Some Swiss parents aren’t just saving for their children’s future, they’re turbocharging it with borrowed money. While traditional wisdom suggests a conservative savings account or maybe a global equity ETF, a growing number of financially sophisticated families are building children’s portfolios with leveraged ETFs, aiming to multiply decades of compound growth before their kids even finish primary school.
This isn’t theoretical. According to discussions in Swiss financial circles, parents are allocating 20% of children’s savings to leveraged strategies, creating sub-accounts at brokers like Interactive Brokers (IBKR) for each newborn, and already sitting on six-figure portfolios for preschoolers. The math is seductive. The ethics are anything but simple.
The Mathematics of Childhood Leverage
The core appeal is brutally simple: time. A child born today has roughly 18-25 years before needing their capital. That’s enough time to survive multiple market cycles, making the long-term drag of leverage decay less concerning. One parent mentioned using a three-fund leverage portfolio at 1.8x total exposure, combining it with 80% in traditional global equity ETFs like VT (Vanguard Total World Stock ETF).
Running the numbers: CHF 500 monthly invested from birth at 7% annual return grows to CHF 215,000 by age 18. At 1.8x leverage (assuming 1.4% higher annual return after costs and volatility drag), that becomes CHF 287,000, a CHF 72,000 difference. Extend to age 25, and the gap widens to over CHF 150,000.
But these calculations assume the leverage works as advertised. In reality, leveraged ETFs reset daily, creating path dependency that can devastate returns during volatile periods. The Swiss market’s relative stability helps, but global exposure means Swiss children aren’t immune to foreign market chaos.
Swiss Tax Advantages: The 0% Capital Gains Twist
Switzerland’s tax system makes this strategy uniquely appealing. Unlike Germany’s complex capital gains rules, Switzerland levies 0% tax on private capital gains. As one financially-minded parent noted, this means you could sell the entire leveraged position at age 18, transfer the proceeds as a gift, and rebuy without tax friction.
The gift transfer itself benefits from Swiss pragmatism. While Germany allows parents to gift €400,000 tax-free over ten years, Switzerland’s gift tax varies by canton, many impose no tax between parents and children. The Steueramt in Zurich, for example, exempts direct descendant gifts entirely. This means the entire leveraged gain transfers cleanly.
There’s also the Quellensteuer advantage. If the child’s income (including dividends) stays below CHF 12,000-15,000 depending on canton, they pay no income tax. Combined with the Sparerpauschbetrag concept (though Switzerland doesn’t have this exact mechanism), children can shelter substantial dividend income.
The Account Structure Dilemma: Junior Depot or Parental Control?
Parents face a critical decision: open a Kinderdepot in the child’s name or keep assets in their own account. The research reveals a split opinion.
Option A: Junior Depot
– Legally belongs to the child at 18 (or 21 in some cantons)
– Taxed at child’s rate (often zero)
– Transfers automatically at majority
– Risk: An 18-year-old inherits a leveraged portfolio they don’t understand
Option B: Parental Account
– Full control indefinitely
– No automatic transfer
– Taxed at parent’s rate (potentially higher)
– Risk: Estate tax implications, less tax efficiency
One parent pragmatically stated: “I haven’t thought about transfer, but probably I will sell, transfer the proceeds as gift/donation and reinvest it. Capital gains in Switzerland are taxed at 0% so no big issue.” This approach keeps the child protected from both leverage risk and their own inexperience until they’re ready.
The Leverage Implementation: What Swiss Parents Actually Buy
The specific products matter. Leveraged ETFs on the S&P 500 or MSCI World are common, but currency hedging becomes crucial. A 2x leveraged S&P 500 ETF in USD exposes Swiss children to both equity volatility and CHF/USD swings. Some parents mitigate this by using CHF-hedged versions or mixing leveraged US exposure with unhedged global funds.
