Hi all,
Might be a dumb question but here’s an example of my wallet.
The net liquidity is CHF 10,346, while the unrealized P&L is CHF 432.
I’ve invested CHF 10,000 so far. So, why isn’t the net liquidity CHF 10,432? Could it be the purchase fees for the ETFs? Is there a summary report that synthesizes all this?
Also, I’m having a bit of trouble fully understanding the concept of compound interest on ETFs. If you have an explanation that summarizes this, I’d appreciate it.
Net liquidity is in CHF, your ETF is in USD.
ETFs don’t generate compound interest. What do you mean exactly?
Thanks for your answer.
Even if I convert VT into CHF I don’t arrive to 10’432 CHF.
I mean the compound interest that we profite when we buy stocks (i.e. Challenge March 2020 between CHF 1'500 and CHF 15'000 more savings in 10 years?)
Good Morning
Equity ETFs compound over time, but they do not do so with any guarantee.
There is a difference between Equity ETFs vs. Fixed deposit.
Let us assume you made two investments. Each of 1000 CHF
Investment 1 -: Fixed deposit with fixed interest of 5% for 10 years. All money stays in depot until maturity of deposit.
Investment 2 -: Stock ETF with “expected” compounded growth of 5% over 10 years. Note the emphasis is on the word ÊXPECTED.
At the end of 10 year period, both investments would have same amount of money. However, following two points apply-:
Same is true if you invest equal amount of money on regular basis often referred to as Dollar cost averaging. Lets say the for illustration purposes, the expectation of 5% was correct. During this 10 year period, the growth profile might be very different. An example below for illustration purposes. Orange line shows how the ETF growth might look like and blue line would be for investment where you deposit money every month and have guaranteed 5% return.
Hmmm need to add some nuance to this: if it’s a (theoretical) fixed 5% interest or a bond coupon rate. The bond wouldn’t compound, it’d just return the coupon rate until maturity. I’m probably confusing the OP even further…
OP, stocks don’t compound interest, they compound growth. For all intents and purposes it’s the same thing. Compounding simply means growth of, or on top of, growth.
Picture a $100 stock appreciating (gaining) 10% in a year, it’s now worth $110, $10 is what the appreciation gave you. Now picture the same stock gaining another 10% in a year, bringing its value to $121. That extra $1 is due to compounding, growth on top of the past year’s growth.
Now picture a $100 bond with a coupon rate (=interest) of 10%/year. It’ll give you $10/year until maturity (=when it expires) and you get your principal - the money you bought it for - back, along with all interest payments you got over the years. In 10 years you’d get a total of $200 from the bond and $259.70 from the stock (if you sell…!).
Yeah, i was referring to Fixed deposits with fixed interest rates where the money is returned at the end of investment period.
I just checked my own data. It seems Net liquidity is updated at different rate vs unrealized P&L. You need to click the refresh button next to NET LIQUIDITY.
However, I have to say, you need to do your calculation differently
Unrealized p&L + Cost basis across all positions including cash = Net Liquidity
Cost basis might be slightly different than what you deposited due to exchange rates etc.
Guys, thanks a lot.
Because of my “buy and forget” strategy I was just curious about thoses values and the “compound interest” topic.
That answers my question !
Actually, it’d be critical to sit down and make a plan (if you haven’t already). In many people’s opinion the exit, or endgame strategy and everything in between is as important as the entry strategy. It’ll help you avoiding mistakes, stress.
Put down what’s your end goal, how you’ll get there, what will you do in case of scenario A, B, C, how you’ll utilize the savings/investments and on what condition, long-term tax considerations, family and estate planning etc etc
I totally agree.
The plan is quite clear: I aim to reduce my work percentage by 50-55 years old (I’m currently at 30). I have a strong second pillar, and my wife and I also have a third pillar.
We are able to invest 2,000 CHF each month in ETFs (80% VT and 20% SMIM), and we also have savings.
My idea is to avoid being too emotional during market “crashes” and to reevaluate the situation in 10 years to see the outcome of this strategy.
I’m, of course, happy to hear any advice on this strategy.
Once again, thanks for answering.
It sounds awesome
Only suggestion
To check your portfolio once or twice an year and ensure you are close to 80-20 allocation to VT - SMIM as per your plan
Sometimes one market might outperform another and there is need to rebalance.
And yeah, don’t worry about unrealised P&L and net liquidity 
it would only make you anxious and nothing else
Will do that for sure, thanks !
