Postfinance Fonds 1 Bond - Hold or Sell?

Hi Mustachians!

I’m new here, let me quickly introduce myself so you know where I’m coming from:

Background:
EU Citizen living in CH, close to my fifties and only learning about FIRE now. So I’m a bit late for the ‘RE’ part but very interested in working on my ‘FI’. Until now I’ve been very risk averse (due to family culture) so the ‘riskiest’ activity I did was to use my savings to buy ‘Postfinance Fonds 1 Bond’. Please don’t laugh. In the last years I’ve been slowly buying this bond based fund and it amounts now to approx. 55k. My issue with this fund is the current negative performance, I see it’s value decreasing every month and it is very frustrating.

Question:
I understand that when we talk about ETFs, the philosophy is to buy and hold, whatever the market does. Does the same principle apply to bond based funds (with a strong focus on Switzerland)? My financial background is non-existent so I’m wondering whether I should just treat this fund as a regular ETF and hold to it, or whether I should sell everything and use the cash for something else (note: I’ve already opened an IB account and used part of my savings to buy Vanguard ETFs).

Thanks a lot in advance for your thoughts! :slight_smile:

Adding some more details on the fund below:

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Stocks and bonds can be ETFs. Bonds are for economic downturn to hedge against the drop of the stock market. Most people aim for a mix of Bonds and stock ETFs however also most people here in the forum count their 2nd Pillar as the Bond allocation so investing in additional Bond products makes only little sense. This post finance bond probably also comes with a rather high management fee (aka TER) so I’d indeed recommend to sell it partially or fully instead. Buying VT is probably the best choice even the markets are at all time highs right now.

Update: thanks for the correction @jay

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The main issue with this fund is it that is quite expensive. The cost is 0.82%. Currently, bonds have 0%-2% interest rate. So most of the gains are canceled by the fees.
As you can see on your graph, the fund had a return of 2% during the last 9 years!
If you are really risk-averse, it’s better to do a buyback in your pension fund (pillar 2) as they offer 1% per year.

How old are you?
What is your investment time horizon?
Do you need the cash for your retirement, buying an apartment or something else ?

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I 2nd this: Buy into your 2nd pillar (1% + tax benefits!) or buy into a total market low cost index fund (e.g. VT) or a mix of both. These options seem better than keeping this “Bond Fonds” IMHO

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The fund is bad and you should feel bad for stepping into this sh*t if you ever want to make it into “FI”

They don’t disclose yield to maturity (the key metric for bond funds) but pretty sure it’s very low. Must be so low they’re embarrassed to tell. Let’s take a quick lookie at the top positions

  • Pfandbriefbank schweizerischer Hypothekarinstitute 11.22%
  • Pfandbriefzentrale der schweizerischen8.72%

If you’re a homeowner you’d know first hand how very little interest ppl pay for their mortgages in der schweiz today. Much better to be on the receiving end here. Let’s guesstimate 0.5% interest for these

  • Swiss Confederation Government Bond8.88%

Negative yield. You’re paying money the privilege to loan some money to confederation for safe keeping

  • China Goverment Bond1.74%

Some weird sh*t. If i were you/fund manager I’d be happy just to get my monies back in one piece

  • Zürcher Kantonalbank1.48%
  • Banque Cantonale de Fribourg1.16%
  • Canton of Geneva1.14%
  • Argauische Kantonalbannk1.05%

Approximately 0%

  • Cash at bank1.37%

Negative yielding, same as loaning money to confederation but with more risk

  • United States Treasury Note/Bonds1.28%

Not too bad, probable yielding ~1%. But that’s in USD terms - which is then of course totally killed by CHF hedging. So same as loaning money to confederation - negative yielding “investment”

Overall I’d be surprised if YTM is above 0.3%. Minus taxes on interest and the very generous fund management fee of 0.79% for advising ppl to step into this s*ht you’re bleeding money at 0.xx% … 1% here per year. I don’t know about you, but i can think of a lot more fun ways to burn 1% of my NW per year

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Hello,

You can look arround you what are the best rate for savings account or medium term notes, especially in the small local banks. I am pretty sure you can find a bank with a positive rate without fees, especially because it looks like you are below the limit for negative rates for most banks.

