The best ETF Portfolio for Switzerland in 2024
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Before investing in the stock market, you must choose a portfolio. In Switzerland, you will likely invest in index funds via Exchange Traded Funds (ETFs). For this, you must decide on a good ETF Portfolio for a Swiss investor.
Choosing a good portfolio is an important decision. You must invest in a portfolio with low fees, high diversification, and good returns. And you should be careful about keeping it simple!
While there are many examples of ETF Portfolios for the United States, there are few examples for Switzerland. So, it is not trivial to choose one.
In this article, we review the details of choosing an ETF Portfolio for Switzerland. And at the end of the article, I give you an example of what I think is the best ETF Portfolio for Switzerland.
Choosing an ETF Portfolio for Switzerland
Choosing an ETF portfolio is an essential step when investing in the stock market. You should keep the same portfolio for a very long time. So, you need to choose carefully.
If you live in the United States, you will have seen tons of examples of ETF portfolios. But if you live in Switzerland, you probably have not seen that many of them.
And if you live in Switzerland or Europe, you cannot blindly follow a portfolio from another country. We cannot compare Switzerland with the United States. Our stock market is 20 times smaller. And in some other countries, it is even smaller than that. So we cannot invest in the same way.
For me, the best ETF Portfolio for Switzerland has two essential parts:
- An ETF representing the entire world stock market. Or it holds two ETFs, one for the Developed World and one for the Emerging Markets, but not more than two.
- An ETF representing the domestic Swiss stock market. This part of your portfolio is called your home bias.
With these two parts, you can have a very diversified yet simple portfolio. This portfolio is what I am investing in and what I recommend people to invest in.
We will see a few things in detail before I review the ETFs that form the best ETF portfolios for Switzerland.
Home Bias
A good ETF Portfolio for Switzerland should have some domestic stocks. This allocation will be your home bias.
The main reason for this is related to currency. Since the Swiss Franc is a stable currency, other currencies tend to depreciate against the Swiss Franc. If your entire portfolio is in USD, you may lose much value. So having an ETF in your local currency will help you.
Of course, you could hold only Swiss stocks in Swiss francs, and you will not have this issue. But having only Swiss stocks is not a great idea. A lot of Swiss companies are exporting to other countries. It means their performance is subject to currency exchanges.
The Swiss stock market is tiny, about 2.5% of the world’s stock market. So do you want to bet your entire portfolio on 2.5% of the world?
Finally, the Swiss stock market had lower performance than the world stock market historically. So if you only invest in Swiss stocks, you will need a larger portfolio to sustain your expenses.
Another way of reducing the currency risk is to use ETFs that are hedged to CHF. But currency hedging is expensive and is generally not the best tool for long-term investing.
So, how much should you allocate to your home bias?
Between 20% and 40% should be allocated to a Swiss Stock ETF. 10% is probably OK, but anything below 10% will not make enough of a difference to bother with it. 50% is also probably okay, but you are making a large bet on the Swiss Stock market with such a large allocation. It is why between 20% and 40% is a reasonable allocation.
In my ETF Portfolio for Switzerland, I have 20% of Swiss Stocks. Currently, I am pretty satisfied with this. I may consider bumping it to 25%, but no further.
I have done simulations of early retirement in Switzerland with Swiss Stocks. If you look at the results, this will also confirm the 20% to 40% bias.
For more information, I have an article about whether you should have a home bias in your portfolio.
What about bonds?
Swiss bonds have been in negative territory for several years in the past. However, as of 2023, Swiss bonds are once again interesting. It remains to be seen for how long, but it now makes to invest in bonds again.
Not everybody needs bonds in their portfolios. Indeed, this depends on your risk capacity. Personally, I do not own bonds. My portfolio is 100% stocks. But this does not mean it is a good portfolio for everybody. It is a good portfolio for me, with my risk capacity.
Using your risk capacity, you can choose your asset allocation. An asset allocation is the percentage of each asset in your portfolio. In our current, this will be the percentage of bonds and stocks.
Bonds are great for reducing volatility in your portfolio. They are especially useful in the early years of retirement when risks are higher for your portfolio.
What about foreign bonds?
Some people try to invest in foreign bonds instead. But doing so is not a good idea. I made this mistake myself. The problem with international bonds is that they will incur an additional currency risk to your portfolio.
When you invest in bonds, you want the bonds to lower the volatility of your portfolio. You want your bonds to help you when the stock market is not doing well. But if you add currency risk on top of that, you will not achieve this goal.
So, investing in foreign bonds is a lousy alternative to Swiss bonds for an ETF portfolio for Switzerland.
Alternatives to Swiss Bonds
If you do not want bonds but want to reduce volatility, there are several solutions to emulate bonds:
- Allocate some of your Swiss Portfolio to cash. Currently, cash is better than bonds. Of course, it is not great since it is still losing value due to inflation. But it still beats losing money with Swiss bonds.
