We stayed in the Classico region of Valpolicella, where winemaking started in the area, and thus all of the wine tastings we attended were also there.

The wines in Valpolicella are mostly made from the Corvina, Corvinone and Rondinella grapes, but it seems that each winery has different proportions mixed in their wines and is not very open about it (probably to prevent other wineries from stealing their secret recipe). However, the most interesting difference is definitely in the vinification process of the wines:

• Recioto: this is the sweet dessert wine which is famous even going back to ancient times, when people apparently had a much sweeter tooth. The high sugar content is achieved by drying the grapes for 2 months in a process called appassimento, making the grapes look and taste more like raising and letting the juice ferment for 10 days.

• Amarone: the wine that is synonymous with the region actually originated from a mistake when people forgot to stop the fermentation of Recioto, resulting in a wine that is dryer. Nowadays, Amarones have overtaken Reciotos in popularity and are typically fermented for about 28 days and aged for at least 2 years in oak.

• Valpolicella Classico: this term refers to wines from the region made with the same types of grapes but without going through the appasimento process. Sometimes one will also see the term "Superiore" on the label which refers to the longer ageing process for the wine.

• Ripasso: at some point, people realised that they can use the skins left from Amarone's fermentation and mix it with the Classico wine to start a second fermentation, in a process called "repass". This creates a wine with a new characteristic which can be perceived as something in between Amarones and Classicos.

All of the wineries we visited also conducted experiments with their winemaking processes that resulted in very interesting IGT wines. Furthermore, the wineries also offered very different experiences:

• Zyme: this is the newest and most modern winery we visited during the trip and we were guided by the very entertaining and opiniated Marco. The wines from Zyme are actually quite known in Switzerland which is why I suggested to them. Interestingly, it's not the Amarone, Ripasso or Recioto which were the highlights of the tasting, but instead it's the experimental Kairos and Harlequin wines, which were made from a blend of 16 different grapes.

• Quintarelli: this winery is probably the most mysterious since they didn't have a website and visits can only be booked via phone. But my research suggested that they are the best maker of Amarone and recommendations from other people seemed to support that. However, although the property we visited was gorgeous, the verdict from our group was that the experience was quite underwhelming. This stemmed mostly from our guide who didn't seem very enthusiastic while telling the history of the winery and would only describe the wines during the tasting further if asked questions. At the end of the day, I've satisfied my curiosity about their wines and paying for the tasting is definitely more cost-efficient since most of Quintarelli's bottles sell for hundreds of Euros.

• Corte Badin: for the last tasting, we visited a much smaller family winery which is actually where we made most of our purchases. Partly because you can't easily get their wines in Switzerland, but also because they presented the best value, such as the 2015 Amarone Riserva for 45 Euros which is a very good vintage for the region. We also got a case of their Beso wine for 25 Euros each which is classified as an IGT but tastes like a very refreshing Amarone.

Finally, we also indulged in amazing foods during our stay. Also dinners are very good excuses to try even more delicious wines from the region. The best food we had was at the Enoteca Della Valpolicella which has a great service with their recommendations for the food and wine. We also spent a wonderful evening at Ristorante Ponte Pietra which has a great view of the Adige river if you're lucky enough to get a table at the balcony as well as the bridge of the same name. The agriturismo we stayed in, Il Biotto, also deserved a shoutout with the amazing view of lake Garda and vineyards as far as the eye can see, the relaxing pool and our very kind hosts. I can definitely recommend a visit to Valpolicella!

The table has many variations and gets more sophisticated the higher you go in the WSET levels. However, this basic version still helps in objectively rating a wine, which is very different from one's subjective preferences. This is especially hard when rating a wine that is objectively good, but you don't personally like.

The approach starts with the Eye, where the colour and its intensity of the wine is judged. Lemon and gold are typical colours for white wines, while purple, ruby and garnet are typical for red wines. There is a tip to judge the intensity for red wines*: a red wine has a deep colour, if you can't see the stalk of the glass from the top*.

The assessment then moves to the Nose, where a wine is judged to be complex if it has three or more notes of different aromas. Moving on, the aroma is especially difficult, which comes only with a lot of experience and practice. To help with this, an aroma parcours was setup at the beginning of each course where participants can try to identify different aromas from the Le Nez du Vin collection. While the aroma parcours definitely helped in recognising individual aromas, distinguishing them in the wine itself is more challenging. The intensity, however, can be more easily scored using this tip: the intensity is pronounced if you can smell the aroma without putting your nose in the glass, it is medium if you need to put your nose in, and light if the aroma is still very faint even if your nose is directly on top of the wine.

The Palate has more components compared to the previous two, with the balance and finish being the most important among them. The sweetness is rather easy to judge since most wines produced in the world is dry. The level of acidity can be felt by the amount of saliva being produced when swallowing the wine. The theory is that the mouth tries to revert its pH back to what it was before tasting the wine, thus more saliva will be produced the more acidic a wine is. Conversely, the tannin can be felt by the tingling sensation of dryness on the top of the tongue or the back of the lips. Balance is another crucial component where the combination of the structure and the charm of the wine is scored. The aroma component of the palate is just to confirm the assessment with the nose, which is why it does not carry any additional point. The rule of thumb for the finish is: the finish is short if the taste lingers for less than 5 seconds, it's medium if you can still taste it between 5 and 10 seconds, and it's long if longer than 10 seconds.

