Author Topic: Switzerland: How should I buy index funds here?  (Read 90644 times)

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #50 on: August 13, 2014, 04:03:20 AM »
I really don't like dividend in Switzerland, because I don't think they are tax efficient.

First of all, I'm not a tax expert and I my only experience in the field is by reading the tax code and compiling my own taxes. So no guarantee.

Second: as already mentioned multiple times in this forum, there is really no difference between capital gain or dividend: either is the company buying stock back, maintinaing the stock value high, or is distributing dividend, with the consequent falling in value of the stock.

But this is an US forum, and since in the US funds MUST distribute dividend (whereas in EU and CH they can keep it and redistribute it), they are always confronted with dividend. We are not, we can decide not to receive them. And this for us is better, tax-wise. Why?

In the rest of Europe, they have taxes on capital gain. That means that in the end, you are taxed if you recive income or you are taxed if you have capital gain and sell your stock. So no big difference.

In Switzerland, we don't have capital gain taxes. The accumulating fund in which we invest MUST still pay dividend taxes, obviously, but if we invest in a low-yield, high growth index, the fund must only pay taxes for 1.8-2% dividend yield they have.

To be more clear, let's look at an example:

Citizen A has 1 million francs in a dividend strategy portfolio with an annual yield of about 4%.

Citizen B has 1 million francs in a broad diversified accumulating index fund with a yield of 2%.

To keep it simple, let's assume both fund had the same final growth of 104%. That means that fund A at the end of the year will be 1'000'000 chf + 40'000 of distributed dividend, while fund B have 1'040'000 in stocks value.
For another simplification, let's say that both dividend, for the investing fund and your own, are taxed at 10%. That means that since fund B must pay tax on 2% yield, the real final value after taxes is 1'020'000 + 90% of 20'000 chf of yield  = 1'038'000 chf of stocks value.

Citizen A will receive at first only 26800 chf: withholding tax of 33%! After tax declaration and so on he gets the difference back. A 40'000 chf income taxed @10% is 4000 chf of taxes, so in the end he will have 36'000 chf (40'000 of dividend yield minus 4000 for taxes).

Citizen B instead will sell 38'000 chf of shares, pays a transaction costs of ~40 chf (including swiss federal stamp tax of 0.075%), and will end up with 37960.- chf
He will never be required to declare the capital gain on the selling of stocks as income.

So to resume:
Citizen A: 36000 chf after taxes + 1 million of high-yield fund
Citizen B: 37960 chf after taxes + 1 million of broad based fund

That's almost ~2000 more for Citizen B, also his portfolio had an yearly performance of 3.8% compared to 3.6% for the high yield one.

Of course there are a lot of assumption in this example; if you own an house, for example, you have to declare as Vermögensertrag both dividend and eigenmietwert, causing your taxable income to skyrocket to 60'000 chf.

So it really depends on many factors: in which tax bracket are you, your personal situation and so on.

But one thing is clear: by selling stocks and never receiving dividend you'll never have the problem and the bureocracy of the withholding tax @33% :D 

samuck

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Re: Switzerland: How should I buy index funds here?
« Reply #51 on: August 14, 2014, 12:47:05 PM »
Start from here:
Investors from Switzerland, what strategy do you use? what ETF do you buy? How is your portfolio? How do you solve the concentration problem of Roche/Novartis/Nestlé? And currency? Do you prefer EUR since the exchange is somewhat fixed (can't go lower then 1.20)?


Hi Grog, it's great to share:

This is my main ETF (roughly 70% of equities): Vanguard FTSE All-World UCITS ETF for TER 0.25
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B3RBWM25CHF4

Then I add emerging markets (15%):

Vanguard FTSE Emerging Markets UCITS ETF for TER 0.29
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B3VVMM84CHF4

And SPDR® S&P Emerging Markets Dividend UCITS ETF  for some extra dividend but I think I'll stop with it even though it developed nicely (TER of 0.65)
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B6YX5B26CHF4

And finally, I add some Swiss companies (15%) with this SPI ETF (not SMI because I want to include smaller caps even though the effect is probably rather small):

iShares SPI (CH) for TER 0.16
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=CH0237935652CHF4

Besides that, I have been using the Postfinance Funds Global for a longer time. It has a very high TER of 0.79, but allowed me to also invest smaller sums consistently.
https://www.postfinance.ch/en/priv/prod/invest/fund/offer.html/feed/fragment/postfinance/fragment/funds/fundDetail.jsp?valor=1493319&market=190&currency=CHF

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #52 on: August 17, 2014, 11:57:20 PM »
Ohy, thanks for sharing! That looks like a solid choice for an allocation.

For the swiss companies: the SPI suffers fro mthe same problem (54 % of the index are three companies), so I find the SLI betther, since Roche, Novartis and Nestlè makes only 28% (is not cap-weighted but limited to 10% for the largest company). The impact of the other 17 companies is much more impactful, and I'm tilting it even more with the SPI-Mid ETF from UBS (80 swiss mid cap companies). In this way I work around the concenctration problem.

Why Vanguard and a distributing ETF? I still think that even with an higher TER, the accumulating CHF-Hedged funds from UBS are slightly better because you can purchase shares directly in CHF and the currency conversion happen in the fund, with bank rate and not with our piss-poor exchange rate. I should do the math and see what is best....

A question to all the swiss investors: I did some math and I imagined a swiss worker starting investing in the summer of '71 (when the gold standard for currency was dismissed) both 100 chf monthly in the MSCI Switzerland index and 100 chf (converted in dollar) in the MSCI USA index. This contribution will go up with swiss-inflation every month, since the summer of 2014, 43 years later, to 279 chf monthly.

In total he invested almost 111'000 chf in both indexes over 43 years. The MSCI USA had an average return of 9%, the MSCI Switzerland (in chf) of about 5%.

