Rentier

[CARIBOU]

Hello everyone. I would first like to thank Jérôme for his site. I stumbled upon this site by chance, and I totally recognized myself in his experience of the stock market. Unfortunately I lost a substantial amount (100k) because of my inexperience, and because I was badly advised by friends / acquaintances. I had not diversified my investment in the stock market, and the company in which I had invested went bankrupt... Everything happened very quickly, and without a stop loss I lost a lot.

I am 44 years old and I am Canadian by origin, but now naturalized. I arrived in Switzerland 13 years ago with 2000 CHF in my pocket. I had a medium-paid job, and I had trouble saving up. With my girlfriend we had the audacity to buy an apartment in Geneva without really thinking too much.

I didn't like my job very much and I was working between 60-80 hours a week, and then I realized that it wasn't the life for me. As Jerome says so well, the RAT RACE became my daily life! I started looking for a new opportunity and I finally found one. After 10 years my salary tripled, and I work less.

I didn't want to invest in the stock market anymore, because this event had really cooled me down. Therefore I decided to get into real estate. I bought a 5-room apartment in Valais in a big city (3 times cheaper than in Geneva) that I have been renting for 4 years and 2 years ago I decided to buy a studio in Geneva (and yes at a high price). I am a real estate enthusiast, and I spend several hours there every week.

I decided to take advantage of the very low rates to lock in my mortgages for the next 5 years. Here is my strategy:

1) Make a maximum buyback in my work pension fund over the next 2 years. I am lucky, because I have a pension fund that will not pay an annuity, but only cash. So no conversion rate, and our fund is invested by a large Swiss bank. Return around 4.5% over the last few years. I have not found a better way to reduce taxes and earn as much

2) I also have a 2nd pension fund at work that we kept, but as Jérôme mentioned the yield is 1% on the Mandatory part, and on the super-mandatory part we are talking about 0.25%!!! What a laugh

3) For my part, the idea is to wait 3 years after my buyback and then I will withdraw all the money from my fund (super-mandatory part and the legal maximum of the mandatory part) to amortize my property in Geneva. Hence my 5-year planning on my mortgages

Basically my plan is to live off my 2 rental apartments. I also intend to depreciate as much as possible my 2 rental apartments, because I have the feeling that by then the rental value will be abolished.

Why I share my experience on real estate is that if we do it intelligently we can build a nice heritage. Indeed it is not without risk (risk of increase in mortgage rates, penalty if resale before term, etc.), but personally I think it is essential as an investment. As Jérôme said I consider a net return after tax of 3-4% as reasonable.

At 50 I will have 3 apartments practically paid for, and today I pay 1000 per month out of my own pocket for the 3. Incredible for someone who only had 2000 CHF when he arrived.

I decided to become a member on this site, because I like people's feedback, and I am curious by nature. I would like to diversify with dividends, but I am frankly afraid of it... Especially since I do not want to spend my life watching and analyzing the market.

Therefore I need some advice if anyone can guide me:

1) With 50,000, is it possible to open a trading account and take up to 5 positions max to have a dividend payment, and if so what kind of account?

2) What is the average return without taking too much risk, knowing that my objective is to buy and not follow the prices too much (I have neither the time nor the desire to spend hours, days on it)

3) I understand that some Swiss dividend payers are exempt from tax.

4) Is it better to go through a bank broker to get better guidance?

5) My goal is to diversify, and to have a long-term income

Thank you all for your advice, and don't hesitate to reach out for real estate.

Happy Sunday

 

[Jerome]

Hello Caribou

It’s always a pleasure to read from Quebec readers.

Congratulations on your career. You had a rocky start and you were able to bounce back. It also reminds me of my career, in terms of the stock market, real estate, professionally and privately.

I am also a supporter of real estate. Like you, I own several physical assets. I also have some in ETFs. I increasingly prefer the latter means of investing in property, because physical assets are not diversified enough for my taste. Management is also much heavier and more complicated, both administratively, fiscally and legally. In addition, with the profusion of new apartments that have arrived on the market, the vacancy rate is increasing. You are talking about Valais, I know this market very well. It is saturated from a rental point of view in several cities. Finding yourself for several months without rental income is frankly a more pleasant experience. In short, I prefer real estate ETFs, which are more diversified and require significantly less work. You can also get rid of them with a click of the mouse if necessary, unlike property.

