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Invest below CHF 100,000 in Switzerland, with Alexander Hübner from LeBijou

Invest below CHF 100,000 in Switzerland, with Alexander Hübner from LeBijou

Author | Source

Alexander Hübner – Le Bijou

Topic

Investments

Invest under 100,000 in Switzerland:
Overview of Returns & Risks

 

Overview of the best investment opportunities: Where to invest and how to obtain the best return on investments between 50,000 and 100,000 Swiss francs.  

 

A professional and up-to-date overview of investment opportunities in Switzerland. Analysis of the advantages and disadvantages of the most popular investment opportunities by one of Switzerland’s “Top 5” entrepreneurs in the service sector (according to the Swiss Economic Forum), Mr Alexander Hübner, CEO of Le Bijou.

 

It is not easy to be an investor. As soon as you have earned a more or less considerable sum, you immediately belong to the wealth club with its wealth problems: The search for opportunities to increase your wealth.

Keeping it in your bank account is probably the worst thing you can do with your wealth. Apart from spending it on useless things. It is probably the case that you quickly realize that there are not so many attractive investment opportunities. The super-rich have learned how to turn millions into billions without needing your relatively small resources. The poor can’t help you either. The most fruitful offers are not yet available because the entry threshold is too high and the available options are rather disappointing. That’s why rich families are constantly searching and fighting for the best deals in the world. Some bankers travel 300 days a year in search of great investment projects.

To support small and mid-sized investors on their difficult path, Mr. Hübner has compiled a brief overview of investment opportunities in Switzerland. He has spent the last 11 years investing in Swiss assets and now hopes to provide insight with his advice on his view of efficient investing..

 

Short summary:

 

 

CHF Bonds

Yield: : -0.8% to 0.7% (2018) for various bond types; real estate bonds up to 3%.

Risk:Bonds are generally regarded as the safest investment option

 

Swiss stocks

Yield:strongly fluctuating; Swiss index funds (close to “average” market yields) show between 0.37% and 1.32% annual yield

Risk: The selection of individual shares is not recommended for non-professional investors.

 

Hedge funds

Yield:broadly diversified, unpredictable

Risk:not to be recommended, as the performance of most funds is worse than the average market performance in the long term.

 

Direct Swiss real estate investments

Yield: 2% to 4% p.a.; 10% and higher for luxury properties

Risk:Demand may depend on nearby factories and offices of large companies.

 

Real estate crowdfunding (crowd-financing)

Yield:6% to 17% p.a.; Best luxury properties can yield up to 20% if correctly structured

Risk: demand may depend on nearby factories and offices of large companies

 

Bank deposits

Yield:-0.5% to 0.5% p.a.

Risk:There is no collateral that the bank can provide to an investor (investor protection up to CHF 100,000).

 

Robo advisors

Yield:broadly diversified, unpredictable

Risk: Depending on the provider and its approach

 

Asset Management: Top Family & Multifamily Offices in Switzerland

Yield:No information, as wealth management firms normally create individual portfolios for investors that may consist of instruments other than those discussed in this article.

Risk: poor management and/or wrong incentives for managers

 

Invest in Gold

Yield:No information, the yield only comes from the price change of gold. This is unpredictable.

Risk: The price is unpredictable.

 

Investing 100k in Switzerland

 

Most common types of investment. Best investment opportunities in Switzerland

Currently, there is a wide range of investment opportunities. The key to a successful portfolio lies in a careful and thoughtful decision-making process that best fits your investment objectives, capital, investment duration and potential risks. The following list of key investment types can help.

 

Der Anlagemarkt

 

Investing in bonds

Yield: -0.8% to 0.7% (2018) for various bond types; real estate bonds up to 3%.

Risk: Bonds are generally considered to be the safest investment option.

A bond is a fixed-interest security in which a company borrows money from investors for a certain period of time. An annual fixed or variable interest rate is paid and the investment amount is repaid at the end of the term.

 

Features of bonds

  • Bonds are usually issued by a company or government for a project or a specific purpose
  • Bonds can be traded on exchanges or off-exchange
  • The parties involved are referred to as the issuer and creditor.
  • The majority of the Bonds are referred to as “Bond Capital”, which is repaid at a contractually agreed interest rate on the Maturity Date.
  • Bonds are issued at face value (e.g. USD 100 or CHF 1000), which is referred to as “par”. The interest payment is calculated on the basis of the nominal value.
  • Coupon dates are fixed dates on which the issuer pays interest to the investor until the maturity date. Interest payments are usually made on an annual or semi-annual basis.
  • In contrast to the shareholder, the creditor has no ownership rights from the possession of bonds.

