Go Back   English Forum Switzerland > Help & tips > Finance/banking/taxation  
Reply
 
Thread Tools Display Modes
  #21  
Old 26.03.2015, 12:35
eyebeebe's Avatar
Forum Veteran
 
Join Date: May 2009
Location: Pfäffikon SZ
Posts: 1,818
Groaned at 17 Times in 16 Posts
Thanked 2,111 Times in 961 Posts
eyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond reputeeyebeebe has a reputation beyond repute
Re: Pillar 3a stock funds

Quote:
View Post
I agree, sensei but the path to financial freedom is long and hard for those bombarded with FUD and the promise of tax breaks. They (or should I say, we) cannot see the forest for the trees...

I think it should be sticky up there in the section that rule of thumb goes:
- if you have an investment horizon of 20 or more years, stay out of 3a and invest in low-cost funds, diversify and buy-and-hold no matter what.
- if you are on the market for a primary residence in 5-10 years, stick to 3a, as the tax breaks make sense. Else, go option 1
For those rich enough and smart enough, the truth perhaps lies in the mix of both - put money on the 3a to buy property while on the side you invest properly and with low TER?

In my research of 3a funds (as we are on the market for a house soon-ish), I found UBS to be daylight robbery with TER of 1.4% and higher, CS to be second with classic robbery and so far lowest fees Raiffeisen (your random mugging kinda thing). What sets the Raiffeisen offer apart is also the higher equity component at 2/3 of the mix, whereas both UBS and CS cap at 45%.

What say you, sensei - does above make better sense?
The CS 45% equity index fund had a TER of 0.88%. It's the actively managed ones that are more expensive, so you're not comparing like fruits.
https://www.credit-suisse.com/media/...index45-en.pdf
FWIW 2 basis points to increase your equity exposure by going with Raiffeisen is well worth it IMO


Now I understand that both are expensive compared to non-3a Index ETFs, but I ran some numbers for the tax saving...

I used the Comparis website, the Gemeinde where I live (Freienbach - one of the cheapest in the country, so minimal potential for marginal tax savings) and using the standard 120k less 20k of general deductions.

When I used the full allowance (let's call it 6.5k) the tax saving was just over 1k.
Over your 20 year horizon the tax savings are 20k. Assuming a 5% return pa the cumulative TER is just under 20k. So it's marginally profitable, but not enough for me to invest. BUT I don't think that I can beat the market in the long run, so if I invested in index ETFs I would still have to pay management fees, transaction fees etc let's say 0.4%. The difference between the 0.4% and 0.88% over 20 years is about CHF 11k, so I'm up 9k on the deal, plus I don't have to declare my 3a account as part of my wealth and I can reinvest the tax savings in the meantime.

My conclusion is if the cumulative marginal TER is less than the cumulative tax savings, you can deal with the reduced liquidity and you don't think you can beat the market, then a funds 3a makes financial sense.

It also appears that it makes more sense a) the more you earn, b) the higher your marginal tax rate is (i.e. your location) c) the lower the fund TER

It would obviously be better if you could choose which funds/stocks to invest in within the 3a, but that's not going to happen.

I'm sure FMF will explain why I completely misunderstand...
Reply With Quote
  #22  
Old 26.03.2015, 12:36
Newbie
 
Join Date: Dec 2014
Location: Geneva
Posts: 6
Groaned at 0 Times in 0 Posts
Thanked 0 Times in 0 Posts
landoa has no particular reputation at present
Re: Pillar 3a stock funds

Quote:
View Post

I think it should be sticky up there in the section that rule of thumb goes:
- if you have an investment horizon of 20 or more years, stay out of 3a and invest in low-cost funds, diversify and buy-and-hold no matter what.
- if you are on the market for a primary residence in 5-10 years, stick to 3a, as the tax breaks make sense. Else, go option 1
option 1 it is! now that investing in switzerland with a US passport is impossible, the plan changed. i'd like to thank the SNB for throwing out that firecracker so i could exchange CHF to USD at decent rates. now have dollars in index funds at very non highway robbery rates. i think Vanguard could show swiss bankers a few ways to reduce their fees.
Reply With Quote
  #23  
Old 25.10.2016, 18:17
Member
 