The most important criteria, shown by the dots on the right-most columns, are given points between 0 and 1 (in 0.25 increments):

• Intensity (Nose): more points the more pronounced the intensity is

• Aroma (Nose): more points the more aroma can be identified (complexity)

• Balance (Palate): more points the more balanced the wine is

• Finish (Palate): more points the longer the finish is

The overall score is then tallied from these criteria:

• 4 points: outstanding

• 3 points: very good

• 2 points: good

• 1 point: acceptable

• 0 point: poor

During the course, I had the opportunity to taste more than 10 different wines. Each time the instructor focused on various didactic topics, such as the effect of aging and food on the taste of wine. The systematic approach shown above, I definitely felt that I could better objectively grade wine, even those that I didn't subjectively liked before. Even more surprisingly, this approach actually taught me how I could appreciate such wines more and widened my horizon in the process.

When the time comes to rebalance my portfolio, I refer to this table to identify the sector which have lagged in recent times and increase my exposure there. But as the above table shows very clearly, no sector enjoys a sustained outperformance. Thus, I think it's important to keep the main part of your portfolio diversified. Looking at the options above, investing in the S&P 500 Index as a whole instead of in any specific sector would result in less volatility for your portfolio.

In fact, even the S&P 500 Index is not diversified enough for me. The index excludes companies in the US with smaller market capitalisations and international stocks completely. Therefore, I invest the bulk of my portfolio in an ETF which replicates the FTSE Global All Cap Index and holds thousands of stocks from all over the world weighted by their market capitalisation.

I've stuck to this ETF for several years since I started investing regularly. But this is not to say that I haven't reviewed that decision ever since. Lately I thought about whether it makes sense to have any international exposure at all, seeing that the performance of the US stock market has been stronger compared to the rest of the world. However, my research shows that the markets act in a cycle and there are reasons to believe that that the rest of the world might outperform the US in the future:

• US and International Markets Have Moved in Cycles

• Making the Case for International Equity Allocations

Therefore, I've decided to stick with my main ETF for the time being which has a 60% exposure to the US market. I just consider the international allocation within that ETF as "buying-the-dip" in markets which are underperforming at the moment.

Novel Investor also has another table that shows the international stock market returns. This table is interesting to evaluate the home market bias, which exists everywhere but also especially in Switzerland. Even if I try to invest internationally in my personal account, I don't have the same flexibility when it comes to my pension accounts where the investment options do show a significant Swiss bias. Only in my pillar 3A accounts do I have the flexibility among my pensions accounts to create a custom strategy and counteract this bias. However, a look at the table below shows that the annualized return in the Swiss market is second highest at 6.06% just behind Denmark (would be interesting to see how much Novo Nordisk contributes to Denmark's performance). The US market is, however, not represented in the table below, which, if we take the S&P 500 Index from above as a proxy, has an annualised return of 8.80%. The Swiss home market bias might therefore not be the worst, but I will still aim to diversify my portfolio and allocate internationally.

Despite my reservations, the book is not about manipulating people, but about improving communication skills to have better relationships with people. And the suggestions in the book are applicable in both professional and private settings. After finishing the book, I must admit that this is the best book I've read this year and the one where I've learned from most.

The author also suggests that the readers stop frequently while reading to ask themselves how they can apply each suggestion. Dale Carnegie also prepares a list of principles to be applied at the end of every section. However, I think the principles would have better context if presented next to the chapter title. Therefore, as a reminder for myself, I've put a list of these principles below. I will refer back to this list every once in a while to make sure that I don't forget them and try to apply them in life.

Fundamental Techniques in Handling People

Six Ways to Make People Like You

How to Win People to Your Way of Thinking

Be a Leader: How to Change People Without Giving Offense or Arousing Resentment

The controversy caught me by surprise as someone who has read Ariely's best-selling book, Predictable Irrational, and bought into the idea that nudges in process and application design can lead to better results. But something strange happened when other researchers tried to apply or replicate his studies: they couldn't. As people looked into the data used in the studies, they realized that there are inconsistencies.

The smoking gun is from the data supposedly delivered by people applying for car insurance where they need to give the number of miles driven. The numbers don't follow a typical bell curve distribution seem to cut off at 50'000 miles. This is what can be expected if the number is generated by the RANDOM formula on Microsoft Excel. Furthermore, the underlying Excel files seem to show signs of manual edits since there are different fonts used in the same sheet.

Dan Ariely has denied any wrongdoing and there is a possibility that someone else might have fabricated the data. However, this still doesn't look good since he should've checked the data as the main author in the published studies. And this has real-world consequences since resources have been wasted by people trying to use these findings only to find out that it doesn't make any difference in the outcome.

This is the first video from this YouTube channel and it got viral straight away. Most likely because it was published soon after the controversy got into mainstream news. But I do hope that there will be more videos coming on this channel.

Pillar 2

This is the mandatory pension account setup by your employer. When you receive your salary every month, a percentage is deducted and paid automatically into this account. Your employer will also pay an equal amount into this account.

Making a voluntary purchase into this account will improve the pension benefits that you'd get during retirement, both if you're planning to opt for a monthly pension or a lump-sum payout. These purchases will also improve the death and disability benefits from this pillar.

