my first Investment Policy Statement

[gaijin]

I recently talked with an attorney who told me that, because the Swiss population gets older (and even now there's pressure on the pension system) and there will likely be less workers in the economy and more elderly (medicine advances, life expectancy keeps improving), they expect that the LPP law will be changed in the next 20 years, to put limits on how much you can take out monthly.

In the end, these are all speculations. And lawyers, as per their job, strongly stress the risks of their scenarios without giving you probability assessments for these risk.
I recently became a bit more optimistic about pension funds, reading reports that the past redistribution from young to old has mostly been stopped. On the other hand, I'm more pessimistic about the AVS that it will eat more and more of our tax money.

 

[Baptiste Wicht]

Do you happen to know what that minimum is? I hope it's more than just getting your total contributions back. I would assume the insurance part of the 2nd pillar would provide for more.

Yes, I do know that. There are two cases based on when we die.

A widow pension (if we die before retirement age) is 60% of a full disability pension by law. The pension is based on a projection. This is the case if:
* There is at least a child in the household
* OR the spouse is at least 45 years old, and they lived more than 5 years together

If the conditions are not met, the surviving spouse should receive 3 annual pensions as a lump sum.

If we die after retirement age, the spouse will get 60% of the pension we were receiving.

Many pension funds will offer better conditions. And this is only for the mandatory assets, they have much more freedom in extra-mandatory assets.

 

[Ex Pat]

Hello. It's me again, learning more about what I have in my portfolio and what the risks are.

Back in July, I changed my target portfolio by adding VXUS, to reduce US exposure in my international stock portfolio:
- 48% VT
- 12% VXUS
- 16% CHSPI
- 10% cash
- 10% gold ETF - monetary disorder hedge
- 2% P2P (Let P2P run off naturally without reinvestment)
- 2% BTC

Meanwhile, I went back to the initial reason I added VXUS (I know I said I wanted an alternative to VXUS, but it was too complex for too little gain so I went for VXUS in the end).

For me, there are a few things that annoy me:
- US , due to current market capitalization, gets most of the money (thus an implicit country bet)
- the concentration in a few companies (7 companies getting almost 20% of VT new money)

I also have a problem related to concentration in the Tech Industry (the AI boom...). But getting away from the tech industry would be very difficult in market-cap ETFs.

Then I realized that CHSPI itself is super concentrated as well: 3 companies have 35% of the fund; and the top 10 have 66% of the fund. So I am considering reducing my home bias to 10%. So my plan is to move some percentages from CHSPI to VXUS just to reduce concentration.

I was considering taking 20% from VT and moving it into an equal cap (MWEQ) to change sector concentration and reduce giants concentration (which exists also in VXUS), and that would have added a fourth ETF in my portfolio with the following benefits:
- it would have reduced downturn in a dot-com-like burst
- it would have reduced the concentration risk (now it's Mag 7, ten years from now it might be some other big monopolies)

The problem is that it's introducing complexity : a fourth ETF. I'm not sure this compexity is such a big problem TBH. It would raise my TER, but not enormously.

Metric	Old (48/12/16)	46/20/10	40/26/10	MWEQ plan (26/20/20/10)
Equity	76%	76%	76%	76%
US (% total)	29.8%	28.5%	24.8%	24.4%
Tech (% total)	13.4%	14.3%	14.1%	12.1%
Mag-7 (% total)	8.0%	7.7%	6.7%	4.5%
Crash drawdown	−34.5%	−34.7%	−33.5%	−31.3%
TER	0.070%	0.068%	0.068%	0.094%
# ETFs	3	3	3	4

Most likely I'll just go for 48 / 18 / 10 for now, just mechanically moving 6% from CHSPI to VXUS to reduce the implicit company and sector bets that exist in CHSPI concentration.

So I won't be addressing the mag7 problem or the tech concentration problem which I genuinely find it difficult to address unless I move from VT to MWEQ altogether.

Any opinions?

Is anyone worried about a lost one or two decades in their investments in case of a combined AI bubble crash + Japan crash?

I know we shouldn't time the market, but if there's a particular strategy change to make before hitting a wall, it's better to make it when we're still in the bull market (with the downside of not benefiting of the prolonged bull market).

The reason why I was looking at bringing MWEQ in the mix was the faster recovery during a dot-com like crash.

