VZ 3a passive solution - experience?

Hi hedgedog,

Thanks for your message.
What do you mean exactly by spare cash in portfolio?

What would you advise for someone in his early 20s that wants to start investing 1,250-2,000 CHF a month?

My plan so far was to add 500 to my safety net (currently has equivalent of 4 months of living cost) & 750 in 3a+3b at VZ with a portfolio similar to what nugget has on this page.
I have another 750 that I can invest without an issue and I’m wondering what’s the best way.

Thanks for your help,
Philippe

@hedgehog are you against 3a altogether, or just the VZ product?

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so,
what hedgedog points out has a true core: 3a does have some tax advantages (income tax reduction and wealth tax reduction), however, it comes at the cost of companies offering 3a soltions want to earn some of these advantages in form of fees. in the VZ case, it is a 0.68% fee. in you want to go exact (consider transaction costs that they include into this 0.68%…) you will have to do some explicet modeling, try my 3a calculator for this, i tried the best i can to assess these things. turns out, if you start at 20, the tax benefit is pretty much eaten away by the higher fees by the time you get 65.

so, put some time into deciding if you want the 3a thing or not.

i join in in the “forget about 3b” thing. better get yourself an IB account and put everything into index funds /ETFs, according to your investement statement policy (make one if you have not done yet)

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Just buy an index fund

If you’re fully invested into stocks and they drop, where will you get the money to buy them when they are cheap? In classical portfolio this is solved by keeping a portion of assets in bonds - they’re typically low or even negatively correlated with stocks, so you can sell them off and buy the dip. But CHF bond yields are negative and inflation is low so better to just keep it all cash. Cash only 3a might actually be a good option to park the unneeded money and pocket some taxes, but I wouldn’t view it as main investment vehicle

All fund linked I’ve seen are rather expensive not just VZ. Index choice is very limited and CHF hedgeding is forcibly shoved down your throat

Plus ETF fees. Plus hedging costs. Plus foreign taxes. Plus negative bond yields if buy any of that. Plus the fact that some portion of portfolio has to be uninvested cash that they still charge you 0.68% instead of paying interest on!

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Thank you very much for the detailed answer @hegdehog.
I think I now see why a 3rd pillar shouldn’t be a main investment vehicle, seeing as the fees would be higher than from a broker and also there are fees on stored cash.
But in my situation I see that I would get back 2k from my yearly taxes. Wouldn’t it kind of compensate the fees/limitations of the 3a through VZ?
What I see is putting 550 a month in the 3rd pillar + 1000 a month in a brokering account + 2000 yearly saved in the brokering account.

Also, @Nugget: using your calculator (thank you very much for providing such a useful tool), I get a relative diff of -3.2% at the end, which seems to be favoring the 3A


A bit unrelated:
What would be the best broker in my case? (initial investment of ~0, monthly 1000 or quarterly 3000).
From the table on the blog:


It looks like CornerTrader would be best for me for now. What do you think?

Is there a portfolio you would recommend for someone like me? (Young and willing to take quit a bit of risk, not afraid of crashes)


Even more unrelated (might deserve a topic on its own):
A “financial adviser” is trying to sell me this product:
https://www.providence.life/resource/1489766894000/CompassTandC
https://www.providence.life/resource/1498457792000/CompassBrochure
But I only see drawbacks, lots of fees, commitments (+extra fees if not respected), no real choice of funds (who come with big fees) and what looks to be a shady setup through Mauritius.
Am I right?


Thank you guys very much for your help so far.

So let’s benchmark expenses against say simply going all in for VT fund.

