Lump Sum Investment Swiss Broker - VT vs VWRL vs VEVE & VFEM vs SSAC (ACWI)

[leonica]

Hello SwissPersonalFinance community

First of all I want to thank you all, as I've learned a lot through this subreddit.

I have an amount that I want to invest in the next couple of months/years. My time horizon is about 30-40 years. Since it is a lump sum investment and I will hold it for very long, I want to invest in a swiss broker (like Swissquote, Postfinance, etc.). This is due to that they guarantee the full amount of Sondervermögen, as I understand and IBKR only 500k. For my regular investments i might switch to IBKR.

Now I want to ask you guys what you would recommend?

Invest in VT? It has a TER of 0.07% and as I understand I can get 15% back of the dividends, as it is US-domiciled. I have read somewhere, that I have to declare my taxes to the US government, when I have more than 50k of investments in US ETFs. Is this true and if yes, is it complicated? Since it only trades in USD i have to pay around 0.95% of currency exchange fees. Is it true that I get this tax only back for an invested amount of up to 60k CHF and not more? Can I also get this amount back if I invest via a swiss broker instead of a US broker like IBKR?

Invest in VEVE and VFEM? It has a TER of 0.12% and 0.22%, the weighted total is about 0.13%, as VEVE makes up about 88% of a market-weighted all-world etf. Same as VWRL it is traded in CHF. Regarding this I have a question about rebalancing, as I understand I do not have to rebalance (except for difference in fees). Because if emerging markets rise lets say to 40%, than this is already rebalanced to the current market cap. So is rebalancing mainly unnecessary?

Invest in VWRL? It has a TER of 0.22% and is also traded in CHF.

Invest in SSAC (ACWI)? It is also traded in CHF and has a TER of 0.2%. In contrast to the other solutions it is the only accumulating ETF, as I see.

How much of a difference makes the withholding tax of VT in comparison to VEVE + VFEM? The TER difference is about 0.06% and the withholding tax gives me back about 15% of 2%, so lets say 0.3% of the total ETF (and I have to pay taxes on this). So the total gain is about 0.3% (including dividend income taxes) on VT against VEVE + VFEM and about 0.4% against the other two solutions? Is this correct? How much paperwork is the VT solution in comparison to the other three solutions? What is with VWRL and SSAC?

Which of these four options would you recommend, under the circumstance that it is a swiss broker and a lump sum investment? VT i would have to convert back to CHF in the end anyway. Also i have to take into account the 0.95% currency conversion fee for VT.

 

[tobiahjude99]

@leonica Go with VT.

It‘s just the better fund. Lower ter, more holdings, you can get back 15% withholding tax you lose out on Irelend domiciled etf (DA-1 tax form, it‘s easy to fill out), better spreads (more liquid).

That the etfs are traded in CHF is completely meaningless. It‘s just the displayed currency, the underlying etf is still in USD. The displayed currency would only be relevant if it‘s a hedged etf. But hedging is not free and doesnt really give an advantage, so dont focus on that as well.

Also where do you pay almost 1% in exchange fees? That broker sucks.

Go to Interactive brokers. The exchange fee is a flat 2 CHF for any amount. So for 30k comes out to 0.00007% so absolutely nothing.

But even then. If it‘s a one time exchange. Go with VT. You‘ll recoup that in a year.

 

[leonica]

@tobiahjude99 Thanks!

I also have the impression that the VT is the superior product. I am just careful, since IRS has a pretty scary name in the world of finance.

Yes, I know that the currency traded is not important for the underlying value (except conversion fee).

I am just unsure due to the below mentioned US inheritance laws for US based ETFs. Do you know more about this? How much paper work is this for me annualy?

The thing is, I am not sure if US will change their policy in the next years or if Switzerland will follow EU regulations.

 

[tobiahjude99]

@leonica There wont be any paperwork for the estate law, until you are dead and your heirs have to do it. Ideally you just sell before that

Also for the estate tax you are considered like an US citizen, due to a tax treaty between CH and the US. That means up to 5 million is inherited tax free, in case of your death.

I dont think this will change, but I have no comcrete info on it. In any case, as we live in CH and pay no capital gains tax, you can freely sell anytime and buy an ucits etf, if this ever changes.
This makes it risk free in my opinion

 

[leonica]

@tobiahjude99 Thanks for the helpful reply!

Maybe you know also the answer to this:

Regarding rebalancing. Is it true, when I buy a combination of VEVE + VFEM I would not have to rebalance, as it always represents the current market distribution (e.g. when EM rises in comparison to VEVE)?

 

[tobiahjude99]

@leonica When you buy it only once, then it should stay pretty close going forward. What will change it over time are the different dividend yields. As the share price will fall by the distributed dividend, VFEM in your portfolio will get lower over time due to higher dividend yield. You would need to reinvest the dividends appropriately to get the correct market cap again. You can circumvent that by having accumulating versions of those. Which should be better anyway when using an expensive swiss broker, as that saves on transaction fee, when you would need to reinvest.

