Myself vs Marco: Is the III Pillar a YES or a NO?

How This Started

Marco and I, after too many beers, started arguing about whether the III Pillar was a good investment or not. His thesis was simple: investing in the SPX (like the SPY) would grant you a higher return over multiple years. I was totally in disagreement with him. We started yelling at each other without any proof or reference data.

So I Built a Spreadsheet

When I headed home I started building a spreadsheet comparing the SPY vs Finpension 100 Sustainable, one of the vehicles you can invest through Finpension (one of the best providers for the III Pillar in Switzerland).

The spreadsheet focuses purely on performance. It does not consider any risk-adjusted ratio (maybe something I should implement to make the thesis more robust).

What I Found

From my calculations, investing through the III Pillar allows you a higher capital appreciation given you can reinvest the money you save from the III Pillar tax deductible dynamics. The tax savings compound over time and that extra capital working for you makes a real difference.

Assumption

To outperform the SPY you should definitely pick a 100% equity vehicle which has an expected return pretty close to the SPY, so a vehicle mainly invested in America. If you pick a fixed income or balanced III Pillar vehicle, you won't probably outperform the SPY, mainly given its higher realized return.

Conclusion

If you are willing to choose a III Pillar vehicle that is equity driven with a US geographic focus (Swiss is fine too), you should expect having a higher return rather than investing in the SPY, given the tax savings the III Pillar allows you to get every year. These savings should of course be reinvested.

Open the Spreadsheet

→ View the spreadsheet on Google Sheets

The spreadsheet is read-only. If you want your own copy to play with, click File → Make a copy inside Google Sheets.