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  #21  
Old 19.07.2012, 08:52
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Re: Tax efficient savings for long term returns

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Admittedly I was assuming the OP was making a bit more income. Even so I suspect you are saving more than you think even in a very low tax canton.

In Zug you would pay 11643chf per year tax on 120kchf (c.10% tax). If you paid an extra 20kchf into 2nd pillar your tax would go down to 8353chf, a saving of 3.3kchf on 20kchf, so just over 16% saving marginally.

In Thun, which seems quite expensive as a canton, on the same salary you would save 21% on a 20kchf contribution out of a 120kchf salary. 20kchf pension saving out of 250kchf income would save 42.5% tax however.
Well - put it this way - its worth me doing if it were possible. But it seems not

As a bit more background for you (as you really got your teeth stuck into it for me!), my UK pension with its Final Salary provisions always seemed so advantaged to me that I tried to save as much as I could afford into that. (I have 20 years to go until retirement and I don't know where I'll be so lets ignore the possible "what will the GBP be worth against the CHF in 2032?" If I knew that, I wouldn't need to work at all!)

However, as with all such schemes, its becoming less affordable so new entrants are no longer permitted (for example), and the scheme has also changed to allow only base salary contributions in future, rather than other elements of the package (I can't say the "B" word or the villagers will be after me with pitchforks)

So I'm looking for an alternative way to save for the long term to allow me to maintain that previous level of saving.
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  #22  
Old 19.07.2012, 09:09
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Re: Tax efficient savings for long term returns

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Well - put it this way - its worth me doing if it were possible. But it seems not

As a bit more background for you (as you really got your teeth stuck into it for me!), my UK pension with its Final Salary provisions always seemed so advantaged to me that I tried to save as much as I could afford into that. (I have 20 years to go until retirement and I don't know where I'll be so lets ignore the possible "what will the GBP be worth against the CHF in 2032?" If I knew that, I wouldn't need to work at all!)

However, as with all such schemes, its becoming less affordable so new entrants are no longer permitted (for example), and the scheme has also changed to allow only base salary contributions in future, rather than other elements of the package (I can't say the "B" word or the villagers will be after me with pitchforks)

So I'm looking for an alternative way to save for the long term to allow me to maintain that previous level of saving.
As the final salary scheme should be index linked, what the £ is worth will be compensated for.
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  #23  
Old 19.07.2012, 09:19
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Re: Tax efficient savings for long term returns

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Well - put it this way - its worth me doing if it were possible. But it seems not

As a bit more background for you (as you really got your teeth stuck into it for me!), my UK pension with its Final Salary provisions always seemed so advantaged to me that I tried to save as much as I could afford into that. (I have 20 years to go until retirement and I don't know where I'll be so lets ignore the possible "what will the GBP be worth against the CHF in 2032?" If I knew that, I wouldn't need to work at all!)

However, as with all such schemes, its becoming less affordable so new entrants are no longer permitted (for example), and the scheme has also changed to allow only base salary contributions in future, rather than other elements of the package (I can't say the "B" word or the villagers will be after me with pitchforks)

So I'm looking for an alternative way to save for the long term to allow me to maintain that previous level of saving.
I agree maxing out the final salary opportunity makes a lot of sense assuming the underlying scheme and employer are reliable.

Im not so clear however, i) how you can still be contributing to the DB scheme, ii) what is "worth doing - if it were possible" and why is it not possible.
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  #24  
Old 19.07.2012, 09:47
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Re: Tax efficient savings for long term returns


when I read the title, I immediately thought of our friends at DeBears. They would surely find you a nice savings plan for long term returns (returns for them of course). Vision Plan anyone?
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  #25  
Old 19.07.2012, 17:18
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Re: Tax efficient savings for long term returns

As a general rule, you should do everything you can to max out your Pillar 2 and Pillar 3 contributions.

Five points:

1. It is not entirely true that these are only tax deferred, and not tax exempt. While that is true in many countries, in contrast the Switzerland tax code treats these contributions are 40% tax deferred, and 60% tax exempt. Only 40% of your subsequent pension payments are subject to Swiss tax. ie if you withdraw CHF 100k, they apply tax to only 40k.

