In my 20s, I never thought of retirement or pension. Unconsciously I trusted the pension system in each country I lived. I always thought as long as I make decent income, I will have decent pension when I retired. But in reality, it is not one to one exchange rate. And I don’t plan to downgrade my quality of life when I retire. So after 10 years of working and YOLOing, I started to think about my financial future…
I made so many money mistakes with the YOLO lifestyle, so I decided to make a 360 degree change. If you wonder what mistakes I made with YOLO, check out my article – Why YOLO Is Ruining Your Financial Future.
The first we did, as a family, was to open a pillar 3a account before the year ended. It is similar to the RothIRA in the US but with slightly different tax benefits. In Switzerland, when you contribute to the pillar3a pension account, this amount of money is tax-free. But there is a limit, as per 2019 and 2020, the maximum amount a person can put into Pillar 3a account is CHF6826. There are plenty of benefits why making the voluntary pension contribution. For more information, you can refer to the article <How to Create Wealth with Your Pillar 3a>. In general, if you maximize the contribution, you could save up to or more than CHF1000 on tax, depends on which area you live in Switzerland.
As in 2018 we missed the window, thanks to our ‘doing things last-minute’ habit. So in 2019, we wanted to for sure, open our pillar3a and make a one-time deposit to the account. At that time, I was not very clear about the pension system in Switzerland and how pillar 3a works, if you have read my article <How to Create Wealth with Your Pillar 3a>, you would know that it is pretty complex, and there are a lot of options.
Just the month before, while I was still in the learning and exploring Swiss pension system phase, a financial advisor and his wife held a free talk in the area where I live. They both speak Chinese, which is a native language to me. Considering most Swiss people here speak German, and I thought if I don’t know anyone who speaks fluent English, I might as well go with Chinese. In the talk, they provided much useful information to us, and even with the rusty Chinese, they managed to build trust with the attendees. At the end of the talk, there was a small buffet of their local food, which was prepared by the wife.
Everyone had a good time and appreciated their hospitality.
As a result, when I was thinking of opening pillar3a account, I naturally contacted this financial advisor. He told us, he did not charge us anything for the service and consultation if we buy financial products or insurance products from him. I was pleased.
In 2 meetings, he sold us 7 financial products. I remembered that we were signing contracts in each meeting, but after the meeting I was not sure what did we buy. I am not a dumb person, but I felt there was something off. I couldn’t tell what it was. So I tried to read the contracts and documents and understand exactly what we bought. Here is the point, he never sent us a copied version of the contracts or product information. When I thought of asking for it, it was already weeks passed by. As I trusted him to choose the best financial products for us, I never followed up immediately.
Here is when it all started to feel wrong.
We had to make a monthly payment to the financial products according to the payment plan, but I also started to invest in ETFs using dollar-cost-averaging. I was thinking, only if those products can generate a higher return than the ETFs, then it makes sense to put my money there. But according to research, ETFs performed better than more than 95% mutual funds. And ETFs have much lower annual fees. After finishing The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk, I was more firmly believing that the financial products are not worth my investment. Then I did more research online, I found out that the life insurance he sold us, was not really suitable for our situation. It was not only not suitable for our situation, but also not a very transparent life insurance investment. Customers do not have personal log in to check the performance, customers do not receive personal performance update. The only place to see the fund performance is on the website with a monthly report, which shows the overall fund performance. So as an investor, you can never know how is ‘your money’ doing. There was protection on the life insurance side, but it is not for us. Then I checked through all other products, I have drawn a conclusion, that the products he sold us, are not the best ones for us, but have the highest commission for him. Most of them have a long-term commitment to the insurance element. So when we stop, we lose all the money we have put in.
Here is the question, are we going to let go thousands of Swiss Franc now, or bear the opportunity costs of hundreds and thousands in 20 years’ time and keep the investment?
Of course, we chose the first option. I stopped the contribution and put them into ETFs. We got out of 3 products, but still trapped with 4. On the bright side, we opened a one-time investment deposit for pillar3a in 2019. So we could still move that money out to another pension fund solution, which is cheaper better, and more transparent. And we saved on tax right? Actually, No.
The story is ‘richer’ than that.
When we were declaring the tax for 2019, we are missing one tax document stating that we have contributed the pillar3a. It serves as a proof to the tax officer that the contribution is not taxable. By that, we could save close to CHF1000 on tax. But we never received the document for my husband!
Because the financial advisor somehow made a mistake in his job and did not execute the bank withdrawal as we wrote on the contracts. There was never a deposit, as a result, my husband had not made any contribution, as a result we would lose close to CHF1000.
Our rich journey turned out to be the opposite with this financial advisor, we are getting poorer and he is getting richer with all the commissions he made from us.
From my rich experience, I learned these important lessons with money:
- Never trust other people with your money, unless you fully understand what they are going to do with it
- Learn about personal finance, it is an extremely important life skill that is unfortunately not taught in school
- Be careful when working with a financial advisor, when their interests and yours are conflicting, avoid proceeding.
- Personal finance and investing are less difficult as you imagined, invest some time to learn about the basics, it will serve you well lifetime.
Although I paid thousands and thousands to learn my lesson, you could avoid them by taking my advice and educating yourself better.
Don’t rush into anything you don’t understand, especially with your money.
This major experience played an important role to motivate me to produce more useful content and educate people about personal finance and investing, so they don’t have to make similar mistakes. If you want to learn more about money and investing, please visit my home page at https://www.fasttrack.life.