What to prioritize: investing in 3a or free assets?

I’m wondering how I should invest the CHF 7056 (the current yearly max for 3a) into my 3a funds.

Let’s say I’d be able to put aside CHF 2000 at the end of each month. Beginning from January, I could either

  • put the CHF 2000 into 3a until I reach the max (around spring), and from then on invest into ETFs until the end of the year, or
  • each month put CHF 588 (1/12 of CHF 7056) into 3a and CHF 1412 into ETFs, or
  • transfer CHF 7056 from my savings account (for emergencies, about 4-5 monthly salaries) to 3a in early January, then at the end of each month transfer CHF 588 back to the above savings account and put CHF 1412 into ETFs

Is one approach better than the others? Or wouldn’t it matter?

The first two variants should be nearly equivalent in the big picture, assuming your investment strategy is the same in 3a and outside 3a. I prefer the second variant. It’s fairly simple and the same each month. And it works well also if you use a different investment strategy in 3a. The first variant might save you fees at your broker but it probably doesn’t make a big difference.

I would not follow the third approach. I assume you have a reason for the amount you keep in your emergency fund. What do you do if you have an emergency in the first quarter of the year? If you think you can handle emergencies just fine with 7k less, maybe you should rather reduce the size of your emergency fund.

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When it comes to paying first in a 3rd pillar account or in a non-tax-advantaged account, and assuming equivalent investment strategies for both accounts, there is not much difference imho.

One could do the maths, but I don’t think the difference is significant.

One thing which could be considered is that on the long run by paying first in your 3rd pillar account you would accumulate slightly more capital gains there which is taxed at withdrawal (while it would be tax-free on a normal account). You would also pay slightly more fees. On the other side, you would also collect slightly more dividends on your 3rd pillar account which are then tax-advantaged compared to a normal account (taxed as capital at withdrawal instead of income). Note also that pension funds are able to claim back more withholding tax on dividends than you can with a normal account.

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This (or a very similar question) gets asked annually :wink: around this time of year.

2019 edition

2020 edition

2022 edition

…and finally Finpension’s take on it

I used the search function as well :wink: But the linked article and discussions revolve around lump sum vs. DCA, which is not what I was asking.

But I re-read these threads and a few posts raised the issue of 3a money being subject to a administrative fee (e.g. 0.39% with finpension), so you could save a year worth of fees by investing into 3a at the end of December. Which would only be CHF 40.

It is more or less, yes.

Well I can’t really decide how much I should put into an emergency fund anyway, so I thought why not use that. I have another savings acccount where I put aside a twelfth of my yearly taxes each month, so I could also just increase that contribution.

Thank you. That was my suspicion as well.

Monthly investment gets you rebalancing back to target once a month, which means your portfolio won’t drift as much - and there’s an outperformance in doing that (we can argue about how much :wink: ). I created an entire thread on it if you’re curious.

If I were to start from scratch right now I’d create four or five 3a portfolios and invest 588 CHF monthly (divided by four or five) with standing orders in the middle of the month. Set once, and forget.

The same strategy will work with buying ETFs in your free/post-tax assets.

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3a also has tax-free dividends, which turns this conclusion around. But again also by a few Franks per year.

Unless you have high minimum transaction fees buying ETF, let’s say 20 CHF it doesn’t really matter. If you do, it might be worth it to max out 3a first in the first months, then switch to ETF.

Personally, I max out 3a in January. But that’s just to be done with it and since there’s enough cash due to 13th salary and bonus payment.

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