long term investment strategy

Hi,

I'm resident in Switzerland and I'm thinking of investing, starting with 50 kCHF and then about 1000 CHF per month.  I'm 40 and this is with a view to having a decent retirement fund.

From playing with the various calculators, and checking total costs, PostFinance seems to be the best fit for me (0.5% issuing fee, not custody fees, no redemption commission).  I'm looking for a passively managed mutual fund with minimum costs and want to keep it simple.

Here's what I'm currently thinking from the PostFinance packages:

PostFinance Fonds 1 Bond : 40%

PostFinance Fonds Global : 40%

Pictet USA Index : 20% (tracks S&P 500)

Details of packages are here: https://www.postfinance.ch/en/private/products/investing-trading/fund-range.html

Does this seem like a reasonable strategy?

Advance thanks,

BigHead.

Hi bighead,

As a general rule, passively-managed exchange traded funds (ETFs) have lower costs than the funds offered by Swiss banks and insurance companies. You can buy ETF shares using an stock broker. You can compare Swiss stock brokers based on the costs of buying, holding and selling ETF shares using the interactive online broker comparison. Investing this way requires more involvement and know-how, but it is generally cheaper than investing compared to investing in funds through banks or insurance companies – meaning you have less costs eating at returns. Make sure to use a broker which charges low brokerage fees for buying ETF shares and low (ideally no) custodial fees for holding your ETF shares.

If you are investing for retirement, then another option would be to use a pillar 3a retirement fund. If you are employed or self-employed in Switzerland, you are eligible to invest in pillar 3a funds. The advantage of investing this way is that investments are tax-deductible up to annual limits, and capital in pillar 3a funds does not count as taxable wealth. Pillar 3a assets cannot be accessed until you reach legal retirement age (currently the earliest age for withdrawals is 59 for women or 60 for men). You can cash out these assets ahead of retirement under certain circumstances (if you leave Switzerland, become unemployed or use the money to buy a primary residence, for example). When you withdraw your pillar 3a savings upon retirement, they are taxed at a special low rate for income tax purposes (your municipality of residence determines the rate) and once withdrawn, assets become taxable wealth. In addition to the tax benefits, using pillar 3a retirement funds is less involving than investing in ETFs yourself through a broker.

The downside of using the pillar 3a is that there is a limit to how much you can contribute each year, so you will not be able to invest the initial CHF 50,000 in one go (unless all or part of this is already in pillar 3a accounts). In 2019, the annual limit for pillar 3a contributions is just 6826 Swiss francs for employed individuals who participate in occupational pension funds (pillar 2) and 34,128 Swiss francs for self-employed individuals who do not participate in occupational pension funds. Another possible disadvantage is that you can’t access your money until you reach retirement age (aside from the afore-mentioned exceptions).

You can use the pillar 3a retirement fund comparison to compare Swiss pillar 3a retirement funds based on their total costs (TER + front-end loads, back-end loads and custodial fees for the safekeeping of fund shares). The comparison also lets you compare funds based on past performance in relation to total costs (Note: this should not be considered a guide to future performance).

A possible combination would be to invest in a pillar 3a retirement fund up to the annual pillar 3a limit, and invest the rest of your capital in a low-cost ETF.

Whether you invest in ETFs or retirement funds, dividing your assets between several funds/banks is generally a good strategy because it minimizes the risks associated with possible bank/fund failure. In the case of pillar 3a retirement funds, using several funds/banks has the added benefit that you can cash out each fund in different tax years. This lets you avoid receiving too much new taxable income in a single tax year, which could push you into a higher tax bracket for that year.

Best regards from Moneyguru

Many thanks.  I need to do some more reading I think.  I'm paid by an non-Swiss university but based here.  So I don't think Pillar 3A is possible for me.  When I use the moneyland calculator Postfinance typically comes out on top or close to the top. 

Maybe it starts paying off better if I invest more per month.  I might have misunderstood something.

Anyway, more research needed.  Thanks for your advice.

Hi bighead,

The retirement fund comparison only includes mutual funds which are eligible to be used for pillar 3a assets.

If you will be investing outside of the pillar 3a, there are other funds (namely a number of ETFs) which have lower TERs (fund management fees) than the pillar 3a-eligible funds included in the comparison.

If done right, investing in the right ETFs using the right broker is the most affordable way to invest in funds. The lower your costs, the higher your potential returns on investments.

But investing in ETFs is only a good idea if:

1. You are comfortable with researching fund performance and costs yourself. Performance reports for ETFs are fairly easy to find, but it can be very difficult to find and compare costs.
2. You are willing to open a stock brokerage account.
3. You are comfortable with buying ETF shares directly yourself.
4. You do not act emotionally and will not sell your ETF shares immediately when prices fluctuate.
5. You use a broker with low brokerage fees and low or no custodial fees. Any fees charged by your broker are an added expense on top of fund fees. As a general rule, you will normally pay less in brokerage fees if you build up cash and then buy ETF shares in bulk (every 3, 6 or 12 months, for example) rather than buying a small amount of shares every month.

When conventional funds from banks or insurance providers are a better option:

If you prefer not to invest yourself using a broker, then using the most affordable conventional funds is a good alternative. The benefit of using conventional funds is that you can get consultation in person at branch offices of the bank which offers the funds. The bank also takes care of everything for you. You don't have to use a third-party broker, so you do not need to calculate the cost of brokerage fees into the equation.

Another benefit is that, depending on the bank, selling conventional fund shares may require more effort (i.e. you may have to visit a bank branch). This makes it more difficult for you to make impulse share sales (which is very easy to do with ETFs and online brokers).

As you rightly noted, PostFinance offers some affordable conventional funds. Although the retirement fund comparison only includes pillar-3a eligible funds, it provides a good reference for comparing the costs of conventional mutual funds from Swiss banks and insurance providers as a whole.

Best regards from Moneyguru