Is it even worth saving in securities after costs and taxes?

The chart of the week may look somewhat complicated at first glance, but the logic behind it is simple: we calculate the net return of different asset classes by subtracting costs and taxes from the gross return.

For the four main asset classes, average returns and annual investment income (dividends or interest income) were calculated for the period from January 1, 2015 to December 31, 2024. The decade under review was characterized by an above-average US equity market, a solid Swiss equity market and a low or even negative interest rate environment in Swiss francs.

The following cost and tax deductions were considered:

• Recurring costs: Standard non-negotiated costs in traditional asset management typically range between 2% and 3%. The best price offer on the Economico marketplace is around 0.48%.
• Entry and exit costs: So-called round-trip costs arise when building and liquidating portfolios. Based on Economico marketplace data, these costs are divided by three, implicitly assuming a holding period of three years.
• Foreign withholding taxes: Dividend income from foreign equities is subject to country-specific withholding tax.
• Individual income taxation: Net dividend and interest income is subject to personal income tax. In the analysis, a tax rate of 20% was assumed, although this may vary depending on the tax domicile and tax progression.

What remains after these deductions? Bonds, which already offer limited gross returns, remain a loss-making investment after costs and taxes in the current low-interest environment. Even with efficient implementation they struggle to achieve a positive net return. Equities, however, still generated positive returns after costs and taxes during the observed ten-year period.

If these asset classes are combined into a mixed portfolio, the importance of costs in portfolio management becomes very clear. Standard non-negotiated asset management costs, together with tax burdens, have largely eroded the return of a representative mixed portfolio.