After reading a book by Mustachian, I find myself at an important crossroads in my financial decisions. The author recommends first investing in the third pillar and then moving to the stock market once the maximum contribution is reached. However, being young, I wonder if it might be more advantageous for me to invest aggressively in the stock market right away, rather than putting my money into the third pillar like a traditional “family man.” I feel that the 3a pillar doesn’t allow me to be as aggressive with stocks as I’d like.
To better define my profile, I am a Swiss resident working in logistics with an annual income of 54,000 CHF (excluding the 13th salary). As suggested in the same book, I am also looking to increase my salary in the coming years to accelerate my financial goals. My primary objective is clear: save as much as possible to reach my “fuck you day” as soon as possible, where I can be financially independent and free to make my own choices.
I should also mention that I have to choose one or the other: either invest in the third pillar or directly in the stock market. I will invest the exact same amount in both cases. My question is therefore about the most effective strategy to achieve this goal quickly.
So, I’m asking this community: In your opinion, is it more advantageous to invest in the third pillar or to turn to the stock market to optimize my path toward financial independence?
If your 3rd pillar is invested into stock market funds, as it should be, you ARE invested in the stock. There is no dichotomy.
I think in your situation the most important thing is to start. If you are not sure about 3rd pillar, start investing in a taxable brokerage account, get some experience of been invested and learn/evaluate 3rd pillar better.
Starting from the next year, you should be able to contribute to previous years in 3a. Might be actually an excellent opportunity to pass now and invest in 5 (?) years when you should have a higher income.
Thank you for your response! To clarify my situation a bit: I started investing in the Nasdaq via Degiro earlier this year, in 2024. This is my first year taking real action in investing, and I’ve already placed around 2,000 CHF. I’ll admit that I didn’t use a DCA strategy this year and simply saved money on the side, which wasn’t the smartest approach, I know.
Looking back, I wonder if it would have been wiser to save for a third pillar instead to take advantage of the tax reduction. Now I’m faced with a decision: should I use the 7,000 CHF I’ve saved to maximize my contributions to the third pillar, which offers lower returns but interesting tax benefits, or continue investing directly in the Nasdaq to aim for potentially higher returns?
What’s your opinion? Since this is my first real year of active investing, do you think I should prioritize the tax advantages of the third pillar or stick to a more aggressive Nasdaq-focused strategy?
Hold on, if you’re at 120k+ salary (I see you said you’re not) then the potential tax savings on the 7k are nearly 2k, that’s nearly 30% “returns” on the 7k right out the gate
I didn’t take into account how much the Nasdaq would need to yield to offset the tax savings associated with the third pillar. According to UBS, in my case, a return of 22.5% would be required for the Nasdaq to be more advantageous.
My theory is based on past performance, which shows that even after a crisis, the index always performs well in the long term.
I mean, there’s no reason not to do both (3A and liquid investing). Regarding the NASDAQ and any other portfolio conversation my take is “do whatever you want that makes you happy with your choices”.
BTW bear in mind I’m an expert in mental accounting so I put returns in quotation marks not to upset our stickler members.
If it’s an either-or, I’d say it depends on your longer term prospects. What salary evolution do you expect throughout your career?
If no significant increase is on the horizon, and there’s no fat you can/are willing to cut in your expenses, it may remain an either-or for years to come. In that case and if financial independence is the target, taxable investing seems preferable to me because it means the money is available at all times vs only under certain conditions while in 3a.
If increases in salary or cuts in expenses are on your dashboard and you can expect to both max your 3a and invest in taxable in the future, I’d ponder more on the situation and probably consider maxing 3a contributions an interesting target.
I would diversify outside of the Nasdaq index. It fell >75% during the dotcom bubble (2000-2002). Are you sure you can handle that? (No foul if you can but I would take a very hard look in the mirror myself before answering that question: losses felt while they happen are a different thing than the losses we imagine while sitting under a cosy blanket, by a warm fire, with a cup of tea and a good, secure job).
As others have pointed 3a or non-3a accounts can be almost 100% in stocks anyways. So the main question for you is not 3a vs. Broker. The question is if you are fine to lock the money until retirement or NOT?
In my mind, if I were to invest in the 3a pillar, it would be for a real estate project. I don’t see any other use for it, especially if I aim to retire at 45, haha. I’ve already built a safety cushion that covers my current expenses for a full year. However, you’ve raised an interesting point that I hadn’t considered.
Ideally, I’d like my money to remain accessible at all times, but as mentioned earlier, the tax deduction seems more appealing in my current situation.
Anyway, thank you all for your advice and recommendations. I’ll invest in my 3a to commit to this option and see in the coming years if it’s really worth it!
You probably meant it that way, but just to confirm no one gets confused by the ‘now’:
This years contribution can not yet being paid in later. Therefore ‘now’ one should still follow the old logic, while for next years contribution these postponing strategies become possible.
Well, I think 3a is worth at any margin income rate. And yes, I know that you_might_pay_more_taxes_at_withdrawal_because_your_assets_have_grown_so_much, but I prefer to take income tax saving and tax-free dividend advantages available now, and not project outcomes to 30 years later.
Specifically if OP targets FI/RE, those 200k or so locked in your 3a when you are 40 won’t make a significant part of your assets.
As you pointed out, if you want to buy a flat / house in the next few years, the 3a might be more worth it (since you can “use” it earlier than your retirement).
Another thing I haven’t seen mentioned yet is the regulatory risk. We invest in the 3a assuming current regulations remain unchanged, taxes stay the same etc., but there’s no real guarantee about this. I assume this risk is low, but it’s still higher than just putting your money in IBKR and being able to sell at any time (e.g. before capital gain taxes would be introduced) and convert everything back to cash and invest another way.
Also, if you’re still in an early phase and haven’t really put money aside for bad times, having liquid money in IBKR rather than locked into a 3a is slightly safer since you could use it if you really have to. I think it’s fine to rely on unemployment insurance etc., it’s just that IBKR instead of 3a gets you that extra flexibility which would be fine to use if your personal circumstances are not correlated with a financial crisis (big assumption of course).
I suspect you’re in your mid twenties. If so, the 3eme pilier is the way to go. The tax advantages are such that it’s really a no-brainer.
You’re employed. So you can’t put more than 7k in your pilier 3.
Invest the rest as you wish and see the difference.
Power of compounding returns.
I wished I had been that smart at your age (I’m 55, too late for that).
At one point, you’ll want to buy a house/ flat or leave the country (you can come back!) and it’s there for you. Thailand, anybody?
There are multiple choices re investment funds with the 3 pilier, chose you want. Depends on your bank.
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, tu confirmes avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
To clarify my situation a bit: I started investing in the Nasdaq via Degiro earlier this year, in 2024. This is my first year taking real action in investing, and I’ve already placed around 2,000 CHF. I’ll admit that I didn’t use a DCA strategy this year and simply saved money on the side, which wasn’t the smartest approach, I know.
.