As brought up here, real estate may have similar long-term returns like stocks, while having lower volatility. Also, a larger fraction of the returns are made up by dividends / rental income, and a smaller fraction by capital gains.
According to Swiss tax law, that’s a drawback due to taxation of dividends as income. Accordingly, putting real estate into 3a might be beneficial to avoid income taxes. On the other hand, the long-term nature of 3a diminishes the advantage of lower volatility, so that within 3a, stocks and real estate may be on a par.
Another consideration could be that as cashing out of 3a approaches (e.g. at age 55), it might be a good idea to shift allocation within 3a from stocks to real estate to avoid volatility.
Any thoughts on this?
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I think one should first decide their asset allocation for the full portfolio (3a + taxable). Once it’s clear, then the math needs to be done
- assets in 3a won’t have income tax but will have withdrawal tax. Depending on cantons, it can be quite an impact.
- assets out of 3a will have income tax but not have withdrawal tax , but will have wealth tax. So in this segment marginal tax rates and wealth tax rate play a role.
The volatility of the full portfolio should be taken into account (taxable + 3a). In my view, it doesn’t really matter if the portion inside 3a is less or more volatile.
Once I tried to do similar math for bonds and stocks , in and out of 3a, my conclusion for my own situation was that if I want bonds, I should keep in 3a first and only put them in taxable once I have exhausted the 3a. Post
P.S -: Ben Felix made a video about real estate investing sometime back. Might be interesting for you.
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There’s no wealth or income tax for direct ownership RE funds.
To be completely precise. There is no personal taxation. But there is still corporate taxation applied to the funds. So there is a tax but just paid by the fund themselves
Unless you invest your 3rd pillar in RE Investment Foundation that was restricted to 2nd/3rd pillar only. Then, there was zero tax drag.
From a return point of view however, such Investment Foundation will only get you about CPI plus 1.5%. Meaning that you get signifficantly less than you expect on Shares (CPI plus 4-5%).
Cool, thanks for the ideas! I was thinking more along the lines of real estate ETFs, ideally globally.
True Wealth for instance has quite a good 3a solution that uses such ETFs (along with other funds that are reserved for pension fund investing).