Investing for your children in Switzerland

How can you invest for your children from an early age? The principles

Here are the principles to follow to invest successfully over the long term:

• invest a fixed monthly amount that you won't even notice - between 100 and 1000 euros/francs depending on your situation (or the equivalent amount annually)

• on an investment account in a single "accumulating" equity ETF (All-World, developed countries or US)

• don't touch anything else! - never stop investing and never sell anything until the end

If you follow these principles, you can expect a net annual return over 40 years of around 5% (9% gross - 2% inflation - 1% fees - 1% tax). So if you contribute from birth, when your child turn 40 he'll have in today's moneyabout

• 150k - for a monthly contribution of 100 francs

• and 1.5 million - for a contribution of 1000 francs

>> If you want to know more about the principles and why, please check my dedicated article

Practice

You're a Swiss tax resident. Congratulations! Your taxes are extremely low and you have many options.

• you are taxed very lightly on what you earn (only the dividend part, as capital gains are not taxed), and a simple securities account will do the trick.
  If you earn 2.5% in annual dividends (a realistic average, see an example here with the VT ETF), this gives a maximum annual tax rate of 0.6% (because, depending on your canton, your marginal tax rate is 15-25%).

• you can invest directly in your child's name, but also in your own name and give it to him or her later, regardless of the amount (everywhere in Switzerland except the cantons of LU, NE, VD, AI, there is no inheritance or gift tax towards children)

The best solution for depends on:

• whether you prefer to invest monthly or annually

• the amount

• whether you prefer to invest in your name or in your child's name

• what will be easiest for you and therefore maximize the chances of sustaining your investment long term

Here are some very good options for your situation, valid end of 2023.

• You prefer to invest annually or monthly for more than 500-

  If you already have an account with InteractiveBrokers, the answer is obvious: create a sub-account in your name for your child.
  Why? For investing large amounts, InteractiveBrokers has very low total costs. The only costs in addition to those of the ETF are a few francs for each transaction to be paid on buying and selling (spread over 20 years, the equivalent of 0.02%-0.1% annually, depending on the amount and the stock exchange where you invest). Find out more on fees here.

  If you don't have an InteractiveBrokers account yet and want to invest large amounts for your child, you probably also have large amounts to invest for yourself: InteractiveBrokers is the right choice.

  For an annual investment, you can choose any low-cost ETF, even if it's not listed in CHF on the SIX. Once a year, you can make the effort of converting your CHF before investing in the ETF.
  Which ETF: VT (TER: 0.07%) for the world, SWRD (TER: 0.12%) for developed countries, or VTI (TER: 0.03%) for the US.

  For a monthly investment, it's best to automate everything by setting up  recurring investments. You'll need to choose an ETF that can be purchased fractionally. The great advantage of recurring investments is that currency conversion is done automatically.
  Which ETF: VT (TER: 0.07%) for the world, SWRD (TER: 0.12%) for developed countries, or VTI (TER: 0.03%) for the US.

  If InteractiveBrokers' tedious interface puts you off, another option is trading212, which also has no annual management fees.

• You are already with Truewealth for your investment and/or 3rd pillar account.

  Then you can open an investment account in your child's name.

  Beware: having the account in your child's name is less flexible. As long as your child is a minor, you won't be able to do everything you want. But this choice can give you peace of mind because everything is settled: no donation is to be made later.

  You won't choose the ETFs yourself, because Truewealth is a robo-advisor: it determines a portfolio of low-cost ETFs based on your preferences. You can get the equivalent of a global stocks ETF if you choose global exposure and a the maximum share of stocks. Total costs are 0.4-0.65% annually (including ETF TER). This is very competitive for an account in the name of a minor.

• You have a UBS account and you're in it for the long haul.

  The simplest solution for you is to create a UBS investment account in your child's name directly.
  Beware: having the account in your child's name is less flexible. As long as your child is a minor, you won't be able to do everything you want. But this choice can give you peace of mind because everything is settled: no donation is to be made later.

