Author Topic: Mustachianism in Switzerland  (Read 535 times)

Swiss Mustachian

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Mustachianism in Switzerland
« on: January 06, 2019, 02:47:36 AM »
Inspired by this Germany thread I'm proposing to start something similar for Switzerland. I've searched the forum thoroughly - also with Google - but couldn't find any meaningful discussions about Swiss Mustachianism. So here we are :)

I've found this blog about Switzerland, which is quite interesting. (It's not my blog, I'm just a reader.)

How do you deal with higher cost of living in Switzerland? How does that change your target stash for retirement? My feeling is that you'd need 2M CHF to retire comfortably (for a family)

How do you deal with the Swiss real estate market? From my own experience Switzerland is not very attractive for real estate buyers, especially when compared to the United States. From my own research, the real estate returns in Switzerland seem to be about half of those in the US (yearly rent yield of 6% compared to 12%), which makes it quite unattractive to own real estate here. At least I haven't found any profitable niches so far... what about you?

How do you deal with the currency risk of buying foreign equities? The Swiss Franc is quite strong and this might be a disadvantage long-term. I'm currently just accepting this currency risk, hoping that things will balance each other out over the long term.

Any other tips and recommendations of how to apply the MMM principles in Switzerland?
« Last Edit: January 07, 2019, 04:42:02 AM by Swiss Mustachian »

KathrinS

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Re: Mustachianism in Switzerland
« Reply #1 on: January 06, 2019, 11:00:31 AM »
Just wanted to say hi as a fellow Swiss Mustachian. Not sure how many of us there are - I haven't encountered any so far!

I spent the first 23 years of my life in Switzerland, and have moved to the UK a bit over a year ago. I've also been wondering about this, as I'm not ruling out moving back at some point. I guess the amount you'd need to be FI would be heavily dependent on your personal situation/ cost of living. At 4%, 2M would be an annual withdrawal of 80 000CHF, which I believe is more than most people earn, even in Switzerland. Isn't the average monthly salary just a bit over 5000 CHF?

That said, if you're working in Switzerland, salaries are much higher than in many other countries, so maybe that partially makes up for the cost of living? My mother is a teacher there, and her salary would easily be in the top 5% here in the UK, whereas teachers here earn an average salary. She also has some real estate, and I believe you're right about the returns. A lot of this depends on how it's managed, though - she employs someone for that and isn't really involved in much of the maintenance, which must lower her returns significantly. When speaking to her financial advisor, he said that returns (both real estate and stocks) in Switzerland are generally a bit lower but also less volatile, so that might not be such a bad thing. Also, inflation is really low there and sometimes even negative, so that's a smaller concern than in the US or UK. (Source: https://www.inflation.eu/inflation-rates/switzerland/historic-inflation/cpi-inflation-switzerland.aspx)

I'd also love any insight on how to deal with buying foreign equities. I'm investing from an English account at the moment, but if I do move back (or to a different country), this might be a problem, depending on how the GBP does.

blackletterlaw

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Re: Mustachianism in Switzerland
« Reply #2 on: January 06, 2019, 12:46:31 PM »
Non-Swiss in Switzerland here.

I do a search here for something on Switzerland almost weekly so nice to see it get a relevant hit today!

Regarding real estate investments - the returns in Switzerland are definitely far lower than what they would be in many other Western European countries. Iím trying to figure out why...but I think that the calculation on making back what you have invested (including mortgage taken out) is roughly 20-25 years. Taking the long term view, investing with a group, or investing with a windfall anount of cash I think that this would be alright, all things considered. 12% is a pretty agressive return in the U.S. as well. I was thinking something more along the lines of 10% in metropolitan areas (which can be at least more housing market / economic downturn proof in the right cities).

Regarding foreign equities...why not just invest back in the US through a vanguard or whatever UBS/CS is offering as an index fund option. Also how about gold during in antiicipation of a downturn...Switzerland is the only place where Iíve come to know people (and relatively young) make bonafide purchases of gold. No tax on gold, no questions asked or ID required if purchasing less than 10k CHF, and you can store them in a bank safe. You can cash them in whatever country you want, and even travel across borders with them, and by plane if <10k.

So...Iím still trying to wrap my head around what peolpe do here with regards to putting money into future investments/passive income...till now my impression is that with the combinations of decent pensions + a fairly relaxed consumption attitude if you are not living in the best neighborhoods in Switzerlandís cities...people just maintain Swiss stocks and invest in the three Pillars..As a non-Swiss however I donít have the same options...
« Last Edit: January 06, 2019, 12:49:57 PM by blackletterlaw »

LennStar

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Re: Mustachianism in Switzerland
« Reply #3 on: January 06, 2019, 12:51:54 PM »
I guess in switzerland, as in Germany, the real estate market is 1) more regulated than in the US b) the population growth has stopped, which means a lot lower demand and C) we don't build most of our houses out of wood, they are made to last ;)

Swiss Mustachian

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Re: Mustachianism in Switzerland
« Reply #4 on: January 07, 2019, 04:17:36 AM »
Just wanted to say hi as a fellow Swiss Mustachian. Not sure how many of us there are - I haven't encountered any so far!