But in the end, with both account converted in CHF, he has a final 514'944 chf in the swiss account and only 324'271 chf in the US account. The increased return of US equity was destroyed by the continous loss of value of the dollar compared to the swiss franc.


Since I plan to invest for 40+ years, I don't know if I'm comfortable in betting that the US dollar will stop this erosion of purchasing power versus the swiss franc. If we looked at inflation, it doesn't look good since we are in a 10 year period with almost no inflation, compared to the US. This directly impact the currency conversion, as we have seen it in the last 10 year. I can very well imagine that in 40 years you could buy 2/3 dollars with one franc.

So for the moment I'm building my stache with mostly swiss equity, but I don't know what to do to diverisfy internationally (but is it really necessary for us swiss investors? Our top 30 companies are huge multnational conglomerate that aren't really linked to the economic situation in Switzerland) . I'm thinking that the next best thing could be investing in Europe/world index with EUR instead of USD since the Euro has a fix lower limit (1.20 chf/eur, maintained by our central bank) and this makes the CHF and the EUR much more stable than CHF/USD.

What are your thoughts on this?





Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #53 on: August 18, 2014, 01:54:59 AM »
bearing in mind that I'm, again, *extremely* new at this, Wouldn't it make sense to invest in something like Vanguard's VUSA? It's traded at SIX Domestic, in CHF, and it still tracks the US market. I'm actually considering switching my S5USAS position to this. Granted, it's distributing and not accumulating, but that seems to be the only downside.

I had a previous question that you missed, I think. why are you so in favor of replicating rather than synthetic? The site I read with some definitions seemed more ambivalent about them, not a clear winner.

Cheers

EDIT - nevermind, I'm a moron. The VUSA is just as unhedged as S5USAS, the only difference is the trading currency (does that matter?) The cheapest SP500 fund I can find that's hedged to CHF is IUSC, but that's 0.45% TER.
« Last Edit: August 18, 2014, 02:17:36 AM by Astromarine »

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #54 on: August 18, 2014, 02:15:01 AM »
Changing wouldn't help since the fund's currency is still dollars. That's what important, not the exchange where is listed. Always look for the fund's currency, for instance here:
www.justetf.com


For synthetic vs full replication:
http://www.bogleheads.org/wiki/Synthetic_ETF

Another difference is that since synthetic don't have to pay taxes for index they are tracking, they usually take out from the dividend a synthetic withholding tax of 33%. Comstage do that very often for they Total Net Return index. Since usually you can retrieve the diffrence between withholding tax and usual taxation in the long run you are slightly better off with a full replicating fund that retrieve the withholding tax and reinvest it.  This is not the case for all synthetic fund, I know Comstage suffer from this.
On the other hand, synthetic ETF are usually cheaper, because of less transaction....so it boils down to you if you are ok with the swap-risk described in the wiki above.

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #55 on: August 18, 2014, 02:23:48 AM »
see my edit. 0.45% is way higher than 0.05, but as a fully replicating, CHF-hedged fund, that might make it attractive? I don't actually know :D

Svarto

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Re: Switzerland: How should I buy index funds here?
« Reply #56 on: August 18, 2014, 02:27:14 AM »


Changing wouldn't help since the fund's currency is still dollars. That's what important, not the exchange where is listed.

I will need to verify this, but keep in mind that the exchange rates we as a private investors pay is usually a lot worse than the banks get. So ceteris paribus, it will matter if we buy a fund in our own functional currency compared to a foreign currency.

Really enjoying the discussion here, thanks a lot!

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #57 on: August 18, 2014, 02:34:38 AM »


Changing wouldn't help since the fund's currency is still dollars. That's what important, not the exchange where is listed.

I will need to verify this, but keep in mind that the exchange rates we as a private investors pay is usually a lot worse than the banks get. So ceteris paribus, it will matter if we buy a fund in our own functional currency compared to a foreign currency.

Really enjoying the discussion here, thanks a lot!

that's why currency-hedged ETF might be interesting: you pay an higher TER, but the currency conversion is done by the bank at a way better rate, and the fund's currency is CHF.
I'm not so interested in the hedging part, since the hedging is over 1 month and is only useful for active trader that speculates on countries' momentum, but for buy and hold investor is the one-month hedging is irrelevant. What's interesting is that the currency is bought by the bank and not by you. This is very relevant even in the withdrawal phase, when you take out money: if you retrieve 40'000 chf to live for one year, the difference between the bank currency conversion rate and your private investor rate could amount to several hundreds chf.

Another ETF that track the MSCI USA index (first 600 companies, so very similar to the S&P500) and there is a CHF-hedged ETF at 0.30% TER:

https://www.justetf.com/ch-en/etf-profile.html?query=msci+usa+chf-hedged&isin=IE00BD4TYL27&from=search

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #58 on: August 18, 2014, 03:10:50 AM »
Hey Grog, since you seem to be the most knowledgeable guy here, can you look into VUSA a bit more? It seems to be a weird case. It's NOT hedged. But on Swissquote, at least, it's traded NOT USD like S5USAS is. So I'm not buying USDs to trade it, the bank isn't hedging it, so where exactly is the currency risk expressed? I'm confused.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #59 on: August 18, 2014, 03:35:41 AM »
Hey Grog, since you seem to be the most knowledgeable guy here, can you look into VUSA a bit more? It seems to be a weird case. It's NOT hedged. But on Swissquote, at least, it's traded NOT USD like S5USAS is. So I'm not buying USDs to trade it, the bank isn't hedging it, so where exactly is the currency risk expressed? I'm confused.


mmm I've missed this particularity. In this case the fund's currency is still USD, but Vanguard take care of the currency conversion at a better rate. That's cool and is probably one of the motive why Vanguard is so highly regarded. Nevertheless, they distribute dividend in dollars, so if you want to reinvest it, you have to go through currency conversion and buy some francs with your dividend's dollars to reinvest it in the ETF. This is not so practical, but is up to the single investor to decide what to do.



