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  #21  
Old 20.12.2020, 20:23
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Re: Pillar 3 vs SP500 returns

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It depends if you want to hold US assets, many people would prefer not to which is why so many are registered in Ireland, however the original 15% withholding tax is lost & zero tax is deducted in Ireland.

I'm considering between investing via 3a (finpension, with mimics to MCSI world index) and direct investing to Smithson.

@fatmanfilms I remember you once said had you invested in Fundsmith instead of 3a, your capital would have doubled. Do you think it is still the case, that direct investing (to Smithson) generates more capital down the road (assuming 30 years horizon) ?
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  #22  
Old 20.12.2020, 20:54
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Re: Pillar 3 vs SP500 returns

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I'm considering between investing via 3a (finpension, with mimics to MCSI world index) and direct investing to Smithson.

@fatmanfilms I remember you once said had you invested in Fundsmith instead of 3a, your capital would have doubled. Do you think it is still the case, that direct investing (to Smithson) generates more capital down the road (assuming 30 years horizon) ?
I still believe both will over a medium term view, over a 30 year view without doubt.
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  #23  
Old 21.12.2020, 10:39
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Re: Pillar 3 vs SP500 returns

Assuming I plan to leave Switzerland within the next 10 years, does it make sense to use 3a instead of direct investing, because in the 10 years horizon the 3a tax benefit should still outperform the direct investing? What can be wrong with that?
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  #24  
Old 21.12.2020, 10:46
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Re: Pillar 3 vs SP500 returns

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Assuming I plan to leave Switzerland within the next 10 years, does it make sense to use 3a instead of direct investing, because in the 10 years horizon the 3a tax benefit should still outperform the direct investing? What can be wrong with that?
10 is probably close to the boundary. I'd possibly do direct investing for the first couple of years, depending on how sure you are of your leave date. Also depending on your marginal tax rate.
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  #25  
Old 21.12.2020, 11:51
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Re: Pillar 3 vs SP500 returns

I am unsure about the math of P3. Original poster in this thread presented calculation that shows that direct P3 investment returns 2-3% LESS than SP500 or other index. But he also shows tax savings of 1700 per annum which is a gain or savings of 25% on the P3 max investment of 6800CHF.
So even if you made no money at all with P3 investment simply putting 6800 per year results in tax saving of 25% on invested amount.

To sum:¨

Invest into Index = return 8%-10%

Invest into P3 = return 15% - 25% direct tax savings + additional % return on investment of 6800.

I am bad at math ,so please tell me where I am wrong?
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  #26  
Old 21.12.2020, 11:59
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Re: Pillar 3 vs SP500 returns

I think the difference is, with the direct investing the 8-10% is compound interest year after year which adds up and eventually catches up with the hard cash tax saving of 1700 per year in the 3a case (and lower 6-7% compound interest). He also assumes that the 1700 tax saving is immediately invested into the direct investing as well, but over the long term horizon (~30 years), you will end up with more capital in the case of direct investing.
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Old 21.12.2020, 12:35
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Re: Pillar 3 vs SP500 returns

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I am unsure about the math of P3. Original poster in this thread presented calculation that shows that direct P3 investment returns 2-3% LESS than SP500 or other index. But he also shows tax savings of 1700 per annum which is a gain or savings of 25% on the P3 max investment of 6800CHF.
So even if you made no money at all with P3 investment simply putting 6800 per year results in tax saving of 25% on invested amount.

To sum:¨

Invest into Index = return 8%-10%

Invest into P3 = return 15% - 25% direct tax savings + additional % return on investment of 6800.

I am bad at math ,so please tell me where I am wrong?
You have forgotten the tax on encasement of a Pension, which will grow along with the assets. Case in point, the taxation on my UK pension exceeded the tax saved on investment. The funds had grown 9 fold in the time
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  #28  
Old 21.12.2020, 12:40
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Re: Pillar 3 vs SP500 returns

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I am unsure about the math of P3. Original poster in this thread presented calculation that shows that direct P3 investment returns 2-3% LESS than SP500 or other index. But he also shows tax savings of 1700 per annum which is a gain or savings of 25% on the P3 max investment of 6800CHF.
So even if you made no money at all with P3 investment simply putting 6800 per year results in tax saving of 25% on invested amount.

To sum:¨

Invest into Index = return 8%-10%

Invest into P3 = return 15% - 25% direct tax savings + additional % return on investment of 6800.

I am bad at math ,so please tell me where I am wrong?
You can't think off it just in terms of the result at the end of a single year. Your pillar 3a may be active for many years.