 

Advantages

  • Low Risk – Bonds are one of the safest and statistically risk poorest investment methods
  • Bond creditors’ claims are preferred over shareholders’ claims – In the event of bankruptcy, bonds are paid out first
  • Lots and lots of available information on municipal and government bonds in the form of economic outlooks and ratings.

 

Disadvantages

  • Low returns due to the high level of security
  • Brokerage and custody fees can “eat up” the entire yield. They must therefore be taken into account when making investment decisions and selecting brokers.

 

Swiss bonds

Many of the major banks offer bonds as part of their service. It is therefore important to compare the fees for your investment criteria. The comparison of fees by moneyland.ch is invaluable in this respect. All major banks can trade bonds. Here are some of the most innovative and reliable for you:

 

Swiss real estate bonds

Some companies offer real estate bonds that yield up to 3% per annum, while minimizing the risk as your investment is secured by real estate.

 

Additional information on bonds:

 

Schweizer Staatsanleihen: Zinskurve

 

  1. Investing in equities

Yield: very volatile; Swiss index funds (close to “average” market yields) show between 0.37% and 1.32% annual yield

Risk:The selection of individual shares is not recommended for non-professional investors. When buying shares, the investor becomes a shareholder of a company. He owns shares in the assets and profits. He also has voting rights.

 

Characteristics of shares

  • Investors are referred to as shareholders
  • Ordinary shares grant the holder voting rights and dividends on the profits as well as ownership rights to a share of the enterprise
  • Preference shares grant the investor higher dividends and ownership rights. But no voting rights
  • Stockbrokers are usually licensed professionals who are authorized to buy and sell shares on stock exchanges.
  • Shares can be traded on stock exchanges or off-exchange. It is difficult to predict future prices as information about future profits is not available.
  • As with bonds, there is a primary and a secondary market for equities. The primary market is for shares first issued by the company on the stock exchange in the course of an initial public offering, the secondary market is for securities usually traded on the stock exchange, from buyer to seller..

 

How to trade stocks successfully?

There is no simple answer. One fact you might want to consider is that most professional fund managers cannot beat the market (studies confirm that 95% of US equity funds outperformed the index). If professionals can’t beat the market, why should you beat the market?

If you’re a normal investor and don’t think you’re the next investment genius like Ray Dalio or Warren Buffet, don’t choose individual stocks. Invest in whole markets with index funds. Below are their advantages and disadvantages.

 

Advantages of passive equity investments with index funds

  • If you invest in index funds (not individual stocks), you will almost always do better than if you held cash. If you consider the stock market in the US, there were only 4 short periods, big crises, where you would have made more money in the long run if you had stayed in cash.

 

Disadvantages

  • Since the economy moves in cycles and there is always a bear market after a bull market, even index funds (investments in the overall market) can temporarily lose value.
  • Possibly no return at all or even loss if one or more companies go bankrupt

 

 

Investing in Swiss equities

Whether Swiss ETF’s, ADR’s or direct equity investments on one of the two stock exchanges, Switzerland is still one of the most trustworthy investment locations on the investment horizon. Switzerland welcomes both domestic and foreign capital. Foreign direct investment amounted to over USD 1 billion in 2017.

Helpful sources on equity investments in Switzerland:

 

Aktienfonds geschlagen von dessen Benchmark, Quelle: AEI

Equity fund outperformed by its benchmark, source: AEI

(No data on Switzerland, but no reason to assume it would be different here)

 

Swiss Market Index

Swiss stock market index SMI – probably the safest option for long-term equity investments. 1-year yield at the time of publication: 1.42% (Bloomberg)

 

 

  1. Hedge fund investments in Switzerland

Yield: widely diversified, unpredictable

Risk:not to be recommended, as the performance of most funds is worse than the average market performance in the long term.

 

Since this article focuses primarily on investment amounts below 100,000, hedge funds are automatically excluded from the spectrum. These usually require a minimum investment of 500,000. To name a few famous names – Soros Fund Management from the famous George Soros. Or the Axe Capital from the success series “Billions”.

Again, statistics prove that most hedge funds cannot beat the market in the long run. There are a few exceptions that have consistently beaten the market, such as Ray Dalio Bridgewater Associates and George Soros. 100,000 is definitely not enough to invest in one of these funds. Some even do not accept new money at all.

Before you invest in a hedge fund (which we would not recommend), you should consider the following: In 2008, Warren Buffet bet $1 million that a basket of hedge funds could not beat the S&P 500 in a 10-year investment period. In 2018 it won. gewann er.