On VZ side we’ll match it with 80% iShares MSCI World CHF Hedged + 20% CHF cash - cause max stocks is 80% and most of portfolio has to be CHF hedged

VZ: 0.68% [VZ fee] + 80% * (0.55% [TER] + 1.8% [hedging costs, ~ diff in 1 month bond yields] + 2% [div yield] * (10% [est. loss to foreign taxes] - 25% [your tax savings]) + 20% * 5% [est. loss on cash vs stocks] = 3.32% p.a
vs
VT: 0.11% [TER] + 2% [div yield] * 25% [your marginal tax rate] = 0.61% p.a.
=>
2.71% diff. Your tax advantage on initial investment of 25% - 5% (withdrawal tax) will get eaten clean after about 8 years. Many assumptions have been made, but I think this is about ballpark right. Plus you’re making yourself dependant on VZ, a single provider of this 3a account with ETFs and competition in 3a space is very poor. Whereas switching ETFs on the free stock market can be done any minute it’s open, and changing brokers isn’t that hard either

IB is the cheapest retail broker I’m aware of. You do need however a much higher initial investment, or they’ll charge you account maintenance fee $10 a month. You could initially sign up though with some of their white label resellers like captrader or lynxbroker. Trading fees are little higher (but still practically neglible for buy and hold and US ETFs), but no account fees from $10k balance or so. I’d avoid any swiss brokers: much higher trading fees, in part due to swiss stamp duty, crazy expensive currency conversion rates, unnecessary additional withholding taxes on US stocks/ETFs, no deposit protection like SIPC - esisuisse doesn’t cover securities

1.5 + 0.5-3% yearly fee + 1.5-3.5% on inpayments if i’m reading that right (terms aren’t clearly worded, a sign of bullshit). Not bad - for the fund. That’s serious hedge fund appetite they’ve got there

No kind of any deposit protection in sight, but in fact exactly the opposite - “Investments in the underlying Funds [are] the property of the Company”. What you own a contractual claim against the Company. They go belly up and so do all your investments with them.

Plus it seems to be some kind of mix with life insurance. Generally these tend to be poor value and unneeded especially in younger age and with no dependants

It’s not such a bad country. Democratic, english speaking, far from anyone worth nuking, quality of life is ok, great climate, CGT free and no tax on foreign sourced income. Not a bad choice to retire in, although Malta would be my first preference. No idea about laws - for actually keeping the investments in I’d rather stick to more well known jurisdictions, like US or IE.

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I guess it doesn’t make much sense for @_MP’s Swisscanto@LUKB (with tax deduction) in comparison to VT@IB (without tax deduction) as well. You just made me think that I should invest everything into VT and get rid of my 3a.

Thank you very much @hedgehog, it’s now very clear to me.
I’ll soon look into brokers and then portfolios. (For IB it could be worth it, since I’m under 25 I only need 3k to start and then I will be paying 3 USD per month)
Hop that my questions added to the discussion.

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yay somebody else under 25

i also need to confess that during the last months my personal support for the 3a VZ solution has decreased, especially regarding my new <0.1% TER all-stocks-portfolio

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I have existing 3a account and have to transfer them to the “best” model available. I currently have this numbers for comparison:

PostFinance Pension 75 - TER 1% - 75% Stocks managed by UBS
Swisscanto (CH) Vorsorge Fonds 75 Passiv - TER 0.38% (+ TER for foreign Fonds) - 75% Stocks
VZ 3a - TER 0.68 - 80% Stocks possible according to this thread

After reading this thread i have to rethink if i should further invest in 3a, but because i already have accounts i need to choose one and it seems it will be Swisscanto or VZ. At least with VZ i can make some adjustments.

@nugget do you have your a <0.1% portfolio already posted somewhere? Sounds insane.

yes, here with theoretical 0.098% TER.
however i refer to the average expense of my ETFs. The IB fees (in my case ~0.17%) come on top.
the key ingredients is vanguard ETFs (US). they have market wide lowest TERs.

VZ is not only 0.68%. You need to add the ETFs TER on top. Inside the 0.68%, rebalancing, deposit fees buy orders are included.

The Swisscanto fund has a TER of 0.38%. You can’t invest direcly with Swisscanto. You need to open an account with a desposit bank.

You can find below the benchmark tracked by Swisscanto 75 (still don’t know why it’s not publish on their website)

What I would do is to invest with Swisscanto, the total price seems lower. Knowing the benchmark from Swisscanto, you can invest more or avoid specific asset when you invest with your non 3a portfolio.