Costs compound aggressively. A leveraged ETF charging 0.95% TER on top of 0.07% for the underlying index means nearly 1% annual drag. Over 18 years, that eats CHF 30,000+ from a CHF 200,000 portfolio. Interactive Brokers’ margin rates (currently around 1.5-2% for CHF) offer an alternative, but require active management and margin call monitoring, hardly compatible with a “set and forget” children’s strategy.
The Psychological Landmine: What Are We Really Teaching?
This is where the strategy becomes ethically treacherous. Financial education is valuable, but leveraged investing teaches the wrong lessons. Children learn that markets always recover, that risk is an abstraction, that debt is a tool for wealth. They don’t experience the stomach-churning reality of a 50% drawdown amplified to 80% by leverage.
Worse, parents often hide these accounts. One admitted: “FYI: they don’t actually know about the accounts.” So much for financial literacy. The child grows up financially illiterate while their portfolio performs financial acrobatics in the shadows.
The alternative, teaching children to save their Taschengeld, allocate it across three glasses (spend, save, donate), and watch compound growth work slowly, builds actual financial character. Leverage teaches speculation disguised as prudence.
Risk Scenarios: When the Math Meets Reality
Consider a child born in 2000 with a 2x leveraged MSCI World portfolio:
- 2000-2003: -60% drawdown becomes -90%. The portfolio needs a 900% gain just to break even.
- 2008: Another -50% becomes -75%. Recovery takes until 2013.
- 2020: The -34% crash becomes -60% in a month.
By age 18 in 2018, the portfolio might have barely recovered, while the un-leveraged version compounded peacefully. The child’s university fund evaporates because parents chased theoretical returns.
Volatility drag is mathematically brutal. A leveraged ETF’s long-term return equals:
Leverage × (Index Return) - (Leverage × (Leverage - 1) × Volatility²) / 2
The Swiss Regulatory Vacuum
Finma (Swiss Financial Market Supervisory Authority) hasn’t specifically addressed leveraged products in children’s accounts. Banks like Raiffeisen and ZKB offer junior accounts, but typically restrict them to traditional funds. Interactive Brokers, domiciled outside Switzerland, allows it, creating a regulatory gap.
The Säule 3a doesn’t permit leverage, so parents can’t use tax-advantaged retirement wrappers for this strategy. That leaves taxable accounts, where the 0% capital gains tax is the main benefit.
Alternative: Aggressive Without Leverage
If the goal is maximal growth, there’s a less dangerous path: 100% equity allocation with factor tilts. A portfolio of 50% VT, 30% Swiss small-caps, and 20% emerging markets historically matches leveraged returns without the path dependency risk. Add cryptocurrency allocation (5-10%) for those comfortable with digital assets, and you maintain high growth potential while sleeping at night.
The tax treatment remains identical, the volatility is lower, and the child can actually understand what they own when they turn 18.
The Verdict: A Strategy for Parents, Not Children
Leveraged children’s portfolios aren’t inherently wrong, but they serve parental ego more than child welfare. The mathematical edge is real but small, the psychological and practical risks are large. Switzerland’s tax system makes the strategy viable, but viability isn’t the same as wisdom.
If you must pursue this, keep it in your name, cap leverage at 1.5x, and plan to de-risk starting at age 12. Better yet, invest aggressively in your own portfolio and gift the proceeds. Let your child’s money teach them patience, not leverage.
The best financial gift isn’t a maximized portfolio, it’s the ability to manage money wisely when you’re no longer there to do it for them.
Running the numbers: CHF 500 monthly invested from birth at 7% annual return grows to CHF 215,000 by age 18. At 1.8x leverage (assuming 1.4% higher annual return after costs and volatility drag), that becomes CHF 287,000, a CHF 72,000 difference. Extend to age 25, and the gap widens to over CHF 150,000.
But these calculations assume the leverage works as advertised. In reality, leveraged ETFs reset daily, creating path dependency that can devastate returns during volatile periods. The Swiss market’s relative stability helps, but global exposure means Swiss children aren’t immune to foreign market chaos.