 

Buffet’s bet against hedge funds: link

 

  1. Direct Swiss real estate investments

Yield: 2% to 4% p.a.; 10% and higher for luxury properties

Risk: demand may depend on nearby factories and offices of large companies

 

Real estate investments are regarded as the cornerstone of asset accumulation. But when it comes to the Swiss real estate market, the most lucrative offers for investors who cannot put at least one million on the table are excluded. The cost of buying a property or an apartment in a city like Zurich starts at CHF 600,000. From Mr. Hübner’s 20 years of experience in real estate investments, he can say that the best returns are achieved for properties in prime locations at prices ranging from CHF 2 – 4 million. You can achieve double digit returns if the business has been properly structured and you have the expertise to manage the property well. There are other ways to further increase profits, such as long-term leasing. Owners are often willing to give up to 30% off if the property is rented for 20 years as they can transfer the vacancy risk to the lessee. Unfortunately, for many it is not an option to invest a few million in a property. Prices in rural and suburban areas are more affordable for beginners, but rents are also lower, which does not make this option more attractive given the risks involved.

 

Let’s look at this option in detail:

If you have at least CHF 100,000 to invest in real estate, you can leverage the money at a ratio of 1:4 with a mortgage so you can buy a 400,000 property. But even in this case, you have to buy a property far outside the city centre or in a rural area. In such areas, the rental demand for your property is highly dependent on the activity of nearby companies and factories whose workers can rent your home, or by immigrants who often look for cheap rental options.

You don’t bear these risks when you invest in quality luxury properties in downtown areas where there is always some demand – either through long-term or even short-term leases. Because every solid company is looking for housing in the most prestigious locations, they are not dependent on a particular market segment or individual companies.

 

Let’s take a closer look at the economic trends affecting real estate. The National Bank’s interest rates have been below 0.5% since 2010 and are currently negative. This means that mortgages have been attractive for a long time and many investors use them. The National Bank controls the economy by adjusting interest rates cyclically. When the interest rate rises, many investors can no longer pay the interest and are forced to sell the property. This means that prices will fall as the market faces a liquidity problem – too many people will have to sell their homes. If the value of your property falls (which is the value of the collateral), the bank may require you to check the interest rate accordingly. If you can’t pay the interest, you have to sell. Keep in mind that in the best case and in the best time you will achieve 2 – 4% returns per year. Assuming that your property is 100% occupied and the interest rate on your mortgage is below 1%.

 

Advantages of real estate investments:

  • Centrally located properties have stable and diversified demand
  • With the help of mortgages you can purchase a more expensive property

 

Disadvantages:

  • Increased risks when using high mortgages
  • The market in most regions of Switzerland is considered overheated
  • Most profitable properties in central locations are not available to an investor with an investment of CHF 100,000 or less.
  • The condition of the property deteriorates over time, which also depresses the price.
  • The entire management of the property and its tenants costs time and money.

 

Useful information on real estate investments in Switzerland:

 

Le Bijou Appartement

Some luxury apartments give up to 20% return on investment at

short-term rentals and the use of leased assets

 

  1. Real Estate Crowdfunding (Crowdinvesting)

Yield: 6% to 17% p.a.; Best luxury properties can yield up to 20% if correctly structured

Risk: demand may depend on nearby factories and offices of large companies

This is one of the few ways to be in the league of the ultra-rich with less than 100,000. Thanks to crowdfunding, several small investors can join forces to buy a property that you as an individual cannot afford. In the Swiss market, the Crowdhouse and Foxstone.ch platforms are the best known. These make real estate investments with less than 100,000 possible and profitable. The leading provider is definitely the former. Take a look at their valuations and decide for yourself whether this is a good choice for your specific investment requirements. The biggest disadvantage of using Crowdhouse is that they do not invest in luxury properties, but prefer smaller cities and suburbs. This means that its demand may decrease as the economic situation in the region changes. For example, if the property is located in a smaller city and the largest factory shuts down a significant part of its workforce, tenants will not be able to pay their rent. Office moves are also common, with tenants leaving their homes. Similarly, immigration is decreasing. One month of unpaid rent is likely to cost the entire annual return.

In contrast, the crowd finance model can generate double-digit profits in the luxury real estate market.

 

Advantages:

  • Low minimum investment to participate in this market.
  • Little effort after completion of the investment, as the properties are managed by the platforms

 

Disadvantages:

  • Rural and peri-urban areas are less attractive as investment objects because they use fewer demand opportunities.
  • Some platforms that use mortgages (including Crowdhouse.ch) make owners personally liable for the mortgage. This means that if the price of the building falls to the point where the bank loses its money, the owners are asked to use their personal assets to refinance the building.

 

Useful information on the crowdfinanced real estate market:

 

Crowdhouse Auswahl

Crowdhouse’s Selection and Returns

 

  1. Bank deposits

Yield: -0.5% to 0.5% p.a.

Risk: There is no collateral that the bank can provide to an investor (investor protection up to CHF 100,000).nicht viel über 0 hinaus.