Plus a custody fee depending on bank, e.g. 0.4% at ZKB.

Plus TER of ETF’s, and they won’t let you cheap out on them! You’ll also be paying 0.68% on remaining 20% cash or whatever

All pillar 3a products on the market are actually very expensive, if you consider the full spectrum of costs, and uncompetitive with the free stock market. All foreign investments in 3a have to be heavily currency hedged per BVV law and hedging is batshit expensive, 1.5-2% p.a. - you need to pay interest both on USD that you’re short and negative interest on CHF that you’re long. Money lost to withholding taxes adds another 0.3% or so. Bond investments in CHF are likely money burning negative yielding shit. None of this is reflected in TER of course

Last but not least, capital gains aren’t tax free in 3a - you’ll get taxed on withdrawal with everything.

No, only through a partner bank, such as ZKB who bought them, and you’ll be asked to cough up even more fees to the bank - custody and trading fees

At such small TER, other expenses such as withholding taxes will play a bigger role. For example, 15% US withholding taxes at 2% dividend yield is equivalent to a 0.30% TER increase

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Wow, thank for all the answers, very interesting. Everything is so damn hard to navigate in finance to make an informed decision. So many costs on top, no wonder banks are still rich.

@nugget ok, nice portfolio - definitely have to dig deeper for my non 3a investment!

@wapiti i am already with zkb, so transition would be easier i guess. thanks for the benchmarks. Silly question though: Can you select the etf/assets (from their selection) or are they doing it themselves? It sounds like i can select them for me.

@hedgehog 3a deserves some critique and i gotta start the non 3a investment too, to get more experience and comparable numbers on my accounts. The additional costs are not transparent at all, feels like they just provide the minimum data to look good, so sad.

I have a meeting with a vz guy next friday. I already had a meeting with ZKB, but they didn’t even include the 75 Swisscanto Version and tried to sell me a active management fund :joy:

f****** banksters everywhere, if you ask me :zipper_mouth_face:

haha, we only talked about the “most transparet” spectrum of 3a products here (see it as pre-selection…). have you looked in the scam of 3a Life insurances? better don’t :wink:

I think the VZ thing is still best among the 3a products if you are an average personal inverstor that actally does not want to bother himself with the details. but since the majority in this forum are rather advanced personal investors, it is not for us :slight_smile:

no, you can’t not select. You can only choose between funds with 20%, 45% or 75% equities
for more info: https://products.swisscanto.com/infoservice/de/retail/fundDetails/overview.fundid-1673.navMenu-L2luZm9zZXJ2aWNlL2RlL3JldGFpbC9yZXRhaWwtZm9uZHMvdGFnZXNrdXJzZS9wb3J0Zm9saW8_.html

@hedgehog sorry, I have done a type.
“you need to pay interest both on USD that you’re short and negative interest on CHF that you’re long” => I thought that the hedging cost where included inside the TER.
I am really interesting concerning the money lost to withholding taxes in 3a fund. I will investigate.

Hedging cost is not usually included in TER, but in benchmark itself - the funds would typically say something innocent like “we’re just tracking S&P 500 CHF Hedged”, and that implies hedging positions (currency forwards) are already in benchmark and costs don’t need to be disclosed to unsuspecting investors

Simple example from real funds:

CSPX - S&P 500 Acc USD
TER: 0.07%
Benchmark: S&P 500
Growth 30.06.2015 - 30.06.2016: +17.48%

IUSC - S&P 500 Acc CHF Hedged
TER: 0.20%
Benchmark: S&P 500 CHF Hedged Index
Growth 30.06.2015 - 30.06.2016: +14.58%

Difference: (17.48%+0.07%) - (14.58%+0.20%) = 2.77% – hedging costs.

Even higher than interests difference, presumably due to friction when there’s some turbulence in indexes and currencies, which cause hedging positions to diverge from providing full cover until next rollover.