Regarding your questions, you will find detailed answers in the tutorial, the forum and in my book. In short:

1) Yes of course. I suggest Postfinance, Degiro or Interactive Brokers.

2) The yield of a security is only the result of the fundamentals. This is what must be examined. A yield that is too high is generally a bad sign. A stock market investment brings you on average 10% per year in nominal, 7% in real.

3) yes, see: https://www.dividendes.ch/?s=dividendes+exon%C3%A9r%C3%A9s and also read the comments on these three articles

4) especially not

5) then you are in the right place, as indicated take the time to browse the site, there are more than ten years of thoughts on the subject 😉

 

[CARIBOU]

Hello Jérôme, thank you for your help and the link. Indeed, Valais is at risk in terms of rental. There is far too much construction. For my part, I bought it to probably live there in 5 years, and I touch wood for the moment it is still rented, but that can change quickly. This is why I chose to buy a more expensive studio in Geneva, but I rented it in 15 minutes. It is a choice for the long term, because a studio in the city will always be rented regardless of the real estate market, so a safe bet for a lifetime income I would say (even if there may be tenant problems and a fair amount of maintenance work). For the anecdote, I put the studio up for rent on anibis, and I received about 150 requests in 1 week! It's crazy in Geneva.

I'm ordering your book right now, and I'll probably need more advice.

Last question: is it illusory on my part to buy 5 solid stocks like BCV in the long term?

Good day

 

[Jerome]

Agree with you. A studio in a city, especially a big city like Geneva, will always be rented.

Thank you for your order!

I suggest you read my book before buying your shares. It will probably make you see things a little differently. It is difficult to answer your question simply. The market is currently very high, especially the big solid companies that you are looking for. It is also tricky to limit yourself to only five stocks. Even a big cap above all suspicion can reserve very bad surprises. I know something about it. For a portfolio up to 50,000 I recommend ETFs. From 50,000, I recommend mixing ETFs and stocks. But as I said, read my book first. It will become clearer.

[dividinde]

Welcome Caribou among the financial independence hunters 🙂

Your journey is very original and you were able to bounce back rather than follow the beaten path. I advise you to invest in the stock market in order to diversify your income and have a passive 100% income. It is not because you had a bad experience with the stock market that you should give up on it. On the contrary, take advantage of your mistakes to learn something from them and not repeat them.

Avoid at all costs going through a banker or other advisor who will just sell you his home products with indecent margins. If you really don't know anything about the stock market and don't want to take the time to get interested in it, place your 50k little by little on a few ETFs.

But I would rather advise you to do some research and buy individual stocks. You can thus aim for a dividend of 3 to 3.5% without taking too much risk, and which is well above what most ETFs distribute (there are ETFs focused on large dividends that distribute 4 or 5%, but they are of very poor quality!).

For about 2 years, a change in legislation has meant that there are almost no dividends that are completely tax-free. However, since this change in law, there are still many Swiss companies that distribute a dividend, of which 50% are tax-exempt.

Finally, with 50k I would buy much more than 5 positions. It is by far not diversified enough and you risk too much if 1 or 2 stocks do badly or remove their dividend. Aim for at least 10 positions at 5k each, and even then it is still not diversified enough!

For a buy and hold strategy, choose solid, non-cyclical companies and spread your purchases over several months or years.

I am currently building a "cushy" portfolio for my mother who is rather cautious about volatility and wants a stable average dividend of about 3.5% without risking losing all her money. Perhaps you can use this list as a starting point:

Nestle

Novartis

Rock

Galenica

Lindt

Barry Callebaut

Emmi

Geberit

Schindler

Cembra

SGS

Swisscom

BB Biotech

HBM

PSP

Allreal or Mobimo or Warteck

Intershop

Zurich

Swiss Life

Basel

Vaudoise Insurance

Cantonal Bank of Lucerne

Valais Cantonal Bank

Vaud Cantonal Bank

Glarus Cantonal Bank

EMS Chemistry

Givaudan

Belimo

Please note that all the stocks on this list are NOT buys at current prices. This is just the type of portfolio I want to build for him over several years, buying 1-2 new positions per month and each time choosing the stocks that seem to me to be most reasonably valued at that time.