But all of this doesn't solve the basic problem (even by chf-hedged funds): if the dollar in the next 40 years will lose so much as it did in the last 40 years (versus swiss francs), all the ETF based on dollars risk to see the total profit halved. One-month hedging doesn't help.

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #60 on: August 18, 2014, 05:02:31 AM »
yes. But I think how to solve that is a bigger question, and I damn well have no clue how to solve it. Since this thread is a "local" thing, and only us Swisstaches are here, it's probably worth it to make a general thread focussed on this question alone, to try and ask the community as a whole.

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #61 on: August 18, 2014, 06:54:20 AM »
question for those of you with Swissquote accounts: Beside the trading account, they have an "ETF Savings Plan" account that seems to allow you to choose your own ETF allocation ratios, and then invest in them at will or on a monthly schedule. I've poked around the site for it, and from what I can tell, it's free of safe custody charges, and best of all the commission for BUYING is CHF 9.- for the entire model. So if you have a package of 5 or 10 funds you choose yourself, you only pay a couple bucks per transaction. SELLING is done per position, not on the model, and costs 9,- per position

For people like us, that (mostly) eschew individual shares, it seems like a fantastic deal. Anyone confirm, or am I reading things wrong and being a moron again?

https://premium.swissquote.ch/sqw-static/savings/fees/transaction_fees.jsp

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #62 on: August 18, 2014, 07:29:23 AM »
that looks legit. I did play (using the demo)) with the dynamic ePrivate banking that has a similar concept but a annual ~1% fee, I didn't see this Sparplan ETF.

I've just noticed this:
Ces prix n'incluent ni le droit de timbre fédéral, ni un éventuel droit de timbre étranger, ni les taxes boursières.

That means it will costs slightly more but the 9.- per model looks fantastic. I will try to open an account, see how much choice do we have in ETF.

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #63 on: August 18, 2014, 02:04:06 PM »
Grog, can you explain this post a bit here?

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #64 on: August 18, 2014, 11:25:38 PM »
Grog, can you explain this post a bit here?

Well in my journey to try to understand this world, I studied a little bit more the dividend taxation in Switzerland. Since 2011 the companies can distribute money from their cash reserve, and not from the profit. When they do that, the distributed money is not called dividend but "Kapitalrückzahlung", although they work almost identical. The only difference is that the second one is not taxed. So there is not withholding tax and you don't have to declare it in your tax declaration.

This made so that some companies are now "hot" because of this free-tax "dividend".

Here ist something from a swiss forum:
http://www.trader-forum.ch/topic/2270-steuerfreie-aussch%C3%BCttung-schweizer-unternehmen/

You can even see it here on the distribution of one SLI ETF from UBS:
https://www.ubs.com/ch/fr/asset_management/etfs/etf-private/etf_products/etf_product_detail.ch.fr.CH0032912732.distribution.html

there are the two column that indicate which "dividend" from the fund is tax-free and which one is taxed with the withholding tax.


samuck

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Re: Switzerland: How should I buy index funds here?
« Reply #65 on: August 19, 2014, 03:23:31 PM »
The three best options I've found so far:

1) Swisscanto BVG-45 R, a passive index fund ("retrozessionsfrei") with maximum equity (45%) with a TER of 0.35%. It's easily accesible through Bank Coop that requires an annual deposit fee of 0.5%. Total cost: 0.85% yearly.
2) Postfinance Pension 45, already mentioned: TER of 0.88%, identical stock/bond composition as the one above.
3) Build your own ETF portfolio through Vermögenszentrum: the annual deposit fee is 0.6%, plus ETF TER. The very limited choice of ETF (all around 0.3 % TER) make it around 0.85-0.90%.



Hi Grog, I think I just found a significantly better option for the 3a pillar: Swisscanto 45 through ZKB. They ask for a one-off transaction fee of 0.65% and add yearly fees of 0.3%. In the first year, it compares to other 3a pillars with a quite high TER of 0.95, but from year 2 onwards, you only pay the yearly fee of 0.3%. That seems to be the best 3a pillar deal in Switzerland currently. Check out the info on their website: https://www.zkb.ch/de/pr/pk/vorsorgen-nachfolge/saeule-3-a/sparen-3-wertschriften.html

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #66 on: August 19, 2014, 11:53:42 PM »
Hey good catch but there are a couple of issue:

- The swisscanto funds are not passive, but active and we don't want manager choosing for us, right? The TER is not bad at 0.65% for the 45 one (maximum equity)

- The passive funds of ZKB have a TER of 0.79%. More than the active one of Swisscanto:crazy.

On top of that, you pay 0.3% annually for your fonds, so ZKB passiv fonds come out at 1.09% annually, and Swisscanto at 0.95%.
And the 0.65% is not one-time off. This happens every time you move cash to the fund, so if you contribute your maximum for employee of 6739.- you pay annually 44 chf just to put your cash there. Postfinance and bank coop don't have this kind of transaction fee.

All in all, you could do worse, but they still are 0.10 % worse than bank coop/postfinance, they have active management and a transaction fee that the other don't have...

Father Dougal

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Re: Switzerland: How should I buy index funds here?
« Reply #67 on: August 20, 2014, 06:01:45 AM »
Good afternoon, Swiss Mustachians!  Glad to see this thread and that I'm not the only Swiss-based person trying to invest in a Mustachian way.

In Switzerland the big banks are going to really soak you for fees.  They will charge high custody fees, insane trading charges and ludicrous TERs.  So I avoid them now, but not after some expensive lessons.

If you want to buy ETFs, as well as Swissquote, there's an outfit called Saxo Bank that seems pretty good value (0.1% commission trading and no custody fees).  It's execution only, more or less, but we all know the value of "expert" advice, don't we, fellow Mustachians?.

Also, PostFinance charges no custody fees (although transaction costs are a bit higher). That can make a big difference compared to the traditional banks.

