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Today I’d like to introduce Ms. Maxi, our newly minted German correspondent. That’s right, Millennial-Revolution is officially international, bitches!
Actually, we met Ms. Maxi at the UK Chautauqua and we got into a deeply involved discussion on achieving FI in Europe. She’s German, and as it turns out there aren’t a lot of people who’ve heard of Financial Independence in Germany. Not only that, because there’s so few people who know about it, there really aren’t any blogs like one that cover the topic from a German perspective. Much of what she learned on her own FI journey was taken from American and Canadian blogs like this one and then adapting it to the German investment
Does FI work in Germany? How do you adapt what we write about and JLCollins writes about to your situation?
Well, I did read all the blogs and I actually started investing before I read JL Collins’ book The Simple Path to Wealth. There is this one book that’s really good by Gerd Kommers. He is a German professor who researches about exchange-traded funds.
You can also find his model portfolios, or “Musterportfolios” on JustETF.com.
And what is JustETF.com?
This is where I keep myself up to date on what my portfolio looks like. I don’t always want to log into my bank. So I use that to find my ETFs and look up their TERs (Total Expense Ratios). They also have some portfolios and also the one from Gerd Kommers.
So it looks like this Gerd Kommers is kind of the German John Bogle. What does he write about? Is there an equivalent of Vanguard-style Index ETFs. Do you have them?
Yes, they were made for institutions, like big banks or investment firms, but individuals can invest in them as well.
How do you trade them? Do you have low-cost brokerages in Germany that allow you to trade these ETFs commission free?
Here’s what I do:
1) Get a Depot (or an account) with a bank, preferably an online one. Make sure you aren’t paying any fees.
2) Trade the ETFs you like via Tradegate to not pay any transaction fees.
3) You can actually set up and use www.justetf.com to mirror the Depot Account.
So you start with an online bank to hold your money in an account. Which one do you use?
I use ING-DiBa.
Right, we have heard of ING. They used to be here in Canada offering no-fee online banking a few years back before they got bought out. And what is Tradegate?
So I have the Depot (or account) at the bank where I can buy any shares that I want. But I have to buy them via the stock exchange. But I usually buy via Tradegate. So I don’t use any broker where I have to pay any fees. I buy them myself via Tradegate.
OK so Tradegate is like a low-cost brokerage company, right?
Something like that, yeah.
So they don’t charge any commissions for buying and selling?
No.
OK so what ETFs are available? What do you use?
Well, I usually buy German ones. One is the MSCI World Index and the other is Emerging Markets.
OK so your world equity exposure is done through those 2 ETFs?
Yes.
What about for fixed income?
Oh I don’t have any. I’m 100% equity. Actually, I have money outside in a normal account that’s not invested. It’s 6 months living expenses. But the rest is 100% equity.
OK so if someone was more risk-adverse, does Germany have ways to invest in bonds.
Yes, we do have ETFs for bonds as well.
What are they called?
You can find them on JustETF.com.
How about taxes? How do taxes work when you’re working?
Well, when I work, it depends on how much I make per year. The first 8,000 Euros are free, I don’t have to pay any taxes on that, and after that it goes up. At 54,000 Euros you’re already at 46%.
54k Euros and you’re at 46%? Wow, that’s pretty high.
Yes. We don’t really have any ability to use tax-advantaged accounts because if we put money into retirement accounts in Germany which are tax-free, we won’t get them out until 62 at least.
So there’s no way of getting them out at all?
No. Or I would have to repay the government. I do have one account which I do privately and I get around 200-300 Euros per year.
So this is like a pension plan?
Yes, it’s a pension plan. And I would have to repay all this money if I were to take it out, so it doesn’t make any sense because the mutual funds you can invest in these plans are high-cost. I only did it because the amount I get from the state makes it OK.
Gotcha. So what are these tax advantaged accounts called?
Well, this private one is called a Riester-Rente. If you work for a big corporation you could also be eligible for a company plan. I have access to that too. Then there’s the government one. As long as I’m working I have to pay into it.
So you generally don’t use these vehicles because of the age restrictions?
I have to use it. I don’t have a choice. This is why we have this “Generation Contract.” I pay now and the money goes towards the people who are retired. So it kinda sucks.