[CARIBOU]

Hello Jerome, thank you! I will read your book and find out more. I had not planned to get back into the stock market, but I think it is a shame to let 50,000 CHF sit in an account.

THANKS

[CARIBOU]

Hello Dividende, thanks for your advice. Wow great list! I still have some basic questions:

 

1) Do companies pay dividends only once a year or over several periods?

2) How to know if dividends will be tax exempt

3) I understand that purchases should be spread over several months, but there will be fees for each transaction. How can I avoid paying too many fees? Jérôme recommends Postfinance

4) When I reach my 50,000 CHF of ETF or stock purchases there will be custody fees, because maybe I will wait a while before investing more. Same, is Postfinance good?

5) I guess you still have to put stop losses, I had read on the site that Jérôme was talking about 15% (or 25%…), but obviously it's not all clear to me. In fact I don't really like volatility, because it's too complicated to follow for me, because of the short time. Obviously I know it's not as easy as that to explain

 

THANKS

 

 

[Jerome]

I agree with everything my brother dividinde said.

– regarding your last question #3: if you want to pay low transaction fees, go to Degiro or Interactive Brokers. However, for buy & hold, the transaction fees are relatively low. Postfinance is not the best market from this point of view, on the other hand the custody fees are zero. Which answers your question #4. Dividinde will certainly also tell you to look at corner trade. I'll let him answer that subject 😉

– for question 5: if you do pure b&h, on large solid companies such as those provided for example in the dividend list, you do not necessarily need capital protection rules. It is an individual choice. Small clarification: the rule you mention (and that I apply) has nothing to do with the automatic stop loss orders that we set at our broker. It is a risk management rule to follow “manually”. Automatic orders are useful for traders, not for the type of approach used here.

 

 

[dividinde]

Indeed, if you want a Swiss broker, choose PostFinance or Cornertrader. For a foreign broker, IB or Degiro. PostFinance currently has an interesting special offer for new customers.

My most important advice: don't just look at brokerage fees but also custody fees, in the long term and with a portfolio of a certain size these are the ones that will cost you a lot!

But above all, do your research before rushing in (just like you did with real estate), otherwise things will go badly. Nowadays, you can find everything for free on the internet. You absolutely must know the basic information about the stock market, dividends, their taxation, the different sectors, etc. You must understand what you are doing and find the strategy that suits you, otherwise you will panic at the wrong time and dig your own grave. Don't repeat the same pattern that already cost you your big loss on the stock market!

For example, I invested with stop losses for a long time, before realizing that it did not suit my character and that it worsened my performance. If you invest 50k and place a stop order for example at 20% on all your positions, be aware that at the next crash all your positions will be liquidated at a loss. Is this really what you want? Do you know in advance when you will return to the market after selling?

For my part, I prefer to let all my positions "breathe" freely, but I know the risks, I accept that some stocks will lose 20 or 50%, temporarily or permanently. Others will gain tens or even hundreds of %. That's why diversification is so important and why 5 stocks are not enough. From 12 or 15 you already have a certain distribution of risks. Personally, I don't feel relaxed with less than 30-35 stocks.

[Jerome]

Again, I agree and I also aim for around 35 positions. Research has also proven that it is around 40 positions that we best reduce risks without compromising performance. If we deviate too much to the downside, the risk increases radically, particularly below 20. Conversely, if we deviate too much to the upside, transaction costs hamper performance, without providing marginal diversification. This is particularly the case beyond 50 positions.

