What a strange year 2018 has been. First the market gave us a warning in the first quarter, quite violently, before rising very sharply during the second and third quarters. We can even say that the summer, usually very calm, saw prices soar and Trump boast.
During this period my portfolio behaved in a disparate manner. At first it held up much better than the market until May, before starting to decline slowly but surely, while the other stock indices, particularly in Switzerland and the United States, continued to climb to the top.
There are two reasons for this phenomenon. First, my portfolio held about 6% of emerging market stocks during the first part of the year. These stocks were the very first to suffer from the trade war initiated by the man with hair made golden by the urine of his Russian call girls. At the same time, Japanese small caps, one of the most important positions in my portfolio, also began to suffer.
My portfolio therefore performed poorly during the summer, while the Swiss and American markets continued to climb. This phenomenon had the merit of forcing me to exit several positions very quickly during this year 2018, following my strategy trailing stop loss. Since there was nothing else interesting to buy, I was forced to stay in cash. My performance at that time of year was nevertheless poor compared to the Swiss and US indices, but better than the European ones.
On the other hand, these "forced" sales allowed me to better anticipate what was going to happen during the last quarter, and especially during the last month of 2018. Thanks to a cash portion that climbed to 50% of the portfolio, I only lost 2% in December, while the Swiss SPI index fell by 7,54%.
In the end, despite a bad mid-year period, my portfolio fell by 8.13% in 2018, doing slightly better than the SPI (-8.57%), with significantly less volatility. Above all, as I firmly believe that this decline is only just beginning, I feel better prepared than the market to face this year 2019. Since the portfolio was launched in 2010, this gives me an average annual performance of 9.4%, compared to 6.4% for the SPI.
As of 31.12.2018, my portfolio only has 24 positions, which is very few compared to what it had at one point. The remaining stocks are mostly defensive in nature and are therefore well equipped to weather the crisis.
| Name | Symbol |
| Allianz SE | ALV:FRA |
| Cantonal Bank of Valais | WKBN:SWX |
| Bridgestone Corp | BGT:MUN |
| Broadcasting System of Niigata Inc | 9408:TYO |
| BVZ Holding AG | BVZN:SWX |
| Daiichi Co Ltd | 7643:TYO |
| Delong Holdings Ltd | BQO:SES |
| EVRAZ plc | EVR:LSE |
| Fenwal Controls of Japan Ltd | 6870:TYO |
| Hagihara Industries Inc | 7856:TYO |
| Hormel Foods Body | HRL:NYQ |
| Kathmandu Holdings Ltd | KMD:NZC |
| Mitani Corp | 8066:TYO |
| Otec Corp | 1736:TYO |
| Rasa Corp | 3023:TYO |
| Shizuoka Gas Co Ltd | 9543:TYO |
| Sumiken Mitsui Road Co Ltd | 1776:TYO |
| Swiss Life Holding AG | SLHN:VTX |
| Toronto-Dominion Bank | TD:TOR |
| UBS ETF (CH) – Gold (CHF) hedged (CHF) A-dis | AUCHAH:SWX:CHF |
| UBS ETF (CH) – SXI Real Estate® (CHF) A-dis | SRFCHA:SWX:CHF |
| UBS Group AG | UBSG:VTX |
| Valiant Holding AG | VATN:SWX |
| Wakachiku Construction Co Ltd | 1888:TYO |
In 2018, I received CHF 14,230 in net dividends, which is paradoxically my best year, far ahead of 2017 (CHF 6,170) and 2016 (CHF 6,781).
The importance of the dividends generated in 2018 can be explained by several reasons. First of all, the stocks in which I have been invested since the beginning of last year are particularly undervalued and therefore pay a very generous yield. Secondly, during the first part of 2018, my portfolio was still heavily invested in stocks, with a low proportion of cash. Since most of the stocks concerned were located in Switzerland, Europe and Japan, the dividend was paid during the first half of the year, when I was still invested. In 2017, however, I had a lot of cash due to a reallocation of resources from overvalued US stocks to overvalued European and Japanese stocks.
So I am now a third of the way to financial independence, with the rest of my income coming from real estate. This is a big leap forward. There will certainly be a step backwards in 2019 because of the large share of cash. However, this is only a step backwards to jump better, because all this cash will allow me in the near future to reinvest massively and at a good price in quality dividend-paying stocks.
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I love your pen!
"the man with hair golden from the urine of his Russian call girls" hahaha
😉
14,230 CHF in dividends, a magnificent annuity, especially when you think that it will be paid to you for life without having to lift a finger! Continue this beautiful journey, freedom awaits you at the end of the road 🙂
A few more years and youhou! 🙂
14,230 CHF in dividends is really good but it leaves me perplexed. With an average yield of 5% that means you have about 280,000 CHF invested. If you put them in real estate with an ROI of about 15% they would bring you back around 42,000 CHF per year. Why not change your approach, especially since it is more stable and less sensitive to the whims of the man with the piss hair 🙂
Hello Jerome
Happy New Year to you and the entire forum. Congratulations on your journey….