One other thing on ETFs ... once you start getting in to tax considerations, things can get complicated.  A Swiss based ETF will pay you a dividend net of 35% withholding tax.  As you are Swiss resident, this will be a credit on your tax bill, so you will end up paying tax at your normal rate.  So no problem there!  However (and this is where it gets tricky), an ETF holding foreign investments (by which I mean foreign to the country in which the ETF is based) may suffer WHT itself on the income it receives.  This could mean that you will suffer this "invisible" tax through your ownership of the fund and will not be able to claim it back.

For example, let's say you have an Irish resident, Swiss-listed ETF (like a Vanguard fund).  If that ETF receives dividends from US companies, it will suffer WHT (at either 15% or 30% depending on its status with the US authorities).  When that ETF pays you a dividend (with no WHT, as it is paid from Ireland) you will have no tax credit for the US tax, as it will not be shown in your dividend from the Irish ETF.

Having said that, exactly the same thing would happen with mutual funds, so this is not an argument against holding ETFs.  It might be an argument in favour of holding individual stocks, but this has to be weighed against the ease of diversification you get with an ETF.

As a result of history, I have a mixture of individual shares and ETFs.  I have bought them all through low cost brokers.  It is sometimes tempting to try to get the best solution.  But there isn't one, and this can mean getting paralysed by inaction.  It is better to invest something than leave all your money festering away in cash, and if you stay low cost, you can't be far wrong.  As a wise Chinese fella once said, "better a diamond with a flaw than a pebble without".

All the best.
FD.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #68 on: August 20, 2014, 08:01:27 AM »
Hi, and welcome in this thread!

You are right about dividend distribution: but as far as I know, the "cumulating" ETF that do not distribute very often, depending on countries and legislation, manage to get this withholding tax back, and reinvest it in the fund.

That's why, just from a pure bureocracy point of view, I prefer cumulating ETF, at best fully replicated (because then they can really get this withholding tax back, while synthetic one must add a virtual tax since they do not invest in the target country).

Today I received confirmation of my new "ETF Savings" Account from swissquote: it looks veeeery promising, as Astromarine pointed out. As far as I've seen you can build a "basket" of xx ETF (I don't know which one are at disposition, and if there is a mayimum number of position) and then you could pay 9.-+Stamp Tax to add any amount of money, like you would with a normal saving account. No deposit fee. You pay slightly more to sell, but theorethically in the accumulation phase you never sell.
And you could build a portoflio with different position, covering everything yuo want (world ETF, emerging markets, etc)
Tonight I'll play with it and tomorrow I'll post a full review, including all the available ETF/fund

samuck

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Re: Switzerland: How should I buy index funds here?
« Reply #69 on: August 20, 2014, 12:30:07 PM »
Tonight I'll play with it and tomorrow I'll post a full review, including all the available ETF/fund

Looking forward to your assessment, Grog. And thanks for the advice on the ZKB 3a pillar, I did miss a few (costly) elements of the equation, will stay away from it and stick to straight-forward Postfinance solution with 45% equities.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #70 on: August 21, 2014, 12:53:32 AM »
So I've had a little time playing around the ETF dynamic savings of Swissquote.
When you open an account you receive a normal saving account (interest is credited monthly! this is unusual for CH) and an ETF saving account.

The concept is fairly simple: you build your own "fund of funds" using certain active managed funds (cheapest are 1% TER, I didn't really look into them)and other passive ETF. You put togethere a list, selecting all your desired etf from a table, and the share prices sums up together and determine the percentage a certain ETF occupy in your portfolio. You can add shares to modify the percentage, but then your total price of your fund of funds grows up.

Example of one ETF basket:
2 shares of ETF Swiss Leader Index at 15 chf/share
1 share of MSCI USA at 70 chf/share
1 share of swiss bonds 3-5 years 100 chf/share

You now have a total price for your funds of 200 chf, with following percentage: swiss bonds 50%, CH-SLI 15%, USA 35%.

If you change the configuration (for example add one SLI shares) the percentage varies accordingly. So the cheaper the ETF, the more playing room you have with the percentage without having a fund of funds that costs 2000 chf to buy.
Keep in mind that if your index grows over time, your total costs grow too.

Then, you can link this "portfolio" to your swissquote normal saving account
 and automatize the transaction, configuring things like "everytime there is sufficient money, buy a share of your portfolio" or "every two weeks put 1800 chf and buy as many shares aspossible of your fund of funds". you can always edit your basket, even before every transactiom, to try and keep things balanced.

Then Swissquote receive the order from all their ETF savings accounts and make bulk buy/sell orders  the day after. They even look for the price and avoid to make the spread to large, moving the buying/selling point up to a couple ofday after your order.

Cost and condition: no custody fee and only 9 chf per portoflio! that means that if you build a portfolio of 9 ETF and you invest every month  you pay only 1 chf per ETF, + naturally the 0.15% of swiss stamp duty.
I still have to purchase something, so for the moment I cannot give you "real money costs". Will do in the next few days. Selling instead is 9 chf per ETF contained in your portfolio.

The interface is quite easy to use, but most of the datasheets of the ETF are wrong  (like datasheets of Credit Suisse ETF linked to UBS one!!) or really old (more 1 year). I had to pull out every ISIN number and go look for actual TER as of today. This was quite bad and didn't give a professional impression, but is probably not so relevant once is done.

I attach the excel list with all the 72 ETF proposed by Swissquote. Is focused on swiss, european equity and it lacsa a generic "Emergency Markets Fund". Most of them can be bought directly in CHF but have dividend in another currency. They are an average mix, with TER ranging from 0.09% for EURO STOXX 50 ETF up to 0.85% for some emerging markets country. Most of them are in the 0.4% range.