- Invest in your second pillar. Most second pillar accounts offer around a 1% interest rate. And you will have some tax advantages as well. For me, this is the best alternative to Swiss bonds.
- Invest in gold. Gold has better returns than the second pillar and the Swiss bond market. And there are some excellent Gold ETFs. So you can directly invest in gold in your ETF Portfolio. But gold is not risk-free and can be quite volatile at times.
Of these three options, I prefer investing in my second pillar. But the second pillar has three limitations. First, it is limited because you cannot invest a limitless amount. Secondly, you will not be able to get the money before you retire. Therefore, it is not ideal for early retirement. Also, you can only get tax advantages if you have not withdrawn from the second pillar. And without tax advantages, the second pillar is not great.
So, I would recommend starting with your second pillar. And then, you can allocate some part of your ETF portfolio for Switzerland into gold. Or you can bump a little your cash allocation until you feel at ease.
How to choose ETFs
For each position in your portfolio, there will be several choices for you. There are many ETFs for each stock market index. So, how can you choose between these ETFs?
There are several things you need to look at:
- The Total Expense Ratio (TER) of the fund is how much fees you will pay each year.
- The domicile of the fund is the country from which the ETF comes from.
- The size of the fund. You generally want large funds for smaller spreads and higher liquidity. But do not pay too much attention to the detail. A fund managing two billion dollars is not better than a fund managing a single billion. On the other hand, a fund managing 10 million is less attractive than one managing 200 million.
- The way the ETF is replicating the index. You only want to invest in funds with Physical Replication.
- The way the ETF is handling dividends. A fund can either distribute or accumulate dividends. In Switzerland, you will pay the same taxes for both, mostly a matter of preference. I prefer distributing funds to get the cash once I need it in retirement. And this cash will also help me with rebalancing.
One excellent resource to find and compare ETFs is justetf.com. They have an extensive list of ETFs, and you can compare the information on different ETFs in a very convenient way.
For more detail about this process, I have an article about choosing and comparing ETFs.
The best ETF Portfolio for Switzerland
Now, we have covered the most important aspects of designing an ETF portfolio. Thus, we can finally go over the details of the ETFs.
Now, remember that this is only an example, which only reflects my way of investing. Therefore, this portfolio may not be the best ETF Portfolio for Switzerland for everybody. And remember that I am not a personal advisor and that you should still do your research and not merely copy what I am doing.
Here is what I consider to be the best ETF Portfolio for Switzerland:
- 80% World ETF
- 20% Swiss Stocks ETF
This portfolio is extremely simple and highly diversified. As I said, the percentages can vary. Between 20% and 40% allocated to Swiss stocks is a good range. So you could go 25/75 or 60/40, for instance. Anything between 20% and 40% would be fine. Adding more Swiss stocks will reduce your currency risk but reduce your returns.
Now, we can look into the ETFs. Which one you use will depend on whether you can access U.S. ETF. Then, we will see how to add bonds to the mix.
ETF Portfolio with U.S. ETFs
If you have access to U.S. ETFs, for instance, with Interactive Brokers, I recommend the following ETFs:
- Vanguard Total World (VT) for the World ETF with a TER of 0.07%
- iShares Core SPI (CHSPI) for the Swiss Stocks ETF with a TER of 0.10%
With this portfolio, you will have very low fees and high diversification. You also have the advantage of saving 15% of the U.S. dividends on VT. Saving on dividends will make a significant difference compared to the other portfolio. It is some extra optimization that you can do to your portfolio. But in the grand scheme of things, it will not change everything.
As an example, my allocation of 20% to Swiss Stocks would give this ETF Portfolio for Switzerland:
- 80% Vanguard Total World (VT)
- 20% iShares Core SPI (CHSPI)
This portfolio is the current portfolio I am investing in.
If you wonder why I talk about U.S. ETFs, here is why U.S. ETFs are great.
ETF Portfolio without U.S. ETFs
If you do not have access to U.S. ETFs, I recommend the following ETFs:
- Vanguard FTSE All-World UCITS ETF Distributing (VWRL) with a TER of 0.22%
- iShares Core SPI (CHSPI) for the Swiss Stocks ETF with a TER of 0.10%
With my allocation of 20% Swiss Stocks, this would give:
- 80% VWRL
- 20% CHSPI
This portfolio would be the one I would be using if I were not investing in U.S. ETF. If you want to be cheaper, you can choose one ETF for the developed world and one ETF for the emerging markets. That way, you can save a little on TER. But I prefer to have only two ETFs, even if the fees are slightly more expensive.
This portfolio has two disadvantages over the one with U.S. ETFs:
- The TER is about twice more expensive.