2. The tax deferral will apply to your highest marginal tax rate (often approx 30% depending upon Canton), and the subsequent tax rate applied will usually be much lower as you are into retirement and earning less (perhaps 10-15% tax rate). So you pay 15% tax on only 40% of the withdrawal, for an average rate of 6%, as compared to the 30% you might have paid originally

3. You will receive investment income on the deferred tax portion your contributions are tax sheltered (ie instead of getting investment income on your 70% net of tax portion, you get it applied to your 100% portion)

4. If you plan on retiring outside of Switzerland, you should consider how your resident country will tax your Pillar2/3 earnings, as you might be taxed on the full 100%.

5. Finally, note that if you leave Switzerland or retire outside, you can withdraw your Pillar2/3 principal, net of a Swiss tax of approx 6%. Admittedly you might face limitations on your ability to withdraw depending upon where you retire (ie in a EU country), however you could always consider an interim retirement period of a few years to a non-EU country, which would not be subject to the EU limitations.
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  #26  
Old 19.07.2012, 17:26
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Re: Tax efficient savings for long term returns

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2. The tax deferral will apply to your highest marginal tax rate (often approx 30% depending upon Canton),

.
Not quite, the first 1000 CHF would be at your higest marginal rate & every further 1000 CHF at a progressivly lower rate.

Also bear in mind that capital gains are not taxed in CH, so it's quite possible to invest your own money with very little tax liability.
With the very limited scope for investment in Swiss pension schemes, you may still not maximise your overall return after tax.

Last edited by fatmanfilms; 19.07.2012 at 17:39.
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Old 23.07.2012, 14:29
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Re: Tax efficient savings for long term returns

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Well as Swiss tax rates increase with every 1000 of earnings, it's not as easy as say in the uk.
Could anyone recomend a tax adviser who is familiar with both the French and Swiss systems and maybe knows something about English tax? We are a bit confused here. Thanks. Ritz.
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  #28  
Old 23.07.2012, 16:16
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Re: Tax efficient savings for long term returns

Just to clarify that Switzerland's income tax rates do not increase "per CHF 1000", but rather increase per brackets of income. However there are more brackets (ie 12-15 for federal taxes) than many other countries (which typically have 4-6)

I'm sure there is a document somewhere in German on the Swiss Tax site, but here is an english summary of the federal tax brackets
http://www.taxrates.cc/html/switzerland-tax-rates.html

Note: I see the table isn't displaying clearly. it should be read as 1) tax bracket 2) accumated tax from lower tax brackets 3) % marginal rate for referenced bracket
Swiss Federal Tax Rates for Unmarried Taxpayers
Taxable Income (CHF) Tax on Lower Amount (CHF) / Tax on Excess (%)

0 - 13,600: - 0%
13,601 - 29,800: - 0.77%
29,801 - 39,000: 124.70 0.88%
39,001 - 52,000: 205.65 2.64%
52,001 - 68,300: 548.85 2.97%
68,301 - 73,600: 1,032.95 5.94%
73,601 - 97,700: 1,347.75 6.60%
97,701 - 127,100: 2,938.35 8.80%
127,101 - 166,200: 5,525.55 11.00%
166,201 - 712,400: 9,826.55 13.20%
712,401 - 712,500: 81,924.95 0%
712,501 + : 81,937.50 11.50%

If taxable income exceeds CHF 712,501 the exceeding income is subject to a flat rate of CHF 11.50%.



Swiss Federal Tax Rates for Married Taxpayers
Taxable Income (CHF) Tax on Lower Amount (CHF) / Tax on Excess (%)

0 - 26,700: - 0%
26,701 - 47,900: - 1%
47,901 - 54,900: 212.00 2%
54,901 - 70,900: 352.00 3%
70,901 - 85,100: 832.00 4%
85,101 - 97,400: 1,400.00 5%
97,401 - 108,100: 2,015.00 6%
108,101 - 117,000: 2,657.00 7%
117,001 - 124,000: 3,280.00 8%
124,001 - 129,300: 3,840.00 9%
129,301 - 132,900: 4,317.00 10%
132,901 - 134,700: 4,677.00 11%
134,701 - 136,500: 4,875.00 12%
136,501 - 843,600: 5,091.00 13%
843,601 + : 97,014.00 11.5%
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  #29  
Old 23.07.2012, 18:11
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Re: Tax efficient savings for long term returns

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Just to clarify that Switzerland's income tax rates do not increase "per CHF 1000", but rather increase per brackets of income. However there are more brackets (ie 12-15 for federal taxes) than many other countries (which typically have 4-6)

I'm sure there is a document somewhere in German on the Swiss Tax site, but here is an english summary of the federal tax brackets
http://www.taxrates.cc/html/switzerland-tax-rates.html

