IBKR + Finpension

[Daniel]

Hello!

First of all, thank you very much. I am a complete beginner in investments. I've been interested in them for years, but I never took the step, and now I regret it. So, at 34 years old, I’ve finally decided to start.

I am a Swiss resident with Spanish nationality.

After reading a lot on the forum and hesitating, I decided to open an account with IBKR (Neon/Saxo were my other considerations).

My problem is that I would like to invest in the MSCI World ETF in CHF, and maybe also in the MSCI Emerging Markets ETF. But the app is super unintuitive, and even after watching videos and using the demo, I don't want to make any mistakes. Could someone help me with this?

Regarding my investment, I'm thinking of something for 28-32 years.

Questions:

• Where can I be sure that the ETFs I chose are the correct ones and are VT?
• Is my obsession with investing in CHF a good idea? I’m worried about the depreciation of the €/USD.
• I read bad reviews about IBKR, saying they weren't allowed to invest their money or withdraw it later. I assume that shouldn't be a problem.

Now, about Finpension:

After comparing other options, I think I'll go with Finpension Aktien 100, since even though we might have bad years, in the long run, I believe it will be the right choice.

Regarding the 3a pillar, as a foreigner, my knowledge is limited. Is it worth contributing the maximum amount each year to this fund, or is it more profitable to invest in ETFs or other products?

Questions:

• Compound interest wouldn't be generated here, correct? Only the increase in the value of the shares.
• And in terms of security, is the 3a pillar always protected even if Finpension goes bankrupt?

I know some of these questions are very basic, but after reading and searching for information, I want to be sure about the decisions I make for my future.

Thank you very much. I will appreciate your opinions.

 

[Baptiste Wicht]

Hi and welcome to the forum @Daniel

Where can I be sure that the ETFs I chose are the correct ones and are VT?

If you search for VT on IBKR, you should find something called "Vanguard Total World", they should indicate it's a "Stock" and there should be Arca in the name, which indicates the New York Stock Exchange.

Is my obsession with investing in CHF a good idea? I’m worried about the depreciation of the €/USD.

It's not necessarily a good idea. However, if it helps you sleep at night, it's a good idea for you.

I read bad reviews about IBKR, saying they weren't allowed to invest their money or withdraw it later. I assume that shouldn't be a problem.

I am not worried about that. I have not heard of any verified story in this case. Most people doing bad reviews are just pissed off and want to vent. IBKR is quite professional, and I have not heard of them doing something dumb.

Regarding the 3a pillar, as a foreigner, my knowledge is limited. Is it worth contributing the maximum amount each year to this fund, or is it more profitable to invest in ETFs or other products?

It is worth it if you have a good enough income and if you are filling a tax return (if you are not, it's not interesting).

Compound interest wouldn't be generated here, correct? Only the increase in the value of the shares.

Yes and no. In the stock market, the returns you get compound over time. So, if you get 5% returns one year, the next year, the next returns (maybe 4% for instance), still compound on top of the 5%, etc...

And in terms of security, is the 3a pillar always protected even if Finpension goes bankrupt?

Yes. It's protected because it's in a custody account in your name. And if Finpension bankrupts, the 3a foundation should find a new fund manager to manage these shares.

 

[Daniel]

Thanks!

About Finpension, all my doubts have been resolved, thank you.

Regarding IBKR, I found the ETF you mentioned. How do I identify those that are in €/USD/CHF?

I found the one you mentioned and the Nasdaq as well:

EQCH NASDAQ 100 HDG
IWDC MSCI WORLD CHF-H
SP500S UBS ETFS&P500 H CFH A-ACC
VANGUARD TOT WORLD STK ETF
From what I understand, the only one in dollars is the last one, and after reviewing the historical performance of USD and CHF, I’ve lost some of my fears, as they’ve been quite similar. Perhaps the only concern is the fees for converting CHF to USD when buying the ETF monthly.

I will start with one of the ETFs listed above. It’s time to begin! How many ETFs do you recommend buying to have reasonable protection?

My initial idea was the Nasdaq and MSCI World, but we’re at historical highs. However, at some point, you have to start.

Regarding these ETFs, only one is VT, and the rest are not. Could you explain what additional risks there are with the others?

Also, how can I calculate the cost of currency conversion from USD to EUR on a monthly basis? Or would it be better to have them hedged to Swiss francs?

Thanks!

 

[Baptiste Wicht]

From what I understand, the only one in dollars is the last one, and after reviewing the historical performance of USD and CHF, I’ve lost some of my fears, as they’ve been quite similar. Perhaps the only concern is the fees for converting CHF to USD when buying the ETF monthly.

The conversion fee is very low with IB.

In general, Swiss investors can expect 2-3% lower returns in CHF than in USD.