Awesome. Hi back :)

I spent the first 23 years of my life in Switzerland, and have moved to the UK a bit over a year ago. I've also been wondering about this, as I'm not ruling out moving back at some point. I guess the amount you'd need to be FI would be heavily dependent on your personal situation/ cost of living. At 4%, 2M would be an annual withdrawal of 80 000CHF, which I believe is more than most people earn, even in Switzerland. Isn't the average monthly salary just a bit over 5000 CHF?

True. If you're alone, you could certainly make it work with 1M. I was thinking about a family of 3 or 4 where both parents are retired.

That said, if you're working in Switzerland, salaries are much higher than in many other countries, so maybe that partially makes up for the cost of living? My mother is a teacher there, and her salary would easily be in the top 5% here in the UK, whereas teachers here earn an average salary. She also has some real estate, and I believe you're right about the returns. A lot of this depends on how it's managed, though - she employs someone for that and isn't really involved in much of the maintenance, which must lower her returns significantly. When speaking to her financial advisor, he said that returns (both real estate and stocks) in Switzerland are generally a bit lower but also less volatile, so that might not be such a bad thing. Also, inflation is really low there and sometimes even negative, so that's a smaller concern than in the US or UK. (Source: https://www.inflation.eu/inflation-rates/switzerland/historic-inflation/cpi-inflation-switzerland.aspx)

The stability of Switzerland is great. However, I don't care much about volatility, as I have a very long time-horizon for my investments. Actually, I like volatility, as it produces more price distortions (buying at a discount or selling at a premium)!

Swiss Mustachian

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Re: Mustachianism in Switzerland
« Reply #5 on: January 07, 2019, 04:29:18 AM »
I do a search here for something on Switzerland almost weekly so nice to see it get a relevant hit today!

Haha, great to hear.

Regarding real estate investments - the returns in Switzerland are definitely far lower than what they would be in many other Western European countries. Iím trying to figure out why...but I think that the calculation on making back what you have invested (including mortgage taken out) is roughly 20-25 years. Taking the long term view, investing with a group, or investing with a windfall anount of cash I think that this would be alright, all things considered. 12% is a pretty agressive return in the U.S. as well. I was thinking something more along the lines of 10% in metropolitan areas (which can be at least more housing market / economic downturn proof in the right cities).

Personally, I'm targeting a Return on Equity (ROE) of 15%. So far I haven't found that in Switzerland in the current market environment. There is also a super low number of foreclosures, and a lot of competition for them. To make a decent ROE, you need to buy at a substantial discount to fair value, or have the potential to create new value with quick-win upgrades. I haven't found any of those so far.

Swiss Mustachian

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Re: Mustachianism in Switzerland
« Reply #6 on: January 07, 2019, 04:40:07 AM »
I guess in switzerland, as in Germany, the real estate market is 1) more regulated than in the US b) the population growth has stopped, which means a lot lower demand and

The population in Switzerland is still growing, and actually faster than in the USA (1.1% compared to 0.7%). But you are right, the Swiss real estate market is heavily regulated. I also believe that in the current low-interest environment, and the fact that Switzerland's population is rather rich, much more people are currently buying real estate. It's never a good idea to follow the herd.

C) we don't build most of our houses out of wood, they are made to last ;)

Haha, you're right. Compared to Swiss houses, the ones in the US seem like out of cardboard ;) On the flip-side, even the shittiest one-family house (in cities) currently costs >1M. I'm always amazed what $100-200k can buy in the US... sometimes with as little as $5-10k down. You can't even buy a garden house with 5k down in Switzerland ;)

LennStar

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Re: Mustachianism in Switzerland
« Reply #7 on: January 07, 2019, 12:13:47 PM »

The population in Switzerland is still growing, and actually faster than in the USA

Oh yeah, I forgot... that is mostly due to immigration - because its such a wealthy country. The birth rate of "real" Switzer women is under the self-sustaining rate as in other contries. Bit of a mixup here :D

Quote
you can't even buy a garden house with 5k down in Switzerland ;)
Well... come to my city and you can get a very nice house for 200K too. Or a flat for way under 100K in a after-war building.
It always depends on the place. There are several cities where you can't get a toilet shed for 5K. 

Swiss Mustachian

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Re: Mustachianism in Switzerland
« Reply #8 on: January 08, 2019, 08:25:27 AM »
@LennStar What city do you live in?

