Vanguard account?

Investing / Brokers
1

Hello long-term-passive-investors,
did anyone come across the real Vanguard index funds?
I think of putting the small value fund into my portfolio.
##pros:

  • striking low TER of 0.08%
  • automatic reinvestment of dividends
  • perfect company philosophy for passive investors
  • well diversified over ~850 companies
  • according to theory outperforming the market (small cap and value effect)
    ##cons
  • in USD
  • US small cap segment, quite a small niche of globally diversified portfolios
  • outperforms the market also in terms of volatility
  • outside of swiss law
  • 0.08% TER only with initial investment of $10’000 (no problem for me), otherwise 0.2% TER

do you have any aspects woth noting? Anyone experence with a Vanguard account?
btw it is also available as ETF.

2

Are you sure you can open an account from Switzerland ?

All vanguards funds are available as ETFs, however only some indexes are traded on the SIX market.
I clearly don’t recommend to trade any ETFs on US exchange, because of the 30% taxation on dividends.

On the SIX, there is no US small cap value ETFs, however ishare and others offer a small cap US. Ishare seems to be the cheaper one with a TER of 0.3%

If I available, I select a vanguard fund, because Vanguard is a company own by their customers and not traded.

3

Hey Wapiti,
thanks for your reply.
But i think you misunderstood me: I aim for the actual index fund, namely admiral shares for 0.08% TER. They are not on the stock exchange but rather only directly with vanguard.

Actually i do own a few shares of the ishares you mention, but i would get rid of if in case i go for the vanguard^^
and i forgot: the admiral share has a minimum investment of $10’000, otherwise you “only” get investor shares for 0.2% TER. For me, this would not be an issue.

4

The index fund are not open to private investor from switzerland ?

5

I just found out I cannot open an account since one has to be US resident. the remaining option is to buy the according ETF, which also has 0.08% TER with some broker. MP points out Interactive broker as interesting here so i will have alook soon

6

Hi nugget,

We cannot open a US Vanguard account as non-US resident which leaves us 3 options (afaik):

  • Find a broker that gives you access to the vanguard mutual funds (admiral shares)
  • Use the US listed sibling ETF
  • Revert to IE/LU listed Vanguard funds or ETF 'which are not always better than ishares/lyxor/db-x/amundi/etc. ETFs) but trade in EUR/CHF/GBP.

For the IE based Vanguard funds, I did call Vanguard Ireland earlier this year to understand the procedure to open an account but they’re still using fax procedures and the minimum was 100k for a single fund which did not allow me to diversify enough. So they do accept Swiss residents for their IE based mutual funds (index based vs actively managed) but it seems less ubiquitous than for US customers.
They also have an office in ZĂĽrich, if you have enough money you probably can get an appointment to discuss with them (or call them maybe).

I personally went with Interactive Brokers UK because I need to exchange currencies to invest.

1 Like
7

Seems a lot easier to invest directly in ETFs ?

  • Use the US listed sibling ETF -> you will be taxe 30% on dividend
  • Revert to IE/LU listed Vanguard funds or ETF 'which are not always better than ishares/lyxor/db-x/amundi/etc. ETFs) but trade in EUR/CHF/GBP -> the TER can be the same or lower, but be careful lyxor/db-x/amundi offer a lot of synthetical replication.
8
  • Seems a lot easier to invest directly in ETFs ?

I think so too.
Easier in the sense that more brokers are likely to give you access to them since they are listed on well known stock exchange.

  • you will be taxe 30% on dividend

15% if you fill in the US IRS form W-E8N which your broker normally asks you to fill in every 3 years. You can then recover these 15% with the DA-1 form as Tax Credit (I’ve never done this 2nd step officially but next year I plan to). Double check by yourself, maybe I’ve got it wrong.

  • ishares/lyxor/db-x/amundi offer a lot of synthetical replication

I came to the same conclusion. Until I better understand how synthetical replication is done, I try to stay away.

2 Likes
9

Hey T78a,
well that is a lot of useful information! Thank you very much!

10

@T78 Which is your current broker ?

Personally, I don’t recommend and don’t invest in synthetical ETFs, if the same index is offered without synthetical replication.

Synthetical replication is done through derivatives. The fund doesn’t own any shares directly,

Pro,
In some illiquid market, a synthetical ETF will be cheaper

Cons:
If the fund is bankrupt, nothing is left to the investor.

Some synthetical funds have an higher tracking error. because the fund doesn’t have derivatives of all equities in the index, but only a sample.

11

Interactive Brokers UK for now as I can do FOREX to convert my CHF and I have more than 100k which removes the monthly fees, but once my stash grows enough I will look to split it at 2 or more brokers just in case.

12

Can i just ask if this tax talk is geared to Americans? I am not American and only would have a Swiss obligation. i had read previously that i should be looking for IRE or LUX domiciled funds to optimise tax situation, with dividends accumulating. Is this the advice on this board? Which world equity ETF would I be best off going for? thanks!

13

Not at all, we’re tying to figure out the smartest way to use Vanguard products for Swiss nationals/residents.

It’s not a black and white situation. If you invest in a fund domiciled in IE/LU, tax efficiency will depend where it invests in.
Dividends whether they are distributed or accumulated should be reported as income to Swiss Tax Authorities.
You can check if a fund/etf is listed on ICTax - Income & Capital Taxes how much dividends the fund declared. If it’s not listed you risk on being tax on the full capital gains as Swiss Tax Authorities have no way to figure out how much dividends were generated. Also distributing dividends make it easier to report it even if it’s not listed.

We’re all trying to figure it out ;-). Let’s contribute to the Tax section to reach a better understanding without having to pay large fees to tax accountants.

Good question.
I like VT or VTI+VXUS, but others prefer VWRL. They follow a different index and tax wise are different.
There are other ETF providers than Vanguard too.

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14

extremely interesting! thank you for these contributions!