FIRE strategies for Swiss investors

[Keewee]

Great questions

I can answer based on our own strategy for FIRE, but it may not apply to your situation.

1. Currently, we aim for 3.8, but we will adapt until we reach retirement. 3.5% is likely fine. Our worst enemy as Swiss investors is the depreciation of USD.
2. We plan to go 100% stocks. But if you plan to be more conservative, a great strategy is an equity glidepath. You start with 20% bonds (or cash) for instance and you slowly sell them to go 100% stocks. This way, bonds, and stocks are doing what they are great for, respectively short and long term.
5. We plan to keep a house in retirement. Our plan for that is to have a long-term mortgage before we retire to avoid issues renewing it and prepare significant enough margin so that banks won't be deterred.

Hi @Baptiste Wicht I'm curious why you plan to go 100% stocks, rather than a bond tent/ equity glidepath approach? Thank you

 

[Baptiste Wicht]

Hi @Baptiste Wicht I'm curious why you plan to go 100% stocks, rather than a bond tent/ equity glidepath approach? Thank you

Because my risk capacity allows it

If I don't get income from my blog in early retirement, I will consider a glidepath from 80% stocks to 100% stocks to increase the safety.

 

[Rebecca]

What are the cheapest countries to live in comfortably (and safely)? If you don't need much and just want to chill and let your portfolio grow a bit more, while also living off of a part of the earnings: what place on earth would allow you to spend the least?

There is a free online tool called PortfolioAtlas that allows users to compare FI numbers in different countries and cities.

The creator of PortfolioAtlas also wrote an informative article that included this chart, it applies the 4% rule to several cities around the world.

 

[Rttm]

VT and chill...... USD vs CHF

USD

Portfolio Backtester for ETFs and Asset Allocation | testfolio

Backtest portfolios, compare asset allocations, model rebalancing and cashflows, and analyze historical risk and return with testfolio.

testfol.io

CHF

Portfolio Backtester for ETFs and Asset Allocation | testfolio

Backtest portfolios, compare asset allocations, model rebalancing and cashflows, and analyze historical risk and return with testfolio.

testfol.io

 

[Max]

Because my risk capacity allows it

If I don't get income from my blog in early retirement, I will consider a glidepath from 80% stocks to 100% stocks to increase the safety.

And why do you prefer 100% stocks rather than a mixed portfolio yielding a higher withdrawal rate?

 

[Baptiste Wicht]

And why do you prefer 100% stocks rather than a mixed portfolio yielding a higher withdrawal rate?

I do not think a withdrawal rate of more than 4% is reasonable in retirement. I would consider CH bonds, but they are currently not interesting. The portfolio you are mentioning is too US-heavy for me. I want to keep my CH stocks in retirement as well.

 

[gaijin]

I want to keep my CH stocks in retirement as well.

Interesting. If I understand correctly, you will withdraw your full 2nd pillar as lump sum. This means that you will have to invested a significant portion in bonds. A challenging task with such choices of Swiss bonds.
As for my own situation, I am flirting with the idea of investing even my 2nd pillar in equity. But that's still far, far away.

 

[Max]

I do not think a withdrawal rate of more than 4% is reasonable in retirement.

Why do you think so?

I would consider CH bonds, but they are currently not interesting. The portfolio you are mentioning is too US-heavy for me. I want to keep my CH stocks in retirement as well.

I have checked a mixed portfolio with CH stocks and CH bonds. The Advanced FIRE calculator counts 90% success rate for 5.6% withdrawal rate and 30 years of retirement (and 95% at 5.2%).

For 40 years of retirement it counts 90% success at 4,95% withdrawal (and 95% success at 4,5% withdrawal).

(If I further split bonds between US and CH, I get an error message "Oups, something went wrong! Error: The number of assets is too high".)

 

[Baptiste Wicht]

Interesting. If I understand correctly, you will withdraw your full 2nd pillar as lump sum. This means that you will have to invested a significant portion in bonds. A challenging task with such choices of Swiss bonds.
As for my own situation, I am flirting with the idea of investing even my 2nd pillar in equity. But that's still far, far away.

Actually I am keeping CH stocks not bonds

Why do you think so?

It's probably doable in the US, but not in Switzerland when you have to deal with the uncertainty of the USD/CHF.

(If I further split bonds between US and CH, I get an error message "Oups, something went wrong! Error: The number of assets is too high".)

Some of the withdrawal methods do not support many assets. Did you use a specific method?

 

[Max]

It's probably doable in the US, but not in Switzerland when you have to deal with the uncertainty of the USD/CHF.

Why do you think that the upper limit is 4%?

Some of the withdrawal methods do not support many assets. Did you use a specific method?

I didn't change the default settings.

 

[Baptiste Wicht]

Why do you think that the upper limit is 4%?