There is a maximum amount for voluntary purchases into this pillar. But since the amount goes up with your salary and age, the maximum amount is usually quite high.

Pillar 1e

This pillar is very similar to pillar 2, but employers usually have conditions for employees to qualify for this additional pension program. The assets in this pillar must be paid out in lump-sum close to the retirement.

The advantage of this pillar compared to pillar 2 is the potential of higher returns since the assets can be invested in permitted mutual funds. Additionally, since the assets belong to you personally, they won't be diluted by any change in the pension conversion rate.

Pillar 3a

This is a voluntary pension account that you can have with various providers in Switzerland. Like pillar 1e, you can also choose to invest your assets in pillar 3a into permitted mutual funds to gain the potential of higher returns.

The assets in this pillar must also be paid out in lump-sum close to the retirement. But unlike the other two pillars, this pillar doesn't typically come with death or disability benefits.

The maximum amount that can be purchased into this pillar is defined every two years by the government, mostly to take into account the effect of inflation. The maximum amount in 2023 is CHF 7'056.

The amount you purchase voluntarily into these pillars up to the maximum amount can be deducted form your taxable income. This is attractive if you have spare cash, since it means that your tax bill will be reduced by roughly the following formula:

income tax savings = voluntary purchase \ marginal tax rate*

This sounds very enticing, but you shouldn't forget that if the assets in these pillars are paid out in lump-sum, there is a progressive tax to be paid on them, even though it is a separate tax bracket that is typically lower than your income tax bracket.

It is important to note that the payouts should be staggered over several years, starting 5 years before retirement, which is key in lowering the tax progression. Furthermore, Lump-sum payouts have also recently become more attractive in Zurich since the tax rates have been reduced significantly in 2022.

But as with everything, there is an opportunity cost with voluntary purchases into these pillars, since you can invest the amount yourself in a brokerage account where the capital gains are tax-free. And I can't seem to find any existing article comparing these options to figure out which is better.

Especially in the case of the pillars 1e and 3a, where I can make the investment decisions, at least in terms of which funds the assets are invested in. But I would still like to know if voluntary purchases in these pillars would result in better returns than investing outside of the pension system in a private brokerage account. Therefore, I've made simple calculations to compare both scenarios. We take the example of CHF 25k can be put into each of these options and assume that the marginal income tax rate is 30%.

Making a voluntary purchase into the pension pillars means that you don't need to pay income tax on this amount. Conversely, if you plan to put the money in a brokerage account, you'd need to pay the 30% income tax first, which lowers the actual amount invested at the start.

Furthermore, we assume that the amount stays in both places for 35 years until retirement and that the average annual returns are equal at 5%. The final amount in the accounts can then be calculated using these assumptions.

However, when the lump-sum payout is made from the pension pillars, a tax would be levied on the final amount. Furthermore, since the payout from the pension pillars will include the contributions from other years, the tax rate would be higher. Here we take a payout tax rate of 11.4% which would be levied if the total lump-sum payout in the year is CHF 1m.

In contrast, the amount in the private brokerage account will not incur any tax since capital gains are tax-free in Switzerland.

The table above shows that making pension purchases is still more beneficial in the long run. The benefit of the initial income tax savings is so great that investments in a private brokerage account couldn't catch up.

There is an argument to be made that you can achieve better returns investing the assets yourself in a brokerage account since you have access to broader investment vehicles. But the outperformance needs to be significant for that to be the case. At the end of the day, the best allocation will be the combination of both, which is why it's important to review such financial decisions regularly.

Sources:

• Besteuerung von Kapitalleistungen im Kanton Zürich ab 1.1.2022 - PensExpert

• Vergleich und Berechnung der Kapitalbezugssteuer – finpension

Since I work regularly with Microsoft Azure's cloud infrastructure, I decided to apply for the exam to reinforce my credibility as an administrator. But the exam preparation definitely made me learn much more about Microsoft's vast cloud offerings. The image below shows the different models of cloud services, with the management responsibilities shifting from the customer to the provider. Getting to know the various cloud services more deeply even convinced me that some of our applications currently on the Infrastructure-as-a-Service (IaaS) model can benefit from a shift to a Platform-as-a-Service (PaaS) model.

Most online resources actually suggest taking the Azure Fundamentals (AZ-900) for an entry-level exam. But since I've been working with Azure for several years, it most likely wouldn't give me much added benefits. Therefore, I've decided to skip that exam and go for the Azure Administrator (AZ-104) directly. The image below shows the available Azure certifications, and there are many more for Microsoft's other services (e.g. Microsoft 365, Microsoft Dynamics).

Before signing up for the exam, I naively believed that I can pass the exam by going through the materials on the Microsoft Learn platform. It was certainly a good introduction to the exam topics and the labs were useful to try out features. But it wasn't remotely enough to pass the exam. After trying my first practice test, I was shocked at how different and more challenging the exam actually is compared to the official learning material. I then promptly postponed the exam and started looking at other exam preparations:

• FreeCodeCamp YouTube Video

• Whizlabs Practice Tests

• MeasureUp Practice Tests

On hindsight, instead of going through the Microsoft Learn materials over months, I would go through it and the video courses more intensively if I were to do the exam all over again. And only when I'm ready, would I then apply for the exam and start with the practice tests. Having already applied for the exam definitely gave me more motivation and needed pressure while doing the practice tests. This is important because doing a practice test takes about an hour and then roughly as much time to go through the explanation of the answers.

