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Do you also constantly end up on foreign finance blogs and YouTubers just because there are there are not enough informative sources in Switzerland? I know the problem only too well. I too used to read Gerd Kommers' book and watch countless videos of Finanzfluss and Co. But here lies a big problem - we live in Switzerland!
The euro has lost about 50% in value against our currency, the Swiss franc, over the last 30 years. Also the taxation aspects or about our Possibilities in precautionary measures are in Switzerland fundamentally different from abroad. This means that it would not be ideal to simply invest like our foreign neighbours. Adopting a strategy unsolicited from Gerd Kommer, financial flow or other foreign sources would be dangerous.
Out of this problem, in 2019 I have Schwiizerfranke as a targeted financial blog for people in Switzerland established. In this blog post, you will learn in brief where the important financial differences in Switzerland compared to our neighbouring countries lie.
With our strong currency, the Swiss franc (CHF) and our particular geographical situation we have a unique relationship with international equity markets.
International stock markets and especially the US stock market have been very exciting investments in the past. Large international tech companies such as Google, Facebook or Apple entice with high returns. Indices such as the S&P 500 or the MSCI World are also popular ETF investments in Switzerland.
However, when investing money throughout Switzerland, you should be aware that international investments not only have advantages for us, but also disadvantages and risks.. Therefore, pay attention to the following points if you want to approach your investments successfully.
Probably the most underestimated aspect of international securities for investors from Switzerland in the so-called Exchange rate risk.
An equity investment in US dollars or in euros, for example, also loses value if the exchange rate of the currency loses value against the Swiss franc. Thus arises In addition to the investment risk, there is also a currency risk..
Over the past 30 years, the Euro lost about 50% in value against the francas you can see in the following graph.
Also the US Dollar has suffered. Over the last 40 years, a portfolio in US dollars would have cost an investor from Switzerland around 57% in foreign exchange losses cost.
To be fair, it is precisely the US market due to the tech stocks (Apple, Facebook and Co) in the last few years. better returns than the Swiss equity market has thrown off. But the difference was not always higher than the currency losses. So the currency risk should not be forgotten under any circumstances.
Notice: Currency risk can be counteracted through currency hedging. However, hedging costs quite a bit in fees. How you can better counteract the currency risk as a Swiss citizen is therefore discussed in the FinanceTimetable detailed.
For example, if you buy an Apple share or an MSCI World ETF, you will probably make a currency exchange in the process. When converting from CHF to other currencies, you will have to depending on the bank often 1-2% in exchange rate fees which reduce your overall return.
A Exchange rate fee of 1% is common and thus costs you 1% return when buying and another 1% return when selling an investment.
Example: You buy an MSCI World ETF in US dollars, which gives you a return of 7%. When you change currencies, you are charged 2% in fees, which gives you a net return of 5%. An investment in a Swiss SPI ETF in CHF might have given you only 6% return, but would have been the more profitable investment (because no exchange rate fees).
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In contrast to our neighbouring countries, in Switzerland there are Price gains tax-free for private investors. This aspect is a great advantage in wealth accumulation.
But what should you look out for in terms of tax when you read foreign blogs, books or videos on investments?
There are certainly many important examples, but what you will probably encounter early on is the issue of withholding tax. The Withholding tax is levied on interest and dividends for investments abroad. (e.g. on an MSCI World ETF) are due and settled.
Many countries have tax treaties with each other to avoid double taxation. Investors from Switzerland are subject to different rules than investors from Germany or the USA, for example.
Tax implications when choosing ETFs can be significantly greater than a difference in fees (TER). When investing money throughout Switzerland, therefore, pay attention not only to the fees of ETFs, but also in particular to a Intelligently chosen tax domicile.
The aspects you need to consider would go beyond the scope of this article, which is why the topic is easily understandable in video form in the FinanceTimetable is taken up.
International diversification (Spreading your investments) is an important principle of general investment approaches. The aim of diversification is to reduce the risk of investments through a broad spread.
Companies are increasingly achieving their turnover internationally and investors are also investing more and more internationally. There are numerous Investigationswhich show that this is why the desired effect of diversification continues to decline. Actually, international diversification is an attempt to spread the risk. But if the markets behave more and more similarly, this strategy loses its effect. The following chart shows you the Interrelationships (so-called correlation) between Swiss and international markets:
For private investors from Switzerland, this development and the above three points make a Targeted addition of Swiss equities makes perfect sense. How large the CH share in the portfolio should be can be determined on the basis of your investment profile.
Have you ever noticed that financial blogs from Germany always refer to general ETF investments, but rarely to local pension options?
What happens to us in Switzerland with the Pillar 3a offered is available in almost no other country in the world. We can invest up to 100% individually (without redistribution) in shares and are even rewarded for it fiscally!
In contrast to other countries, pillar 3a can therefore be the most interesting option for many Swiss people. First port of call for wealth accumulation in the investment of money in Switzerland.
Here you can learn about the Peculiarities of pillar 3a and in this post you can see how to use it to create a tax-efficient Assets of more than CHF 1 million build up.