 

Useful information on bank interest rates

 

Renditen von Sparkonti

Return on savings accounts, source Quelle (Calculated for CHF 100 over 10 years)

 

  1. Robo advisors

Gemäss StatistaAccording to Statista, assets under management in the newly created Robo Advisors niche will amount to $323 million in 2018 and will increase to $1287 million by 2022. In Switzerland, it is difficult for Robo-Advising to enter the market because of Swiss concerns about data protection and technology. To make a few comparisons; in Canada, ten times as much capital is managed by Robo-Advisors as in Switzerland. 27 times as much in the UK and 906 times more in the US..

 

What is a Robo Advisor?

Robo advisors are essentially online platforms that have automated wealth management. These mostly work with low-cost ETFs. Such platforms operate with minimal human intervention, but are increasingly being integrated into the routine processes of traditional wealth management institutions.

 

Best Swiss Robo Advisors

Die Switzerland has few Robo Advisors on the market: InvestGlass, TrueWealth, VZ Finanzportal. Die globale Szene wird von Wealthfront und Betterment dominiert.

(See also new emerging Swiss startups such as SpeedLab, which are involved in eAsset Management.)

 

Advantages of Robo-Advisors:

  • Unlimited learning capacity. No human brain can compete with the unlimited computing power of machines. It is only a matter of time and human input how quickly the AI will learn the right algorithms.
  • Comparatively effortless scaling of services to a large number of customers, resulting in lower risks and costs.

 

Disadvantages:

  • At first it is a bit frightening to ignore the “gut feeling” completely. The industry has been based on knowledge for centuries. For example, what algorithm would you create to estimate the impact of Elon Musk’s tweet on Tesla’s stock? In the end, robots are still programmed by humans.
  • Automation can lead to errors. These have to be improved step by step.

 

Useful information about Robo-Advisors:

 

  1. Asset Management: Top family & multifamily offices

Yield: Not reported as wealth management firms normally create individual portfolios for investors that may consist of instruments other than those covered in this article.

Yield: poor management and/or wrong incentives for managers

What is asset management?

Asset management is a full range of financial, accounting, insurance, real estate, advisory and tax services provided by both banks and individual companies / asset managers to wealthy families.

 

 

Characteristics of asset management

  • If a certain company is only concerned with the asset management of a family, it is referred to as a Family Office.
  • If the company extends its asset management services to a number of wealthy families, such a company is referred to as a Multi Family Office.
  • The range of services is extensive and includes real estate acquisition for a client, tax optimisation, bookkeeping, the purchase of bonds and shares, and concierge services.
  • The fees are charged to the customer depending on the services offered. These may include bank fees, advisory fees, management fees, investment product fees and even performance fees, which may amount to up to 20% of the profit made during the year.

 

Advantages of asset management:

  • Asset management companies generally benefit from access to private transactions that are not publicly available.
  • Tailor-made services whose adaptability is not nearly comparable to that of a bank or a fund

 

Disadvantages:

  • The entry threshold for such offers is usually at least one million
  • The costs for the complete offer are very high

For example, Zugerberg Finanz Finanz is one of the few that accepts 100,000 as an investment amount. Zurich-based Linvo AG AG requires at least 500,000. This is only a small amount for  Crossbridge Capital, a family office in Monaco with 3 billion assets under management.

 

Useful information on asset management

 

Example of a Family Office Offer, Source, Quelle

 

  1. Invest in Gold

Yield: No data, the yield comes only from the price change of gold. This is unpredictable.

Risk: The price is unpredictable.

For centuries, gold has been regarded as a good way of preserving prosperity, as its physical properties are complemented by a shiny appearance. Swiss politics and business are more welcome than gold investments and have created favourable conditions for this by exempting gold bars from VAT and customs duties. The biggest concern with gold investments is price volatility. The price of gold is fear-driven and volatile. If you do not have the time to understand and observe the underlying trends that affect the gold price, it is advisable not to invest a large portion of your assets in gold.

If you see investing in precious metals as a safe way to preserve and multiply your wealth, you may want to read the story of H.L. Hunt, once the world’s wealthiest man, who lost everything after speculating in silver in the 1970s.

 

Useful information about gold:

 

 

Goldpreis Chart

Gold price. Do you think gold is overpriced or not? Are you sure? – Source

 

 

Conclusion. Make a decision

We hope that this brief and rather pessimistic overview will give you a better understanding of what you can expect from investments in Switzerland. Among the most promising options are real estate investments in prime properties, asset management companies, index funds and bonds.
Once you know the different options and their advantages and disadvantages, it’s time to define what kind of returns you are targeting and what risk you can tolerate. You can then grow your assets according to your risk/return profile.