  You'll be surprised to know that UBS offers investment accounts directly in the child's name, with fairly low fees (in 2023: 1% entry fee plus 0.2%-0.4% annual management fee, depending on whether the child is still a minor). But you need to choose the product you invest in carefully: by default, they'll offer you funds (not ETFs) with high fees. This totals in  approximately 0.5-0.7% annual fees (including the TER of ETFs).

  Which ETF: UBS (CH) Investment Fund - Equities Global Passive W (TER: 0.24%)

• You have another low-annual-fee investment account (less than 0.5% annually).

  Some investment accounts allow you to create sub-accounts that you can use for your child.

  Another solution is to use your own account, but isolate your child's investment in a separate ETF. This is a fairly restrictive solution, since you can't change the ETF or use it for yourself. And it's even more complicated if you have several children.

• Specific case: you are French and you want the account to be in your child's name.

  You can open a French securities account for your child directly, even if he or she is a Swiss resident, if: you are French, your child is French, and you have a bank account in France.
  The total annual cost will be around 0.2%, which is almost the same as InteractiveBrokers, provided you limit yourself to ETFs on Euronext (which is okay).

  If investing directly in your child's name gives you peace of mind - by avoiding a future donation - this is a good option.
  Bear in mind that having the account in your child's name is less flexible. You won't be able to do everything you want, especially if you want to change something while your child is still a minor.

  On the practical side:

  • If you have income in CHF only, the least painful thing will be to invest annually after making the international transfers and currency conversion.

  • If you have income in EUR, you can invest with less friction, either annually or monthly (but with higher fees).

  An example of a securities account for minors: Fortuneo. With the "optimum" tariff, management costs are reduced to around 0.4% purchase fees (one-off) and 0.2% sales fees (also one-off), which, amortized over 20 years is...less than 0.1%. When you reach 50.000 euros on your account, the fees become 0 with the "0 Brokerage" tariff.
  On top you have to pay the ETF's TER, which is usually less than 0.15% annually.

  Which ETF: IMID (TER: 0.17%) for the world, SWRD (TER: 0.12%) for developed countries, CSPX (TER: 0.07%) for the US.

• In all other cases: trading212, but don't build up too much on it.

  If you don't want to invest huge sums of money both for yourself or your child, a  low-cost solution is a trading212 account in your name, but where you create a separate "pie" for each child, containing just one ETF  (the same for all children, if you like).

  The only costs on top of the ETF's TER are the foreign exchange fees, 0.15% for each purchase or sale - that equate to less than 0.02% annually over a 20-year period. The total annual cost is therefore a maximum of 0.3%.

  Which ETF: IMID (TER: 0.17%) for the world, SWRD (TER: 0.12%) for developed countries, or CSSPX (TER: 0.07%) for the US.

  Be careful with trading212: it's a serious company that's been around for a long time, but your investments aren't totally protected if it goes bankrupt. What may happen beyond 20k- is uncertain.
  Whenever you reach this amount, it's wiser to sell and transfer to one of the other options above, the cheapest of which is the InteractiveBrokers sub-account.
  Despite this disadvantage, trading212 is a very good option to start with because there's 0 paperwork, 0 minimum amount, and even if you move these investments after 1 year it's still cheaper than a robo-advisor like Truewealth.

About the author

Hello, you can call me Margot.

I'm a French expatriate living in Switzerland. I've been investing for 15 years.

With assets in the low millions, I'll probably never have a family office, so I have to stay in the driving seat. How can I grow my assets further and pass them on to my children?

AskMargot is my testimonial, that of a peer, to go further in wealth management.
You'll find unique content, more advanced than what you'll find on beginner investment blogs or in the wealth reports of French or Swiss asset managers.

Don't hesitate to contact me if you'd like to discuss your wealth strategy with a peer.

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