So far my impression is that you can really build a nice, simple, diversified portfolio, set it up automatically and then forget about it.
You have to accept that your average portfolio costs is in the 0.25-0.30% TER range, and that you receive a lot of different dividends (a pain for taxation), but you have the possibility to buy quite cheaply 9-10 ETF every month, all automatically.
It looks fantastic for bonds: there are a lot of cheap ETF, well diversified, and you can really build your own "Total bond fund"


I invite everyone of you to try it out, open an account costs 1 chf of postmark and it gives a good interests, you could keep your emergency fund in EUR at 0.65% which is better than most banks here.
 There is no custody/opening fee whatsoever.

Now I just have to study and adapt my Asset Allocation to this ETF and I'll give it a try. The simple, automatic aspect and the diversification provided appeals to me.

Attachment :ETF list

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #71 on: August 21, 2014, 02:37:34 AM »
awesome to hear, but shame about the ETF list. There's really only 2 funds targetting the US market, and none of them on S&P500? weird.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #72 on: August 21, 2014, 03:18:56 AM »
awesome to hear, but shame about the ETF list. There's really only 2 funds targetting the US market, and none of them on S&P500? weird.

Remember that the MSCI USA is practically the S&P 500 (it contains the first600 us companies). I think it performs even better on the long run than the S&P 500, since has 100 mid-cap companies more.

I've come up with a list of 8 ETF as an example. The total is around 1800 chf, which is how much I want to contribute every month: the Total TER is 0.287%, which for me given the semplicity of the setup is probably not so a bad deal:

Dev World:
36.47% SLI, swiss equities weight capped at 10%
26.34 % MSCI World
10.47 % Euro Stoxx 50
10.21 % SMIM (Mid cap Switzerland)
5.37  % STOXX  Small Cap
5.64 % STOXX  Mid Cap

EM (very limited choice, but I wanted to include some of the more economically stable EM countries):
3.22% Turkey
2.28% South Africa


Plenty of diversification, focus is on the Swiss and Euro Market (because of currency fluctuation/risk) and tilted towards mid-cap/small euro/swiss equities.

I'll give it a try for the next time. Since normally swissquote Trade charge you 0.1% for custody account, this here is a sweet deal at a great trading price. Starting from 200'000 chf, when swissquote limits the 0.1%, it could be better to switch from this to Swissquote trade.

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #73 on: August 21, 2014, 03:40:09 AM »
A question, do they let you track performance and graphs etc for the model as a whole? A kind of aggregate view of the annualized growth and dividend history etc? That'd be useful for me

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #74 on: August 21, 2014, 04:57:43 AM »
For the annualized growth seems like that, for dividend I don't know. I can say more next week after I do  the first transaction.

tensile

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Re: Switzerland: How should I buy index funds here?
« Reply #75 on: August 22, 2014, 09:00:52 AM »
Really great to know, and a sensational write-up from Grog. Please keep the thread updated with info about this new vehicle :)
Find out which podcasts all the cool kids are listening to - podcasts rated and reviewed on Podcast Pals

Father Dougal

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Re: Switzerland: How should I buy index funds here?
« Reply #76 on: August 22, 2014, 02:36:24 PM »

You are right about dividend distribution: but as far as I know, the "cumulating" ETF that do not distribute very often, depending on countries and legislation, manage to get this withholding tax back, and reinvest it in the fund.


Thanks for the all the research you have done, Grog.  I've just got one follow up to your quote above.  I asked Vanguard whether their funds could reclaim withholding tax on dividends the fund receives.  The reply was as follows:

"Thanks for your patience. Vanguard's U.S. funds and ETFs that invest in non-U.S. securities may be subject to local withholding tax on any dividends and interest they receive from those non-U.S. securities. In some cases, a fund or ETF can reclaim a portion of the amount withheld. As to the portion that can't be reclaimed, a U.S. fund or ETF can elect to pass along a tax credit (but the tax credit would only be for investors who are U.S. taxpayers). Because the underlying withholding tax is treated as a tax paid by the fund or ETF—and not the investor—no portion of it can be reclaimed directly by the investor. For more information, check out Vanguard's Tax Center: http://vgi.vg/1q5iOuz. Hope this helps! -Van"

So it looks like ETFs that own shares will suffer some WHT.  I asked about US funds and also Irish resident, Swiss listed funds, but I don't think the tax consideration is going to be different (apart from the obvious that US funds will not suffer US WHT).  The WHT is not going to be a large amount, but it is good to know.  I guess it is a price of easy diversification.

FD

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #77 on: August 23, 2014, 08:44:54 AM »
Yeah the problem I see is that if you receive dividend from such a fund you get the Withholding tax from Switzerland too, until you get it back so you really are taxed twice.
With accumulating ETF the only taxes are the taxes you mention inside the fund, since cumulating ETF doesn't suffer from tax in Switzerland.

Personally I'm building my portfolio such as the only dividend I receive are from Swiss ETF (SLI/SPI/etc) or swiss bond ETF.

A couple of word about the ETF dynamic savings from Swissquote: some of my TER were taken from SIX website and are wrong. For instance the DAX db-tracker as a TER of 0.09% and is cumulating, no dividend. That's interesting since the DAX is one of the best european index.

Tuesday I'll do my first transiction, but anyway the more I play with it the more I've the feeling that there is really no anaylsis/chart for your "model". The model seems to work just like a shopping basket in which you can put up to 7 ETF from that list and swissquote will buy it for you at discounted price, the day after, and everything can be automatised.

I've changed my "shopping basket" with two swiss ETF (that are the one with best TER available anyway for their index):
UBS SLI @0.20%, dividend
iShares SMIM @0.45%, dividend

And internationally:
The DAX instead of the Eurostoxx, since is cumulating @0.09%

And a more risky choice, in smaller fraction:
The db x-tracker S&P Global Infrastructure, a cumulating fund very diversified globally (not sectors but countries) @ 0.60%

There are other choice but I'm very lazy and I'm ok in higher TER for cumulating funds since I want to keep the money in the fund (exchange rate to reinvest) and the tax as easy as possible, but everyone has his own methods and priorities.

Anyway I'll get back to you after tuesday and the first transaction.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #78 on: August 26, 2014, 05:32:30 AM »
Finally made the first transaction!

