Portfolio advice and opinions

Hi everybody,

My name is Victor, 35 years old, living in Switzerland.

So good to be around people interested in investing!

I would like to hear your thoughts about the portfolio that I want to build/ building at the moment.
In the past I had some struggles, so I decided to start a completely different portfolio, and a different mindset.

Starting with the premise that I will be living in Switzerland forever, and I have NOW a very conservative approach towards investments, and I’m prioritizing good sleep, my portfolio is odd in comparison to the average portfolio. I dislike the currency diversification, that’s why I plan to have all ETFs CHF hedged. Yes, I probably will lose over time some returns in comparison to other US etf etc, but I don’t mind, I sleep better by having local currency. Is that completely wrong thinking? As I said, very interested to hear opinions and advices in order to improve and to learn! Thank you.

My total capital in around CHF 3 mil, and I will not have anymore an income in the near future.

Portfolio:

Stocks - 50%
UBS ETF (IE) MSCI ACWI ESG Universal UCITS ETF (hedged to CHF) A-acc
Since I want to have everything in CHF, (again, not sure how unwise it is, but I feel better in this way) this ETF cover large - mid around the world + EM. I’m not particularly interested in ESG btw.

Real estate - 35%
This is the major point about which I would like to hear opinions and advices. I have already read everything on this forum regarding co-ownership, aka Crowdhouse/ Fox stone. On paper, I really like this kind of investment. Being able to invest in several building, it is a very good diversification against missing tenants. My ownership is registered, no risk of fraud and losing all the capital. It is illiquid and that’s bad, but I sincerely have faith in them, in the fact that the company earns in case we investors also earn, I don’t see how theoretically it can go wrong, unless property prices drops very heavily. Owning directly an apartment, is a more secure investment, buy the returns are so low. Since I’m looking for fixed income, Swiss REIT listed on stocks are unpredictable during some crisis. Basically, I would like to have my fixed income coming from Real estate, and I don’t know the best approach. I’ve heard a lot of different opinions, went to financial advisors, but still not sure what to do.

Bond - 5%
Xtrackers Global Inflation-Linked Bond UCITS ETF 4D CHF hedge - 5%
Is it bad or does make sense?

Gold - 5%

Cash - 5%?

iShares Swiss Dividend (CH) for an extra flow of income?

Overall, I’m very frugal, and I need the security of different kind of cash flows in order to have always some income, especially during a black swain, to be able to survive until the situation stabilize overall

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Your portfolio shall be built around your needs.

Are the 3 millions cash only ? Did you include your 2nd and 3rd pillar ?

How much money do you need to live per year ? rent, food, taxes (income and wealth), AVS, medical premiums etc

Do you need your portfolio to generate a determined amount of income per year ? are you comfortable with generating capital gains and selling part of your portfolio instead ?

These answers will help you build your portfolio and define the best asset allocations for your needs and lifestyle.

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There’s really little point hedging for equity. Normally the point of hedging is to remove volatility, but equity will be roughly as volatile either way. Check the vanguard paper around hedging.

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2008 comes to mind, I’d check that the income coming from the real estate portion of your portfolio isn’t dependent on the value of the real estate assets, which can come crashing down at the same time as stocks.

Otherwise, I’d search some more diversification by upping the bonds/gold/cash part of the portfolio, though if the purpose of fixed income in your allocation is to provide income, then cash and gold wouldn’t do it.

Thank you everybody for the responses.

3 millions are cash only.

I need around 60-70k per year to be comfortable, and that includes everything except the income tax, because I don’t know yet how much my portfolio could return per year.

If the Real Estate crashes, and I own them directly, I can still collect the rent. The value of properties later in the years probabily will rise again.

The problem with the fixed income is that there is no actually a lot of choice. Bonds are very low, Real Estate is Switzerland is a bubble risk, and returns are not very high. Very much confused to where to turn to gain some decent returns.

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:+1:

It was shown and discussed many times that currency hedged equity is nonsense. You don’t magically make all companies in the fund earn in CHF. You just overlay their own trading currency, their own earnings in various currencies, potentially already hedged, with a fixed exchange rate, which doesn’t correspond to current exchange rate, but rather to an expected currency exchange rate after some average devaluation. I don’t understand well how currency hedging suppose to work, but I know that it diminishes returns. My opinion is that it was invented by funds managers who wanted to demonstrate a better risk adjusted returns at the expense of actual returns. But - you have much more at stake than me.

Should give inflation adjusted 25-30k per year just in dividends. Nice start!

With given constraints - why not.

Why not an own apartment for living? No income, but less expenses.

I am 99% sure that after hedging the yield in CHF is negative. So might be better:

  • cash
  • Kassenobligationen
  • individual bonds of Switzerland, cantons and cities in CHF.
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It’s in inflation linked fund, so kinda complex. IIRC returns are more related to the difference between actual inflation and expectation, so it’s probably a lot less useful than most people think (if high inflation persist, regular bond yields will match/go above).

(I think people are mostly talking about it now, because they performed well recently, with inflation being much higher than expectations)

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Thank you for the answer!

I already own a small apartment

Kassenobligationen gives 1% for 10 years. I think it is too low, right? Maybe it’s safer to buy and rent out an apartment

Understood, thank you for information.
May I ask you how you would invest 3million of capital, keeping in mind that you need a good portion of fixed income?