As for the exam itself, I opted to do it at a Microsoft partner location which is luckily not far from where I live. This just takes away the uncertainty of having the right setup for a proctored exam over the internet. But that is definitely a possibility if you prefer it or don't have any Microsoft partner location nearby.

My exam started early morning in a small room with two computers. The exam software itself looks like it came from the early 2000s, which is ironic considering the cutting-edge content of the exam. I encountered many new types of questions during the exam and never felt safe about getting the 700 points (out of 1000) needed to pass the exam. The case study section at the very end was also especially challenging. The Microsoft certification exam is graded at the spot, so my heart was definitely pounding when I clicked on the submit button. Fortunately I passed with some breathing room when the screen showed 820 points.

I would say the overall experience of my first certification was great. Not only am I now certified, but I also learned much during the preparation. I was probably rusty for my first exam since university, but it will probably be better the next time since I'm planning to sit for the Azure Developer (AZ-204) exam towards the end of the year.

Rent a Barista

This is the place I go for coffee when I'm at the office. Usually I would swing by after lunch just to get that extra bit of motivation to finish the workday. One time I made the mistake of saying that the latte art my colleague got looked nicer. And ever since, Vivi, who is I think the best barista in Zurich, kindly makes intricate latte art like swans and seahorses on my flat white each time. I also get their Ethiopian beans to make my coffee at home.

Le café enSoie

This hidden gem is a collaboration between Vicafe and enSoie. Vicafe has expanded to many locations in Zurich since it opened, and rightly so since they offer the best value for money coffee in Zurich. But this café on the staircase leading to Lindenhof is still the most unique. On a sunny day, you can even enjoy your coffee on the small bench in front and amaze at the insanely high cat stair next door.

Omnia Coffee

This café is special for me since it's led by an Indonesian and serving Indonesian coffee. They even serve my guilty pleasure "Aren Latte" - latte with melted brown sugar - which is just great on a hot summer day.

Mame

Going to Mame was probably one of my first experiences with specialty coffee in Zurich. My previous apartment was not even a 5-minutes walk from the original Mame on Josefstrasse. And I still remember the time when Emi and Mathieu were opening the store and making coffee in the café themselves. My wife still thinks that the coffee Emi made at Mame was the best she ever had and is always slightly disappointed when another barista at Mame makes her coffee, because it would just not measure up.

Jan Hendrik Schön was thought to be the next superstar scientist. He rose quickly through the scientific ranks, worked at the famed Bell Labs, and released a ridiculous amount of scientific publications. He claimed to observe well-known scientific phenomena on a new potential material for semiconductor: plastics. Schön betted that other scientists would perform additional experiments and confirm his findings. Unfortunately, those findings couldn't be replicated and it was soon obvious that he committed fraud.

I clicked on the first video just out of curiosity because of the clickbaity title and the high number of views. I thought that I would just watch the first 5 minutes to find out what the story is about, but I just couldn't stop watching and went through all 3 videos straight away. The scandal is just so outrageous but somehow inevitable. Enjoy!

Once you've found an index with the country and sector exposures that fit your preference, you might then search for an ETF that replicates that index. But if the index that you've chosen in popular, you might actually find many ETFs are following that index (for instance, there are hundreds of ETFs with the S&P 500 as their benchmark).

So what other criteria can you use to differentiate these ETFs and find the one that fits you best? Below are the factors that can be considered.

Cost

Even passively-managed ETFs have costs entailed (e.g. the fee for the index providers and cost of rebalancing the ETF composition when the index is updated). These costs are charged to the ETF which are ultimately paid for by the holders. Even with these fees, holding an ETF is still a very cost-effective way to build a diversified portfolio. But since ETFs charge different fees, you might be able to save considerably over the long term by choosing a cheaper ETF.

The currency of the fund would also have an effect on the long-term cost of holding an ETF. If an ETF is denominated in a different currency from the country you live in, you would need to convert currencies for every transaction. This means incurring costs in terms of the fees and exchange-rate spread for the currency conversion. However, if the currency exchange fees with your online broker is low, then it's likely better to just go for the ETF with the lower cost regardless of the currency.

The stock exchange where the ETF is domiciled also plays an a role in determining its cost. Some exchanges charge additional fee for every transaction, which might seem small but add up over time and the number of transactions. Thus, it's important to pick an exchange which has low fees. Furthermore, the domicile of the ETF might have tax implications to you. It is crucial to check that the ETF is the most tax efficient for you, to avoid any unpleasant surprises in the future.

Credibility

The credibility of the fund is also an important factor to consider. Larger ETFs that have been around for a long time is at a lower risk of being closed, making them a better fit for long-term investing. Choosing an ETF from a known fund manager with a long track record (e.g. Vanguard, BlackRock, State Street) also provides another layer of credibility to the ETF.

Another critical factor is the method the ETF uses to replicate the index. These are the typical replication methods:

• Physical: aims to buy and hold all members of the index

• Sampling: aims to buy and hold part of the index

• Synthetic: aims to replicate the performance of the index by purchasing derivatives and swaps

If you're going for a well-known index, you would likely find an ETF that tracks it using physical replication, which should result in better tracking error compared to sampling and carries less risk than synthetic ones.