It is quite easy. I've made my own model of 5 ETF, then I activate an investment strategy. You can have only one investment strategy active. In this  case mine was simple:
"invest 1 time 1800 chf in GrogModel"

Be careful: the amount to invest (1800 chf) must at least be 10% more then the minimal value of the model. In my case, GrogModel was a basket of 5 ETF totalizing 1600 chf (so to speak one share of my model was worth 1600 chf), so 1800 chf was ok.
But in the future, when I'll automatize everything, I'll probably make a smaller basket and simple buy more "shares" of the model.

Now to the transaction costs: they are quite easy and very transparent. You pay one time 9 chf, + 2 chf for every different ETF (stock fees) in your basket + 0.075% (swiss securities) or 0.15% (international securities) os swiss stamp tax.
In the end under "Transaction" you see 5 different transactions, one for every security, with the total costs. Only one of my 5 ETF had the 11.5 chf cost (the most expensive), the others only reported 2.70 chf etc.

In total for 5 ETF, 1650 chf of securities I paid 20.85 chf.

I have to say the 2 chf stock fees were to expect but I thought (stupidily) they were only one, instead it was factured 5 times.

Buying 5 etf for 1600 chf in postfinance will costs you 28*5=140, so it is cheaper, but still I find 20 chf expensive (for a 1600 chf investment). It was a lesson and a test.

Personally, I'll be using this system, the whole automatization and transparency convinced me but I'll adopt a three month strategy and invest only every quarter.

It's not perfect, is not ideal but is the best I can find at the moment in Switzerland...

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #79 on: August 26, 2014, 06:07:42 AM »
the 10% stuff confused me a bit. Why would they force you to invest money into the strategy that you cannot buy anything with? If the model costs 1600, what happened to the other 200? It would make way more sense if they told you to invest in multiples of the basket price.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #80 on: August 26, 2014, 07:52:48 AM »
I didn't explain it that well. In order to invest, they take the money out of the normal saving account. But they want to be sure that when the order goes down on the stock exchange, that you have enough money in event of large variation day-to-day.

So if you have a very large basket, they require at least a 10% marge, as in my case with a 1600 chf basket, in case your model increase of 2-3% before the exchange go down (around 11.30 AM, is fixed)

If I had instead a 100 chf basket, and wanted to invest all the 1800 chf, they would have bought 18 times my model and I would have never seen the warning requiring me to have at least 10% margin. And if the price would have changed very much, they would have bought only 17.
It would have been better, the problem is that is difficult to make small models since all the ETF have already a large price....

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #81 on: August 29, 2014, 12:31:35 AM »
Ok it seems that we were going at this completely wrong. Broker are not ideal for buy and hold in Switzerland, that much is clear. BUT

there are some ETF sparpläne out there in europe:
https://www.justetf.com/ch-en/etf-sparplan/sparplan-vergleich.html

some even with a swiss portal and very attractive conditions:
https://www.dab-bank.ch/Anlegen-Sparen/Sparplaene/Sparplaene-nach-Gattungen/ETF-Sparplan.xhtml

worth look into it......

econberkeley

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Re: Switzerland: How should I buy index funds here?
« Reply #82 on: September 08, 2014, 09:11:45 AM »
Why don't you guys just open up an account with a low cost  brokerage in United States and start investing in vanguard and other low fee etfs?  It is very easy to open those accounts online.  Why do you guys pay outrageous fees in Europe? Am I missing something?

Stashing Swiss-style

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Re: Switzerland: How should I buy index funds here?
« Reply #83 on: September 16, 2014, 03:47:43 AM »
What did Grog mean when he said "it seems that we were going at this completely wrong....".  I've just got some funds together, around CHF7000, to start my investment adventure and was planning to follow the advice that has come out in this journal thread.  I have only 10 years in mind as I'll be retiring (not early) in that time-frame.  Should I start or is there a warning triangle in the road ahead?

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #84 on: September 16, 2014, 08:35:20 AM »
What did Grog mean when he said "it seems that we were going at this completely wrong....".  I've just got some funds together, around CHF7000, to start my investment adventure and was planning to follow the advice that has come out in this journal thread.  I have only 10 years in mind as I'll be retiring (not early) in that time-frame.  Should I start or is there a warning triangle in the road ahead?

what I meant was that maybe the best option is not to go through a real-time stock brocker platform like Swissquote or Straeto or Postfinance eTrading, that have high trading costs and usually a yearly deposit fee, but instead to go through the "ETF-Sparpläne" that are offered by many german banks. In Switzerland only the "Dynamic Saving Account" of Swissquote offer something similar.

I meant simply this: mabye here are better this ETF-Sparpläne, with limited ETF choice, that the Stock broker option.

I questioned the mean/account, not the instrument (ETF)

Stashing Swiss-style

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Re: Switzerland: How should I buy index funds here?
« Reply #85 on: September 16, 2014, 08:48:24 AM »
Thanks for taking the time to clarify that point.  I'm reassured now :-)  I'm a bit nervous about all this and feel like an investment idiot (well, to be clear, I am an investment idiot), but I guess that feeling won't go away until I get started.  Your input on this forum is invaluable for people like me.  Thanks again.

Younes

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Re: Switzerland: How should I buy index funds here?
« Reply #86 on: October 14, 2014, 04:57:50 PM »
Hi everyone !

I just discovered this amazing thread ! Thanks for all for the invaluable information. I also read investment books but having difficulties applying the logic to this beautiful country.(After all everything works differently here :) )

@Grog I'm just starting investing (and still don't have a lot of cash for now) do you think it is best for me to open a swissquote dynamic savings account?  And then I would buy some ETFs later on a quarterly basis?