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In CHF with 0 variation and 0 risk of default if you do it right. Do you think your bond ETF will provide you a better actual or risk adjusted return?

I read many discussions about investing in Real estate in this forum. I am not convinced that RE has a better return profile than stocks. Furthermore, buying one apartment is a huge concentration risk. Swiss real estate funds are traded at a huge premium to NAV, so also doesn’t look interesting.

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Depends on situation. In CH with no capital gain, I wouldn’t focus on the income part, but on overall returns.

Then personally probably a classic equity / (bond or cash) split.
Buying primary residence can be a good hedge against unexpected housing cost increase in case someone is retired (if you’re working, it’s not as useful).
(Personally I like the freedom of renting tho)

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By the way with over 1 million to be invested you don’t have to buy ETFs. You can for example invest directly with Vanguard IE or BlackRock (iShares) IE into their index funds.

Your portfolio being your only source of income, you might also want to protect yourself from political and technical risks.

There are also index funds from CS, Swisscanto and UBS. They have classes for qualified investors with really low TER. I am personally interested to know if someone without being a “professional investor” so to say, just with a big bunch of cash, can get access to these fund classes and what would be additional fees. (Thinking about how to invest in case I inherit couple of millions, haha. Or win in a lottery. No, this is a joke, I don’t play lottery.)

You can buy normal retail classes of these funds at Swissquote for example.

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And they also have CHF hedged classes if you insist.

Is there a real benefit in doing that? Sure you get the shares exactly at NAV price, but this isn’t really dekremental/could also work in your favor at times…

And you just straight up lose the liquidity which seems not worth it imho, IF the index funds aren’t significantly cheaper - but at 0.07% TER for VT, this seems quite unlikely.

おぉ~ 日本語上手ですね!(中国語も可能かもしれない)
JK, but nice Kanji… My favorite is 麓, but this get’s of topic lol excuse me :smiley:

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The benefit is less levels of intermediaries between you and your stocks. With very reliable swiss banks as a custodian.

Dr. PI,

Thank you so much for your time and answers, they are really useful and appreciated!!

I will look at this direct funds!

What does IE stands for?

Ireland where European representatives of these companies are based.

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For context: I am very far from a bond specialist and don’t invest in them outside of the premade solutions in my retirement accounts (where I don’t manage them myself). I’m interested in solutions for swiss investors given the circumstances of the recent past and am only starting to dig on the subject. I’ll gladly welcome any correction/input/information that would come from someone knowledgeable on the topic.

Despite the “fixed income” name, I would not rely on bonds coupons for income but rather only compute the total returns of my portfolio and sell whatever assets I need to complete whatever interests, dividends and rents I receive for income. Selling is not bad in the “retirement” phase and I wouldn’t really try to get my expenses covered by interests, rents and dividends only, since that would be very costly.

In that prospect, (investment grade) bonds are there for diversification, as a low credit risk, lower volatility asset. As swiss investors, we have been imprinted by the recent past to think they have a negative yield but they are now on the rise.

For someone wanting to get more bonds, there are, in my opinion, only three interesting (exchange traded) options at this point (as pointed out by Dr.PI, there may be better investment options provided by banks for someone with your level of assets):

  1. A global aggregate fund hedged in CHF. AGGS (iShares Core Global Aggregate Bond UCITS ETF / IE00BD1JRY91) seems to be the most decent one, with low TER (0.1%), decent diversification (albeit a bit too much China for my taste at 4%), decent AUM (5.8B for the fund, 188M for the share class), weighted average maturity at 8.87 years (it’s an intermediate term fund) and weighted average yield to maturity of 2.35%.

It’s accumulating, which avoids collecting dividends in another currency, but also means it won’t distribute dividends and you’d have to sell shares to derive income from it.

  1. Buying individual CH federal/cantonal/cantonal banks with state guarantee bonds. There are funds for those but they have, like, 2 assets in them so I doubt the fees are warranted. The sweet spot for duration for federal bonds seems to be at 15y, with a yield to maturity at 0.95%. If you are not after the yield, but the coupon, there are some old bonds going around with a “high” coupon. Focusing on them would probably be expensive and I wouldn’t do it myself.

  2. Building a liability matched ladder of whatever part of your expenses you want to cover with them (the principal is what is used for that, when it matures), buy new lots regularly (every year/semester/quarter - to taste), not worry about the returns (principal preservation is what you buy them for) though selecting whichever has the higher yield to maturity at the time of purchase between bonds, Kassenobligationen, term deposits and savings accounts.

I’m far away from your situation (early accumulator) so can’t really get in your shoes but I’d probably want some more bonds/Kassenobliationen/term deposits, to the tune of min 20%, for diversification purposes alone if I were to live off my investments and not gain new income outside of them.

As far as I know, there is no financial product indexed to the swiss CPI (inflation). The inflation protection provided by this fund is mostly toward US, a bit toward UK, potentially toward other countries’ inflations, which are not necessarily linked to ours, so it doesn’t protect our cost of life, provided we spend in Switzerland. As stated by nabalzbhf, it will only provide better returns if the inflation in the countries issuing the bonds exceeds expected inflation over their duration, so it’s a bet. I personally don’t see a point in it for a swiss investor.

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