Swiss Investor 3 Fund Portfolio

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etnesh
Posts: 1
Joined: Sun Sep 23, 2018 9:09 am

Swiss Investor 3 Fund Portfolio

Post by etnesh » Sun Sep 23, 2018 9:27 am

I am located in Switzerland and not sure how to implement a 3 fund ETF portfolio. In particular I am not sure how to calculate the asset allocation in combination with the pension. For those unfamiliar with the swiss system, we have a pension system that consists of 3 different parts:
1. AHV: Mandatory pension from the government that gets deducted from the salary monthly. At age 65 each persons gets a determined amount every month depending on their life contibution.
2. Pension Fund: Also mandatory and gets deducted from the salary every month. The same as with AHV at age 65 each persongets a determined amount every month depending on their life contibution.
3. 3a bank account: This is not mandatory. Basically it is a tax free bank account that invests in a fund. The yearly contibution is limited. At age 65 one can use the account before that it is blocked.

Now the thing is, I can not know the pension I will get from AHV and the pension fund yet since I can not know my life controbution etc. But I defenitely think that it is important to consider it when calculating how to split ny investment into bonds and stock ETFs.

In that regard I have the following questions:
- How do I integrate the pension in the calculation of the asset allocation? Does anybody has a simple calculation example?
- Also does somebody has any tips regarding good bond ETFs?
Maybe there are fellow swiss inevestors in the forum or someone else can provide some insights.
- Should I invest in a 3a account? This is a rather hard question for any non swiss person I think.

Thank you all for the help!

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CyclingDuo
Posts: 1835
Joined: Fri Jan 06, 2017 9:07 am

Re: Swiss Investor 3 Fund Portfolio

Post by CyclingDuo » Sun Sep 23, 2018 9:52 am

etnesh wrote:
Sun Sep 23, 2018 9:27 am
I am located in Switzerland and not sure how to implement a 3 fund ETF portfolio. In particular I am not sure how to calculate the asset allocation in combination with the pension. For those unfamiliar with the swiss system, we have a pension system that consists of 3 different parts:
1. AHV: Mandatory pension from the government that gets deducted from the salary monthly. At age 65 each persons gets a determined amount every month depending on their life contibution.
2. Pension Fund: Also mandatory and gets deducted from the salary every month. The same as with AHV at age 65 each persongets a determined amount every month depending on their life contibution.
3. 3a bank account: This is not mandatory. Basically it is a tax free bank account that invests in a fund. The yearly contibution is limited. At age 65 one can use the account before that it is blocked.

Now the thing is, I can not know the pension I will get from AHV and the pension fund yet since I can not know my life controbution etc. But I defenitely think that it is important to consider it when calculating how to split ny investment into bonds and stock ETFs.

In that regard I have the following questions:
- How do I integrate the pension in the calculation of the asset allocation? Does anybody has a simple calculation example?
- Also does somebody has any tips regarding good bond ETFs?
Maybe there are fellow swiss inevestors in the forum or someone else can provide some insights.
- Should I invest in a 3a account? This is a rather hard question for any non swiss person I think.

Thank you all for the help!
Not much different than how we figure out asset allocation and incomes streams here in the US if one has a government pension, or company pension, plus our retirement social security income stream when either is paired with our individiual risk portfolio assets of stocks and bonds (three fund portfolio).

Your own Swiss pension has three parts to it for the portion of your retirement income stream. The debate has often been had here on Boglehead forums not to think of your pension as part of your asset allocation for the risk portfolio portion.

However, Bogle himself as well as Michael Kitces have taken the other side of that debate which you might find interesting to read (or watch as two of the links have videos):

https://www.fool.com/investing/general/ ... tions.aspx

https://www.morningstar.com/videos/7020 ... ation.html

https://www.kitces.com/blog/valuing-soc ... nce-sheet/

The similar debate for your asset allocation applies when factoring in your three part Swiss pension.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

ICH
Posts: 117
Joined: Wed Jun 13, 2018 3:08 am

Re: Swiss Investor 3 Fund Portfolio

Post by ICH » Sun Sep 23, 2018 1:18 pm

I am not Swiss, but I have found this blog useful:
https://thepoorswiss.com

I was reading a relevant article:
https://thepoorswiss.com/investing-thre ... io-simple/

For the 3a option, as long as you have spare cash, why not?

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steve roy
Posts: 1588
Joined: Thu May 13, 2010 5:16 pm

Re: Swiss Investor 3 Fund Portfolio

Post by steve roy » Sun Sep 23, 2018 1:33 pm

Assuming you’re in your forties, I would say a 60/40 allocation (30% u.s., 30% rest of world, 40% Swiss intermediate bonds - or global intermediate).

Any allocation between 65/35 and 35/65 would be okay, depending on your age. There is no way to know which allocation is optimum going forward, so drive your investment vehicle(s) down the middle of the highway.