Diversification

As mentioned above, ETFs are great vehicles to achieve diversification in investing. Some ETFs offers the possibility of investing in hundreds or thousands of stocks just by purchasing one product. The level of diversification the ETF offers will depend largely on how the index it follows is defined. If the index only includes stocks from a certain region or sector, it would likely have a lower level of diversification even though it might still include a large number of stocks.

Another thing to keep in mind is that most indexes are market capitalization weighted, meaning that larger companies carry a higher weight in the index. For instance, in indexes where Apple and Microsoft are represented, these companies with large market capitalizations will represent a larger chunk of the index than smaller companies. This is not necessarily a bad thing, but it's definitely worth knowing if a significant part of your investment is concentrated in larger companies and might not be as diversified as it might seem at first glance.

Unit Price

This factor is rather a technicality compared to those above. If you are comparing between two ETFs with very similar characteristics, which one should you choose? In this case, I would choose the ETF with the lower unit price.

These are just some reasons why the unit prices might not be the same:

• different unit price when the ETFs were first created

• one ETF has been in the market longer than the other

Choosing an ETF with a lower unit price would allow most of the cash to be invested. It is especially useful when following the dollar-cost-averaging strategy, where the same amount of money is invested at regular intervals. The table below shows an example.

This is also part of the reasons why some stocks are split when their prices get too high. Lowering the price makes it more attractive to retail investors, since it's easier to purchase a unit of the stock.

Plant Care

The information below is combination from different sources. I'm so grateful for family and friends that gave tips on how to take care of our plants. But I also want to highlight these sources:

• Pflanzerei Zürich (the best plant shop in Zurich)

• The Encyclopedia of Gardening

Positioning

This is the most exciting time you'll experience with your plant. You think that you found the perfect plant for the still empty corner at home, but you'll still need to check how much light the plant needs. Some plants cannot stand direct sunlight, while others actually need it. I always check with the experts at my local plant shop whether the plant would thrive at the location I have in mind.

Watering

If you have several plants at home, watering them will be your new ritual. There is one trick that I always follow: sticking your index finger into the soil. If some soil sticks to your finger when you pull it out, then the soil is still moist and doesn't need watering. With indoor plants, this is usually once a week in the growing phase (March - October) and once every fortnight in winter (November - February). However, you'll need to give cacti and succulents longer dry periods, which means you'd need to water once a month in the growing phase and none at all in winter. Also, it's important to mix water with liquid universal fertilizer during the growth phase to ensure that the plants get all the nutrients they need.

If you have outdoor potted plants, they would need daily watering in the summer months. But please make sure to water outdoor plants either before sunrise or after sunset, as water droplets on the leaves would focus sunlight and might burn the leaves. Weather also plays an important role for outdoor plants, since it doesn't need additional watering during rainy weather. If you mix solid slow-release fertilizer with the soil for outdoor plants, you won't need to mix any other type of fertilizer while watering the plants.

Grooming

Your plants would also need grooming to help them grow and look their best. Dead leaves should be removed as soon as possible as they might carry diseases or pests. If you see any dust buildup on the leaves, remove them to ensure that the leaf pores are not blocked. Plants with glossy leaves should even be polished from time to time to show their shine (at best use a cloth damped with beer, since unfiltered tap water might leave chalk deposits on the leaves). Outdoor plants also need pruning either at the start of spring or the end of autumn.

Repotting

Once your plant becomes too big for its container, it's time for repotting. For indoor plants, you could usually tell it's time by checking the bottom of the pot and see if the plant is root-bound. But, this could be the most anxiety-inducing activity you would do with your plant, as it might stunt the growth of your plant or even kill it if done wrong. So these are the steps I follow to avoid hurting the plant:

• only repot during the start of the growing phase (March - April)

• water the soil one hour before repotting

• put the pot on its side and remove the plant together with the soil

• remove one-third of the old soil and cut the roots 1-2cm back (don't be too aggressive with this step)

• place the plant within the new pot at the height you desire (while still holding it in the air), and start filling in new soil from the sides

Be sure to ask the experts at the local plant shop for the type of soil that would match your plant. Water the repotted plant without fertilizer for a few weeks to encourage root growth.

For outdoor plants, it's also recommended to mix the soil with solid slow-release fertilizer. But it's not a one-time fix. The top 5-10 cm of the soil should be replaced every year while adding new slow-release fertilizer even when the outdoor plant is not repotted to ensure that the plant gets enough nutrients from the soil.

Plant Gallery

These are the plants we have at home:

Hanging Plants

Tabletop Plants

Floor Plants

The buyer needs to provide a down payment which is at least 20% of the purchase price. In some cases, you might need to provide a higher down payment (e.g., if the purchase price of the property is higher than the valuation of the bank, you would need to come up with the difference). But your mortgage advisor might discourage you from increasing your down payment, since this would reduce the interest payment the mortgage provider is receiving. They might make it sound like it's in your interest to pay the minimum down payment (since the rest can be saved or invested), and I would tend to agree, but it's still good to be a little skeptical.