Sebastien, do you have 15 % in real estate in Switzerland? It's very far from what we have in France and it must be great and a great complement to financial dividends...
Good day to all.
Best regards
Antonio
Thank you. No, in Switzerland it is no different than in France. Real estate brings in an average of 5 to 6 % of total return per year. Of course you can make more on a good deal, just as it is possible to make even more on the stock market.
The stock market, for its part, reports 9 to 10% in nominal terms and 7 to 8% in real terms.
As for me, I am invested in stocks, in physical real estate and in real estate securities. Just to diversify.
The advantage of real estate is that it offers a better current yield. On the contrary, increasing dividends offer a better future yield (yield on purchase cost), because dividends increase by 10% per year.
Good morning,
I allow myself to react again. When I speak of 15% of return, I mean ROI (return on invested capital). For example, this week I went to the notary to sign a deed for a studio.
Selling price 185K
Invested capital 32K
Monthly cash flow (rent – charges – loan repayment) 450 CHF (5400 per year)
Which makes an RCI (5400 / 32000) of 16.8%. And it also progresses each year due to depreciation.
In France I am sure you can do even better with your 110% loans where you don't even have any funds to invest or very very little, and you get a positive cash flow.
But good strategy Jerome, I am positioned a bit like you but in the other direction, I have about 90% in real estate and each month I invest the real estate gains in stocks with high dividends and monthly payments until I have enough to reinvest in real estate as quickly as possible. This allows me to already be 50% of the way to my financial independence in 3 years
Good evening Jerome
Thanks for the answer but I suspected that it could not be the rule to have 15 % because it would be known. Growing dividends are indeed more interesting and I checked it with scpi whose rents fall or stagnate over 10 years unlike dividends which increase…
I even have BRK.B which does not give dividends but that suits me because progressing at the same rate as Warren Buffet is very pleasant. I said at the same rate and not same amount... I'm joking.
I think that the period is a little turbulent but if you have time in front of you there is no rush... sorry... but I dared...
Good luck. Best regards
Antonio
In Switzerland, banks never lend more than 20% of the purchase price, the maximum loan being correspondingly 80%. In addition, if the purchase price is higher than the bank's valuation of the property, the bank does not lend more than 20% of this valuation. Since real estate prices are rather high, this 20% represents a contribution that is not negligible and makes possible diversification (by purchasing several properties) more difficult than in the case of shares. For a purchase of shares, one cannot generally resort to borrowing.
When buying real estate, the buyer must pay, in addition to the sale price, notary fees and land registry fees and a transfer tax (this tax is 3.3 % in the canton of Vaud); (there is also a stamp duty and fees in the case of the purchase of shares). The seller must pay, in the cantons that provide for it, such as the canton of Vaud, a tax on real estate gains, which will depend on the length of time the property was held (the longer the property was held, the lower the rate will be; the years in which the property was personally occupied count double). (There is no tax on capital gains when reselling a share).
A property generates maintenance costs (in particular PPE charges). There are also some taxes, such as property tax. A share generates custody fees at the bank.
Real estate requires "tenant management" (you can do well or badly). There is no tenant to manage for an action.
The rent of a property is known in advance. The dividend of a stock is not known in advance.
For real estate, there is a risk of vacancy in the rental. For a share, it is the company that decides whether it gives an income (dividend) or not.
There is a risk of default by the tenant of a property; of course, he will have to pay eventually unless he is insolvent. There is virtually no risk of default on a dividend, as long as the company has decided to award it.
Currently, mortgage interest rates are historically low. You can therefore borrow cheaply, by locking in the rate for several years if necessary. These rates can only go up and they will inevitably go up, sooner or later; you must therefore ensure that the financial transaction is still sound in the event of a rate increase, especially since such an increase is at the same time likely to cause the property to lose value in the event of a resale. With stocks, you don't have to worry about interest rates.
The real estate market is rather high, interesting objects for investment are not legion or interest many people, so it is not easy to buy at a suitable price, allowing a correct return. Added to this is the fact that rents are not completely free, the law of the lease allowing the tenant to contest an "abusive" rent ("which allows the lessor to obtain an excessive return on the rented thing or when they result from a clearly exaggerated purchase price"). Afterwards, the whole question is to know what is considered excessive; I do not know. For shares, it is a bit the same thing: the market is currently rather high which implies a lower return; on the other hand, there is no question of abusive return, but it is true that it is the company which alone decides the amount of the dividend.
Real estate is certainly tangible, but its value is also subject to variation, although probably to a lesser extent than for shares.
Real estate is less liquid than stocks.
