Luxusimmobilien investieren Schweiz
12. October 2018

Investing under 100K in Switzerland: Returns & Risks Overview


Overview of top investment options: Where to invest money in Switzerland & how to get the best return on 50K – 100K CHF for foreign & domestic capital alike
. A professional take on the current status quo of the foreign investment opportunities in Switzerland, analysis of the pros & cons of the most popular investment methods by one of Switzerland top 5 entrepreneurs in the service sector (according to Swiss Economic Forum), Mr. Alexander Hubner, CEO of Le Bijou.

 

It’s not easy to be an investor. Should you earn some more or less significant money, you immediately join the elite club of people struggling with elite diseases: seeking out where to put their wealth to grow it.

Keeping cash is probably the worst thing you can do to your wealth, second only to spending it all for nothing. The chances are, though, that not long after you worn an investor’s hat you realized that there aren’t as many attractive investment options around. The super-rich learned how to turn millions to billions and don’t need your relatively small funds. The poor can’t help either. The most fruitful deals are not yet available to you, as the entry ticket is too high, and the available options are rather disappointing. That is exactly why rich families and their offices are constantly seeking out and fighting over best deals all over the world; some bankers travel 300 days a year, looking for great investment projects.

To assist mid-sized and retail investors on their difficult path, I put together a brief overview of investment options in Switzerland. I spent the last 11 years investing in Swiss assets, and I hope this advice will help you put your money to work with more efficiency.

 

Quick summary (jump to section):

 

1. Swiss bonds
Returns: -0.8% to 0.7% (2018) for different bond types; real estate bonds yield up to 3%
Risks: bonds are widely considered as the safest investment option

2. Swiss stocks
Returns: vary widely; Swiss index funds (close to “average” market returns) show between 0.37% and 1.32% annual returns
Risks: picking individual stocks is highly not recommended for non-professional traders

3. Hedge funds
Returns: vary widely, not predictable
Risks: highly not recommended, as most funds performance is worse than the average market performance in the long run

4. Direct real estate investments in Switzerland
Returns: 2% to 4% p.a. for mid-market; 10% and higher for luxury properties
Risks: the demand can be dependent on nearby factories and offices of big companies

5. Real estate crowd-financing
Returns: 6% to 17% p.a; best luxury properties can yield up to 20% when structured right
Risks: the demand can be dependent on nearby factories and offices of big companies

6. Bank deposits in Switzerland
Returns: -0.5% to 0.5% p.a.
Risks: there is no collateral that the bank can provide an investor with

7. Robo advisors
Returns: vary widely, not predictable
Risks: specific to the platform and the approach

8. Wealth Management: top family & multifamily offices in Switzerland
Returns: N/A, as usually wealth management companies create custom portfolios for investors that consist of other instruments, covered or not covered in this article
Risks: bad management and/or wrong incentives of the manager

9. Investing in Gold in Switzerland
Returns: N/A, as the only returns that can be made come from the changes in gold’s price, what is unpredictable
Risks: the price is unpredictable

 

Luxusimmobilien investieren Schweiz

 

Major types of investment. Best investment options in Switzerland

 

There currently exist quite an array of options as far as investment is concerned and the key to a successful portfolio lies in the careful and thoughtful decisions making process, that fits best your investment goals, capital, timeframe and potential risks. Below break down of the major types of investment may come handy.

 

Switzerland Real Estate Investiments

 

1. Investing in bonds

Returns: vary from -0.8% to 0.7% for different bond types; real estate bonds yield up to 3%
Risks: bonds are widely considered as the safest investment option

 

Bond is a fixed-income security, whereby an entity borrows funds from an investor for a specific time period and promises to return capital at maturity with a fixed or variable interest.

