Tax optimisation for ETF investing

[wapiti]

I think it would be good to add the average spread (data from: etf.com):
VT: 0.02%
VTI: 0.02%
VEA: 0.03%
VWO: 0.03%
VXUS: 0.03%

[Dunkoff]

Hi folks,

I am a beginner with investing.
As far as my research on index funds and what I understand from the different graphs and numbers,(Google finance mostly) I agree with oozoo on VOO being the best choice on ETF because:

• it outperformed most other index ( except for market niches like Medical field for example)
• if the SP500 goes down, it’s very likely everything else will follow ( medical, IT, real estate, consumer goods etc)

The SPX500 wiki page has an annualized return table. On the long run: 25 years it averages 11.93% with the low of 9.15% ( worst case scenario)
However, I’ve seen a lot of discussions on the forum, people opt for different ETFs like the VT.
Can someone explain what I’m missing here ?
Thank you,

Regards,
Vlad

[Joey]

Hi Vlad

People opt for something like VT because it follows a world index. You invest in the total market, not only US. More diversification, less risk.

It’s true that VOO / US has outperformed World / VT in recent years, but what is to say that will continue? Nobody knows that’s why people diversify.

Take the S&P performance with a grain of salt though. For the swiss investor earning his salary in CHF and living of CHF, one should account for the exchange rate CHF/USD. Look at CHF/USD for the last 25 years and suddenly VOO doesn’t look that good anymore.

[Dunkoff]

Thanks Joey,

You’re right about the exchange rate, I never looked at that on a 25 years time-frame: the $ fell from 1.5 CHF to about 1:1.
Also, in 1975 1$ was 2.5 CHF
Also, I found a site to calculate average inflation between 1993 and today: looks like the $ averaged 2.3% per year while the CHF 0.7% py.

If I purchase the VT is USD, what difference does it make compared to VOO ?

Regards,

[Bojack]

@oozoo

VOO outperformed all others with almost double the annual return rate since inception

@Dunkoff

I agree with oozoo on VOO being the best choice

VOO is 75% of VTI. The remaining 25% are the remaining mid & small caps. Thus, you get a better penetration at the same cost.

What I don’t get is that according to etfreplay.com, the total return of both ETFs has been identical. I would expect VTI to slightly outperform VOO. Where did you get your data about VOO outperforming VTI?

[1000000CHF]

Speaking of world vs US vs SP500, we already had that discussion multiple times, e.g.:

Difference between VTI and VT

I just stumbled upon this thread and thought I might add my 5 cents. It’s important to note that it isn’t a fixed 50%-50% split. It just so happens, that currently USA represents roughly 52% of the FTSE Global All Cap index, which is the index that VT follows. VT practically includes VTI plus a few thousands more companies. If the USA stock market grows at a faster rate than the rest of the World, the share of USA within VT will grow (and vice versa). FTSE Global is a market cap weighted index…

Tl;dr There were periods when ex-US outperformed US. Nobody knows if US will continue outperforming the rest. Some people think it will - like John Bogle; others don’t - like Burton Malkiel. Choose your bet yourself.

[oozoo]

This was directly from Vanguards website. Their calculator stops in September however.

You are right, VTI and VOO are very similar in performance (the calculation since inception is a bit scewed since VOO was established in 2010 only), however VT & especially VXUS are not.

[Dunkoff]

Hi Bojack,

Sorry for the confusion, according to google finance VOO outperforms VT
VOO and VTI look identical

VOO performed better than VT:

VTI is more diversified compared to VOO, it does make sense to change VOO for VTI
Can’t understand why people prefer VT.

Good point there 1000000CHF, maybe India and China will have increased economic growth in the next years compared to the US
However, the US has a diversified economy relaying on both foreign investments in the US and US investments in foreign countries

Regards,

[1000000CHF]

@Dunkoff

Can’t understand why people prefer VT.

Past Performance Is Not Indicative Of Future Results. Especially Long Term. Example: Nikkei.

@Dunkoff

Good point there 1000000CHF, maybe India and China will have increased economic growth in the next years compared to the US
However, the US has a diversified economy relaying on both foreign investments in the US and US investments in foreign countries

That’s the point. It’s a bet whether US will continue to outperform long term. Since most of us, are investors for very long term, we prefer to stay on the safe side and diversify the risk of US going into dogs in the distant future. We’re not traders, we don’t switch back and forth between allocations. We’re not chasing performance from one asset class to another bitcoin.

[Bojack]

@1000000CHF

we already had that discussion multiple times

Some days on this forum feel like the plot of the Groundhog’s Day

[ajPT]

Some time ago, I created a thread about that.
You can check it here:

Vanguard World vs Vanguard S&P500

I’m new here and in the investment world. Everywhere I read all the people suggest to buy VT. After searching for a bit (and for my untrained eye), why not Vanguard S&P500 instead? Expense Ratio: VOO: 0.04% VT: 0.1% Performance: [47] VOO: VT: Thanks in advance for your replies.