To resell a rented property (or empty but last rented) of less than 150 m2 in the canton of Vaud, it is in principle necessary to request authorization from the State, which will be given if there is no shortage on the rental market, if the building was put in the form of PPE before 07.10.1989, if it is the tenant who buys, or if circumstances require it; the authorization may be subject to the condition of maintaining the accommodation on the rental market and there may be a control of the sale price. To sell a share, however, there is no authorization to request.
Fiscally, in addition to what has been indicated above, the income (rent) of the real estate is taxed as income, its value (80% of the tax value) is taxed as wealth, and any capital gain on resale is taxed as real estate gain. In comparison, stock dividends are taxed as income, the value of the shares on December 31 is taxed as wealth, but any capital gain on resale is not taxed.
In France, the situation is, to my knowledge, a little (or even very) different on certain points.
Thank you Laurent for this enlightened and very complete comment. I would add the following comment for my part:
Indeed, it is possible to benefit from the leverage effect thanks to low interest rates, and therefore to obtain a nice return on the capital invested.
Real estate being less capricious than the stock market, borrowing to increase its performance can be interesting. Some also do it on the stock market (it is possible for example with Interactive Brokers) or on the currency market, but for me we are entering the purely speculative domain.
Be careful though, just because it's less risky with real estate doesn't mean you can't also lose some feathers there.
You have to be particularly vigilant about the price and quality of the goods you buy. In addition, you are in any case subject to the law of supply and demand.
We do not know what will happen during the time between the purchase and the sale. The market can turn around. Not to mention that the accommodations can remain vacant, due to a lack of tenants.
The Swiss market has been experiencing rental difficulties in some cities for several months now, due to an oversupply. This could also extend to sales one day or another.
We also had our real estate crises in Switzerland before the 2000s, even if we never fell as low as the Americans in 2008.
It is therefore essential that the quality/price ratio when purchasing is the best possible. This is the only parameter that can really be controlled (as in the stock market, by the way).
So yes, you can get very good profitability this way, but it is not an absolute rule. Moreover, it requires special skills. It is certainly very different from acquiring shares.
Above all, it is not the same to buy one or two properties, in which you will live, even if it is to resell or re-let them later, than to buy a few to make a profit, which you will have to administer in the process, if you do not go through a management company (which deducts 5% on rentals). The whole process of buying/renting/selling is tedious and takes a lot of time. Notary, tenants, work, maintenance, advertisements, etc. it is quite heavy to manage. I speak from experience.
As for me, I don't have the skills and time necessary to follow real estate properties in a "pro" way. However, I have one, my old apartment, which brings me rental income that allows me, like Sébastien, to buy back shares.
It's true that it was an excellent investment, but I wouldn't see myself following it further. After all, beyond time and skills, it's also a question of taste! I like the liquid side of stocks, it fits with my independent side. With real estate, on the contrary, I feel more 'captive', because I depend on many interlocutors.
Thanks to Jérôme and Laurent for these detailed answers on real estate which allow us to get a good idea of the advantages and disadvantages in real estate.
I have a profile that is more oriented towards stocks than real estate because I also like the freedom of being able to go out whenever I want and I don't necessarily have the skills to manage real estate directly.
What is good about you, compared to us, is that you are not taxed on capital gains on shares and that seems to me to be a very important advantage in the long term.
friendly
Martins
In the middle of studying RP, I'm adding some information:
Unlike our neighbors, in Switzerland you are only required to repay 1/3 of the purchase price within the first 15 years or before retirement age.
With the 20% minimum contribution, you have 13% of the purchase price left to repay. (Achievable with a deductible Life Insurance)
For the remaining 2/3 you can pay only the interest on your mortgage (with current rates...) and "reserve" the amortization for other investments, or deduct your debt according to your situation/will, evolution...
In a canton like GE, ZH, VD, where rents are prohibitive, buying your RP becomes a way to be able to save more to invest, because the purchase "will cost approx. 30%" less than rent.
Please note, I am talking about RP and not rental investment, I cannot tell you if these figures are compatible for the two situations.
I add two important elements that I had omitted in my message above:
1) Equity can be financed by half - at most and up to 10% of the purchase price - through occupational pension plans (LPP); note: this possibility is only offered for the main residence, as an incentive to purchase a home; it remains to be seen whether it is a good idea to use your LPP for those who have the choice not to do so.
2) In order to lend, the bank requires, in addition to a minimum of 20% of equity, that the cost of the mortgage (debt service per 1%, plus repayment of the capital per 1%, plus maintenance costs per 1%, i.e. 7% in total, which is considered a historical average of the cost of a mortgage) does not exceed one third of the borrower's gross annual income. Example: to buy a property for CHF 1,000,000, you must bring at least CHF 200,000 of equity (if it is for a main residence, you can bring CHF 100,000 of savings and CHF 100,000 of LPP); if the loan is for CHF 800,000.-, the borrower (or borrowers, for example if it is a couple) must have a total gross annual income of CHF 168,000.- (7% of CHF 800,000.- equals CHF 56,000.-, a sum which is one third of CHF 168,000.-). And if one wishes to acquire several properties, for example for investment, this limitation must be applied to all loans, which obviously makes it difficult to multiply acquisitions.