 

Characteristics of a Bond

  • Bonds are usually traded by a corporate entity or a government for a project or a specific purpose
  • Bonds may be traded on exchanges or over-the-counter
  • The parties partaking in the bond investment cycle are referred to as “the Issuer” on one end and the “Bondholder” or “Creditor” on the other
  • The main body of the bond is referred to as “Bond principal”, which is returned upon maturity date at a contractually specified “interest rate” AKA “coupon rate” & “payment”
  • Bonds are issued at face value (e.g., $100 or 1000 CHF) that is termed “par” and the payment is calculated as per fixed interest based on par
  • Coupon Dates are the fixed dates in time whereby payment of interest is made to the Investor by the Issuer until maturity date is reached, /as long as 30 years/. Coupon dates are usually fixed at annual or semi-annual periods
  • The Creditor has no ownership rights arising from owning of bonds, unlike in the case with the stock investment

Advantages of bond investment

  • Low risk – bonds is one of the safest and statistically low-risk investment methods
  • Bondholder’s rights are preferred over stockholder’s rights – those, who own bonds, get paid first
  • Readily available information for due diligence on most of the municipality and government bonds in the form of economic forecasts and ratings

Disadvantages of Bond Investment

  • Low returns that accompany the high security of bond investment
  • Brokerage and custody fees can eat out your profit, so they need to be accounted for at an early stage of decision making to make a feasible comparison between the brokers

Swiss bond investment

Many of the major banks will offer bond investment as part of their services portfolio. This is the time to compare the fees based on your initial investment criteria and the broker comparison tool by Moneyland.ch is invaluable for this purpose.

All major banks will trade in bonds and here are some of the most innovative and reliable for your consideration:

Swiss real estate bonds

Some companies offer real-estate bonds that pay up to 3% p.a., while keeping your risk at the minimum, as your cash flow is backed by a piece of real estate.

 

Extra resources on Bond Investment:

Invest in Swiss Bonds: Interest Rates

Investing in Swiss Government Bonds: Interest Rates

 

2. Investing in stocks

Returns: vary widely; Swiss index funds (close to “average” market returns) show between 0.37% and 1.32% annual returns
Risks: picking individual stocks is highly not recommended for non-professional traders

Stocks is a form of investment, whereby an investor gets to own a proportionate share of a company, i.e. its assets and earnings, when buying its shares /AKA stock, AKA equity/.

 

Characteristics of a Stock

  • An investor in corporate stocks is referred to as a “shareholder”
  • Common stock allows its owner voting rights and dividends on the company’s earnings, as well as provides ownership rights to a share of the company
  • Preferred stock suggests, that a stakeholder will not vote, but will have higher dividends, as well as ownership rights to a portion of a company
  • Stockbrokers are usually the licensed professionals who are eligible to buy and sell stocks on stock exchange markets
  • Stocks may be sold OTC /Over-The-Counter/ as well as openly on the stock exchange with latter being easily subjectable to due diligence and the former almost impossible to gauge from this perspective, as private companies have no obligation to disclose their financial information

Just as with bonds, there is a primary and secondary market for stocks, primary being the shares, issued to the stock exchange in the process of the IPO, when a privately-held company becomes a public one.


How to successfully trade stocks?

There’s no easy answer to it.

One thing that you might want to consider is that most of the professional fund managers can’t beat the market (just one research: 95% of equity funds in the US performed worse than a distributed investment in the market, i.e. “index”). If professionals can’t beat the market by picking stocks, what evidence makes you think that you can beat it?

If you are a middle-level investor and you don’t have reasons to believe that you are the next investment genius like Ray Dalio or Warren Buffet, I’d encourage you to not to pick individual stocks but rather invest in market index (index funds), the pro’s and con’s of which are described below.

 

Pros of passive stock investment in index funds

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

 

Cons of passive stock investment in index funds

  • As the economy moves in cycles and after a bull market always comes a bear market, even your investments in index funds (i.e. investments in the market overall) can temporarily lose their value
  • Potential of no returns at all or even losing it all if a company goes bankrupt /think Dell losing market value as not keeping up with smartphone era/.

 

Investing in Swiss stocks

If using one of Switzerland EFTs to multiply your capital, investing into ADRs or opting for the most complex way of using one of the 2 stock exchanges direct, Switzerland and Swiss stock is still one of the most trusted options on the investment horizon. Switzerland welcomes domestic and foreign capital alike with foreign direct investment stock in the country amounting to 1 059 777 million USD in 2017.

