Hello hello!
So you want to start investing but you don’t know what to invest in? I don’t blame you.
So I thought I’d do the exercise for you, using my profile, so that you can understand how I proceed.
To do this, I’m going to do the exercise with CHF 5,000 to invest, but the amount can be much smaller, e.g. CHF 200.
3-2-1, let’s get down to business!
Before investing, what you need to pay attention to
Firstly, before you invest, make sure you’re prepared to lose the money you invest.
This is really important!
Because you can’t be sure that the stock market won’t fall and you won’t make a fictitious loss on your investments. Why fictitious? Because as long as you don’t sell, you don’t lose anything.
The loss is only real when you sell below the price at which you would have bought a financial asset, for fear that it will fall further and not rise again.
But remember that there are cycles in the stock market and that, in general, when things fall, they rise again in the long term, even higher!
After that, there are special cases such as a new crypto that is a scam and disappears, or a company such as a tech firm that goes bankrupt (like FTX), causing you to lose your investments… But that’s very seldom.
Secondly, prevention is better than cure. So make sure you don’t need that invested money in the next 10 years.
So make sure you can invest this money without touching it for the next 10 to 20 years, and take a long-term view.
Thirdly, make sure you are psychologically strong enough not to sell anything even if your investment is 50% down over several years. Remember that as long as you don’t sell, you don’t lose anything. The loss is just fictitious 😉
Fourthly, don’t invest this money unless you’ve already set aside a safety fund in cash in a bank account that will enable you not to sell your stock market investment in the event of a setback (such as redundancy or an unexpected bill).
Fifthly, make sure that you are ready to invest a small amount each month or quarter, after this initial investment of CHF 5,000 (or less). This is known as DCA (dollars cost averaging).
Finally, make sure you have several years left before you retire. Ideally, you should make these investments before you’re 40, because on my blog and YouTube channel, I talk to you about long-term investment, 10-20 years!
With that in mind, we can get to the heart of the matter.
What would I invest in?
So, if I had to invest CHF 5,000 now, I’d go for a portfolio of index ETFs.
As a reminder, an ETF is a basket of shares that tracks the price of a stock market index. It allows me to pay fewer fees and reduces my risk by allowing me to diversify my investments.
I would choose a portfolio with three ETFs, of the ‘Boglehead’ type, so as not to have to spend more than 15 minutes a month on my investment platform.
The Boglehead strategy comes from a famous American named John C Jack Bogle. The best strategy according to John is BUY-AND-KEEP with a portfolio of 3 ETFs only.
So far, so simple.
But you don’t need just any ETF. According to John, you need:
- 1 international equity ETF for diversification
- 1 domestic currency equity ETF in case there is a currency problem for several years
- 1 domestic bond ETF for a margin of safety
According to his strategy, the percentage of bonds should represent our age, so for me, I’m 29, which means 29% in bonds, and the rest in equities, so still taking my case, that would give 71% in equities.
Then you have to work out what percentage to allocate to international equities and what percentage to domestic equities. A number of economic analysts say that if you’re a Swiss resident, you can put 3/4 in international equities and 1/4 in domestic equities.
Remember that you have to include your 2nd pillar assets in your bond allocation.
Now that you know the principle behind the Boglehead strategy, I’ll tell you which ETFs I’d choose for my portfolio!
Please note that my choice takes into account
ETF fees, which should be as low as possible
Yield, of course, as I want to make a capital gain
The size of the fund, which must be greater than CHF 500 million
The volume of the fund, which reflects its liquidity. The more liquid a fund is, the more certain you can be of selling quickly at a good price
If you want to analyse ETFs, you can use the justetf.com platform.
As I’ve been paying into the LPP since I was 20 and I’ve already built up my security fund in cash, I don’t need to invest in a bond ETF. But if that hadn’t been the case, I would have chosen the iShares Swiss Domestic Government Bond 3-7 (CH) ETF.
Why would I do that? Quite simply because it has a yield of 1-2%, fees of 0.15%, a fund volume of CHF 473 million and a decent daily trading volume.
Then, for my allocation to international equities, I would choose the Vanguard Total World Stock ETF (VT) which you can find on Interactive Broker, my current investment platform, which is American. You can find a link here if you want to open an account for your own investments. Or the global ETF VWRL if you prefer to use a European platform like DEGIRO.
You’ll also find a link here if you want to open an account with them.
Transparency first and foremost, you should know that if you use these links, you’re helping the blog and the channel, because as well as giving you an advantage in terms of fees, I also receive something.
Here are the reasons why I would choose this ETF. Firstly, it’s highly diversified, comprising 9518 companies, and high diversification means lower risk. It has an average return of 6.35%, fees of 0.14%, a good fund volume and a high monthly trading volume.
Finally, for my domestic equity allocation, I would choose the Swiss ETF UBS ETF (CH) SMIM (CHF) A-dis. It follows the Swiss stock market index called SMI and includes 30 medium-sized Swiss companies. It has a decent yield, fees of 0.25% and a fund volume of 1,285 million.
Those are the ETFs I’d invest in if I were starting out right now. And with the CHF 5,000, that would make an allocation of CHF 1,250 in domestic ETFs (1/4) and CHF 3,750 in international ETFs (3/4).
And if, as I said, I wanted to invest in a bond ETF, then the allocation would be CHF 1,450 in this bond ETF (as a reminder, this is my age in percentage terms, so I’m 29), CHF 887.5 in the domestic ETF (1/4 x 71% x CHF 5,000) and CHF 2,662.5 in the international ETF (3/4×71%x CHF 5,000).
Now, as explained, I’ve used my own case as an example, and this is absolutely not investment advice. I’m sharing my experience with you, not giving you investment advice. I would also like to remind you that investing in the stock market involves risks, so be careful with your wallet.
And remember one thing: the best time to start investing was yesterday. It is totally impossible to invest AT THE RIGHT TIME, hence the DCA investment technique.
That’s it for today’s article. Don’t hesitate to share your questions with me in the comments, and if you’re already investing, share your first investments with us.
Long live your first investments