This may sound harsh, but in reality, if it serves to protect the bank, it also protects the borrower.
Today, mortgage rates are low. But the day they go back up and borrowers have to renegotiate the extension of their mortgages when they come due, it will hurt, especially for those who have not taken the care to amortize gradually or to make reserves in anticipation of an amortization at the maturity of the mortgage.
Well. You are real estate encyclopedias 😉
I would like to add another point that is unknown to many people in Switzerland. It is very practical when you want to take a very early retirement, and incidentally, like me, you have no respect for pension funds.
When you buy a property as your main residence, you have the right to use your LPP either to build up your own funds when you buy it or to pay off (part of) the debt. When this is done, a note is entered in the land registry, so that if you sell your main residence, you are required to put the money invested back into your pension fund. Obviously, this is what you are trying to avoid. The only solution to keep your money out of this charade is not to sell the property, but to rent it out. You have every right to do this. In this way, you receive an annuity indirectly from your LPP decades before the official retirement age! Not to mention that the return obtained is much higher than that of occupational pension provision. If that's not great, what is…
I read somewhere in a forum that if you place your LPP in a vested benefits account (find out about the terms, unemployment, self-employed, etc.) you don't have to return the money... obviously that would work for early retirement or self-employment...
You may be talking about the dividinde article…
https://www.dividendes.ch/2018/09/comment-faire-le-jour-ou-il-ne-sera-plus-possible-de-retirer-son-2e-pilier-sous-forme-de-capital/
Yes, you don't need to put it back into a pension fund for the simple reason that this account is, as its name indicates, blocked... Up to 5 years before the official retirement age, i.e. 60 years for men.
And the interest rates on these accounts are miserable.
As dividinde said, this is of interest especially from a tax point of view for a retirement that is ultimately just a little early.
And to put the money on a free passage you have to change employer...
Good morning,
Your exchanges are very interesting. As a French person (border worker 74, working and living in France), I have a few questions to understand you better:
a) what you call the LPP, is it not what is called "the second pillar" and if it is the case, does it not amount to consuming your retirement rights to buy your main residence?
b) I was told that in Switzerland, you can borrow over 99 years, thus carrying over the debt to your children and grandchildren, is this true?
Finally, a personal reflection: for GE or VD, it is always extremely interesting to go through customs to buy in France. To the great misfortune of the French who work in France by the way. But if we consider the ever-increasing hassle of cross-border travel, we can wonder if expatriation will continue in the years to come...
Hi Patrick, fondue thief 🙂
Yes, the LPP is the second pillar. Consuming the rights at retirement age is possible by buying real estate. It is still possible for the moment because you can withdraw all or part of your capital assets rather than receiving the annuity (but the government would like to suspend this possibility because there are too many retirees who are fooling around with this money and end up broke). Nevertheless, the goal of the vast majority of people on this site is to take advantage of it much earlier. You can take early retirement in the eyes of the LPP at the earliest at age 58 (63 for the AVS). Needless to say, as far as I am concerned, I am not going to wait until then. Especially since the profitability of the 2nd pillar account is miserable (minimum interest rate of 1% currently, and there is pressure to lower it to 0.75%). So we might as well try to get this money that is being stolen from us out of our salary by all means possible and try to invest it in real estate, thanks to the incentive to purchase a main residence provided for in the LPP.
Concerning the depreciation, the minimum is actually only 1% per year. The banks are in fact in no hurry to give up their precious interests 🙂 So it is possible to "transfer" one's debts to one's descendants (who still inherit the property with them). And at worst they can always refuse the inheritance 🙂
What a fantastic start to the year! The green candles are coming one after the other and in 2 weeks I have practically wiped out all my losses from the end of 2018. This rebound is as powerful as it is unexpected and I must say that even a bull like me is starting to find this rise suspicious. I am almost starting to have bear ideas and I am wondering more and more if I should not take advantage of this improvement to pocket some gains…
I will follow the next sessions with a lynx's gaze and a weasel's distrust, because after all, you shouldn't sell the bull's skin before killing the bear. Mmmmh, this sentence really doesn't mean anything, but I understand myself (apparently that's what all the patients in asylums say...). 🙂
Suspicious increase as you say! We typically find there the big volatilities characteristic of bear markets.
I hope I'm wrong (although) but I believe that we are only seeing short-term movements, stock picking, while the underlying negative trend is well underway...