Useful resources on Stock Investment in Switzerland:

swiss hedge funds

Equity Funds Outperformed by Benchmarks, source: AEI  (no data on Switzerland, but no reason to think the result is going to be different)

 

Invest in Swiss Stock

Switzerland Stock Market Index – probably, the only safe option to invest in Swiss stocks in the long run. 1-year return at the date of writing this article: 1.42% (Bloomberg)

 

3. Hedge fund investment in Switzerland

Returns: vary widely, not predictable
Risks: highly not recommended, as most funds performance is worse than the average market performance in the long run


As the purpose of this article is mostly to familiarize out readers with how to invest amounts of money below 100K, hedge funds subtopic is way beyond the point, as requires larger amounts and has a high threshold to enter in every meaning. For those totally uninitiated, the classic real-life example of a hedge fund are Soros Fund Management by George Soros and the fiction favorite would be “Axe Capital” in Billions series by Showtime.

Again, statistics suggest that most hedge funds can’t beat the market in the long run. There are a few exceptionally good hedge funds who consistently performed better than the market, like Ray Dalio’s Bridgewater Associates and George Soros’ Fund Management stayed profitable during the crisis. 100K is definitely below the radar of these funds, and some of them (like Bridgewater Associates) are closed for new investors and even let go some of their old investors.

Before investing into a hedge fund (what we wouldn’t recommend), consider the following: in 2008, Warren Buffet issued a challenge, betting $1M that a basket of hedge funds won’t beat S&P 500 in 10-years perspective. In 2018, he won.

 

Swiss Hedge Funds

Buffet’s bet against hedge funds: link

 

4. Direct real estate investments: investing Swiss property

Returns: from 2% to 4% p.a. for mid-market; 10% and higher for luxury properties
Risks: the demand can be dependent on nearby factories and offices of big companies


Real estate investments are considered a cornerstone of building wealth, but when it comes to Swiss real estate market, the most lucrative deals are closed for investors who can’t put at least a million on the table.

The cost to buy a property or an apartment downtown a city like Zurich starts from 600K CHF up. From my 20 years experience investing in real estate, I can tell that the best returns are made on properties in premium locations, where the prices start from 2M – 4M CHF. You can make double-digit returns if the deal was properly structured and you are skillful enough to manage the property well. There are other models to increase the profit even more, like long-term leasing: owners are often willing to give up to 30% discount if the property is being rented for 20 years, as they can transfer vacancy risk on the lessee.

Unfortunately, putting a few million into a property is not an option for many. Rates in rural areas and city outskirts are more accessible for beginning investors, but the rental rates are also too low to make this option attractive, considering its risks. Let’s consider this option in details.

If you have at least 100K to invest into real estate, then you can leverage the money by 1:4 ratio, so you can buy a 400K property. But even in this case, you will have to buy a property far outside the city center or in a rural area.

In such places, the rental demand for your property will rely hugely on the activity of nearby companies and factories, whose workers can rent your apartment, or immigrants, who oftentimes look for cheapest rental options.

You don’t bear these risks if you invest in high-end luxury properties in the city center, where there’s always some kind of demand – either through long-term or even short-term rentals, as every solid company looks to provide housing in the most prestigious locations, and you don’t rely on a particular market segment or a specific company.

Let’s look at the economic trends that impact leveraged properties in more details. Central Bank’s interest rates were less than 0.5% since 2010, and they are negative at the moment. That means, that leveraged investments into real estate were attractive for a long time, and many investors already ran this model. The Central Bank controls the economy by cyclically adjusting the rates, so when the rate will go up, many investors won’t be able to pay the interest and will be forced to sell the property. That means that the prices will fall, as the market will face a liquidity problem – too many people will be selling their properties. As the valuation of your property falls (which equals the value of your collateral), the bank can demand to review the interest rate accordingly, and if you fail to pay the interest, you will be forced to sell. Consider that in the best case and best time, you will be making be making 2% – 4% returns p.a. given that you have a 100% occupancy and the interest rate for your loan is below 1%.

 

Pluses of real estate investment:

  • Properties in central areas have a stable, diversified demand
  • You can leverage your money to buy a more expensive property

 

Minuses of real estate investment:

  • Increased risks when doing a leveraged purchase
  • The market in many regions of Switzerland is considered “heated”
  • Most profitable properties in central areas are not available to an investor that is looking to invest 100K or less
  • Property condition is deteriorating with time, so its value decreases
  • Managing the rent, finding the tenants, signing contracts is a work in its own right, that consumes time and money /escrow, attorney, agent fees/.