Join Date: Nov 2009
Location: Zurich
Posts: 168
Groaned at 17 Times in 7 Posts
Thanked 34 Times in 21 Posts
digitsclimb has become a little unpopular
Re: Pillar 3a stock funds

Hi. I'm picking this up as Vermoegenzentrum has just informed me they will kick me out of my Pillar 3a. A few questions.

1. Is it possible to transfer the funds to my wife (not Swiss)?
2. Do others know of places for Americans to transfer and invest in 3a? I bank with UBS and they have a US citizens section, it all works great

There is a lot on this thread about the deduction still being taxable in the US. Its true, but as long as you declare all your income (pre the 3a deduction) then the US calc is accurate. Depending on the case, this may or may not then be advantage. But its dependent on a lot of things.
Reply With Quote
  #24  
Old 25.10.2016, 19:57
fatmanfilms's Avatar
Forum Legend
 
Join Date: Apr 2010
Location: Verbier
Posts: 19,107
Groaned at 392 Times in 297 Posts
Thanked 18,938 Times in 10,199 Posts
fatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond reputefatmanfilms has a reputation beyond repute
Re: Pillar 3a stock funds

Quote:
View Post
I'm sure FMF will explain why I completely misunderstand...
The only thing wrong in your thinking is your limited with your stock market exposure in a Pillar 3. For a long time horizon 100% equities makes sense, average life expectancy in CH exceeds 85 so I will stay nearly 100% in equities forever.
Reply With Quote
  #25  
Old 25.10.2016, 20:53
Member
 
Join Date: Nov 2009
Location: Zurich
Posts: 168
Groaned at 17 Times in 7 Posts
Thanked 34 Times in 21 Posts
digitsclimb has become a little unpopular
Re: Pillar 3a stock funds

This depends again on your age, income and situation. For example if your income is high enough and you are old enough, the annualized return you get from the up front tax savings overcomes the low return you get in the 3a. In fact, this is a great way to lock in a ROR, since in the open market you don't know what the outcome will be. An x% tax savings is money on hand.

The other aspect is the fact that you can pledge your 3a towards 5% of the price of a home. This also increases the effective return.
Reply With Quote
  #26  
Old 09.12.2017, 11:46
Junior Member
 
Join Date: Jan 2017
Location: Zurich
Posts: 30
Groaned at 0 Times in 0 Posts
Thanked 11 Times in 9 Posts
kristianej has no particular reputation at present
Re: Pillar 3a stock funds

There is a new product offered by WIR bank which I am going to use next year for my 3a account (it's good to have several). The big advantage: low costs, 100% equities possible and the part you don't want to invest is put into a decent savings account. In that way you don't have to have invest in fixed income, which is quite dangerous once interest rates rise:

Here the link to WIR:
https://www.wir.ch/bank/private/vorsorgen/viac/

And here the product and the strategies:
https://viac.ch/strategien/
Reply With Quote
This user would like to thank kristianej for this useful post:
Reply

Tags
pillar 3, pillar 3a




Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pillar 3a with securities threaded Finance/banking/taxation 11 28.01.2014 20:07
Optimizing Pillar 3a digitsclimb Finance/banking/taxation 2 15.01.2013 15:43
Pillar 3a Limit 2012 jonbvn Finance/banking/taxation 4 26.07.2012 17:59
New form 8938: how to report 2nd pillar / 3a pillar accounts?? rog Finance/banking/taxation 8 30.06.2012 20:37
Minimum term for Pillar 3A Phil_MCR Finance/banking/taxation 7 09.09.2011 17:45


All times are GMT +2. The time now is 16:24.


Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0