ETF	Crash drawdown	Recovery CAGR
VT (cap-weight global)	−55%	7%/yr
MWEQ (equal-weight global)	−38%	9%/yr
VXUS (ex-US cap-weight)	−35%	6.5%/yr

 

[gaijin]

The reason why I was looking at bringing MWEQ in the mix was the faster recovery during a dot-com like crash.

I know it's quite a harsh opinion. But I think that equal weight funds are a feel good instrument for people who don't understand how capitalists markets work. They serve as a vehicle to refuse the very basics of these markets while still wanting to participate in them.

If you feel uneasy about a pure market cap approach, I recommend a dividend fund. Companies in these funds usually don't have the highest market cap, so it's a nice diversification. Yes, for Swiss people, dividend funds are less tax efficient. But I think they still far better than equal weight funds.

For the US I recommend the Schwab U.S. Dividend Equity ETF (SCHD). For Switzerland, there is the iShares Swiss Dividend ETF (CH). For a world ETF there are Vanguard FTSE All-World High Dividend Yield UCITS ETF - (USD) Accumulating (VHYA) or iShares MSCI World Quality Dividend Advanced UCITS ETF (has an ESG component) or Vanguard International High Dividend Yield ETF (VYMI).

 

[Ex Pat]

But I think that equal weight funds are a feel good instrument for people who don't understand how capitalists markets work.

Hehe, this is me!

But talking about this, I've actually realized that I was looking at the wrong thing - during a crash, _all_ equities will crash. And that's what I'm worried about.

And the answer to my worry was previously mentioned by @Rttm when he mentioned that instead of cash, I should have bonds because those go up during stock crashes (historically, usually)

15% Cash: In my view, this is a significant drag on performance. Statistically, holding cash to deploy during a crisis is often disadvantageous. I prefer allocating to uncorrelated assets; this allows you to buy equities during downturns via rebalancing to maintain target percentages. I would consider allocating a portion to iShares 7-15 year bonds. These typically offer strong negative correlation to equities with manageable volatility, which should reduce overall portfolio volatility more effectively than cash. I look at the portfolio as a whole, not just individual assets. I noticed you excluded bonds because you hold them in your 2nd and 3rd pillars, but here they serve a specific function: rebalancing and volatility control.

As an update, I'll move 6% from the CHSPI (reducing concentration) and reduce my cash in order to have 10% CSBGC0 - not for the yield but for being able to rebalance during a long crash like a dot-com one.

• 48% VT
• 12% VXUS
• 10% CHSPI
• 10% CSBGC0
• 10% gold ETF
• 6% cash
• 2% P2P (Let P2P run off naturally without reinvestment)
• 2% BTC

This also means that I'm at 70% stocks now, but , well, that's probably my current risk profile.

Thanks for the exchange @gaijin !

 

[gaijin]

• 48% VT
• 12% VXUS

To me it doesn't make sense to have a world ETF (VT) and a world-ex-US ETF (VXUS). In your case I would replace VT by VTI, a US only ETF, and adjust the allocation of VTI and VXUS accordingly to around 30% VTI and 30% VXUS. This gives you a much clearer picture of your US exposure.

 

[Baptiste Wicht]

I am not entirely convinced by equal-weighted ETFs. They are elegant and solve some issues but introduce others. These ETFs have much fewer companies (since some are simply too small to be 0.1% of a large ETF). Also, it means that we do not consider how well or bad a company is doing for investing in it.

I know we shouldn't time the market, but if there's a particular strategy change to make before hitting a wall, it's better to make it when we're still in the bull market (with the downside of not benefiting of the prolonged bull market).

If you feel your portfolio is unsustainable for you in a crash, it seems to me that asset allocation is not great.

I think you were right in adding more bonds.

The reason why I was looking at bringing MWEQ in the mix was the faster recovery during a dot-com like crash.

Have you also looked at how the index performed before the crash? They may well recover faster during the next crash as well (or may not), but the next crash may be 5 or 10 years away. The issue goes back to timing.

To me it doesn't make sense to have a world ETF (VT) and a world-ex-US ETF (VXUS). In your case I would replace VT by VTI, a US only ETF, and adjust the allocation of VTI and VXUS accordingly to around 30% VTI and 30% VXUS. This gives you a much clearer picture of your US exposure.

Agreed!