Valuethinker
Posts: 36614
Joined: Fri May 11, 2007 11:07 am

Re: Swiss Investor 3 Fund Portfolio

Post by Valuethinker » Mon Sep 24, 2018 2:59 am

etnesh wrote:
Sun Sep 23, 2018 9:27 am
I am located in Switzerland and not sure how to implement a 3 fund ETF portfolio. In particular I am not sure how to calculate the asset allocation in combination with the pension. For those unfamiliar with the swiss system, we have a pension system that consists of 3 different parts:
1. AHV: Mandatory pension from the government that gets deducted from the salary monthly. At age 65 each persons gets a determined amount every month depending on their life contibution.
2. Pension Fund: Also mandatory and gets deducted from the salary every month. The same as with AHV at age 65 each persongets a determined amount every month depending on their life contibution.
3. 3a bank account: This is not mandatory. Basically it is a tax free bank account that invests in a fund. The yearly contibution is limited. At age 65 one can use the account before that it is blocked.

Now the thing is, I can not know the pension I will get from AHV and the pension fund yet since I can not know my life controbution etc. But I defenitely think that it is important to consider it when calculating how to split ny investment into bonds and stock ETFs.

In that regard I have the following questions:
- How do I integrate the pension in the calculation of the asset allocation? Does anybody has a simple calculation example?
- Also does somebody has any tips regarding good bond ETFs?
Maybe there are fellow swiss inevestors in the forum or someone else can provide some insights.
- Should I invest in a 3a account? This is a rather hard question for any non swiss person I think.

Thank you all for the help!
If you have fixed pension guaranteed then there's a question whether you should own bonds in addition.

Roughly speaking I would say you would want to hold 40% US stocks 40% non US stocks 20% bonds. But 0% bonds is feasible. The real reason to hold bonds is stability of portfolio - when we are in an equity bear market and stocks drop, globally, 30-50%, it's nice to be rebalancing from your bonds. And such a bear market is sure to come.

On stock markets:

- US is about half the world
- Emerging Markets are 10-15%
- Rest of World Developed is c. 35-40%

Which ETF is mainly about taxation. How the Swiss authorities tax dividend income and capital gains in the fund.

I tend to use ishares, ishares.eu is not giving me anything, but ishares.co.uk is

https://www.ishares.com/uk/institutiona ... rough=true

Vanguard also now offers many of its funds as ETFs domiciled in Ireland, I believe.

Do you want UCITS VI funds? (these are EU compliant, mostly domiciled in Ireland or Luxembourg & traded on the main European exchanges). Or do you want US ETFs? (under MIFID II EU Directive, EU investors can basically no longer buy these - the brokers cannot offer them).

Basically if capital gains is payable, you want Distribution funds (pay out all dividends and capital gains, periodically). Accumulation funds (the NAV of the fund increases so to realize capital you have to sell units) work in tax exempt accounts.

(also Accumulation funds are a nightmare for capital gains because your book cost, your cost of purchase, changes with each fund payout -- you want to avoid the nightmare of calculating gains on 30 years of purchases)

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randomizer
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Joined: Sun Jul 06, 2014 3:46 pm

Re: Swiss Investor 3 Fund Portfolio

Post by randomizer » Mon Sep 24, 2018 4:23 am

Valuethinker wrote:
Mon Sep 24, 2018 2:59 am
Basically if capital gains is payable, you want Distribution funds (pay out all dividends and capital gains, periodically). Accumulation funds (the NAV of the fund increases so to realize capital you have to sell units) work in tax exempt accounts.

(also Accumulation funds are a nightmare for capital gains because your book cost, your cost of purchase, changes with each fund payout -- you want to avoid the nightmare of calculating gains on 30 years of purchases)
Is it true of Switzerland that distributing is better than accumulating? I would expect that to depend on the country of residence and I am not sure about Switzerland. For example, in this thread, poster norciom says that accumulating funds are best if you investing in Belgium, but distributing funds are best if you're investing in Germany.

As for calculating the gains, wouldn't there be some paperwork from your brokerage that would help with that?
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Valuethinker
Posts: 36614
Joined: Fri May 11, 2007 11:07 am

Re: Swiss Investor 3 Fund Portfolio

Post by Valuethinker » Mon Sep 24, 2018 5:14 am

randomizer wrote:
Mon Sep 24, 2018 4:23 am
Valuethinker wrote:
Mon Sep 24, 2018 2:59 am
Basically if capital gains is payable, you want Distribution funds (pay out all dividends and capital gains, periodically). Accumulation funds (the NAV of the fund increases so to realize capital you have to sell units) work in tax exempt accounts.

(also Accumulation funds are a nightmare for capital gains because your book cost, your cost of purchase, changes with each fund payout -- you want to avoid the nightmare of calculating gains on 30 years of purchases)
Is it true of Switzerland that distributing is better than accumulating? I would expect that to depend on the country of residence and I am not sure about Switzerland. For example, in this thread, poster norciom says that accumulating funds are best if you investing in Belgium, but distributing funds are best if you're investing in Germany.

As for calculating the gains, wouldn't there be some paperwork from your brokerage that would help with that?
I should have caveated this is the UK tax position.

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