Because historically, the USD has lost value against the CHF, and I believe it will continue to do so. As a result, if we spend in CHF, we need to factor extra depreciation into account. And for me, this comes below 4%.

We have historical data for USD/CHF, but it's not really good because of the gold standard and the end of the Bretton Woods system.

I didn't change the default settings.

Thanks, this should be fixed now

 

[gaijin]

Because historically, the USD has lost value against the CHF, and I believe it will continue to do so.

Well, the depreciation cannot continue indefinitely. Of course, this is pure speculation from my side, but I think that we are close to the bottom of the depreciation.

 

[Max]

Because historically, the USD has lost value against the CHF, and I believe it will continue to do so. As a result, if we spend in CHF, we need to factor extra depreciation into account. And for me, this comes below 4%.

In my understanding, if we want to factor extra depreciation into account, we can subtract the expected long-term depreciation from any SWR calculated for US USD. Is it the way you come to 4%?

Thanks, this should be fixed now

 

[Baptiste Wicht]

Well, the depreciation cannot continue indefinitely. Of course, this is pure speculation from my side, but I think that we are close to the bottom of the depreciation.

I hope you are right! But as you said, it's pure speculation. I prefer my early retirement to survive a drop rather than be too optimistic.

In my understanding, if we want to factor extra depreciation into account, we can subtract the expected long-term depreciation from any SWR calculated for US USD. Is it the way you come to 4%?

More or less, yes. My portfolio would not be good with a 4.8% SWR, but more 4.5% and then I put it down to 3.8% to account for this.

I am still far from retirement, so I may change my SWR by that time.

 

[Max]

More or less, yes. My portfolio would not be good with a 4.8% SWR, but more 4.5% and then I put it down to 3.8% to account for this.

How do you come to 0.7% which you subtract from 4.5%?

BTW with which portfolio do you get 4.8%/4.5% SWR?

 

[Baptiste Wicht]

How do you come to 0.7% which you subtract from 4.5%?

BTW with which portfolio do you get 4.8%/4.5% SWR?

On average, I expect (heuristically) that USD will lose about 1% a year against the CHF. And I remove 30% of that since some of my assets will be in CHF. That's how I arrive at 0.7%. Keep in mind that it's very heuristic; it's not a sound method.

BTW with which portfolio do you get 4.8%/4.5% SWR?

I get about a 95% success rate with a 4.5% withdrawal with 40% US stocks / 40% ex-US stocks / 20% CH stocks in the calculator (including yearly rebalancing, and a small amount of social security after 20 years.

 

[Rttm]

Well, the depreciation cannot continue indefinitely. Of course, this is pure speculation from my side, but I think that we are close to the bottom of the depreciation.

It can happen




Regardless, equities involve risk taken for expected return. By increasing asset classes, you diversify risks, and overall, the portfolio achieves a better risk-adjusted return. Since the Safe Withdrawal Rate (SWR) drops significantly when calculated against deep and prolonged crises, relying on a single asset class is far from ideal. This is especially true for those of us living in CHF (see my previous message regarding VT in USD vs. CHF).

Equally important is the psychological aspect: one must be able to live with their portfolio and rely on it. You must also be able to sleep soundly at night.

I also add that while the calculated SWR and success probability are certainly important parameters for identifying the best portfolio, for planning my Financial Independence (FI) strategy, I utilize Monte Carlo simulations. This allows me to insert variables and plan my future most effectively. I’m including a link to the one created by Mr. Rip:
mr.rip/rp

 

[Max]

On average, I expect (heuristically) that USD will lose about 1% a year against the CHF.

Your expectation is interesting because there is an estimation that USD has historically lost 2-3% per year. This estimation fits the historical difference in inflation between US and CH relatively well.

And I remove 30% of that since some of my assets will be in CHF. That's how I arrive at 0.7%. Keep in mind that it's very heuristic; it's not a sound method.

Why don't you remove 20% (you have 20% CH stocks)?

I get about a 95% success rate with a 4.5% withdrawal with 40% US stocks / 40% ex-US stocks / 20% CH stocks in the calculator (including yearly rebalancing, and a small amount of social security after 20 years.

I would guess it describes the 80% VT / 20% SPI portfolio. But in my calculation, 80% VT (which contains 61-62% US stocks) results in about 50% US stocks. Do you mean a different ETF?

Let's have a look at the following portfolio:

Portfolio	Conditions	SWR @ 95% success rate	SWR - 0,7%
30% US stocks 20% non-US stocks 20% CH stocks 15% gold 15% commodities	40 years, US, USD, annual rebalancing	4.9%	4.2%

 

[Max]

We have historical data for USD/CHF, but it's not really good because of the gold standard and the end of the Bretton Woods system.

If we cut the tail with outliers we should still have ~50 years of data, shouldn't we? I think, 50 years is not bad - especially because we have problems with longer periods. Would it be a good idea to make calculations with those 50 years?