@econberkeley From what I understood, the problem with low cost us account is 1) the currency 2) the 33% withholding tax that is hard to get back and takes time before you can reinvest it.

dmn

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Re: Switzerland: How should I buy index funds here?
« Reply #87 on: October 15, 2014, 12:35:23 AM »
Yeah the problem I see is that if you receive dividend from such a fund you get the Withholding tax from Switzerland too, until you get it back so you really are taxed twice.
With accumulating ETF the only taxes are the taxes you mention inside the fund, since cumulating ETF doesn't suffer from tax in Switzerland.

Are you really sure about that? I have read several times that you must pay Swiss taxes on dividends even for cumulating funds - you must declare them in your tax return and they are taxed like any other income. If you do not declare your cumulating fund capital income, you might be commiting tax evasion.

It is true that the 35% Swiss withholding tax is only applied when you receive the dividend payout, but that is not a final tax anyway, it is just a prepayment on your personal income tax intended to prevent you from not declaring your dividend income. For investors in Switzerland, the withholding tax is completely refunded when you correctly declare your capital income.

Some random source (emphasis added):
http://www.10x10.ch/die-rendite-nach-steuern-zaehlt/
Quote
An in der Schweiz ansässige Privatanleger ausgeschüttete sowie thesaurierte Vermögenserträge von ETF unterliegen der Einkommenssteuer. Bei Schweizer ETF wird auf diesen  Vermögenserträgen zusätzlich die Verrechnungssteuer erhoben. Davon zu unterscheiden sind vom ETF generierte Kapitalgewinne. Diese sind steuerfrei, sofern sie dem Privatanleger  separat ausgewiesen werden.
[...]
Den allgemeinen steuerlichen Grundsätzen folgend, sollten Zahlungsflüsse aufgrund der synthetischen Replikation als derivativer Ertrag qualifiziert werden, der systematisch einem  Kapitalgewinn gleichzustellen ist. Dies würde bedeuteten, dass in der Schweiz ansässige Privatinvestoren anstatt einer einkommenssteuerpflichten Ertragskomponente einen steuerfreien Kapitalgewinn erzielen würden. Die Steuerbehörden folgen jedoch in ihrer Praxis nicht dieser Interpretation und verlangen trotz derivativer synthetischer Replikation die Besteuerung  einer Ertragskomponente, welche der Ertragsrendite des zugrundeliegenden Indexes/Produktes entspricht.
Translation of main parts:
For private investors in Switzerland, income from capital [i.e., dividends and interest] must be taxed if it is payed out to the investor or accumulated in the fund. Different from that are capital gains [i.e. rising stock prices]: those are tax-free if the fund declares them separately. [...] With synthetic replication, there should be only capital gains, but tax authorities nevertheless demand that taxes are paid equivalent to the capital income of the underlying index.


[Edit:]
I just wanted to add that for some ETFs, it is not trivial to find separate data on capital income and capital gains. I actually sold some ETFs last year when I realized that I could not find out exactly how much capital income I had to report in my tax declaration.
« Last Edit: October 15, 2014, 12:44:23 AM by dmn »

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #88 on: October 15, 2014, 04:06:00 AM »
Fantastic article thank you for sharing. I did have understood some things wrong; that's why you should never take advice from someone on the internet!

The main points for me of the article are these:
- The verrechnungsteuer, while fully refunded after tax declaration, can represent a cash-flow problem and can slow down reinvesting velocity, if you have to wait for the refund. So there are some opportunity cost there.
The great news is that this "tax" is only for fund with domicile in Switzerland (Isin starts with CHxxxxxxx) so fund with domicile somewhere else (Lux/Ireland) are not subject to it, so you receive your full dividend. This could allow you to reinvest it immediately 100%, instead of 65% as in swiss-based ETF, and reduce Cash-flow problems.
The downside is that for every transaction on the stock market you have to pay 0.15% of swiss federal duty tax, while swiss-based ETF only require a 0.075% Stamp duty tax.

So it is up to you to decide: less transaction costs, and a delayed 35% on the dividend, or more transaction costs and a full dividend.



- Second point, very important: you have to pay taxes on the cumulated, not distributed dividend too!! I had it wrong (in my excuse, I still have to compile a tax form with any kind of investment in it...and it doesn't help that the praxis is different that the theory) and I feel ashamed for it. Thank you dmn for pointing it out.
In this case, I have to say that my perspective changes: since accumulated, synthetic ETF requires you to  alittle bit more of work (you have to dig in the paperwork of the ETF to search for the taxable part and declare it), distributing etf where the two component are clearly defined become much more attractive, paperwork-wise. Since usually synthetic are cheaper then fully replicated, is up to you to decide if you want more TER and dividend, or less TER without dividend and then do the necessary legwork.

thank you again dmn for pointing this article out.

samuck

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Re: Switzerland: How should I buy index funds here?
« Reply #89 on: November 10, 2014, 01:58:04 PM »
Here's a new option for Swiss passive investors: https://www.truewealth.ch -- fees of 0.5% per year plus the ETF's TER. Rebalancing included! Finanz und Wirtschaft have featured an article about them: http://tablet.fuw.ch/article/etf-portfolios-gunstig-und-einfach-verwalten/
Have you guys tried it?

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #90 on: November 10, 2014, 11:24:14 PM »
thank you for sharing, I've noticed that  one of the founder is the same as digitec.ch ;)
Interesting, but 0.5% is too much. Including TER and wealth tax, you reach 1% annual cost. And you are not better off than with a simple 1 or 2 or  3-fund portfolio with minimal transaction costs.