Choosing the right provider has a strong impact on the cost and efficiency of your investments. Unlike the US or our European neighbours, for example, we have a very in Switzerland, a significantly smaller selection of brokers.
When we want to invest money in Switzerland, we notice that competition stimulates the market. Or rather, we see that Investment fees far more expensive than abroad. Unfortunately, our banks also lag a little behind the foreign countries in terms of technology. For example, ETF savings plans have only recently become available at some banks in Switzerland, whereas they have been standard abroad for many years.
Some foreign providers do accept customers from Switzerland, but this is not necessarily the best choice for us Swiss. Finally, low fees are by no means all the factors you should consider. For example, many of the cheap international brokers operate so-called securities lending, which exposes your securities to additional risk. Here you will find the Broker comparison for Swiss and also a big Robo Advisor Comparison.
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We have an absolutely unique starting position when it comes to investing money throughout Switzerland. We have the Strong franc as currency, Cantonal individual taxes and our own small, (mostly also) fine Banking world. For many financial plans, such as financing your own home or retirement provision, we have very attractive options that are only available here.
Accordingly, we can offer investors from Switzerland Do not adopt strategies and tips from abroad without checking them.. Many financial topics apply internationally, but many details are different here.
Here in the blog on Schwiizerfranke, in the Free Wealth Letter, or in the FinanceTimetable you will always find out exactly what you should look out for when investing money throughout Switzerland.
Feel free to share in the comments which financial topic stands out for you in Switzerland or which one is still on your mind the most at the moment!
15 responses
Hello Eric
Thank you very much for this great contribution. In your opinion, is there an approximate % proportion that Swiss equities should make up in the portfolio?
Many greetings
Nadine
Hello Nadine,
As a rough house number, you could think about 30 - 40%. However, the consideration should be made in more detail and also checked.
Because it's a bit more time-consuming: In the FinanceTimetable We simulate various strategies and look closely at what proportion is suitable for your personal situation.
Hello Eric
Thank you very much for the helpful information! The question of currency risk really does concern me. I moved from Germany to Switzerland 15 years ago, I'm now Swiss and would like to stay in Switzerland for the rest of my life. However, I still have euros at a bank in Germany due to inheritance and gifts. I have now invested these via custody accounts that are possible without German residency (one at DKB and one at finanzen-zero.net; scalable capital or trade republic would be my first choice, but are unfortunately not available without German residency). I decided against transferring the EUR to CHF with the idea of diversification and risk distribution. I earn CHF, so my wealth accumulation is CHF-dominated. In the long term, I will continue to build up my assets in CHF. Two questions: 1. does this make sense in principle? 2. if I invest in USD ETFs/shares, should I rather invest in EUR or CHF? At the moment I am getting more USD for CHF, but if the CHF strengthens this will vaporise my gains in USD ETFs as you have described very nicely in the article.
Thank you very much for your mega good content!!!
Many greetings
Christian
Hello Christian
Thank you very much for your positive feedback on the blog! 🙂 I'm delighted.
Regarding your questions: It is important to know that the future can never be predicted based on the past.
Therefore, nobody can give you a 1001TP3 answer to your questions. However, if we assume that the franc will remain strong, it could definitely make sense to change euros into francs.
At the very least, using the other currencies for purchases in these currencies is highly recommended. Using euros for euro ETFs and dollars for dollar ETFs makes perfect sense. This will at least save you the currency exchange fees that every bank/broker charges.
Switching between currencies is basically speculating on the future exchange rate, which, as I said, nobody can predict. But I would advise you to at least avoid or reduce currency conversions and the associated fees. For example, you can buy CHF ETFs in Switzerland in francs and buy euro ETFs (if you have any in your portfolio) from your broker in Germany, where euros are already held anyway.
(Of course, this is not a recommended procedure for others reading here, but relates purely to this special case).
I hope these thoughts help you!
Best regards 🙂
Eric
Hello Eric
Thank you very much for your quick reply. And above all for the change of perspective in this somewhat special case. I do indeed think that the franc will continue to strengthen. I was thinking of keeping the euros in euro investments in order to hedge this currency risk somewhat, as I will still have at least 30 years of asset growth in CHF. But as I'm writing these lines here, I'm wondering whether this isn't a paradox in itself. Because if I think the CHF will strengthen, then it might be ok to accept the currency exchange fees (from EUR to CHF). And then try to invest in CHF ETFs with as much diversification as possible. Your article was really very enlightening here, because I had previously been put off by the often high TER and so I am currently also saving a world ETF in USD. A good example is the iShares MSCI World CHF hedged (ISIN: IE00B8BVCK12) with TER 0.55% and the same in USD (ISIN: IE00B4L5Y983) with TER 0.2%. If you look at the 5-year performance at justetf.com, you can see that the CHF hedged ETF has grown by approx. 48% and the USD ETF by approx. 65%. Now the USD has weakened by around 10% against the CHF in the same period. Maybe the remaining ca 7% difference is somewhere in the spread between buying/selling or currency conversion fees (the latter already included in the higher TER, I thought). Anyway... I still had 2 questions when looking at this and would be very happy and grateful to read your opinion 🙂
1. if you now regularly invest in a USD ETF via a savings plan and assume that the CHF will continue to strengthen against the USD in the long term, then you can buy more and more ETF units for the ever stronger CHF with every future purchase. However, a large proportion is already invested in USD, which will then naturally become relatively weaker. And now the only question is how much you will invest in the future and what the overall impact on the investment will be. Do you know of an online currency converter for these scenarios? If not, it might be cool if you could integrate one on your homepage. Because I've only just learnt with you how important the currency view is for pension planning, especially for the CH location. Otherwise it will spoil all the nice percentage points of the world ETFs afterwards.