[Jerome]

In addition to the size of your portfolio (50k), it is obvious that you should not directly target that many positions. That would make the lines too small and would cost you a lot in transactions. That is why, as dividinde said, you should gradually enter the market, especially since it is very expensive at the moment. You could mix ETFs on about half of the portfolio and treat yourself with stocks on the other half. The basic investment can be higher for an ETF than for a stock because of the diversification. We could imagine something in the order of 10k for an ETF and 5k for a position in a company's stock. This is an order of magnitude, to be adjusted according to your tastes and your propensity for risk.

But again: don't buy in one go...but rather gradually.

[CARIBOU]

Thanks for your advice. It all makes sense. Smooth out investments to create an average over time. Great to know that 40 stocks can reduce risk! I wouldn't have thought that so many were needed... I think a mix of ETFs and stocks could suit me to start. I'm going to educate myself on the subject, and will launch at the end of the year when I have reached my LPP buyback target...and yes, I'm not losing my primary goal :)!

Thanks again for answering my questions, because you can see everything on the Internet, but authentic blogs…especially in Switzerland! Top!

[Jerome]

With pleasure and good reading!

[CARIBOU]

Hello Jerome, I just need a few answers:

1) When you say not to buy in block I'm not sure I understand. For example if I find 1 ETF and I want to put 10,000, should I buy for example 10 times 1000 CHF over a period of 6 months? Or do you mean not to buy all the ETFs and stocks in the same period? I went to the Postfinance website, but I find the order fees very expensive for Switzerland, if we make 10 transactions at 1000 we already pay 250 CHF in order fees. So is it better to buy 1 time 10,000 CHF to save on order fees?

Example: 0-1000 CHF: 15 CHF

1000-5000 CHF: 25 chf

For abroad:

0-1000 Eur: 25 Euro

1000-5000 Eur: 35 euro

 

2) How do I know if the dividends paid are tax-exempt? Is there an indication on the website of the company selling the stock?

3) My goal is to be a rentier within 5-10 years, should I choose securities that pay dividends even if we are taxed directly on them because they are considered income?

4) How often should we check if our positions are good? Maybe I will become passionate, but basically I don't want to spend too much time on it because of my job, I have other things to do. I know that you have to be interested in it, it is the basis of any investment to succeed.

I'm afraid I'll have to spend a huge amount of time there, only to end up getting 3% or even taking losses. Right now I'm going back to my real estate ways, I'd rather invest in Foxstone for a quarterly Crowdfunding annuity with a net after-tax return of around 4%, and I wouldn't have anything to do.

Do you have any experience with this?

 

Thank you and have a nice day.

 

[Jerome]

Hi Caribou,

1) By "don't buy in bulk" I mean don't buy all your ETFs/stocks at once (all your cash). Stagger your purchases, one position at a time. The market is very high right now. You have time. Start by educating yourself, buy one ETF, wait a few weeks or even months and buy another ETF. It's already a good start. When you feel ready, move on to stocks.

2) I'll let dividinde answer this point, it's his specialty. In principle you should find the info on the letter to shareholders, but there may be an easier way than going through them all.

3) detailed answer on this point in my book. In any case, as already said, avoid large dividends, both from a financial and tax point of view.

4) It simply depends on your investment style and the time you can devote to it. If you don't want to bother at all, you stick to ETFs in b&h and you don't have to do anything (but that poses other problems that I won't discuss here, see my book for more information). For buy & hold stocks, a check of the annual financial statements is enough. To do this, you obviously need to know how to read them (start by reading The Intelligent Investor by Graham, it's a good start. There's also Security Analysis, but it's for a much more advanced level). See here for these books: https://www.dividendes.ch/lectures/). Afterwards you can also be a little more active, via an asset allocation portfolio, as I propose in the premium part. Since I do the work for you, it takes very little time. But you don't have the pleasure of doing it yourself 🙂

Regarding your last remark. I have no experience with crowdfunding, but it doesn't tempt me at all. Don't forget that the stock market offers an average annual return in nominal terms of 10%, 7% in real terms. See under readings the reference work by J. Siegel, "investing in long-term stocks". It's an excellent book. It is true, however, that the current potential for future valuation is considerably reduced given the height of the market. This is why you have to spread out your purchases... and buy cheap (even if it has become difficult).

 

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