Yeah, that kinda sucks…
But it does help if I get sick and I have to leave my job. After 6 weeks leave, I don’t really get any money anymore. So the insurance company pays about 60% of my salary, and then if I’m really sick I can say “I need to go into retirement now” and I would get my money now. It’s not a lot but I could live on it. So it’s really high security. I hate that I have to pay it, and I can’t say “I want to put my money into Index ETFs”, but the security is quite high.
So of your salary, how much goes into these Riester accounts?
I put in 163 Euros per month. It’s so I can get the match from the government, but I wrote a blog entry on why I do Riester, and if I had to do it again I’m not sure I would.
What do you think your average tax rate is?
My personal one? I’d say it’s around 32%.
Oh OK, so it’s somewhat comparable to Canada. We’re sort of a high-tax jurisdiction as well, but we don’t have the restrictions on taking money out in retirement. What’s the health care system like in Germany?
Well right now, I have to pay half into my health care plan while the other half is paid by my company. It’s around 600 Euros a month.
So if you were to retire and you wouldn’t have that company paying half your insurance premiums, how much would that cost you to maintain health insurance?
Well, if I don’t have any income, I would get into the lowest rates, and then it’s about 200-300 Euros per month. So it’s significant if you don’t have a lot of money, but if you’re going for FI it wouldn’t be too bad.
At this point we’re going to split up our interview into a 2-part segment. Stay tuned for part 2 of How to Become FI in Germany. Ms. Maxi runs the blog Ms. Maxi where she writes about finance and minimalism in Germany. Check her out!
And on that note, we shall now proceed with our regularly scheduled buys.
Canadian Portfolio
We begin as always by adding in our cash and taking a snapshot of where our portfolio is…
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $24.90 | 159 | $3,959.10 | 37.60% | 40% |
| Canadian Index | VCN | $31.24 | 65 | $2,030.60 | 19.28% | 20% |
| US Index | VUN | $43.03 | 47 | $2,022.41 | 19.21% | 20% |
| EAFE Index | XEF | $28.96 | 56 | $1,621.76 | 15.40% | 16% |
| Emerging Markets | XEC | $25.83 | 15 | $387.45 | 3.68% | 4% |
| Cash | – | $1.00 | 508.83 | $508.83 | 4.83% | 0% |
We then figure out how to rebalance our portfolio to get us back to target…
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference |
|---|---|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | 40% | $24.90 | $3,959.10 | $4,212.06 | 159 | 169.2 | 10.2 |
| Canadian Index | VCN | 20% | $31.24 | $2,030.60 | $2,106.03 | 65 | 67.4 | 2.4 |
| US Index | VUN | 20% | $43.03 | $2,022.41 | $2,106.03 | 47 | 48.9 | 1.9 |
| EAFE Index | XEF | 16% | $28.96 | $1,621.76 | $1,684.82 | 56 | 58.2 | 2.2 |
| Emerging Markets | XEC | 4% | $25.83 | $387.45 | $421.21 | 15 | 16.3 | 1.3 |
| Cash | – | 0% | $1.00 | $508.83 | $0.00 | 508.83 | 0.0 | -508.8 |
And finally we pick our buys orders being careful not to go into margin…
| Asset | Ticker | Unit Price | Action | Fractional Units | Units | Proceeds |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $24.90 | BUY | 10.2 | 10 | $249.00 |
| Canadian Index | VCN | $31.24 | BUY | 2.4 | 2 | $62.48 |
| US Index | VUN | $43.03 | BUY | 1.9 | 2 | $86.06 |
| EAFE Index | XEF | $28.96 | BUY | 2.2 | 2 | $57.92 |
| Emerging Markets | XEC | $25.83 | BUY | 1.3 | 1 | $25.83 |
| Total | $481.29 |
American Portfolio
And on the American side, we begin by adding in our cash and looking at our current portfolio allocation
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Bonds | BND | $82.18 | 51 | $4,191.18 | 38.06% | 40% |
| US Index | VTI | $128.19 | 24 | $3,076.56 | 27.94% | 30% |
| International Index | VEU | $52.31 | 60 | $3,138.60 | 28.50% | 30% |
| Cash | – | $1.00 | 605.03 | $605.03 | 5.49% | 0% |
We then figure out how to rebalance our portfolio to get us back on target…
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference | |
|---|---|---|---|---|---|---|---|---|---|
| Bonds | BND | 40% | $82.18 | $4,191.18 | $4,404.55 | 51 | 53.6 | 2.6 | |
| US Index | VTI | 30% | $128.19 | $3,076.56 | $3,303.41 | 24 | 25.8 | 1.8 | |
| International Index | VEU | 30% | $52.31 | $3,138.60 | $3,303.41 | 60 | 63.2 | 3.2 | |
| Cash | – | 0% | $1.00 | $605.03 | $0.00 | 605.03 | 0.0 | -605.0 |
And finally, we decide on our buy orders being careful not to go into margin…
| Asset | Ticker | Unit Price | Action | Fractional Units | Units | Proceeds |
|---|---|---|---|---|---|---|
| Bonds | BND | $82.18 | BUY | 2.6 | 2 | $164.36 |
| US Index | VTI | $128.19 | BUY | 1.8 | 2 | $256.38 |
| International Index | VEU | $52.31 | BUY | 3.2 | 3 | $156.93 |
| Total | $577.67 |
And with that, we’re done. See everyone next week!
