You have to consider the exit tax in the case of a 3a: in my situation, the taxes on 501k are 42k so the final amount is 459k (link). It’s still more than the VT case but you have to assess if the difference is enough to compensate the loss of liquidity.
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@Bojack
The difference might be even bigger because I assumed a rather high difference in performance due to the costs (1%). US withholding tax in 3rd pillar will be dropped this year too. It’s worth it anyway.
@OogieBoogie
They are even discussing the possibility to close the “gap” in your 3rd pillar. So if you skipped the first 10 years, being able to pay more into the 3rd pillar till you reached the max. potential amount that you could have payed as an adult. This would be huge! Looking forward to future changes.
@triviamaster
You don’t have 501k in the 3rd pillar, that’s just the net amount of wealth due do taxes. Read my post again. Plus, you can withdraw in seperate years and reduce taxes.
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Something else that speaks for using Pillar 3a (and 3b) is that it dies not count to wardsyour net worth from a tax perspective. Depending on the canton, this can make a big difference if you retire in your 30ies or 40ies.
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Wealth tax for 2 million is 3.5k in Zurich. Having 500k in the 3rd pillar will save around 1k in wealth taxes.
Correct and that‘s why I said depending on the canton. There are places where you pay ~1% for everything above 1M (canton & community combined).
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As you’ve only started with VIAC a mere days ago, the comparison is utterly point- und useless to derive any longer-term conclusions from.
So far, the difference in performance will be negligible compared to other „noise“, Different initial costs
- Why? S&P 500 is (more or less) one country, not a World fund by any means
- iShares Core is physically replicating, with a quarterly rebalancing interval
The US is not an „emerging“ economy and neither are 3a funds US-domiciled, so for „invested … in EM“ there will be pretty much zero effect.
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I didn’t say anything about long term performance implications in my original post. This was just about intransparent surprise spreads in initial trades.
Sorry for not expressing clearly. What I mean is World and World ex CH are basically same. World and S&P are of course different, but they are highly correlated and during the timeframe I was talking about both has very good gains. Currently, year to date World (VT) is up +1.46% and S&P (IVV) is up +1.70%. There is absolutely no good reason why in my VIAC portfolio one fund had to be so high up, while the other down and underperform it by 1%!
- iShares Core is physically replicating, with a quarterly rebalancing interval
Irrelevant. The effect of rebalancing within the index is very small.
So asked them. It’s even worse than I thought. That credit suisse trade cost me 1.2% as the actual trade occurred 2 days earlier when market was lower - some loss was masked by market performance. This is almost twice as what my previous bank was charging me for trading in 3a! And my bank’s conditions were crystal clear about the fees, whereas with VIAC I had to find out the hard way about the actual transaction costs here.
They confirmed they trade that credit suisse fund in USD, in an effort to save costs on fx currency conversion by “netting” cross-currency movements among all customers. Which obviously went horribly wrong in my case by significantly increasing the costs. They lost some more money on top of wir bank’s spread by executing usd/chf trade at wrong time of the day, but ok that’s bad luck, it was a volatile day. Overall, totally amateur trade execution if you ask me.
Or even maybe intentional? if they profit from 0.7+% fx spread somehow (perhaps a condition from wir bank or something to give them business)?
So, beware, this is a 3a provider with very high transaction costs. The main two advantages over others that I currently see are only that they allow you to go up to 97% in stocks and tilt your portfolio towards the US much more than typical 3a funds.
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Sorry, I meant two separate points:
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If you have US stocks in your portfolio, with the new agreement the withholding tax will be lowered
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If the expected returns of your portfolio are higher, you will save more tax than non 3a.
Concerning the FX, I don’t understand why VIAC is not buying the CS fund in CHF. I am sure the FX spread from CS are lower than 0.5%
That’s only a cost-part of “rebalancing”. “Pooling and netting” can bring down costs for the individual during rebalancing. But what I see, is that for quite a diverse portfolio (say global 100), there has been no rebalancing in the whole of 2019. They let Gold go up to 4.25% from the target of 4% for example. They don’t rebalance monthly from 4.03% to 4.00 or from 24.88 to 25.00%. I see they let more than +/- 0.2% deviation from your target values, maybe it’s +/-0.5% or 1%, I don’t know. Does anybody know?
This I find good of course, mini-rebalancing every month would be deadly.
I will ask them tomorrow about rebalancing bands.
Thanks I’d love to know that too. Maybe we can set those ourselves one day?
They allow deviation up to 2%
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Absolute or relative?
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Even for daily performance, the difference between MSCI World and S&P 500 might easily be half a percentage point or more. And with daily returns or even intraday fluctuation often being more than 1 percentage point, there‘s inevitably the question of timing on the performance figures (as you said yourself). One small data point of 1% difference in performance isn‘t much to deduct from.
You might very well be „up to“ something, but I do believe we would need more data points. And a look over longer periods. If any, as initial costs will only negligibly affect performance in the long the run.
Very relevant might be recurring costs, such as for rebalancing - though these seem hard to quantify.
By the way, may I ask you guys, how safe is it to invest with any 3a pillar? Are our investments insured in some kind of pool? Like, what if the start-up takes our money and disappears, or if it makes some big screwup and loses our money? Is the risk similar to investing through an online broker?
VIAC is the start-up but your money is with the Terzo-Vorsorgestiftung/WIR-Bank.
The risk with investing in the stock market carries the same risks as via another broker as far as I am informed. For cash, I believe your security in case of bankruptcy of the WIR Bank is 100.000CHF as with every registered Swiss bank.
So I got a reply. They are using 2% absolute rebalancing bands and cashflow rebalancing as well. So just minor costs in terms of rebalancing. According to their backtests 0.05%/year with several strategies.
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Also, I would assume that deposits far outweigh withdrawals at VIAC since its creation, meaning re-balancing would mostly be done through the regular monthly purchases rather than selling one fund to buy another.
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What I don’t understand is why they have chosen to use the local currency for all the Credit Suisse funds (USD, JPY GBP, EUR).
All CS funds are offered in CHF. I am sure that CS has lower currency exchange cost/spread than WIR bank.
Their assets under management will continue to grow in the future due to their young customers base. The netting at the currency level is a good idea, but is mostly useless in the current situation.
Moreover with the new double tax agreement with the USA using Ireland based ETF for US stocks (iShares Core S&P 500 & iShares Nasdaq 100) is no more needed. The Global 100 strategy could use only CSIF World ex CH, CSIF Emerging Markets, CSIF SMI and CSIF SPI Extra with CHF as the based currency. All trades would be done in CHF avoiding the high currency spread cost from WIR bank and also reducing the number of funds means less rebalancing on the long run.
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Maybe you would ask VIAC directly? I wonder if they would come up with an honest answer.
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