- You will lose 15% of the U.S. dividends because you will not profit from the double-taxation tax treaty since the funds are not in the United States. This difference is more significant than the first one. But this difference is often ignored by many investors.
If you can, you should probably invest in U.S. ETFs. But I want to emphasize something that many elitists will not tell you: Investing in a good portfolio is much more important than investing in the perfect portfolio!
If your broker does not give you access to U.S. ETFs and you do not want to change, then invest with European ETFs!
ETF Portfolio with bonds
Now, what is the best ETF portfolio with bonds for a Swiss investor?
We can take an example with a reasonable 20% bond allocation. This is a common bond allocation that does not decrease too much your portfolio returns and still reduces volatility.
There are two ways to integrate your bonds in your portfolio regarding your home bias (if you have any).
First, you could replace your home bias with the bonds part. Indeed, a Swiss bonds ETF would play a similar role to your home bias. In this case, you can opt for a portfolio with:
- 80% World ETF
- 20% Swiss Bonds ETF
If you want to combine Home Bias in stocks and Swiss bonds, you have to be careful about not having too much in Swiss stocks and bonds. So, you can either go 20% Swiss Stocks, 20% Swiss Bonds, and 60% World Stocks. If 40% allocated to Switzerland is too much for you, you could also opt for 10% Swiss Stocks, 20% Swiss Bonds, or 70% World Stocks.
Finally, I recommend iShares Swiss Domestic Government Bond 7-15 (CSBGC0) ETF. It has a 0.15% TER, manages about 250M CHF, and has been around for 20 years.
So, with US ETFs, this would give us this portfolio:
- 80% Vanguard Total World (VT)
- 20% iShares Swiss Domestic Government Bond 7-15 (CSBGC0)
And if you want to integrate a home bias ETF, you can bring back CHSPI into the mix to craft your perfect portfolio.
Conclusion
You should now have a good idea of what ETFs you need as a Swiss investor. You can now decide on your ETF Portfolio for Switzerland.
The ETF portfolios from this article are just examples of what I recommend. Of course, this portfolio may not be the best ETF Portfolio for everybody. But you should now know enough so that you can do your research and decide for yourself in which ETF Portfolio you want to invest.
And remember: investing in a good portfolio is more important than investing in the best portfolio. If you take years to decide on the best portfolio and delay investing, you lose out on some opportunities. It is better to get started with a good portfolio, and you can refine it over the years.
Of course, you must have a broker account to invest in your ETF Portfolio. If you do not yet have a broker, here is a guide on choosing the best broker account for Switzerland.
If you want more control over your portfolio, I have a guide on creating an ETF portfolio from scratch.
What do you think of this ETF Portfolio for Switzerland? What does your portfolio look like?
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With the amount you’re investing, are you ever worried about the inheritance tax declaration issue in the US for your next of kin? I read that if you inherit more than 60’000 in US stocks, you have to file taxes there too and they can be expensive. I think that’s the main reason that other articles recommend buying Ireland-based ETFs.
Hi Barbara,
No, I am not worried about that: Should Swiss investors worry about the U.S. Estate Tax in 2024?
Hi Baptiste,
How do I find the VWRL you suggest in InteractiveBrokers Trade panel? If I search VWRL more than one result comes out, if I search VT different results come out as well, all VANGUARD. If I look by ISIN (IE00B3RBWM25) other results come out. I’m a bit confused, I would like to pick the one you suggest.
Thanks,
Giacomo
Hi Giacomo
This is a very common question indeed. You can check it out in the FAQ: Where to buy VWRL (How to choose stock exchange)?
Thanks a lot Baptiste!
Hi! Thanks very much for your blog, it is amazing!
I have a questions regarding the strategy with U.S. stocks. It is not possible to achieve lower fees by buying a combination of the VOO/VTI etf (0.03%) and VXUS (0.08%) instead of VT?
Thanks!
Hi Enrico,
Yes, it’s definitely possible. However, this will force you to rebalance if you want to keep your portfolio market-cap-weighted. And if you have a small portfolio, this will generate more transaction fees since you have to buy two ETFs instead of two, but with a good broker, it won’t matter that much.
very good article Baptiste !
just a note, i find the UBS etf ( SLICHA 0.20%TER ) for home Bias a little better than ( Ishares CHSPI 0.10%TER) is higher but is more concentrated and has a performed a little better.
Hi Pedro
The SLI has indeed a significant advantage: no company can make up more than 9% of the index.
Other than that, the two indexes are very similar.
I still prefer the SPI for its pure indexing approach, but it’s true that the Swiss stock market is a weird since 3 companies make up 40% of the market.
Hey Baptiste,
why do you recommend the “Vanguard FTSE All-World UCITS ETF Distributing (VWRL) with a TER of 0.22%”, so a distributing one over an accumulating one?