Note: I see the table isn't displaying clearly. it should be read as 1) tax bracket 2) accumated tax from lower tax brackets 3) % marginal rate for referenced bracket
Swiss Federal Tax Rates for Unmarried Taxpayers
Taxable Income (CHF) Tax on Lower Amount (CHF) / Tax on Excess (%)

0 - 13,600: - 0%
13,601 - 29,800: - 0.77%
29,801 - 39,000: 124.70 0.88%
39,001 - 52,000: 205.65 2.64%
52,001 - 68,300: 548.85 2.97%
68,301 - 73,600: 1,032.95 5.94%
73,601 - 97,700: 1,347.75 6.60%
97,701 - 127,100: 2,938.35 8.80%
127,101 - 166,200: 5,525.55 11.00%
166,201 - 712,400: 9,826.55 13.20%
712,401 - 712,500: 81,924.95 0%
712,501 + : 81,937.50 11.50%

If taxable income exceeds CHF 712,501 the exceeding income is subject to a flat rate of CHF 11.50%.



Swiss Federal Tax Rates for Married Taxpayers
Taxable Income (CHF) Tax on Lower Amount (CHF) / Tax on Excess (%)

0 - 26,700: - 0%
26,701 - 47,900: - 1%
47,901 - 54,900: 212.00 2%
54,901 - 70,900: 352.00 3%
70,901 - 85,100: 832.00 4%
85,101 - 97,400: 1,400.00 5%
97,401 - 108,100: 2,015.00 6%
108,101 - 117,000: 2,657.00 7%
117,001 - 124,000: 3,280.00 8%
124,001 - 129,300: 3,840.00 9%
129,301 - 132,900: 4,317.00 10%
132,901 - 134,700: 4,677.00 11%
134,701 - 136,500: 4,875.00 12%
136,501 - 843,600: 5,091.00 13%
843,601 + : 97,014.00 11.5%
Your missing the point as Federal tax is the lowest, Canton & Geminde tax are many times higher & increase per 1000 of income.

Best FMF
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Old 23.07.2012, 18:43
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Re: Tax efficient savings for long term returns

You hadn't stated that you were referring to Cantonal/Municipal taxes only.

I note that the Canton of Zurich also has tax brackets (13 in all), and doesn't have rates varying per CHF 1000. (as per page 4 of the attached)

http://www.steueramt.zh.ch/internet/...uertarife.html
Begr._V_Ausgleich_kalte_Progression_22.6.11.pdf

Perhaps you were referring to a specific Canton?
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Old 23.07.2012, 19:04
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Re: Tax efficient savings for long term returns

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You hadn't stated that you were referring to Cantonal/Municipal taxes only.

I note that the Canton of Zurich also has tax brackets (13 in all), and doesn't have rates varying per CHF 1000. (as per page 4 of the attached)

http://www.steueramt.zh.ch/internet/...uertarife.html
Attachment 46424

Perhaps you were referring to a specific Canton?
Lets put the figures in, you can see for yourself how about Zurich in Zurich!

http://www.steueramt.zh.ch/internet/...st_normal.html

Single person in ZH 80K salary pays tax at 5.885%
Single person in ZH 81K salary pays tax at 5.923%

So my statement that the percentage of tax increases with every extra 1000 CHF you earn is infact true, however I do understand your point as the marginal rate is 9% which is above the 5.923 payable overall. Of course a headline salary will be over 100K then 81K after pension, AVH, insurance & travel deductions etc.

It all begs the question , why bother with extra pension payments, you only need to achieve a slightly higher rate of compound return ( no CGT) to do better outside a pension, paying less tax into the bargain!


Best FMF

Last edited by fatmanfilms; 23.07.2012 at 19:24. Reason: Added to post 100k salary etc
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  #32  
Old 23.07.2012, 19:17
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Re: Tax efficient savings for long term returns

I think that our discussion has moved away from our original topic of the marginal tax rate per increment of taxable income to the blended (ie average) tax rate over all taxable income.

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Not quite, the first 1000 CHF would be at your higest marginal rate & every further 1000 CHF at a progressivly lower rate.
I think perhaps there was some confusion about the definition of marginal vs average tax rate.