I just came back from my first foreclosure auction in Basel-Land. The house was appraised at 540'000 CHF, and was sold for 910'000 CHF (the buyer also needs to perform major repairs for an estimated 500'000 CHF). The room was so packed that many people had to stand in the hallway, listening to the proceeding from outside. Crazy! Definitely NOT a good time to be a buyer.

Looks like I stay dedicated to equity value investing for the time being...

flipboard

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Re: Mustachianism in Switzerland
« Reply #9 on: January 08, 2019, 10:36:15 PM »

I spent the first 23 years of my life in Switzerland, and have moved to the UK a bit over a year ago. I've also been wondering about this, as I'm not ruling out moving back at some point. I guess the amount you'd need to be FI would be heavily dependent on your personal situation/ cost of living. At 4%, 2M would be an annual withdrawal of 80 000CHF, which I believe is more than most people earn, even in Switzerland. Isn't the average monthly salary just a bit over 5000 CHF?

That said, if you're working in Switzerland, salaries are much higher than in many other countries, so maybe that partially makes up for the cost of living? My mother is a teacher there, and her salary would easily be in the top 5% here in the UK, whereas teachers here earn an average salary. She also has some real estate, and I believe you're right about the returns. A lot of this depends on how it's managed, though - she employs someone for that and isn't really involved in much of the maintenance, which must lower her returns significantly. When speaking to her financial advisor, he said that returns (both real estate and stocks) in Switzerland are generally a bit lower but also less volatile, so that might not be such a bad thing. Also, inflation is really low there and sometimes even negative, so that's a smaller concern than in the US or UK. (Source: https://www.inflation.eu/inflation-rates/switzerland/historic-inflation/cpi-inflation-switzerland.aspx)

I'd also love any insight on how to deal with buying foreign equities. I'm investing from an English account at the moment, but if I do move back (or to a different country), this might be a problem, depending on how the GBP does.

A few notes:
- Don't rely on a 4% withdrawal ratio unless you want to live a high risk life. 4% was calculated based on people living in the US market (which is larger/more homogenous - with people having home-bias), with a normal retirement duration. For FIRE you'd want lower risk hence lower withdrawal ratio because you need to withdraw over a much longer duration. Secondly, assuming that you're diversified: your equities won't be majority-Swiss, so there's the additional exchange rate risk. Ergo, 4% is crazy.
- Yes: salaries here do tend to more than make up for cost of living. You need to take into account that taxes are lower than in e.g. the UK too. The last time I googled for it, it seemed like people in Switzerland tend to make more than most other countries AFTER taking into account both taxes and cost of living - the information is available somewhere online.


The "foreign equities" really depends on your definition of foreign equities. A good rule of thumb is to buy a total world index fund/ETF, so your investment strategy doesn't really change by moving from the UK to Switzerland. It's easy to buy that in the UK: IIRC VWRL is the go-to ETF for EU residents (it's an "all-world" fund though: I believe it leaves out small-cap). I'd recommend an internationally competent broker though: Interactive Brokers can be a good choice since they let you buy around the world, they are available internationally, and they offer cheap currency conversion (which is important if you move - or just want to buy on an exchange in a different country).

Living in the UK means you are blocked from buying e.g. US ETF's (due to EU PRIIP regulations), which blocks you from some better ETF's such as VT (total world, and cheaper to buy - also domiciled in the US which avoids the fund losing dividend withholdings to the US). However in Switzerland, you _can_ buy US ETF's. So if/when you move, you can sell your VWRL and convert it to VT - this is easiest if you do both at the same broker. Hence my recommendation for Interactive Brokers since they let you deal with both US and non-US ETF's and are good at dealing with people in multiple countries. (Switzerland doesn't assess capital gains for regular investors, hence such a conversion is close to being free.)

Personally, given that Switzerland has historically had a highly performant market (probably thanks to various infrastructural underpinnings and legislative stability), I would even consider some home-bias for retirement in Switzerland, but it's something that needs careful evaluation, and has risk of its own.


// Edit: and I just realised my post touches on another major Swiss thing: no capital gains (for regular investors). That probably has a major effect on reducing taxes at retirement for FIRE'ees. AFAIUI most countries will charge capital gains when selling stocks which obviously reduces the actually usable amount of capital. OTOH dividends are taxed at income tax rates, whereas some countries have preferential taxation for dividends. Do take this into account when comparing other people's example retirement calculations.
« Last Edit: January 08, 2019, 10:41:34 PM by flipboard »

LennStar

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Re: Mustachianism in Switzerland
« Reply #10 on: January 09, 2019, 03:51:57 AM »
@LennStar What city do you live in?


A medium city in eastern Germany. Since so many people moved away from here (unemployment) after the wall fell, practically all cities had to tear down empty houses. Prices are still down. In a renovated 60s house I pay 366Ä for 46qm including running costs(?)