It is difficult to estimate your risk tolerance but it looks limited. I would sell this bonds fund and have a mix of stocks ETF and cash on a savings account. The problem with bonds funds is their fees.

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I would sell all the position and invest the proceeds into two ETF. The allocation between the two will depend of your time horizon and your risk aversion

ETF bonds

Vanguard just launched a Global aggregate bond for Swiss investors.

https://www.ch.vanguard/en/private-investor/product/etf/bond/9750/global-aggregate-bond-ucits-etf-chf-hedged-accumulating

ETF bonds

They are plenty of providers in the market (Vanguard, Ishares, SPDR etc).

For additional information, I would recommend A handpicked list of Best ETFs for European and UK Investors (Best UCITS ETFs) | Bankeronwheels.com
US based ETF could be an option too.

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While this appears to be a reasonable bond ETF (very similar to iShares AGGS) and the fees are much lower at 0.10%, the expected net return after hedging, fees and taxes will likely still be negative (unless interest rates are reduced even further). The YTM of currently 1.1% is before CHF hedging.

In my opinion, it’s currently better to park the bond part of your asset allocation on a safe bank account, if you can do this without being affected by negative interest rates. I’m planning to wait with investing into bond funds until the SNB policy rate is no longer negative - or until I’m affected by negative interest rates on safe bank accounts and get tired of opening further accounts.

Medium-term notes with a small but positive (nominal) yield still exist and up to CHF 100k per bank they are also safe with the ESI deposit protection. E.g. Cembra pays up to 1% p.a. (10-year notes). However, the money is completely blocked during that time. Only do this if you’re sure you don’t need the money for that period, neither for expenses nor for better investments or real estate. Interest rates are fixed for the duration.

I assume you meant equity ETF for the second part. In which case I agree, however, @Ducatona has already mentioned that they are also buying Vanguard ETFs. The crucial question is asset allocation, of course.

To clarify, there are bond funds and equity funds (and other types of funds). There exist exchange-traded funds (ETFs) as well as mutual funds for both categories. And any of those can be actively managed or a passive index fund.

The term ETF is often used to imply a passive index fund, however, the term ETF is definitely widely used for both equity ETFs as well as bond ETFs (and mixed ETFs). Let’s try to use the correct terms to avoid confusion. ETF doesn’t just mean equity fund, ETFs can definitely hold bonds.

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Based on your age and what you wrote I would prioritse getting a complete evaluation of your financial situation. I would try to find a competent financial advisor (one that does not push you to buy products that pay him / her the best commissions). Alternatively if you are comfortable sharing details with the forum you will get equally good advice for free

I agree with the comments above that owning a bond fund may not make sense for you and in addition this does not look like a particularly good bond fund. However the correct answer is “it depends” on your goals and overall financial situation

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There are risks you can’t afford to take and risks you can’t afford not to take.
Investing in a cheap, tax efficient, broad ETF such as VT most likely falls into the latter category.

What also might be an interesting/essential exercise is to work out when you want to retire and how much wealth you’re going to need when you stop work, whether or not that could be called “early”.

I found this article helpful in that regard : Mr Money Mustache - Shockingly Simple Math Behind Early Retirement

Good luck!

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Thanks a lot to all of you for the great advice you’ve provided, I really appreciate the education and the suggestions on what to do. I think this was the push I needed to sell this bond based fund :slight_smile:

So today I wanted to provide you an update of what I’ve done:

  1. I sold all positions!
  2. The money I received was used for two things:
  • payment to my 2nd pillar
  • investment in the VT Vanguard ETF

I think I’m in a better place right now. I still have to do some other adjustments so surely I will be reaching to this great community with more questions. Thanks again!

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Stocks and bonds have a very different risk profile, don’t forget to do a proper personal risk assessment before going all in on VT (it’s a great starting point, though).

I’d first try to figure out my why, that is, why am I investing and what do I want/expect wealth to bring into my life.

Then use that to assess:

  • my need to take risk: what returns do I need in order to be able to fulfill my why.