I agree with you that the averaged tax rate will be increasing with each additional CHF 1000 earned. This is of course because the additional CHF 1000 is taxed at the rate of whichever top bracket it is in, which will be higher than the averaged rate from the lower brackets, and thus will result in an increase to the average income tax rate over the new income (which is higher now by CHF 1000). However the same holds true with each CHF 100 earned, and indeed each CHF 1 earned.
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  #33  
Old 23.07.2012, 19:29
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Re: Tax efficient savings for long term returns

I can see someone earning 500k could benefit from some tax benefit, especially if in a high tax Canton, however an average Swiss couple earning 60k, in ZH it can't really be worth it.
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  #34  
Old 24.07.2012, 16:33
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Re: Tax efficient savings for long term returns

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I can see someone earning 500k could benefit from some tax benefit, especially if in a high tax Canton, however an average Swiss couple earning 60k, in ZH it can't really be worth it.
You're correct that the benefits are higher for higher income (although no need to go as high as 500k). And whether a Zurich couple earning 60k would have enough cashflow and flexibility would depend on their situation.

But here's a simple assessment of the example you propose. Two scenarios. All figures in current CHF (ie no inflation)

1. Married Swiss couple in Zurich, no kids, age 45
earning 60k
no pillar 2/3 contributions
Tax of CHF 3,576 per the estv calculator
CHF 86 to invest (ie CHF 100 pre-tax, net of 14 tax)

2. Married Swiss couple, no kids, age 45
earning 60k
CHF 100 pillar 2/3 contributions
Tax of CHF 3,562 per the estv calculator (CHF 14 tax savings)
CHF 0 to invest

Interest rates for Pillar 2/3 are typically in the range of 2.5% net of inflation (note that Swiss inflation is currently negative)

Lets assume that the self invested money from #1 gets the same return, net of any expenses/wealth/income tax, and with the same security as the Pillar 2/3.

#1 CHF 100 invested 15 years at 2.5% = CHF 145
Cash out at age 60, while still earning 60k, and tax at the same marginal rate of 14% (see note below)
CHF 145x40%x14%=tax of CHF 8
Equals CHF 137

#2 CHF 86 invested 15 years at 2.5% = CHF 125
Cash out at age 60, with no tax
Equals CHF 125


So the Pillar 2/3 end up 10% better. But note that in practice the tax rate when you cash out would be lower than the tax rate when you deposit, so the Pillar 2/3 would end up further ahead.

One might argue that you can gain much better than 2.5% net of inflation/taxes/expenses if you invest the money yourself, and with the same security as the Pillar 2/3 investments. But in practice, that is unlikely.

Anyway, just a simple example of why Pillar 2/3 are great ways to minimize tax. Think of it this way, there is a reason why the Gov't limits how much you can deposit to Pillar 2/3, but doesn't limit how much you can invest on your own.
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Old 24.07.2012, 19:17
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Re: Tax efficient savings for long term returns

With all due respect, I don't get hot for 2.5% returns, which is probably why I don't think Swiss pensions are worthwhile. I aim for returns of 12% which is not achievable in any collective investment scheme. The ability to make capital gains free of tax is worth more to me than saving 12-15% on investment.

Your focus is to pay minimium tax, my focus is maximium return after tax.

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You're correct that the benefits are higher for higher income (although no need to go as high as 500k). And whether a Zurich couple earning 60k would have enough cashflow and flexibility would depend on their situation.

But here's a simple assessment of the example you propose. Two scenarios. All figures in current CHF (ie no inflation)

1. Married Swiss couple in Zurich, no kids, age 45
earning 60k
no pillar 2/3 contributions
Tax of CHF 3,576 per the estv calculator
CHF 86 to invest (ie CHF 100 pre-tax, net of 14 tax)

2. Married Swiss couple, no kids, age 45
earning 60k
CHF 100 pillar 2/3 contributions
Tax of CHF 3,562 per the estv calculator (CHF 14 tax savings)
CHF 0 to invest

Interest rates for Pillar 2/3 are typically in the range of 2.5% net of inflation (note that Swiss inflation is currently negative)

Lets assume that the self invested money from #1 gets the same return, net of any expenses/wealth/income tax, and with the same security as the Pillar 2/3.

#1 CHF 100 invested 15 years at 2.5% = CHF 145
Cash out at age 60, while still earning 60k, and tax at the same marginal rate of 14% (see note below)
CHF 145x40%x14%=tax of CHF 8
Equals CHF 137

#2 CHF 86 invested 15 years at 2.5% = CHF 125
Cash out at age 60, with no tax
Equals CHF 125


So the Pillar 2/3 end up 10% better. But note that in practice the tax rate when you cash out would be lower than the tax rate when you deposit, so the Pillar 2/3 would end up further ahead.