2. let's assume that the CHF is getting stronger against the USD and EUR and you have both CHF and EUR cash reserves. If you now want to invest in USD ETFs, it would be advisable to do this via EUR, wouldn't it? Especially if you are speculating that the USD will strengthen against the EUR in the future.
So, those are my last questions for now 🙂 I would be very happy if you could give me a brief assessment (without investment advice, of course) 😉
A thousand thanks!
Kind regards
Christian
Dear Christian,
These are very far-reaching considerations that unfortunately cannot be adequately answered in the scope of a commentary. This would require too many simplifications that could be misunderstood.
Thematically, the questions fit perfectly with the content of the FinanzFahrplan, where we tackle exactly these kinds of topics. We will be starting again shortly, you can secure your place here: https://www.finanzuni.ch/finanzfahrplan
Otherwise, feel free to use the blog, here you can find some more detailed content on the topic of currencies 🙂
Best regards and see you soon,
Eric
An exchange rate risk can always be an exchange rate opportunity. The last 30 years have been unfavourable for CHF-EUR, but that does not automatically mean that it will only continue in this direction forever. Forecasts are difficult, especially when they concern the future 😉 But it is still important that you draw attention to this fact!
What I am currently concerned about in terms of financial issues in Switzerland is the increasingly frequent mention of investing in money market funds (or ETFs) as an alternative to savings accounts (which usually pay lower interest). If you always want the best interest rate, you currently have to switch bank accounts very frequently. A money market investment seems to be easier. Perhaps you could write an article about this? Does anyone have any experience with this? Is there a money market ETF in CHF? So far I've only found funds, but I don't know which one would make sense, what differences there might be, etc. Does it matter whether CH- or LU-ISIN? In many cases the funds are set up in Luxembourg. I recently entered a buy order with Swissquote (without actually placing it in the end) for a Swisscanto money market fund with a CH-ISIN, which would have only cost a fee of CHF 9. So is no stamp duty payable on money market funds? A lot of question marks...
Hello Sebi, thank you for your message 🙂
An exchange rate chance is theoretically possible as well, you are right. You are also right that forecasts are difficult or impossible. Personally, however, I pay close attention to the past and wonder why the next 50 years should be different from the last 50 years. Furthermore, there are numerous renowned economists who can justify the further strengthening of the franc. Of course, none of this is a guarantee, but personally I have much more confidence in the franc than in the euro or the dollar. This is, of course, only my opinion and not an investment recommendation 🙂
With regard to money market funds, the risks (and also the tax issues) should always be taken into account. Currently, these are still too unattractive for my taste compared to a Well-interest bearing bank account. But I would be happy to take up the subject if they become more attractive.
Super valuable contribution. Definitely keep an eye on the currency risk. It's better to invest in CHF-listed ETFs. You might lose some performance, but a weak EUR or USD doesn't play a big role, at least visually. I have lost more than 25% in some cases just because of the weak EUR.
Unfortunately, the world economy runs in USD and many Swiss companies feel the weakness of foreign currencies in their CHF balance sheet. What I will certainly look at more closely in the future is the tax domicile of ETFs. Many a hyped ETF on YouTube is a bad deal for Swiss investors who have to pay their costs in CHF.
Absolutely right, Martin.
It is also important to know that many of the listed Swiss companies generate a significant part of their turnover abroad, which means that they are still diversified internationally (albeit indirectly).
Thank you for this post. On the subject of taxes, it might also be worth pointing out the tax statement from Swiss brokers or banks. It's a great thing that makes it so much easier to file tax returns - especially for dividends. With foreign brokers, you always have to find everything manually.
Absolutely, thank you for your addition, Lars 🙂 .
This is exactly the issue I am currently dealing with. I have the "Global Blue Chips" at Yuh and wonder whether it would make more sense to save for the CHF hedged version, even if it is more expensive. But with the hedged version, the price performance is also significantly worse. Inputs? 🙂
Hedging is once again a whole topic in itself and here opinions are divided even among the professionals. The costs of currency hedging are not always worth it, but sometimes they are.
In my opinion, currency risk should be completely avoided for bonds (always in CHF) - no investment advice. With equities, things become more complex and it is not possible to make a sensible comparison in the brevity of a comment. I would be happy to take up the topic for a future article 🙂
Internationally active companies operate in different currencies. So you already have a hedge. Globally diversified ETFs in CHF also suffer from a weak dollar. I invest in ETFs in CHF and USD; the TER is the decisive factor for me. I don't think the costs of hedging are worthwhile in the long term. I only hold fixed-interest investments in CHF.