The best ETF Portfolio for Switzerland in 2023| Updated: |
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Before investing in the stock market, you will need to choose a portfolio. If you are in Switzerland, you will likely invest in index funds via Exchange Traded Funds (ETFs). For, this you will need to decide on a good ETF Portfolio for a Swiss investor.
Choosing a good portfolio is an important decision. You need to 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 go over 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 very 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 go over the ETFs that form the best ETF portfolios for Switzerland.
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 a lot of 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?
I think that between 20% and 40% should be allocated to a Swiss Stocks ETF. 10% is also 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% in the future, 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?
Unfortunately, Swiss bonds have been in negative territory for a long time now. And given the current situation, I do not believe they will become positive any time soon.
Therefore, I think it is not a good idea to invest in Swiss bonds at this time. You should not add Swiss Bonds to your ETF portfolio for Switzerland.
If the situation improves and bonds are back to yielding 1% or more, they may become interesting again.
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
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. It is not great, but it is much better than cash. 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 in that you cannot invest a limitless amount into it. 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 yet 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, so it is mostly a matter of preference. I prefer distributing funds so that I will get the cash once I need it in retirement. And this cash will also help me towards 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, keep in mind 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 have access to U.S. ETF or not.
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 0.08%
- 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, with my allocation of 20% to Swiss Stocks, this 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. ETF and you do not want to change, then go ahead and invest with European ETFs!
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 will need to 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? How does your portfolio look like?
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242 thoughts on “The best ETF Portfolio for Switzerland in 2023”
Have you ever considered covered call ETF’s for your portfolio? Those give you a mix of growth, as well as distributions in the range of 5 to 10% annual yield (typically writing monthly calls on shares held in the ETF). It may be a good approach in more volatile periods, and mitigates downsides through the attractive yield. Examples: JEPI, DIVO, BST, etc.
Those can be bought on SQ or IB.
I don’t really see the point in the long term, to be honest. I won’t change my strategy for volatile periods.
On top of that, if you get higher distributions, you will have to be higher taxes as well, so capital gains will be more tax-efficient.
I am curious as to why you chose VT instead of SPGM? Looking at this comparison, it would seem to me like SPGM would be slightly better: https://portfolioslab.com/tools/stock-comparison/SPGM/VT
The difference in performance between both ETF is really tiny. I would say it’s insignificant.
Both ETFs are investing similarly. For me, the main difference is that VT has 20B USD under management while SPGM has 400M USD. This means VT is 50 times larger, making it “slightly safer” and more liquid. Therefore, I would prefer VT. Also, VT has 0.02% lower fees, which could make it slightly better in the long term.
Thank you for your articles!
I have subscribed to Interactive Brokers and would like to buy the VOO ETF. However, I am afraid that given that the USD is extremely high now, any increase in the S&P500 (and the VOO) will be nullified by the possible decrease in value of the USD. How can I invest in the S&P500 and avoid this? Perhaps this ETF, which can be purchased in EUR: Amundi S&P 500 UCITS ETF EUR (C)?
There is no way to fully avoid the currency risk. If you invest in an American company, you are introducing this risk. And even investing in international companies like Nestle introduces you to this risk since Nestle itself is at risk.
Investing in the S&P 500 will give you that currency risk. And this ETF is no exception. It’s traded in EUR, but all the shares inside are in USD, and there is no hedging. If USD falls or climbs, the price in EUR will be adjusted.
The only way to avoid this currency risk is currency hedging.
Hello Mr Poor Swiss,
I bought my first ETFs shares this week. Thank you so much for your blog, it helped me tremendously to set my investment plan!
My desired allocation is 80% international exposure through an All world ETF, and 20% Swiss exposure through the same Swiss ETF you chose. However, as the All world ETF I chose had already 2% shares in Swiss companies, I invested 82% of my money in the All world ETF and 18% in the Swiss ETF. Do you think it makes sense? I am rethinking as I just read you were thinking to maybe increase up to 25% your Swiss allocation. Thank you!