You make a one off tax saving at your marginal rate (say of 25%) by investing in pillar 3a.

If you were confident of getting a rate of return 2% per year higher in your (non-pillar 3a) investment of choice than in your 3a in the long term, then you should only invest in your pillar 3a if:

1.02^X < 1.25 (where X is the number of years you will be holding your pillar 3a for)

X log 1.02 < log 1.25

X < (log 1.25)/(log 1.02)

X < 11.26 years

For a typical marginal tax rate, I generally wouldn't recommend investing in pillar 3a unless you are sure you can cash it out within 5-10 years. But then again, I don't like index investing.

If you are an index investor you could stretch that period really quite long - perhaps indefinitely (you'd need to consider the higher fees in pillar 3a vs non-taxable dividends in pillar 3a). In such a scenario investing in (low fee) finpension 3a will probably outperform your own investments even in the long run.

Last edited by HickvonFrick; 21.12.2020 at 12:51.
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  #29  
Old 21.12.2020, 12:46
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Re: Pillar 3 vs SP500 returns

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You can't think off it just in terms of the result at the end of a single year. Your pillar 3a may be active for many years.

You make a one off tax saving at your marginal rate (say of 25%) by investing in pillar 3a.

If you were confident of getting a rate of return 2% per year higher in your (non-pillar 3a) investment of choice than in your 3a in the long term, then you should only invest in your pillar 3a if:

1.02^X < 1.25 (where X is the number of years you will be holding your pillar 3a for)

X log 1.02 < log 1.25

X < (log 1.25)/(log 1.02)

X < 11.26 years

For a typical marginal tax rate, I generally wouldn't recommend investing in pillar 3a unless you are sure you can cash it out within 5-10 years.
You forgot wealth tax.
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  #30  
Old 21.12.2020, 13:04
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Re: Pillar 3 vs SP500 returns

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You forgot wealth tax.
Ok but not a huge factor!
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  #31  
Old 21.12.2020, 13:07
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Re: Pillar 3 vs SP500 returns

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You forgot wealth tax.
Since you get 0.3% management fee deduction from income tax, you could be better off as a result!
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  #32  
Old 21.12.2020, 14:14
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Re: Pillar 3 vs SP500 returns

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Since you get 0.3% management fee deduction from income tax, you could be better off as a result!
Even if your management fees are 0? Lol
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  #33  
Old 21.12.2020, 15:11
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Re: Pillar 3 vs SP500 returns

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Even if your management fees are 0? Lol
YUP, thats the beauty, if you can show higher that is deductible too. I always included cash balances
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  #34  
Old 21.12.2020, 17:29
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Re: Pillar 3 vs SP500 returns

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YUP, thats the beauty, if you can show higher that is deductible too. I always included cash balances
So, if you've got platform charges of 0.45% (HL) plus fund manager charges (say 0.75%), you can deduct the full 1.2%?
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Old 21.12.2020, 17:47
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Re: Pillar 3 vs SP500 returns

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So, if you've got platform charges of 0.45% (HL) plus fund manager charges (say 0.75%), you can deduct the full 1.2%?
Might be canton specific, true for ZH for sure.
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  #36  
Old 21.12.2020, 17:55
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Re: Pillar 3 vs SP500 returns

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Might be canton specific, true for ZH for sure.
For people nearing retirement with a big pot that's potentially a huge deduction. Say 3M francs at 1% - 30K off your taxable income.
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Old 21.12.2020, 19:00
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Re: Pillar 3 vs SP500 returns

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Might be canton specific, true for ZH for sure.
then Fundsmith EUR can be deducted too, right? the fund charges ~1.0%
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  #38  
Old 21.12.2020, 19:12
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Re: Pillar 3 vs SP500 returns

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then Fundsmith EUR can be deducted too, right? the fund charges ~1.0%
Exactly, make a note of your computation & include with tax return.
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Old 23.12.2020, 08:31
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Re: Pillar 3 vs SP500 returns

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Might be canton specific, true for ZH for sure.
I don't understand this. How does it work? Let's say I have 100'000 CHF with VIAC. How can I get these additional tax benefits in ZH? Someone said: "Since you get 0.3% management fee deduction from income tax". I don't see where I can get it.
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Old 23.12.2020, 09:09
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Re: Pillar 3 vs SP500 returns

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I don't understand this. How does it work? Let's say I have 100'000 CHF with VIAC. How can I get these additional tax benefits in ZH? Someone said: "Since you get 0.3% management fee deduction from income tax". I don't see where I can get it.
Pension fund doesn’t count as part of your wealth.
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