  • my ability to take risk: are there people I want to shield (children, partner, others), would facing apparent losses affect my peace of mind, leading me to unnecessary worry and/or selling at inopportune times, what are the chances I’d need the money in the future (and when), how guaranteed is my income, are there people who can help me in case of need,…

  • my willingness to take risk: just how enthusast am I in general at the prospect of putting my money on the table in order to get the potential returns.

Then you’ll be all set. Buying back into your pension fund puts you in a pretty safe position, though you might want to have some money available even in case of a stocks downturn (emergency fund + safe assets in taxable).

Enjoy your new investments. :slight_smile:

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I want to re-echo this (or just: echo this?)

It seems @Ducatona that you were stressing a little when your account balance went below -5%.
With VT, however distributed it is, it can happen that it goes to -25% or even deeper in the very near term. If you’re uneasy with that level of risk, you’ll need to tune your investments into reducing exposure to equities, going slow with dollar cost averaging or just holding cash as opposed to holding non-performing bond ETF’s (at least cash has no cost to keep and does not deliver a negative result - under a certain amount, that is).

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If you are very risk-averse, I suggest to consider maximizing your 2nd pillar contribution, both regular and buy-backs. Otherwise you need a psychological training, which you can do yourself reading respective materials.

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I understand that there will be ups and downs and (I want to think) I’m prepared to hold on to my equities when they go down because I have them thinking long term :slight_smile: I was asking specifically about these bonds because I didn’t know if the same approach (keep holding!) should be taken with bonds. Anyhow, it was clear that that specific bond based fund was not a good one (for many different reasons) so I sold it.

I have some cash stashed in saving accounts (from my ‘risk-averse’ past) that I also would like to invest, but I’m a bit hesitant at the moment. The market is at an all time high and I’m a bit afraid to invest a big (to me) amount of money in ETFs at the moment. This is one of the other questions I had in my list to ask.

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Everyone has this question. The Market’s been on ATH since 2013 (minus some slight and some major drops), it flies ever since. It might crash tomorrow, or next week, or next year, or in 2024. Avoiding the risk also avoids having profits. In the end it’s you who decide how you want to go in and with how much.

I think not a lot of us are fully invested, I certainly am keeping some free cash for when the time comes.

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Somehow it makes me feel better that I’m not the only one questioning this :sweat_smile: :sweat_smile: :sweat_smile:

Then meet Bob:

Link taken from a great blog about investment for Swiss residents, which I suggest any beginner to read completely:

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This is a great story, thanks for sharing Dr. PI.
I only wish I had the same time horizon that Bob had! :slight_smile:

I hadn’t come across this blog yet. Thanks a lot for the additional resource!

I like this quote: “the market can remain irrational longer than I can remain solvent”.

The market can stay at all time highs even though many signs point to it being unsustainable. It can go higher and never fall below its current highs. It can also fall when we see no reason for it. We cannot predict it with reliable accuracy.

The reliable way to go through it is to keep money needed in the short term out of the market (expenses and emergency fund), choose an asset allocation we can stick with and diversify beyond pure financial assets by, for example, developing skills and nurturing meaningful relationships.

Finding an asset allocation that matches your need, ability and willingness to take risk is important to get there. You can play with backtesting tools to help you figure out where you’d stand. I like Bactkest Portfolio myself.

Here are 3 generic portfolios representing roughly 100%, 60/40 and 40/60 allocations from 2000 to 2010 (lost decade for stocks, great bull market for bonds), with returns in nominal USD (the behaviour is what matters rather than exact numbers). Would you have felt safe with 100% stocks? 60/40? Something else (feel free to fiddle)?

Backtest Portfolio 2000-2010

Here are the same allocations through the following years. Would the returns of any of them have felt lackluster to you?

Backtest Portfolio 2011-2021

And here are the high inflationary times of the 70s (with only US assets and treasuries for bonds, since the site doesn’t have data for global ex US stocks and global bonds for the period. I’d suggest ticking the “inflation adjusted” box for this one since this is the point of looking back at that timeframe):

Backtest Porfolio 1972-1980

Would have you been ok with your assets loosing real value and then staying flat for 5 years? (Cash did worse, but it’s in times like those that it’s hard, yet important to stay the course.)

I’d take my time, fiddle around, look at the returns and drawdown data and evaluate where I want to stand with no pressure.

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