My initial idea was the Nasdaq and MSCI World, but we’re at historical highs. However, at some point, you have to start.

Yes, you have to start at some point. If you think of investing for the next 28-32 years, the present valuation should matter little. You could wait, but who knows if things are not going to go up even more.

Be careful that you also trade off something when using a non-US ETF.

Regarding these ETFs, only one is VT, and the rest are not. Could you explain what additional risks there are with the others?

I do not understand this question. It looks like they are all ETFs.

Also, how can I calculate the cost of currency conversion from USD to EUR on a monthly basis? Or would it be better to have them hedged to Swiss francs?

With IB, you pay 0.002% (min 2 USD) for a manual conversion and 0.03% (no minimum) for an automated conversion.

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As for hedging, I do not think it's worth it for the long term, it may drag you down with fees and sub-optimal returns. On the other hand, if hedging helps sleep at night, then hedging is a good tool for you.

 

[Daniel]

After reading and researching further, I found that Accumulating ETFs tend to have higher TER than Dividend Distributing ETFs. However, through the IBKR platform, this issue could be resolved by activating the option to reinvest dividends automatically. This way, I wouldn’t need to keep track of when dividends are paid to reinvest them. This is how it works, right?

On another point, from a tax perspective in Switzerland, how should I handle these dividend-distributing ETFs? It’s important to avoid future problems.

I primarily heard about VT (Vanguard Total World Stock ETF) but not much about other companies. That's why I was asking what advantages or risk reductions come from choosing Vanguard ETFs over those from companies like Xtrackers, Amundi, or iShares.

Thanks, it's completely a new world.

 

[Daniel]

Regarding the deposit of money in IBKR, my account is with Raiffeisen. Is it worth opening an account at another bank to send money to IBKR, or will the transfer be free or at a low cost?

 

[Baptiste Wicht]

On another point, from a tax perspective in Switzerland, how should I handle these dividend-distributing ETFs? It’s important to avoid future problems.

Both distributing and accumulating ETFs are handled the same way. You need to declare all the dividends.

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After reading and researching further, I found that Accumulating ETFs tend to have higher TER than Dividend Distributing ETFs. However, through the IBKR platform, this issue could be resolved by activating the option to reinvest dividends automatically. This way, I wouldn’t need to keep track of when dividends are paid to reinvest them. This is how it works, right?

Yes, that's mostly how it works. But the problem is that dividend reinvesting does not work with all shares and will incur fees. So, if you are starting out, you may waste a little money in fees.

If you are investing monthly, it should not be an issue to invest the dividend yourself with your monthly investment.

That's why I was asking what advantages or risk reductions come from choosing Vanguard ETFs over those from companies like Xtrackers, Amundi, or iShares.

There should be no issues with Vanguard, compared to other companies.

Regarding the deposit of money in IBKR, my account is with Raiffeisen. Is it worth opening an account at another bank to send money to IBKR, or will the transfer be free or at a low cost?

As long as you transfer CHF from one CH IBAN to another CH IBAN, you should be good.

 

[Daniel]

So, your opinion is not to leave it automated, and I understand that the money should go to the uninvested cash account of IBKR. When this happens, I should manually buy back the percentage of that ETF with the dividends. Okay, I understand.

By doing it this way, do we save on commissions? And why are higher commissions generated when leaving it automated?

Thank you very much for all your help.

 

[Baptiste Wicht]

If you buy every month shares of VT (US ETF, for instance), you will pay 0.35 USD per month. But if you reinvest dividend, you will have to pay the fee twice the month and at the end you have the exact same amount whether you invest automatically the dividends or not, minus the extra fee. For US ETFs, it's true that the difference is minimal, but as long as you invest monthly, it does not really have any advantage.

 

[justatreeinthesea]

I had a brief look at CHF vs USD ETFs.

For this year
VWRD.L USD YTD: 16.18%
VWRL.SW CHF YTD: 20.08%
Even with the slight appreciation of the dollar, the USD version is still lagging.

Of course, the better option is to pick a US based fund to get a lower TER and to save on taxes, but it seems not all funds are hedged the same. Those ones are accumulating and it's the hedged version which is lagging this time:
IWDA.L USD YTD: 18.56%
IWDC.SW CHF YTD: 16.56%

And when we look over a period of 5 years
VWRD.L USD 5Y: 56.94%
VWRL.SW CHF 5Y: 37%
USD/CHF: -12.86%
The CHF hedged version of this Vanguard fund did poorly...

Same story with iShares
IWDA.L USD 5Y: 80.41%
IWDC.SW CHF 5Y: 60.35%

Since the litterature suggests it makes no difference, it would probably be wise to run this with real data over a long period of time, but at first glance, it looks like hedged funds are not worth it

 

[Daniel]

Thanks, really interesant