Which currency to invest with?

[awaelchli]

Hello

I want to do long-term investing and buy shares monthly. I made a brokers account recently (IBKR) and want to buy the S&P 500 ETF. I'm facing some questions regarding currency, since I'm Swiss and the ETF can be traded in several currencies (CHF, EUR, USD).

My plan was to do monthly payments from the bank into the brokers account and have a schedule that automatically buys the shares every month. However, the bank transfers cost 20 CHF unless I do it in EUR (SEPA transactions). This fee could add up quickly if I do recurrent payments over years, so I thought it's maybe better to transfer EUR and do all the trading in EUR? Do you see any issues with that? In which currency do other Swiss investors trade S&P500 ETFs?

My understanding is that since S&P 500 base currency is USD, I will anyway be subject to currency fluctuations and conversion rates when buying and selling shares. So maybe long-term it shouldn't matter much whether it is in EUR or CHF?

Thank you in advance for any feedback.
PS: First time posting here. The PoorSwiss articles and forum helped me a lot so far, thank you so much for that!

 

[justatreeinthesea]

Hi,

• IBKR has a Swiss IBAN, so transfers should be free or you should change bank
• I would advise you to buy your shares in USD if you want to invest on the US stock market
  • You're right that there is a big risk by investing that way, because the exchange rate between USD and CHF may keep getting worse, eating away your returns
  • To counter this effect, you could invest part of the monthly sum into the same fund, but CHF hedged. The TER on those is usually high, but it may be worth it in the end. Nobody knows for sure. There is an article about currency hedging on the blog
  • Watch out for currency exchange fees. Run some calculations with the amount you plan to invest monthly to see how much those fees will end up being and if it's worth adjusting the amount.
• I think it's important to research any ETF you plan on investing in with websites such as justetf, vanguard or blackrock. You'll see what the base currency is, the TER, how popular they are, etc. There are a few traps when you go outside of the classic passive investment path.
  • Usually, products in EUR or CHF which are not currency hedged cover the local markets (Europe, Switzerland) or are offered by local funds (UBS), but if they contain US stocks per example, then there is some kind of currency risk embedded.

 

[Baptiste Wicht]

Welcome to the forum!

Most questions are already address by @justatreeinthesea

Just a comment on:

the ETF can be traded in several currencies (CHF, EUR, USD)

If that's the case, you are probably not using the most efficient ETF, which should be a US ETF and that is always traded in USD.

What Makes U.S. ETFs So Great? - The Poor Swiss

U.S. ETFs are the most efficient ETFs for Swiss investors, find out how to save money and optimize your portfolio!

thepoorswiss.com

(Or you are doing that on purpose and then it's perfectly fine of course)

 

[awaelchli]

Thank you for the replies it's very helpful.

I noticed the error on my side that I was initially looking at the fees for an international transaction but as you said, since it has a swiss IBAN I can do a national transfer and then there are no bank fees. Thank you for making me double check

To counter this effect, you could invest part of the monthly sum into the same fund, but CHF hedged.

That's an interesting idea thanks.

I think it's important to research any ETF you plan on investing in with websites such as justetf, vanguard or blackrock.

Yeah that's a great website I like it. I am considering the Vanguard S&P 500 UCITS ETF or the accumulating counter part because of it's low TER, high fund size.

@Baptiste Wicht

If that's the case, you are probably not using the most efficient ETF, which should be a US ETF and that is always traded in USD.

Thanks yes I see, I used the wrong terminology here. I meant the ETF can be bought at different stock exchanges for different currencies. I am aware that the underlying one is always USD.

 

[Baptiste Wicht]

Thanks yes I see, I used the wrong terminology here. I meant the ETF can be bought at different stock exchanges for different currencies. I am aware that the underlying one is always USD.

That's not what I meant

The ETF you are mentioning is a European ETF (the domicile is Ireland), but there are better ETFs for the S&P500 with US domicile. FOr instance, Vanguard S&P 500 (VOO).

 

[awaelchli]

Ok there was indeed some confusion on my side. I thought S&P 500 is automatically considered US and I read in many places that ones like VOO are not available to europeans which is why I didn't consider it. After reading your great article I realized that in Switzerland it is actually possible to buy US ETFs directly! This helped solve a big confusion just now Thanks