After continoous research and the last post about taxes I think I found my ideal one-fund portfolio: I'll be buying only Vanguard all-world ETF, every 6 months, using Corner Trader (no deposit fee, and for capital starting from 75k+  transactions are "only" 0.12%, so 12 chf for 10k (without exchange fee)). The adantage compared to swissquote is the no-deposit fee. In 10 year time, when I'll want to add some bonds, we will have so many possibilities, maybe even access to vanguard mutual fund, that really for the moment I stick to this simple one fund portfolio.

samuck

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Re: Switzerland: How should I buy index funds here?
« Reply #91 on: November 11, 2014, 02:35:19 PM »
Thanks for your opinion, Grog. I'll also stay with my simple 3-ETF-porfolio on Postfinance, regularly investing CHF 3k into equities. That way, I pay roughly 1% per transaction, which is a lot, but actually not bad for Switzerland. And when I keep the ETF longer than two years (which is certainly the plan), this is better than the true wealth solution. However, for an investor with a low budget (but above the minimum of CHF 8500) who wants to diversify into shares, bonds and commodities and balances regularly, true wealth seems to be a good option.

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #92 on: November 12, 2014, 05:59:31 AM »
Hi samuck, regarding the portfolio you posted here:




Hi Grog, it's great to share:

This is my main ETF (roughly 70% of equities): Vanguard FTSE All-World UCITS ETF for TER 0.25
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B3RBWM25CHF4

Then I add emerging markets (15%):

Vanguard FTSE Emerging Markets UCITS ETF for TER 0.29
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B3VVMM84CHF4

And SPDR® S&P Emerging Markets Dividend UCITS ETF  for some extra dividend but I think I'll stop with it even though it developed nicely (TER of 0.65)
http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B6YX5B26CHF4


please remember that the FTSE All-World is not like the MSCI World, that includes only developed countries.
In FTSE all-World you invest in 90% of all the global market, including Emerging Markets (around 15%).
So it seems to me that buying the other two EM funds is a little bit redundant and leave you overconcentrated in EM, and it even increase your TER.
And forget about dividend (that are taxed as regular income) and focus on growth (alas the normal Vanguard All-world index). There are no difference between dividend and capital gain, but dividend are taxed and capital gain not, so the best solution is a fund with as little dividend as possible, like the msci world/ftse all-world etc and leave the high-yield dividend ETF alone (if you are in the accumulation phase!!). My 2 cents.

For the moment I concentrate myself with Vanguard All-world, since the third pillar has already a significant portion of Swiss equities.

But I do think that right now one of the best lazy portfolio for swiss investors (only equity part):
75-80% Vanguard All-World (that already includes 3.5 % of Switzerland)
20-25% SPI or evtl SLI

Right now this is unbeatable, given our limited options. Cheap, easy, diversificated. It's a pity Vanguard is not on the Swissquote dynamic saving account.

samuck

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Re: Switzerland: How should I buy index funds here?
« Reply #93 on: November 13, 2014, 11:54:08 AM »
Hi Grog, thanks for your 2 cents -- certainly worth more than that ;-)
I'm investing 70% in all world, and each 15% in SPI and Emerging markets, overexposing my portfolio to Switzerland and EM as a conscious decision (the first one for a home bias, the second one as a bet for additional growth, will see how that plays out). Couldn't agree more with your comment on dividends: this dividend ETF was actually the first I ever bought and I would not do it again, even though it has developed nicely since then: will be the first thing I sell in case I have to one day. Good luck with your lazy portfolio! Sam

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #94 on: November 13, 2014, 12:52:30 PM »
Yep but still the 1-year total return of the High Yield all-world dividend is 4% less then the "normal" All-world fund. And in top of that, you would have paid double of taxes (4% dividend instead of 2%).

Not really a good deal.

AndyT

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Re: Switzerland: How should I buy index funds here?
« Reply #95 on: January 06, 2015, 06:42:03 AM »
Hi All,

As a total newbie investor I've been reading this thread with growing interest.
I wish to begin investing in ETFs and have a few questions. First of all I'm only here in Switzerland on expat assignment (for another 2 years) am presently tax domiciled in Japan, but a British national and likely to end up retiring in UK.
So my questions, given I'm likely to begin the investing journey here in Switzerland but move back to UK in the long run:
1. Any recommendations on Global Equity and Government Bond ETFs and sensible portfolio split for 25 year investment plan horizon?
2. Should I buy ETFs in GBP - as I'm likely to end up back in UK over the long run?
3. Recommendations on a decent, easy-to-use, cheapish online broker from here in Switzerland or elsewhere?

Any help and guidance very very much appreciated!

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #96 on: January 15, 2015, 04:17:20 AM »
Lol for us Swiss people today SMI -8% in one day

Stock exchange in free fall, exchange rate crazy as shit

And although I've "lost" 15% in one day I'm stuck at work with a grin on my face....time to rebalance!!

It helps probably that I don't have that much invested :D and most of what I had had already made +15%/year so I'm actually back at square one

Òne thing is worrying me: I work in an heavy export industry for us will be probably the end, layoff incoming? suddenly all our product are 15% more expensive, is this the end for export-heavy industries? Only time will tell.

Astromarine

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Re: Switzerland: How should I buy index funds here?
« Reply #97 on: January 15, 2015, 04:30:24 AM »
jeeeeeeeeesus.

I think I "lost" about 20k today.

Not gonna lie, it stings a bit

Grog

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Re: Switzerland: How should I buy index funds here?
« Reply #98 on: January 15, 2015, 05:02:28 AM »
yeah it's difficult to accept because is not like US or EU markets have new evaulation P/E ratio, it is just the "fake" glasses of USD/CHF and EUR/CHF exchange that have been taken away.
On the other hand, is not like the world is collapsing: keep the course, wait a couple of days to see how and if stabilizes a little bit and then buy everything you can....S&P500 ETF, world ETF....is a new era for us.

But losing 12% in one day is crazy:
https://www.google.com/finance?q=INDEXSWX%3ASMI&ei=46S3VLGrFuGOwAPYq4CgAg


ScroogeMcDutch

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Re: Switzerland: How should I buy index funds here?
« Reply #99 on: January 15, 2015, 05:50:36 AM »
That is why you want to have diversified investments, stocks across the globe and currencies.

Any cash that you have or will receive in the next periods is worth 15% more though! I am bummed that the Euro dropped as much as it did lately, as it means I am getting less foreign stock per hour worked than I did before.