One might argue that you can gain much better than 2.5% net of inflation/taxes/expenses if you invest the money yourself, and with the same security as the Pillar 2/3 investments. But in practice, that is unlikely.

Anyway, just a simple example of why Pillar 2/3 are great ways to minimize tax. Think of it this way, there is a reason why the Gov't limits how much you can deposit to Pillar 2/3, but doesn't limit how much you can invest on your own.
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Old 24.07.2012, 19:29
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Re: Tax efficient savings for long term returns

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With all due respect, I don't get hot for 2.5% returns, which is probably why I don't think Swiss pensions are worthwhile. I aim for returns of 12% which is not achievable in any collective investment scheme. The ability to make capital gains free of tax is worth more to me than saving 12-15% on investment.
Perhaps you are referring to investing capital into one's own business?

Because there is no investment in the world which can produce a consistent 12% guaranteed. Even Bernie Madoff's ponzi scheme promised only 10%.

That's not to say one couldn't undertake high risk investments, which could produce 12% for a short while, before they eventually go bust.

But anyone who can make a consistent 12-15% net of inflation, even as a target, let alone guaranteed, could be making $1b a year as the worlds greatest hedge fund manager.
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Old 24.07.2012, 19:53
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Re: Tax efficient savings for long term returns

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Perhaps you are referring to investing capital into one's own business?

Because there is no investment in the world which can produce a consistent 12% guaranteed. Even Bernie Madoff's ponzi scheme promised only 10%.

That's not to say one couldn't undertake high risk investments, which could produce 12% for a short while, before they eventually go bust.

But anyone who can make a consistent 12-15% net of inflation, even as a target, let alone guaranteed, could be making $1b a year as the worlds greatest hedge fund manager.
Have you ever heard of Warren Buffet? It's easier to make higher returns if you only have a smaller amount of money to invest & you don't wish to 'ballance your investments' or 'follow the market'
I never like 'guaranteed' you have to pay for that guarantee, in any case the 2.5% is not guaranteed net of inflation, althrough your pretending for some reason it is, to make a point! As far as guarantees go I asume you heard of Equitable life.
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Old 24.07.2012, 20:37
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Re: Tax efficient savings for long term returns

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Have you ever heard of Warren Buffet? It's easier to make higher returns if you only have a smaller amount of money to invest & you don't wish to 'ballance your investments' or 'follow the market'
I never like 'guaranteed' you have to pay for that guarantee, in any case the 2.5% is not guaranteed net of inflation, although your pretending for some reason it is, to make a point! As far as guarantees go I asume you heard of Equitable life.
Yes, I'm familiar with Mr. Buffet. I think he would agree that that the feasible returns of the past are not feasible for the present and near future.
http://captaincapitalism.blogspot.ca...eturns-of.html

Berkshire Hathaway' returns for the 10 years 2002-2011 have averaged 2.3% net of inflation.

I agree with you that if someone is less concerned with asset security and a balanced portfolio, then they can probably exceed 2.5% net of inflation on average, but will have to accept greater variance and a greater chance of Gambler's Ruin/
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  #39  
Old 24.07.2012, 20:47
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Re: Tax efficient savings for long term returns

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Yes, I'm familiar with Mr. Buffet. I think he would agree that that the feasible returns of the past are not feasible for the present and near future.
http://captaincapitalism.blogspot.ca...eturns-of.html

Berkshire Hathaway' returns for the 10 years 2002-2011 have averaged 2.3% net of inflation.

I agree with you that if someone is less concerned with asset security and a balanced portfolio, then they can probably exceed 2.5% net of inflation on average, but will have to accept greater variance and a greater chance of Gambler's Ruin/
Equaties have been ou of fashon for the 10 years you quote, the next 10 / 20 / 30 will likely be better.

Over 46 years he has had a compound return of 19.8% or 513,055%, I will take my chances!
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Old 24.07.2012, 21:10
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Re: Tax efficient savings for long term returns

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Equities have been out of fashon for the 10 years you quote, the next 10 / 20 / 30 will likely be better.

Over 46 years he has had a compound return of 19.8% or 513,055%, I will take my chances!
Just to clarify that your attachment and quote refers to the book value per share, gross of inflation.

Net of inflation of 4.7% over that time, it would be 15%. And as it is book value per share, it doesn't reflect share splits & buybacks, although it is probably not far off the mark of the true returns.

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... I will take my chances!
Ok, no worries. Let me know when your version of Berkshire Hathaway goes public. Maybe in 46 years I'll be saying "I knew him when...".
Best wishes
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