Your mortgage provider, usually a bank, would then chip in with the 1st and 2nd mortgages. The SwissBanking association released a guideline on how the amortization of these mortgages should be handled (translated from German):

In the case of owner-occupied residential property, the mortgage debt should be amortized to 2/3 of the purchase price within 15 years. The amortization should be performed linearly starting no later than quarter-end 12 months after purchase.

This is where the differentiation between the 1st and 2nd mortgages come from. The first sentence basically means that the 2nd mortgage needs to be amortized within 15 years, leaving the 1st mortgage which is roughly 2/3 of the purchase price. The 1st mortgage can then be carried indefinitely without being amortized.

The second sentence then explains further how the amortization of the 2nd mortgage should take place. A linear amortization means that the amount of money to be paid back for each time period is the same for the first 15 years. The following formula shows the calculation of the quarterly amortization:

To change this to a monthly amortization calculation, the 4 in the denominator can be changed to 12. Thus, the rules regarding the amortization of the 2nd mortgage seems to be pretty clear. After 15 years, the 2nd mortgage would be completely paid back according to the rules above.

Would it also be possible to amortize at a higher rate? This is possible but not something the mortgage provider would suggest. The mortgage provider is usually very helpful during the process of purchasing a property and closing a mortgage deal because this means more business for them. But your incentive might not align completely with them on the topic of amortization, since they would receive interest payments the more you amortize. But this is certainly possible after a discussion with your mortgage provider. There might, however, be some rules in the mortgage contract regarding the maximum and timing of additional amortizations. For the sake of simplicity in this post, I'm assuming that the amortization is done constantly at the minimum rate stipulated by the formula above.

But what should the buyer do with the 1st mortgage? The fact that it isn't necessary to amortize the 1st mortgage begs the question whether it makes sense to do so. The answer to this question is, of course, not so straightforward as it involves opportunity costs and personal preferences.

Opportunity cost means the potential benefits that an individual misses out on when choosing one alternative over another. In this case, the opportunity cost of amortizing the 1st mortgage is the inability to use the money otherwise (e.g., for saving or investing). To quantify this opportunity cost, it could be helpful to look at 2 scenarios:

In both scenarios, the 2nd mortgage is amortized in the first 15 years until it's completely repaid as required by the guidelines. Then, for the subsequent years, the same amount of money would be used to amortize the 1st mortgage in Scenario 1 until it's also completely repaid. Conversely, the money would be invested into a broad-market index fund in Scenario 2.

The simulation of the scenarios uses the following assumptions:

• Property purchase price: CHF 1 million

• Down payment: CHF 200k

• 2nd mortgage: CHF 150k

• 1st mortgage: CHF 650k

• Interest rate: 1%

• Average yearly returns of index fund: 4%

Scenario 1

In this scenario, the 1st and 2nd mortgage are amortized at the same rate until the property is fully paid by year 80! This probably won't happen in real life. You might move to another property within this time or repay the mortgage with one large payment once the balance is low enough, but let's assume this scenario for argument's sake.

Scenario 2

In this case, the mortgage balance is kept constant after year 15 since the 1st mortgage is not being amortized. Instead, the money is put over time into an index fund which grows with compound interest until the end of the time period. This is assuming a constant return. In actuality, the movement of the investment balance would be more erratic. But since the investment horizon is rather long, we can simplify the simulation using an average return. The mortgage is still owed to the bank in this scenario. But the investment balance would allow the repayment of the mortgage while still leaving a profit.

Comparison

The difference in balance:

The additional interest payment in scenario 2 comes from the fact that the mortgage balance is kept at a higher amount for longer and should be subtracted from the balance. However, the calculation in the table still shows that scenario 2 would result in a financially more advantageous situation. This potential gain is the opportunity cost of amortizing the 1st mortgage instead of investing the money.

In addition, another argument for not amortizing the 1st mortgage is because it could lead to a lower tax bill. This is a result of being able to deduct a higher mortgage interest payment from your income tax and a higher debt load from your wealth tax.

However, a strong argument for amortizing the 1st mortgage that shouldn't be ignored is the ease of mind that it might bring to the buyer. Investing in the stock market comes with the potential of gains, but also with the risk of losses at the same time. In a bear market, you could be faced with a situation that your mortgage debt has not been reduced and your investment has produced losses which results in a higher liability overall. The risk is reduced the longer the investment horizon is, but you still need to stomach it. But in any case, the quality of life that your ease of mind brings should not be discounted.

Furthermore, with the central banks currently increasing their reference interest rates to tamp inflation, we've seen increasing interest rates in the mortgage market too. If the interest rate of your mortgage is significantly higher than the one used in the example shown, your cost-benefit analysis might look very different. It is only advantageous to invest instead of amortizing if the potential return in the stock market is significantly higher than the interest rate of your mortgage. That's why it's important to assess your own personal situation.

Also, the scenarios shown here are two extreme examples. You also have the freedom of combining both strategies to various degrees. At the end of the day, the actual opportunity cost of amortizing a mortgage is very personal and you should pick the option with which you can sleep best at night.

There are many good articles about staggered payouts and the ideal number of 3A accounts, especially these from finpension:

• The staggered payout

• How many 3a accounts make any sense at all?

