, then the VT will remain in USD, CHSPI will remain in CHF but when you run a report for NAV at any date, the summary will be shown in USD.

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Alright. IB has some other type of insurance for cash. It’s different from Swiss banks but it’s even larger number.

I don’t keep cash in IB for longer periods. So I don’t know for sure.

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I am kind of newbie in investing. Only started in 2021. So in beginning , I only had one brokerage account i.e IB. At that point the only objective was to build a position.

However at some point in 2023, I decided I need to have backup for my bank account as well as my brokerage account. It’s just to hedge risks in case something happens (bankruptcy, liquidity issues, Geo political problems etc) . So it was not about particular amount but just a peace of mind approach. Chances of all of this happening is low but anything can happen.

I know IB is cheap, I know IB is best and also don’t have the stamp duty problem. So I would most likely keep ~75% of my investments there. Rest at Swiss broker. There is no real argument which will justify paying higher fees at Swiss broker but it’s just what makes me feel comfortable.

After the credit suisse fiasco , I realised that having everything in one place might be optimal and efficient but it’s not always the best.

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