Over longer stretches of times, there may be some difference due to TER and withholding tax effects. But should be relatively small and take a while to be significant.

 

[leonica]

@tobiahjude99 Thanks! Makes sense. Yes, I agree that the effects are small, but calculating the exponential behaviour the effects of 0.1-0.2% makes an impact. But of course also VWRL could develop better than VT due to less positions, nobody nows the future!

Do you know, where I can find the current ratio between VEVE and VFEM needed to make it the same as VT?

 

[tobiahjude99]

@leonica Go to the etf page of VT and look under portfolio for regions. There you see the emerging markets %. It‘s pretty much spot on 10% right now

 

[leonica]

@tobiahjude99 Thanks! Was easy to find!

 

[virtualhope]

@leonica

This is due to that they guarantee the full amount of Sondervermögen, as I understand and IBKR only 500k.

Same is true for IBKR, the assets (ETF, stocks) are in your name and would be transferred to a new broker (see

https://www.reddit.com/r/interactivebrokers/comments/11nhmo7

).

One thing to remember is that buying US ETFs will subject you to the US inheritance laws (see https://thepoorswiss.com/us-estate-tax-swiss-investors/ for all the details).

 

[leonica]

@virtualhope Thanks!

Yes I've meant that with the US inheritance laws. I am just very careful with US laws and especially regarding IRS. But 7 million is more than enough. Is it a lot of paper work to fill in or is this just in case of death?

So you would recommend me to invest in VT as well? Instead of VEVE + VFEM (I think the difference is about 0.2% yearly in total, so not neglibile at all in the long term).

Regarding rebalancing. Is it true, when I buy a combination of VEVE + VFEM I would not have to rebalance, as it always represents the current market distribution (e.g. hen EM rises in comparison to VEVE)?

 

[virtualhope]

@leonica

Is it a lot of paper work to fill in or is this just in case of death?

Didn't die yet, can't comment on it

So you would recommend me to invest in VT as well?

I recommend keeping it simple, but I personally don't believe in EM and therefore would go with VEA or IWDA.

I can't comment on the rebalancing as I don't practice that.

 

[leonica]

@virtualhope Thanks for the reply. So it seems quite simple to invest in VT!

 

[asdfkasdf]

@leonica

Is it a lot of paper work to fill in or is this just in case of death?

Your heirs will probably have to hire a tax lawyer. Depending on our portfolio you will probably save more in TER, conversion fees and withheld dividends than what this lawyer will cost, hopefully many decades from now. Ideally you would sell and move to UCITS land anyways.

 

[613jono]

@leonica Remindme! 14 days

 

[cathya]

@leonica

I want to invest in a swiss broker (like Swissquote, Postfinance, etc.). This is due to that they guarantee the full amount of Sondervermögen, as I understand and IBKR only 500k.

IBKR segregates client assets very similarly to Swiss brokers. If IBKR goes bankrupt without fraud by the broker, customers won't lose any of their investments (at least for fully owned positions without margin loans or securities lending), the same as with Swiss brokers. See https://www.interactivebrokers.co.uk/en/general/security-investor-protection.php

The USD 500k insurance by SIPC is only relevant in case of fraud. And Swiss brokers are not required to have such an insurance. The only potential advantage of Swiss brokers is that they are under Swiss jurisdiction.

If you're still worried about long term custody at a foreign broker, a potential option is to do the lump sum investment with IBKR but then transfer a part or all of it to a Swiss broker using a position transfer.

the withholding tax gives me back about 15% of 2%, so lets say 0.3% of the total ETF

The US makes up about 60% of a global ETF, which means you only lose 60% of these 0.3% to US withholding taxes.

 

[leonica]

@cathya Thanks!

The idea with the position transfer is quite good!

You are right, one point why I want a swiss broker is due to the fact of Swiss jurisdiction.

You are right! Since th US are only 60% of VT it would come back to 60%*15%*2%=0.18% and I would have to pay income tax on these dividends, so lets say about 0.13% is the benefit of getting the tax back!

What do you think of the above mentioned US inheritance laws or that the US/Switzerland will change the tax treaty?

What do you think of the combination of VEVE + VFEM (cheaper combination of Ireland domiciled ETFs in comparison to VWRL)?

 

[nicholeuhas]

@leonica I would ignore the US inheritance laws. The tax-free amount is around USD 11,58 Mio. If you are reaching this level you can still sell everything.

As an alternative to VWRL you can go with FWRA. Its the same but cheaper.

 

[leonica]

@nicholeuhas I did'nt know FWRA. Do you think there is a difference regarding safety between Invesco and Vanguard?

 

[cmhopkins86]

@leonica If you decide for IBKR, feel free to use my referral link, depending on how much you invest, you may get a lot of free stocks

https://ibkr.com/referral/robert2693