I suggest reading the finpension articles first, since they would make the points here make much more sense. And I don't want to repeat what they've explained so well in their articles. One point that I don't really agree on in their article about the number of 3A accounts is on the low progression of taxes. I think they're being conservative when setting the upper bound of assets at CHF 100k. If you pay the maximum yearly 3A contribution and follow the full-equity strategy, there's a good chance that your assets will be greater than this amount. And that's the point where the progression kicks in most. I think the finpension article on staggered payout explains the progression better.

But even after researching quite extensively online, there is still a piece of information that I can't find. I've been paying into my first 3A account for a few years now. But when should I open my second and subsequent accounts. Ideally, I want the account to have similar amount of assets by retirement time, in order to spread the tax burden as much as possible. So, I did what most people with free time and a spreadsheet would do, I calculated the number of months I need to pay into each 3A account.

Firstly, there are some assumptions to be made:

• It's possible to postpone the 3A payout if you work past the official retirement age, but I'll keep it simple and assume that all accounts must be liquidated by the retirement age.

• The maximum 3A contribution gets adjusted every year. It is likely that the amount increases in the future to account for inflation. However, the same amount is assumed here for every year.

• Number of 3A accounts by retirement is five. If you're planning on liquidating your 2nd pillar, there's argument to have one 3A account less, but I'm not planning on doing that. And having more than five 3A accounts does not really give additional benefit since several accounts would need to be liquidated within the same year in that case.

• All 3A accounts are with the same financial institution and follow the same full-equity strategy.

After creating the spreadsheet, I'm really blown away by the power of compounding interest. I know that the effect is strong, but I thought that I would have many years before needing to open additional 3A accounts. The knick on the graphs shows the time where the contribution into a particular account stops and the account is just growing with the investment performance. This shows that, since the first few accounts have the longest to grow, they need the least number of months with direct contribution. In fact, the chart shows that you should open a second 3A account after 32 months.

Extending on my spreadsheet calculation, I have created a simple web application which creates the 3A payment schedule here. This tool allows you to change the yearly contribution, assumed yearly performance and also the number of years until retirement. The number of accounts is kept at five for all calculations. Subsequently, the chart shows the development of the account balances and the table lists the duration of payment into each account.

Before we go further, it's important to know what a third-pillar account exactly is. The simple definition of a third-pillar account is:

Breaking this down:

• Voluntary: unlike the mandatory first and second pillars, opening a third-pillar account is really up to you

• Tax-deductible: the yearly third-pillar contribution can be fully deducted from your income tax

• Retirement-bound: savings cannot be withdrawn until 5 years before retirement with some exceptions (property purchase, move abroad, etc.)

The third-pillar has actually existed since 1987, and the maximum yearly contribution has increased over the years. Using the historical data, I've calculated a simple forecast for the next 35 years (which is when I'll retire assuming that the retirement age is not increased, which it probably will). The change in contribution amount seems to have flattened out in the last 10 years, that's the reason why I only use the latest values to create the forecast to avoid overestimating the contribution that can be made.

There are many third-pillar products out there. I'm going to ignore the third-pillar products from insurance companies, which is only attractive if you need additional insurance coverage. If you don't, the products from banks or neo-banks are cheaper because your contribution is not deducted to pay the insurance premium. The offerings from banks can be grouped into these two categories:

• Savings account: the assets are kept as cash

• Investment account: the assets are invested

There is also a range of brokerage account types offering a different mix of products (stocks, bonds, real-estate, cash, etc.). Putting your contribution into an brokerage account gives you the possibility of realising greater returns compared to the very low interest rate of the savings account which is currently around 0.2%. For the calculation later, I assume a return of 5% for the brokerage account, which is rather conservative when compared with historical data. However, you should bear in mind that you carry the downside-risk should the value of your chosen investment product falls. But over the long-term, you should see the value of your investment grow, and the fact that you can't withdraw your money until close to retirement actually protects you from panic selling.

An important thing to do is to split your third-pillar assets into at least 5 separate accounts over time, because you can neither withdraw only part of a third-pillar account nor transfer money from one third-pillar account to another. By splitting your assets into multiple accounts, you would be able to withdraw one account for each of the five years prior to retirement. This is crucial since you would need to pay capital tax on the withdrawal. These taxes are progressive which means your tax rate would be lower by withdrawing your third pillar accounts at different times.

My first third-pillar account was a savings account with the bank where I have my private account, because I didn't think there was any big difference between the third-pillar providers and I wanted to keep things simple. But then I realised that I was foregoing the possibility of earning returns from investing by choosing a savings account. Then I decided to switch to an brokerage account, but the products offered by my bank had very expensive management fees, which led me to open an brokerage account at another bank and moving my assets there. A few months later, after learning more about personal finance, I decided that I should invest fully in stocks rather than in a mixed product (of stocks, bonds, etc.) since my investment horizon is still long. To my disappointment, the second bank didn't offer a product with 100% stock exposure, which is when I decided to open an account with a neo-bank and move my assets again there, where it has been ever since. This all might seem complicated and I wished that I didn't make these mistakes. However, it's not as bad as it seems, you just lose a few hours filling and sending forms to banks.