 

Useful resources on Real Estate investment in Switzerland:

 

Luxury Real Estate Investments in Switzerland

Some luxury properties, when taken on a long-term lease and rented out on a daily basis (short-term rentals), can make up to 20% returns p.a. on the invested capital

 

5. Real estate crowd-financing

Returns: 6% to double digits., depending on the model
Risks: the demand can be dependent on nearby factories and offices of big companies


This is one of the very few options to tap into the game of Ultra Rich with only a few hundred thousand in the pocket. Real estate crowd-financing helps smaller investors to put their money together and buy a property that no one of them can afford buying individually.

Among Swiss real estate crowd-financing platforms, Crowdhouse and Foxstone.ch are the most notable ones; they make investing 100k in real estate with good returns more realistic. The definite leader is the first one on the list and it is definitely recommended to check out Crowdhouse.ch reviews to see for yourself if this is a good choice for your specific investment needs.

The biggest drawback to using Crowdhouse is that they do not invest in luxury housing but prefer smaller cities and suburbs. This means that your demand can decrease if the economic situation in the region will change. For example, if the property is located in a smaller town, and the biggest factory will fire a significant part of its employees, the tenants can have no funds to pay rent. Office relocations are also happening quite often, causing tenants to leave rentals. Similarly, immigration levels are decreasing, what puts landlords who own budget housing in danger. One month of unpaid rent will likely eat out all the profit.

In contrast, when applied in the luxury property market, the crowd-financing model can drive double-digit returns.

 

Major pluses of crowd-financing in Swiss real estate:

  • Low entrance threshold with some properties prices allowing as little as 20K minimum to partake in a crowd-financing of the real estate deal
  • Little involvement after sealing the deal, so your passive income remains passive. For a commission CrowdFinancing platforms deal with the day-to-day management of the property

 

Main minuses of the Crowd-Financing:

  • Rural areas and city outskirts are less attractive as an object of investment, as they rely on fewer sources of demand
  • Some platforms that use leverage (including Crowdhouse.ch) make owners personally liable for the mortgage; this means that if the price of the building will drop to the point where the bank will lose its money, the owners will be urged to put their personal assets to refinance the building

 

Useful resources on Crowd-Financing in Switzerland:


Crowdfinancing expected returns

Crowdhouse’s expected returns and typical investments

 

6. Investing money in Swiss banks

Returns: -0.5% to 0.5% p.a.
Risks: there is no collateral that the bank can provide an investor with


Indeed, the Swiss bank system is considered one of the safest and secure – both in terms of keeping your capital intact as well as keeping your funds away from the prying eye. But if you are looking to multiply or even slightly grow your money though – you might be better off looking at another alternative though, as interest rates are far from leading positions in the world, or Europe for that matter.

Be it a savings account, a deposit or an online trading account – the money is safe indeed, but it sticks to a strict diet, so to say, interest-wise. In recent years, some deposits are even subject to negative interest rates.

 

Useful resources on Bank Investment in Switzerland:

 

Swiss Banks Returns Interest Rates
Returns of Swiss banks savings accounts,
source (calculated on CHF 100 investment on 10 years term)

 

7. Robo advisors

As per Statista, assets under management in the newly-emerged Robo-Advisors niche amount to $323M in 2018 and will reach $1287M by the year 2022. In fact, Switzerland is perceived as the most challenging financial market to enter for the Robot-advisors due to the unprecedented level of privacy any financial data enjoys in the country.

To illustrate the scale of things, it suffices to say, that Canada has 10 times as much capital managed by Robot-advisors now; UK 27 times as much with 8 891 million and US market is staggering 906 times bigger than Swiss in the year 2018.

 

What is a financial robo-advisor?

Robo-advisors are essentially online platforms proving wealth management tools and advice based on technological innovation and mathematical algorithms. Such platforms work with the minimal intrusion from the humans but are more and more widely incorporated into the routine processes of traditional wealth management institutions.