Thanks for your kind words, and well done on starting to invest!
It does make sense to go 82/18, but it’s also a very small difference. I would recommend going 80/20 just for simplicity or 85/15. It’s not strictly necessary to have a home bias. In the big scheme, 80, 82 or 75 wont’ make a huge difference.
Ok great, thanks, it makes sense.
I hope you can help me!
I was wondering why you think it is better to invest in Vanguard Total World rather than S&P 500 Index?
Also, I was wondering where you can see the TER from the interactive broker platform, because I can’t find it.
It’s all about diversification.
For the tax situation as you describe it, is it necessary to be with an American provider? With a Swiss provider, 30% is deducted from me for a US ETF and I receive 15% from the FTA and another 15% could be reclaimed directly in the USA, with a lot of effort and with a corresponding amount. Or am I missing something? Thank you in advance. :)
I don’t believe it’s necessary, no. You could indeed claim it back from the US directly, but that would be very complicated.
What you want is a broker letting you fill out a W8-BEN form and reducing the withholding to 15%. I am not sure Swiss brokers fulfill these two criteria.
Thanks for the blog, really usefull to sart.
I understand that switzerland has an agreement with the US, so investing in VT makes senses as long as you leave in CH.
What happens if you decide to retire in an EU country, then all your VT are subject to the US estate tax ?
So you would need to rebalance your protfolio before leaving CH?
In other words, if you know that you are quite likely not to retire in CH, do you think VT is still the best option and would it make more sense to directly start investing with an EU based ETF such as vwrl?
That’s an excellent point. If you move outside of CH to a country without an estate tax treaty, you would be subject to the US estate tax if you die there.
You don’t need to rebalance before you move. You need to rebalance before you die (which is impossible to guess).
I would say it all depends on how long you stay in CH. If you are leaving in one year, then, use a non-US ETF. If you are going to move in 10 years, just switch ETFs before you leave Switzerland.
Thank you for your (as always)very interesting article.
Why did you chose VT instead FTSE all world like Mr Dror?what are the main differences?
Thank you very much
There is little difference:
* VT is from the US while Dror uses an ETF from Ireland
* VT has lower TER
* VT is more tax-efficient since it’s from the US, I have an article about that
* VT is larger
* It’s cheaper to buy ETFs on US markets than on EU markets
For me, this is enough to pick VT and optimize my portfolio
Thank you for sharing your knowledge. I would advise against investing in VT, a U.S. domiciled fund, for estate tax reasons. When you die, your ETF holdings are liable for US estate tax, charged at 40 per cent on sums above $60,000.
All the best
This article is not meant for Swiss people. This article does not apply to Swiss people:
1) Switzerland has an estate treaty with the US, meaning Swiss citizens are treated almost like US citizens for exemptions. In practice, this 60K limit is more than several million dollars for Swiss people. https://thepoorswiss.com/us-estate-tax-swiss-investors/#:~:text=So%20this%20means%20that%20if,are%20depending%20on%20your%20portfolio.
2) The withholding part is wrong as well. Because Switzerland has a tax treaty (yet another one), the dividends withheld by the US are also down to 15% on a US ETF, and on top of that, you can reclaim this 15% on your tax declaration. This is contrary to Irish ETFs where the 15% in US dividends are lost!
Thanks for letting me know about this article, but please don’t spread this article around in Switzerland, it just wont’ apply.
Thank you for the useful info!
I have one question about interactive brokers.
You mentioned that up to 100k the portfolio/capital is protected and above 100k isn’t, thus, how can we create a completely protected portfolio via IB or else?
All the best,
Actually, with IB, you are protected by SIPC, up to 500k (250k limit for cash).
If you want more protection, you will need to use several brokers, or accounts in different names.
keep in mind that this protection is not absolute. If such a huge broker as IB went to fail to the point of SIPC would be needed, we don’t know exactly what would happen.