To better show the effect of a third-pillar account, I will calculate an example for a hypothetical person called John with 90k in gross yearly income living in Zurich city. After making the typical deductions, his net taxable income comes down to roughly 70k. What's important in the calculation of income tax savings is the marginal income tax rate at this income level, which is given in the table below:

This means that John can save 20.49% of the third-pillar contribution from his income tax bill. For example in the year 2021, where the maximum contribution is 6'883, this translates to a savings of 6'883 * 20.49% = 1'410. Assuming that John's marginal income tax rate stays the same and he makes the maximum contribution every year, he would save a total of 64k in income tax.

When making this decision, John can narrow down his choices into 2 questions:

• Should he open a third-pillar account?

• Should he open a savings or an brokerage account?

These questions lead to 4 scenarios:

To make a fair comparison, I assume that John makes the same contribution to a similar savings or brokerage account in scenarios C and D.

Scenario A: third-pillar savings account

In this scenario, the contribution is compounded with the typical interest rate for third-pillar savings account of 0.2%. Making the maximum forecasted contribution every year will result in a position of 282k. At the same time, John enjoyed the 64k income tax savings during this time. However, John would need to pay capital tax when liquidating his third-pillar assets before retirement. Withdrawing the amount 5 times would result in a capital tax bill of 13k.

Scenario B: third pillar brokerage account

The contribution here is compounded with a conservative return of 5%. Even so, the powerful effect of compounding can be seen in the chart below which shows a total assets of 798k even when keeping the contribution the same The total income tax savings is also 64k as in scenario A because it only depends on the contribution made. However, because of the greater assets in the third-pillar account, this would result in higher capital tax at the end. Withdrawing the amount 5 times before retirement would produce a capital tax bill of 44k.

Scenario C: non third-pillar savings account

In this scenario, the same interest rate of 0.2% for third-pillar savings account is used in the calculation. This is a generous assumptions seeing that most bank accounts give zero interest and even charge a negative interest rate for large cash positions. The total assets would be 282k which is the same as in scenario A. However, John should consider the opportunity cost of not opening a third-pillar account here, which is the missing yearly income tax savings. On the other hand, John wouldn't need to pay capital tax at the end because there's no withdrawal from a third-pillar account.

Scenario D: non third-pillar brokerage account

Using the same assumption of 5% yearly returns used in scenario B, the total assets would be 798k. But John should also consider the opportunity cost of not opening a third-pillar account in this case. Concretely, as in scenario C, the possible yearly income tax savings of 64k should be deducted from the total assets and the avoidance of the capital tax added to it.

The table below shows the results for all four scenarios:

There are some factors left out in these examples for the sake of simplicity that could result in greater returns for third-pillar accounts As John grows older, his income level is likely to rise and he might also get married, this would result in a greater yearly income tax savings as John gets into higher marginal income tax brackets. Furthermore, John should also take into account the time value of money, because savings earlier in life is more valuable than later since it can be directly reinvested somewhere else and generate return over time. On the other hand, if the long-term performance John's investment is greater than the 5% assumed here, the capital tax bill at the end would also be higher and could nominally equal the income tax savings.

To summarise, the examples above show that putting your assets in a third-pillar account is likely to produce a greater return because of the added tax benefits. Also, this example shows the power of compounding when comparing the returns generated by a savings and brokerage account. To risk sounding like a broken tape, I must again stress the importance of splitting your assets to multiple third-pillar accounts. Failing to do so will result in a large capital tax bill in the end that is likely to outweigh the tax benefits enjoyed over the years.

Cantonal and Communal Tax

This is also known as Staats- und Gemeindesteuern in German. The important thing to note for the cantonal and communal tax is that the amount is owed on October 1 of the same year, instead of after submitting the tax declaration in the year after. The canton also starts charging interest (0.25% in Zurich as of 2020) on the amount owed starting October 1 of the taxation year. Considering that the definitive tax invoice is usually sent around August of the following year, there is a risk of paying interest on the amount owed for a whole year!

To avoid this, the canton sends a provisional tax invoice in February or March of the taxation year. The problem is, the provisional invoice is based on past tax payments. So if there is a significant change in financial situation, this would not be taken into account, and the tax might be underpaid. If I suspect that my actual tax bill would be higher, I would pay more than the stated amount on the provisional invoice, which is allowed by the rules.

But I would not significantly overpay on this tax just to be safe. There is the opportunity cost of not investing this extra money in another way. Therefore, I would perform a rough calculation of my tax bill for the year, and pay that amount before October 1 of the taxation year to minimise my interest charge. The hard part is predicting the variable income that might change during the year, but it's worth it since it could slightly lower my tax bill and I can reward myself to a dinner.

What I definitely avoid is late payments on the definitive tax invoice, as the interest on the amount owed is much higher at 4.5% as of 2020. But, there is a 30-day period to pay this invoice, within which time the interest would not be levied.

Federal Tax

This is also known as Direkte Bundessteuer in German. Unlike the tax on the cantonal and communal level, the federal tax has zero interest on the amount owed. Therefore, there is no real benefit in paying the actual amount owed before the deadline. You will still receive a provisional and definitive tax invoice, but this does not really make sense to me with the zero interest, why not just send the definitive tax invoice when the amount is known which will save work for everybody. The tax office will even try to return the extra money if you transfer more than the amount stated on the provisional tax invoice, even though you know for sure the definitive tax invoice would be higher. Long story short, I just pay the exact amount on the federal tax invoice (both provisional and definitive) as they come.

PS: the tax deadline charts are adapted from vzgv.ch