Bond investments

gaijin

gaijin

Active member
I have recently been looking at bonds to generate a regular, low-risk income on one platform. Two of my findings:
  1. On Degrio you cannot trade Swiss bonds. I find this a very strong limitation. On @Baptiste Wicht 's blog it says
    The choice for bonds is slightly more limited.
    Click to expand...
    I find this an understatement. You cannot buy individual bonds not bond ETFs (e.g.iShares Swiss Domestic Government Bond 3-7 ETF). Yes, I know, bonds are the boring stuff. But it can be really useful for low-risk investments. So I would tend to not recommend Degiro for any investor because of this limitation. You might not be interested in bonds at this very moment. But if you become interested in bond trading, you would have to find a new broker.
  2. Swiss bonds (corporate and government) have very low interests. Findings low-risk bonds with interest rates higher than a good savings account is hard. In general, you should therefore put your money into a savings account first. Only if there are no options for savings accounts (withdrawl restrictions or amounts of >100kCHF) bonds can be interesting.
My conclusions
  • Open a savings account at a bank that offers a good interest on savings account (Bank Eki, CEA or use Moneyland to search)
  • Keep browsing for highly rated bonds (>A) that offer a reasonable (>1.2%) interest. Use IB as the broker to trade such bonds.
  • If available and depending on the interest, consider paying into your second pillar.
 
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My conclusions are the same. Generally, the savings accounts are the best choice. If you can get a good on a certificate of deposit at you bank, it may be worth it, but it's locking your money for a long time.

There are simply no great solutions for CHF, the rates are going to be low.

gaijin said:
I find this an understatement
Click to expand...
It's not clear whether we can buy Bond ETFs or not in your statement? (Did you mean not or nor)?

I will make this clearer in the article
 
Baptiste Wicht said:
It's not clear whether we can buy Bond ETFs or not in your statement? (Did you mean not or nor)?
Click to expand...
Sorry, that wasn't clear. I meant to say that not being able to buy any kind of Swiss bond related products on Degiro is quite a significant minus and should be expressed with stronger words than 'slightly more limited' (maybe even listed as a CON in the conclusion).
 
I will update the article in the coming days, thanks. I can understand why they don't have Swiss bonds, but why would they not have Swiss Bonds ETFs? Have they no Swiss ETFs anymore? Are they filtering it? That's weird.
 
I got a message at the end of last year, telling me that my assets in the 2nd pillar will receive an interest of 3% for 2024. Finally. Still, before it was 1% as long as I was part of it. If there was consistently 3% interest on the 2nd pillar assets, I would be much more willing to add money.
 
Yeah ...the wildly different interest rates in the second pillar are a actualy a huge minus point for the swiss pension system ... If you happen to be in the Migros PK you will get 7% on your capital for 2024, others will get 1,25% (or even less if the PK is underfunded) ... And you cannot do nothing about it besides of changing your employer, which in most cases is not a realistic option. It's a lottery ...
 
Baptiste Wicht said:
It's a great point, this is what we are doing to increase our "bond allocation".
Click to expand...
gaijin said:
I have just added a bullet point to my conclusions: pay into 2nd pillar.
Click to expand...
I think that 2nd pillar doesn't really substitute bonds (at least not to the full extent).

I can see a few situations when 2nd pillar will fail to substitute bonds (simply because one cannot touch 2nd pillar until retirement except a few cases):

1. In case of unforeseeable emergencies that incur high expenses one can get money by selling bonds (and thus avoid selling stocks). This is especially relevant during bear markets when selling stocks may be very costly.

2. During bear markets bonds allocation in portfolio may grow. By reallocating your portfolio during this time one cat buy more stocks at cheap price

Am I missing something? Why do people think that 2nd pillar substitutes bonds?

https://www.reddit.com/r/Bogleheads/comments/15drkxn/in_defense_of_in_defense_of_bonds
 
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I think people (including me) substitute bonds for the second pillar because it only matters during the accumulation phase. You do not need your money during the accumulation phase, so you don't have to worry about selling for emergency. When you live from your portfolio, this is different and your second pillar will be less useful.

To some extent, you can sell bonds during bear market to buy stocks. But I do not think there are many valid cases for that. Because even bonds go down in a bear market.
 
Baptiste Wicht said:
I think people (including me) substitute bonds for the second pillar because it only matters during the accumulation phase. You do not need your money during the accumulation phase, so you don't have to worry about selling for emergency. When you live from your portfolio, this is different and your second pillar will be less useful.

To some extent, you can sell bonds during bear market to buy stocks. But I do not think there are many valid cases for that. Because even bonds go down in a bear market.
Click to expand...

Thanks for your reply!

I don't think it answers my 1st point though. Let me try to make it clearer.

What if any accident happens and you suddenly need a lump sum at once? I am not sure that emergency fund can / shall also cover that. 3-X months expense may not cover the sum and then you can use bonds but cannot use 2nd Pillar.
 
IceAdministrative711 said:
What if any accident happens and you suddenly need a lump sum at once? I am not sure that emergency fund can / shall also cover that. 3-X months expense may not cover the sum and then you can use bonds but cannot use 2nd Pillar.
Click to expand...
Correct, you cannot use your second pillar for that.

But I would argue that your emergency fund, if you have one, should not be invested at all. You want your emergency to very liquid. For me, this excludes bonds, stocks and the second pillar.
 
Baptiste Wicht said:
Correct, you cannot use your second pillar for that.

But I would argue that your emergency fund, if you have one, should not be invested at all. You want your emergency to very liquid. For me, this excludes bonds, stocks and the second pillar.
Click to expand...

Do you mean that very-liquid emergency fund should be "so" big, that it can cover unexpected lump sums (e.g. 100-200k CHF or even bigger)?
 
IceAdministrative711 said:
Do you mean that very-liquid emergency fund should be "so" big, that it can cover unexpected lump sums (e.g. 100-200k CHF or even bigger)?
Click to expand...
No. I mean that events where you need 100k-200k at once are so rare you should not change your asset allocation for it. If this ever happens, just sell stocks.

What kind of events do you have in mind that would require you to get 100k CHF at once?
 
Baptiste Wicht said:
No. I mean that events where you need 100k-200k at once are so rare you should not change your asset allocation for it. If this ever happens, just sell stocks.

What kind of events do you have in mind that would require you to get 100k CHF at once?
Click to expand...

I was probably more trying to convey my original point that bonds != 2nd pillar. And this was the detail that was making a clear difference between the two, although not sure if this is one of the reasons why people invest in bonds.

Example could be medical expenses for family members living abroad. This comes to my mind first.
 
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