Continue onto the next article!
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Nice post. It’s great to see you guys spread out internationally. I think its interesting to note where FIRE has taken off as a concept. It’s mostly in the US, Canada, and some southeast Asian counties. At this point, I will make the following unscientific observation that I think both FireCracker (and Wanderer of course) and the Financial Samurai would agree with me on – the desire for FIRE is directly proportional to how hard you’re getting whipped at your job. It seems (and the grass is always greener) that Germany’s social welfare is stronger and keeping people feeling better in their jobs. Of course, I’m sure all is not that rosy.
Anyway, I thought Maxi would be interested in another aspect of FIRE – the 4% rule. Portfolio Chart recently did a blog post where they evaluated the 4% rule for a number of countries and regions. It turns out that mix is totally different in Germany, and that your Safe Withdrawal Rate might be a bit higher than in North America!
“the desire for FIRE is directly proportional to how hard you’re getting whipped at your job”
I can see this being the case for many people, but I wanted to write in from the opposite perspective — I’m saving aggressively as if quitting and giving my boss the finger ASAP were the goal, but I actually really love my job. I will FIRE sometime in my early 30s but will probably not stop working if things continue to go well.
My desire for FIRE comes from the mental freedom I see in it — the knowledge that my quality of life will not be 100% dependent on having the job, and that I’ll never have to panic about finding a new gig immediately if things go south. Or having to marry a rich dude like my grandma keeps suggesting. Ugh.
If there are any fellow workforce weirdos on here lucky enough to not be getting whipped at their jobs, MMM wrote a relevant article about “retiring in your mind” even if you keep working after FIRE. Worth checking out.
“the desire for FIRE is directly proportional to how hard you’re getting whipped at your job”
Absolutely I’d agree with that, and while every country has its own system of laws and whatnot, sucky jobs exist everywhere.
Oh wow, thanks for the tip about the Protfolio Chart Blog Post! I found it, here is the link: https://portfoliocharts.com/2017/06/09/your-home-country-is-inseparable-from-your-withdrawal-rate/
I actually always wondered about that, but never really worried about it, since I will figure it out eventually anyway!
So yes, I am aware of the 4% rule and I use it to calculate my monthly “income”. I read the book “Your Life or Your Money” and I do the monthly charting of income, spendings, and I also have a graph showing the 4% (which at the moment does not even show 🙁 )
You’re welcome 🙂 And don’t worry, it always starts small, but once it grows, its addicting!
I’m surprised to learn that Germany doesn’t have nationalized healthcare. Having spent about a day a week in Mainz over the past six years, I was always under the impression that it was similar to the Canadian system, and not to the Swiss.
I’m not that surprised that financial independence isn’t so well-known in Germany, even though personal savings rates are a good bit higher than in Canada. From what I saw in Mainz, the Germans have a nice work-life balance. Contrary to the stereotypes we know in Canada, when the workday is over, I found the Germans I saw and knew there – and the immigrants I know in Canada – to be very good at enjoying life. Five weeks of paid vacation is standard, rents and especially food and drink are affordable. I perceive working conditions to be somewhat better than in Canada, and the German culture values productivity more than the Canadian one does, so I think that Germans are more inclined to want to work. If that’s your everyday routine, I can see that FI becomes less of a priority.
I say it almost every time I’m in Germany: I could easily see living there.
I’ll have to take a look at Ms. Maxi’s blog. Although my girlfriend and I speak German at home – she studied in Heidelberg – I rarely read any, so this is a nice opportunity.
