Thanks. I don’t understand the details around the interplay of income tax, reclaimed WHT and wealth mgmt costs well enough yet, so I excluded it for now.
So you’re saying the percentage differences for FWRA portfolios could be decreased by 1 percentage point? So e.g. for 100k/1k and neon, reducing -4.5% to -3.5%?
Could someone explain me why the results of VTI&VXUS (IBKR) are slightly higher than VT (IBKR). Only due to lower TER of VTI?
For FWRA I reduced yearly return by 0.1395% (62% US × 1.5% dividend yield × 15% WHT) and another 0.15% TER to 6.7%
Yeah. Makes sense.
Yes. Combined weighted TER is 0.049%. This advantage is (thanks to IBKR’s cheap costs) only slightly reduced by having to buy 2 ETFs instead of 1.
This doesn’t really take into account that it would get out of balance over time, right? (over the past 25y that would go from like 55% or less to 60%?)
I found the result for VT and IBKR vs SQ interesting.
Is the difference mainly because of the initial fees to buy the ETF and stamp duties ?
Approximately, yes.
Example with a S&P 500 ETF with 1.5% p.a. gross dividends, ignoring TER.
US ETF: You get 1.275% in cash, 0.225% via DA-1 (ideally) and are taxed in Switzerland on the full 1.5%. With a 30% marginal tax rate you’re left with 1.05% p.a.
IE ETF (without finpension tax report): You get 1.275% in cash and are taxed in Switzerland on these 1.275%. With a 30% marginal tax rate you’re left with 0.8925% p.a.
In this example, the advantage of DA-1 would be about 0.16% p.a. post tax instead of the pre-tax advantage of 0.225% p.a.
No it does not. I wouldn’t know how to account for that. But this exercise shows that the differences between VT and VTI&VXUS are so small that I probably wouldn’t bother anyway.
Except for a lump-sum-only investment, where there wouldn’t be any need to rebalance.
You need to convert CHF to USD, which has a fee of 0.95% on SQ, and transaction costs there are USD 190. So you’re already down around 1.14%. On IBKR, conversion fee is USD 2 and transaction costs are USD 5.
Currently, I deduct, together with TER, 0.225% from the yearly 7% yield for FWRA. So to account for a marginal tax rate of 30%, could I simply, instead of the full 0.225%, deduct only the effective 0.16%?
As approximation, I suppose you can deduct 0.16% p.a. instead of 0.225% from the US part of FWRA, yes.
However, the cleaner, more correct way would be to deduct estimated taxes with an assumed (marginal) tax rate in all variants. For VT, VTI&VXUS and finpension that might be something like (62% * 1.5% + 38% * 2%) * 30%. For FWRA the equivalent would then be (62% * 1.5% * 85% + 38% * 2%) * 30% (after subtracting 62% * 1.5% * 15% for the lost US WHT).
OK got it. I believe if I multiply the summands in the brackets with the 30%, all variants will then have the same subtrahend of 38% × 2% × 30% (which makes sense, as taxation of non-US assets is the same). So I could also just lower the 7% yearly return by 0.228 percentage points.
conversion fee is practically zero on ibkr since a few weeks, for cash accounts. You now can simply let it auto-convert when buying something and it uses their mid-market spot rate without fee.
Consider QQQM instead of QQQ.
It’s 0.03%. While this is a very small markup, especially from a Swiss perspective, it isn’t free. The fee for manual currency conversion is 0.002% with a minimum of $2, which is cheaper than the 0.03% for amounts above $6667.
For currency trades executed under the auto currency conversion service, IB will typically add or subtract (at its discretion) 0.03% to the exchange rate that would otherwise apply. Please note that IB does not separately charge a commission on these auto-conversion trades.
This quote is from https://www.interactivebrokers.co.uk/en/pricing/commissions-spot-currencies.php
Thanks. I have removed the $2 fee and added a 0.03% fee instead. Also I have deducted taxes as well. Will update the values above soon. EDIT: the values have been updated. EDIT2: the values for lump-sum only for SQ and PF have been updated, as I only deducted SQ custody fees from monthly investments and missed adding them for PF because of the inactivity.
Another thing: I’m thinking of creating the same tables for a portfolio that excludes emerging markets. Now: have DM consistently outperformed EM, so should I increase yearly return from 7% to e.g. 8%?
And here’s the same but without EM
.
1k monthly after 25 years
| VTI & VEA (IBKR) | VTI & VEA (SQ) | VTI & VEA (PF) | URTH (IBKR) | VEVE (IBKR) | VEVE (SQ) | VEVE (PF) | XDWD (neon) |
|---|---|---|---|---|---|---|---|
| 722’376 | 691’227 | 686’324 | 702’127 | 700’361 | 681’833 | 692’387 | 692’206 |
| -31’149 | -36’051 | -20’249 | -22’015 | -40’542 | -29’988 | -30’169 | |
| -4.3% | -5.0% | -2.8% | -3.0% | -5.6% | -4.2% | -4.2% |
.
100k lump sum after 25 years
| VTI & VEA (IBKR) | VTI & VEA (SQ) | VTI & VEA (PF) | URTH (IBKR) | VEVE (IBKR) | VEVE (SQ) | VEVE (PF) | XDWD (neon) |
|---|---|---|---|---|---|---|---|
| 478’970 | 446’710 | 461’047 | 456’839 | 457’644 | 432’421 | 447’545 | 447’468 |
| -32’261 | -17’924 | -22’131 | -21’327 | -46’550 | -31’425 | -31’502 | |
| -6.7% | -3.7% | -4.6% | -4.5% | -9.7% | -6.6% | -6.6% |
.
100k lump sum + 1k monthly after 25 years
| VTI & VEA (IBKR) | VTI & VEA (SQ) | VTI & VEA (PF) | URTH (IBKR) | VEVE (IBKR) | VEVE (SQ) | VEVE (PF) | XDWD (neon) |
|---|---|---|---|---|---|---|---|
| 1’201’346 | 1’163’549 | 1’156’545 | 1’158’966 | 1’158’004 | 1’138’965 | 1’148’829 | 1’139’674 |
| -37’797 | -44’801 | -42’380 | -43’342 | -62’381 | -52’517 | -61’672 | |
| -3.1% | -3.7% | -3.5% | -3.6% | -5.2% | -4.4% | -5.1% |
.
250k lump sum + 2.5k monthly after 25 years
| VTI & VEA (IBKR) | VTI & VEA (SQ) | VTI & VEA (PF) | URTH (IBKR) | VEVE (IBKR) | VEVE (SQ) | VEVE (PF) | XDWD (neon) |
|---|---|---|---|---|---|---|---|
| 3’005’537 | 2’937’482 | 2’920’864 | 2’898’469 | 2’900’290 | 2’878’980 | 2’882’581 | 2’849’185 |
| -68’054 | -84’673 | -107’068 | -105’247 | -126’557 | -122’956 | -156’352 | |
| -2.3% | -2.8% | -3.6% | -3.5% | -4.2% | -4.1% | -5.2% |
There is VEVE with a TER of 0.12% and traded in CHF on SIX.
Just had a look at rolling twelve months’ index returns and tracking errors of:
They both use different indices, which should not materially differ. Compared to their indices, VT has about 0.07% p.a. and SPDR by about 0.12% p.a. Further considering (TBC) that SPRD had a slightly lower dividend aka thesauration yield than VT and therefore lower swiss tax; they are pretty much performing the same.
Provided that SPDR attracts decent volumes (give it another year max), why would anyone still want to invest into US ETF? Clearly - things look differently if one chose to invest US using a US ETF and rest of the world with an Ex US ETF.