[Hippo8]

Hi all and thank you for sharing your knowledge.

I would like to ask for help / your opinions on the following situation:

I’ve arrived in Switzerland at about 2 years ago and I’m planning to leave in 18 years (or before if possible). I’m 32 years old.

Currently I’ve my portfolio in my home country, where capital gains are taxed at 28%. Over there we use Acc ETF’s (widely seen as more tax efficient) so we don’t get taxed on the dividends (on our side).

In consequence, my fiscal address is now a Swiss one and in my country, my fiscal status is as “Non Resident”. In this situation, do I need to declare something to the Swiss Authorities? Like which ETF I do own, etc?

Also, I’m wondering about moving a part/most of that portfolio to Switzerland so I can benefit from the capital gains not being taxed. Would you consider that, for an 18 years period?

My intention is to “retire” out of Switzerland.

I’ll be seeing a fiduciary next week, but I would love to have others informed opinions.

Thank You!

[glina]

@Hippo8

In consequence, my fiscal address is now a Swiss one and in my country, my fiscal status is as “Non Resident”. In this situation, do I need to declare something to the Swiss Authorities? Like which ETF I do own, etc?

Yes, you need to provide an itemized list of all worldwide assets in your possesion, since Switzerland has wealth tax instead of capital gains tax.

Double check if you trigger the capital gains by selling even if you are no longer a resident. Your home country may want to tax you based on where you were when and where the capital gain happened, not when it was realized (sale).

In any case, now that you are in Switzerland I recommend you open an account with IB and not an European broker, so that you can invest in US based ETFs (for cost and tax reasons).

[Hippo8]

Good morning and thank you for your answer.

I’ve been reading the introduction of this topic again. I thought that I would only be taxed on my “wealth”. I mean, after having declared all the assets in my possession, the Swiss Administration would apply a tax (annually) and that would be all.

But now, and for example I own shares of the IWDA ETF, I think that they will also tax the dividends that the found receive and will automatically reinvest. Am I (unfortunately), right?

If that’s that case, I think I’ll be better off having all my investments transferred to a new account, opened in Switzerland. In fact, my country tax capital gains for non residents at 28% as well. If I leave the assets over there, I’ll be paying taxes on the dividends to the Swiss Administration, and taxes on capital gains to my country. I would say that’s the “worst” of both worlds.

Is, in your opinion, this reasoning correct?

Merci

[glina]

@Hippo8

But now, and for example I own shares of the IWDA ETF, I think that they will also tax the dividends that the found receive and will automatically reinvest. Am I (unfortunately), right?

Exactly. Swiss have the ICtax database based on which they know how much dividend was paid even if the ETF is Accumulating:
https://www.ictax.admin.ch/extern/en.html#/ratelist

Best to transfer all your wealth here and cut out your home country off anything finance-related.

[Hippo8]

Thanks a lot for your help / time! Have a great day!

[Karol]

Guys,

If for US stock the best are US domiciled ETFs, and for EU stocks the best are non-US domiciled ETFs, what do you think of using: 50% VTI + 40% XD5E (LU0846194776) + 10% sth in Asia?

Advantages I see:

• effective 0% L1TW and L2TW on US stock
• very low (0.03%) TER for US stock
• decent (0.12%) TER of distributing XD5E built of EU stock which anyway would be highly represented in All-World ETFs (VT)

I am not sure how L1TW and L2TW looks like for Luxemburg domiciled fund made of EU shares, but supposedly better than VXUS, right?

Any suggestions for the Asia part - a distributing, non-US domiciled funds with low TER?

(a beginner here, critics is welcome)

[nabalzbhf]

@Karol

I am not sure how L1TW and L2TW looks like for Luxemburg domiciled fund made of EU shares, but supposedly better than VXUS, right?

Last time I looked, I couldn’t find significant differences for L1W between US and IE/LU domiciled ETFs holding non-US shares.

(was a while ago, but was trying to compare based on prospectus data, iirc they list L1W there)

So given TER and spread is often lower in US, going for EU domiciled is not necessarily better.

[Bojack]

Why buy MSCI EMU instead of VEUR? Same TER and VEUR has more countries. Why skip the rest of the World? No Canada, Australia?

[Karol]

You are right @Bojack, VEUR is better than XD5E.
Is there something like VEUR but even better?

I would like to find VXUS but domiciled outside of the US.
And preferably traded on the US exchange - this would be perfect if only it exists…

My goal would be to hold VTI + VXUS (but not VXUS)

My reasons:

• I prefer to have US and ex-US divided in 2 stock instead of single VT
• US estate tax over 60k so all 60k would be in VTI (I’m aware that Swiss-only tax residents don’t have this problem), not to use the limit for non-US stock
• Preferably without skipping Australia and Canada
• And traded in the US cause of spread and exchange charges