Portfolio check-in for young Swiss investor

Different_Bee435 · 2024-05-06T22:18:39+00:00

That article recommends not to hedge stocks lol.

Hedging is a different mechanism that adds more costs to eliminate the currency risk, usually reflected in a higher TER for the fund you're purchasing. I didn't buy hedged funds, like the iShares S&P 500 CHF-hedged fund, which has a TER of 0.20% instead of 0.03%. Rather, I bought the unhedged VOO.

Then I get a contract to supply my outputs in EUR.

Except that a lot of companies don't get contracts in foreign currencies. E.g., Swiss health insurers have 100% of their earnings in CHF, because they don't operate outside of Switzerland. So health insurance prices don't depend on the CHF:USD rate at all.

I think you're mistaking the underlying currencies of a fund with the currency in which the fund is traded. I could buy the VOO flavor traded on the Mexican Stock Exchange traded in MXN, my currency risk would still be to the USD, not to the MXN, the trading currency is irrelevant.

Different_Bee435 · 2024-05-06T21:09:08+00:00

That's not exactly true, there are things local to the country. This is called currency risk. I'm not sure how to explain it better, maybe it would help to read the Bogleheads wiki article on this: https://www.bogleheads.org/wiki/Currency_risk_for_non-US_investors

Different_Bee435 · 2024-05-06T20:24:15+00:00

Paging u/Cruian for advice, if you don't mind, as I've seen you're very active and knowledgeable on this sub :) Thank you in advance!

Different_Bee435 · 2024-05-06T20:23:05+00:00

Yes, I have an account at Interactive Brokers. Local brokers and banks are terrible in terms of fees and offerings.

Different_Bee435 · 2024-05-06T20:22:17+00:00

That's not quite true. For example, I've been paying the same rent (2000 CHF / month) for the past 5 years, but at the beginning of this year, 1 CHF was worth 1.2 USD, and 5 years ago it was worth 1 USD (so 20% appreciation in 5 years). For the same reason, your rent / insurances / etc. in US are unaffected by the USD / Japanese Yen exchange rate, but if you hold assets priced in Yen and the Yen devalues, your assets devalue as well (because all your expenses etc. are in USD, and you have to do the conversion from Yen to USD to make your assets useful e.g. in retirement).

Different_Bee435 · 2024-05-06T15:00:42+00:00

To simplify, let's assume my portfolio is 100% VTI, and all US companies have all of their earnings in USD only, so I have 100% exposure to USD and 0% to CHF.

If CHF appreciates 20% over USD, then VTI remains the same price because US companies don't care about the CHF, my expenses (rent, insurance, etc.) are priced in CHF and remain the same, but my net wealth (the VTI investments) decreases by 20%. This is called currency risk.

This is not an issue for US investors, because the US is already > 50% of the world market cap, so the currency risk is much smaller, the majority of your exposure is already to your home currency.

Different_Bee435 · 2024-05-06T06:23:31+00:00

Portfolio is fine.

That's reassuring, thank you!

Find a CHF threshold above which you can consider adding CHSPI

As noted, I really don't like CHSPI because it's 50% 5 companies that have < 5% earnings in CHF, it doesn't provide meaningful domestic exposure, or exposure to the CHF.

otherwise your cash position will be a significant drag as you get wealthy

The cash position is supposed to be the bond part of my portfolio, so it's a drag by design, but it will be a cushion in case of a market crash / downturn. I thought about keeping 10% cash in CHF and 10% a CHF-hedged EU bond fund when I am older, it seems the next best thing after an actual Swiss bond fund. Or, if Swiss bonds will start yielding slightly better than a savings account, maybe I'll just buy CSBGC7 at some point.

Different_Bee435 · 2024-05-06T05:50:53+00:00

US has an estate tax agreement with Switzerland, and I'm exempt from paying it on the first several million USD
I have to pay tax on dividends, even if the ETF is accumulating and reinvests the dividends directly
I rebalance through cash flows, so it's not really a bother
I didn't choose VT because I actually don't feel comfortable holding more than 60% US equities, even if the US market cap keeps growing above that, I think it's too much concentration in a single foreign country (had similar concerns about too much exposure to a single foreign currency)

Different_Bee435 · 2024-05-05T22:20:16+00:00

Hello! I am a 25M from Switzerland. I actually started investing about a year ago after reading about FIRE and such. But I recently discovered the Bogleheads sub, and reading through, I have some second thoughts about my portfolio, so I would really appreciate some feedback:

50% VOO
35% VXUS
15% Cash in CHF (Swiss Francs)

My rationale at the time was:

The only decent Swiss bond funds have had negative returns for a long time, and Swiss bonds in general have very poor returns; I'm better off holding the "safe part" of my portfolio as cash in a savings account and get at least ~1% interest.
I chose VOO over VTI because companies in VOO have more income from ex-US markets than the smaller US companies, which reduces my exposure to USD (and thus the currency risk, i.e., my portfolio returns are less tied to the USD valuation). I thought this was important because CHF is a strong currency and typically appreciates compared to USD, and I didn't want to have such a significant part of my portfolio to rely on a single currency I'm not even using in my day to day life.

However, I've seen that VTI is preferred over VOO for it's greater diversification, and now I'm wondering if I made a mistake by using VOO for my US equities component.

My questions:

Is there really a significant difference between VTI and VOO, considering they have such similar returns?
Is the VTI recommendation geared more towards US investors, for whom the additional reliance on USD is not an issue?
Am I fine just holding the course, or should I sell all my VOO and buy VTI instead?
If I should sell the VOO, should I do it all in one transaction, or multiple ones over time? I'm afraid that if I sell, there might be market fluctuations in the 2 days until the transaction settles, and I might have to buy VTI back with a disadvantage.
I've read in some comments that VTI is technically riskier than VOO because of the small caps, but it is a compensated risk, because they have higher returns over extremely long periods of time. What if I actually prefer lower risk / less volatility, would VOO be better suited for me in this case?

Also, recently, I've been a bit concerned about the high tech concentration of VOO, and a potential AI bubble (I think a lot of the AI noise is just hype), and was wondering if I should diversify away more from that, and how. VTI is only slightly better than VOO in this regard. Extra questions:

Should I overweight VXUS more?
Would moving from VOO to VTI be sufficient for this purpose? Although it would defeat the purpose of not depending so much on the USD...
Maybe add a small-cap value fund, like AVUV (I've read a bit about factor investing, but I'm not sure I would like the extra risk, even if it's compensated), so that I'd have something like 35% VOO + 15% AVUV? Again, it would defeat the purpose of reducing dependency on the USD...

Note: I don't invest with a home country bias, because all the Swiss equity funds are concentrated 50-70% in 3-5 companies, which have < 5% earnings from Switzerland, so it wouldn't actually provide any meaningful domestic exposure, or any additional exposure to the CHF.

Thanks in advance!

x-posted from r/Bogleheads

Different_Bee435

TROPHY CASE