Unless one is close to retirement, wouldn’t accumulating be always a better option? It allows to save on transactions required when one would have to manually re-invest the dividends received by the distributing ETF, as well as the manual tasks. Anything else I am missing?
Thanks!
Hi Eva
I prefer distributing ETFs for multiple reasons: Distributing Funds vs Accumulating Funds: Which is better?
But many people prefer accumulating ETFs in Europe!
Hi there,
When you say invest in US etfs, do you mean convert CHF to USD and buy the etfs through NYSE/another US stock exchange via interactive brokers? What is the specific ticker on investors edge to purchase the stocks?
I have interactive brokers and I am trying to understand how to best optimize my investments and currently have all of my cash in CHF and need to deploy it. Thank you!
Hi
Yes, buying ETFs from the US (domicile matters) means converting currency.
I have an article about buying ETFs with IB: How to Buy an ETF on Interactive Brokers the Easy Way
thank you so much!
Hey Baptiste,
Great content, as always. I see in your portfolio you run with VT and CHSPI.
My question is, to avoid any headache with the conversion, couldn’t an SSAC (IE00B6R52259) replace VT?
I use SwissQuote, and I’d rather move to that for simplicity. What’s your opinion?
Hi Ben
When you talk about conversion, you mean conversion fees? So, you would use SSAC in CHF instead of USD?
It may be interesting with Swissquote, because of their expensive conversion fees. However, you may lose a significant portion of your US dividends. Have you read this article: What makes U.S. ETFs so great?
Thanks for the feedback.
Indeed, I wanted a more straightforward experience without dealing with exchange headaches, but I guess IB helps. And I’ll need to learn how to file the taxes to include everything efficiently. BTW do you have an article/guide for that?
Considering your article, I could open an IB account to trade US ETFs and use SQ to buy CHSPI. I wonder if it makes any sense. I wonder if there’s any benefit to this strategy. What’s your take on this?
The benefits of having two brokers really depend on you. If it makes you sleep better, there is a benefit, otherwise, there is none :) Using SQ instead of IB will likely means higher fees (although for Swiss ETFs, it won’t make much difference, but you will have to pay the custody fee).
I have an article about that: How to file your taxes with Swiss and foreign securities in 2024
BTW: There is a search function in the top bar of the blog :)
Hey poor Swiss. Interesting as always. One thing I wonder about is whether CHSPI actually achieves home bias. Nestle Roche and Novartis make up 40% of this fund and the majority of their business is done in the US. If the US market takes a dump they will be affected accordingly. Wouldn’t an etf which includes companies that have most of their business in Switzerland be more relevant? Something like SPMCHA?
Gruess :)
Hi Mace,
It’s true that CHSPI is very globalized, however, it’s often the case. If only the US took a plunge, the Swiss market would be better than the US market, which is important. If we see a global even (COVID-like), it does not matter.
It’s true that mid cap would be less impact, although some of them like Logitech are definitely international. And then you would be exposed to only smaller companies which are more volatile. So, there is no great solution. I still believe that CHSPI is the best even though it’s entirely not perfect.
Hello Baptiste, what do you think of Neon’s new feature for investing
I have made a review of their features: Neon Invest Review 2024: Pros & Cons
Hi Baptiste,
thanks for sharing your portfolio and for your contribution overall!
Can you please share more on how you came up with VT fund? As per their historical performance, they show 7% p.a. return since inception and 8% in last 10 years. At the same time, there are other funds with low cost which show higher performance (10-11% or more). E.g. Fidelity Zero large cap index fund (replicating S&P 500) or Vanguard dividend appreciation. Those are largely US companies focused, but how do you see the idea of mixing VT (having world) with adding some of funds with higher performance (like Fidelity Zero e.g.), to tap into higher returns shown historically? Many thanks!
Hi Oleg,
This question has been asked countless times. You cannot compare VT and S&P500 ETF because they are entirely different indexes. VT provides international diversification while VOO does not.
You can add a bias (it’s a bias, not a tap for returns) to SP&500, but you are making a bet and reducing your diversification. Many people do that and historically this has worked well, but this may not work in the future, that’s why I want to play it safe with VT.
Hi Baptiste,
many thanks for your valuable comments!
On home bias (Swiss fund, CHSPI): I notice that this or other Swiss-concentrated ETFs did have considerably lower performance than US-focused ETFs, TER is higher and you pay more taxes on dividends from those funds. Do all these named factors not outweigh the fund’s advantage of being in CHF and outweigh a bit currency depreciation of USD? I mean even if at the end you would need to convert your USD funds to CHF at worse exchange rate, would it still not be better off considering the disadvantages of Swiss ETF vs US one? (higher taxes on dividend, higher TER and lower historical returns).
Thanks for your comments on this!