 

Best Swiss Robo advisory companies

Swiss market also had some players emerging on the robo-advisory horizon with biggest fintech startups in the niche being: InvestGlass, TrueWealth, VZ Finanzportal. The global scene is dominated by platforms like Wealthfront, Betterment.

 

Pros of robo advisory financial platforms:

  • Unlimited learning capacity. No human brain can possibly compete with the unlimited calculative power of the machines, backed up with expandable memory on Amazon servers. It is just the matter of time and human input, how quickly AI will learn the right algorithms now
  • Comparatively effortless scaling of services to a vast spread of clients, resulting in lower risks

 

Cons of robo advisors:

  • Taking the “gut” feeling entirely out of the wealth management is a bit scary at first – as the industry has been basing off the field knowledge, financial expertise, intuition of the veterans for centuries. As an example, what algorithm would you possibly create to appreciate the impact of one Tweet by Elon Musk on Tesla’s stock? But machines are still learning under the supervision of the humans, so the risks are mitigated
  • Automation may lead to machine errors, specifically probable in the learning curve

 

Useful resources on Robo Advisors in Switzerland:

 

8. Wealth Management: top family & multifamily offices in Switzerland

Returns: N/A, as usually wealth management companies create custom portfolios for investors that consist of other instruments, covered or not covered in this article
Risks: bad management and/or wrong incentives of the manager


What is wealth management?

Wealth management is a complex set of financial, accounting, insurance, real estate, advisory and tax services provided both by banks and individual companies / wealth managers to rich families.

 

Characteristics of Wealth Management

  • If a specific office only preoccupies itself with the wealth management of one family, such office is called a family office
  • If the company extends its wealth management services to a number of wealthy families, such a firm is referred to as multifamily office
  • The range of services provided is extensive and will cover everything from purchasing real estate on behalf of a client, optimizing taxes and managing the accounting, buying bonds and stocks, up to providing concierge services
  • Fees will be charged to a client’s account depending on the services provided and may include bank fees, consultation fees, admin fees, investment product fees and even performance-based fees sometimes as high as 20% off the profit made through the year

 

Pros for the wealth management:

  • Wealth management companies usually benefit from having access to private deals that are not publically available
  • Bespoke services with the level of customization that can’t be even nearly compared to what you get in a bank or fund

 

Cons of the wealth management:

  • Entrance threshold is rather steep for wealth management companies, most of them will not deal with anything below 1M CHF


For example,
Zugergerg finance is one of the rare firms that would accept a 100K client. Zurich-based Linvo AG will only start at 500K CHF, meanwhile, even that can be a pretty small amount for Crossbridge Capital, a Monaco-based company with $3B assets under management.

Useful resources on Wealth Management in Switzerland:

 

Family Office Switzerland

Example of a family office structure, source

 

9. Investing in Gold in Switzerland

Returns: N/A, as the only returns that can be made come from the changes in gold’s price, what is unpredictable
Risks: the price is unpredictable


Gold has been considered as a good way to preserve wealth for centuries due to its physical qualities complemented by shiny looks. The Swiss economy is rather welcoming to gold investment and has created favorable conditions for it, defining gold bullion as currency equivalent exempt from VAT and custom duties.

Thriving infrastructure around gold investment in Switzerland:

 

The biggest concern regarding gold investments is the price variation. The price of gold is driven by fear and is a subject to volatility. If you do not have the time to understand and watch the underlying trends that drive the price of gold, the advice would be to not to put a large portion of your wealth into it.

If you consider investments in precious metals as an indisputably safe option to preserve and multiply your wealth, you might want to read the story of H.L. Hunt, once world’s wealthiest man, who lost everything down to the last dime after speculative investments in silver in 70’s.

Useful resources on Gold investment in Switzerland:

Gold Prices Chart Switzerland

Gold price chart. Do you think it’s overpriced or underpriced? Are you sure? – source

 

Afterword. Armed for the decision making

Hopefully, this short and rather pessimistic overview gave you a better understanding of what can you expect from investing in Swiss assets. Among the most promising options are real estate investments in premium property, wealth management companies, index funds and bonds; an interesting option to look at is Stole advisory services.

As soon as you understand the available options, their upside, and the downside, it’s time to define what kind of returns you are going after, what kind risk you can tolerate, and move forward to multiply your wealth.