Yeah me too. I thought all of Europe was a socialist paradise, but Germany actually uses a privatized health care system similar to the US. UNLIKE the US, however, the health insurance companies are heavily regulated. That’s actually where the interview goes after this, so I’ll write more about this next Wednesday.
Actually Germany does have nationalized health care.
https://en.m.wikipedia.org/wiki/Healthcare_in_Germany
“Germany has a universal multi-payer health care system paid for by a combination of statutory health insurance (Gesetzliche Krankenversicherung) officially called “sickness funds” (Krankenkassen) and private health insurance (Private Krankenversicherung), colloquially also called “(private) sickness funds”.
According to the World Health Organization, Germany’s health care system was 77% government-funded and 23% privately funded as of 2004.”
The disparity between Europe and North America when it comes to investing and early retirement is pretty staggering. Even in the UK, where I originate from, investing in stocks is largely seen as something only businesses and rich people do.
Here in North America, it seems way more “average” people dabble with investing. Perhaps it’s because investing here is so accessible. Every time I hear experiences from Europe, they seem to struggle to even set up online brokerages. Even with this German example, it sounds difficult and confusing for the average person. You have to really be interested in it to take it seriously.
“Here in North America, it seems way more “average” people dabble with investing”
I wonder whether this is only anecdotal evidence. I find it really hard to believe that investing would be easier/more accessible for someone in NA than in Europe/UK, especially in the internet age. I hope someone out there would have some kind of solid data to elucidate this issue. But I guess if both the long/short-term capital gains taxes are higher over there, then perhaps overall people have less incentive to invest in the markets. Other reasons?
Culture, generational advantages that are hard to shake, conviction that you can’t be different from the norm… Do you know about the monkey experiment? They put a group on monkeys in a cage. They then dangled a banana from the top. If a monkey climbed up to get the banana, all monkeys got hosed with water.
Pretty soon the monkeys learned this, and not liking being wet, they started to preclude each other from going for the banana. And they got vicious. They would pummel any monkey that even tried to go up for the banana.
Now the researchers tried to be tricky. They swapped out the monkeys one by one. Pretty soon no monkey in the cage had been hosed with water before. But guess what? When a monkey tried to go after the banana, the other monkeys still sacked him.
The way its always been and the way it always will be is very deeply ingrained in us. Think carefully before you do something because that’s what people do.
This is the definition of religion.
Yeah it might be more anecdotal from my experience in the UK and from what I see around the blogosphere. There are certainly very few people discussing financial freedom in the rest of the world compared to North America, and from what I’ve seen it’s much more difficult to invest yourself.
It would be great to see some data as you say!
Well, I think we do need to fill in some more forms than you do when we want to open an investing account. And we do need to know a little bit more before we can actually invest.
The biggest part, preventing germans from investing I think is, that they are afraid of the stock market. Usually only “rich” people buy stocks, but the average Joe not so much.
Germans seem to be hard wired into putting their money into their bank accounts. I am not sure if they do not notice that they are actually loosing money today doing that. “It’s save, I want my money to be safe!” That’s the reason behind it.
Like in the US, the savings rate in Germany dropped below 10%, but at least it’s still positive 😉
But the US is still the richest country on earth, with around € 177.000 Net-savings per Person. Germany only reached the 18th place with €49.000 per Person.
Well, I guess here you can see the compound-interest at work!
There are still cheap/free ways to invest in almost every country it seems. But culturally, yeah I think you’re right. I think in the US/Canada, there’s an expectation that you have to save for your own retirement so it’s much more common for people to have to at least open up a 401(k)/RRSP and do some investing.
In other countries with really generous public pension systems, people could go their entire lives without touching an investment ever.
100% in Equity is suicide, my bet is Ms. Maxi is about 25 years old, and has never heard about the Depression, or knows what a Recession is.
You only make money if you know when to fold em, and know when to hold em. We are at a peak in all markets, it may go up, but hello… look at what is in front of you. Its up… what goes up must come down…
Don’t be so greedy, and stick with a plan. Else be prepared to lose 40-50% of your entire investment portfolio, ask yourself can you live with this? The key to Warren Buffets success is he always has cash on hand to take advantage of choice opportunity’s. 100% Equity is all your eggs in one basket, diversify to stay safe. I do believe in “letting the dogs run” which is stay the course of about 70% equitys for a term of no less than 5, and no more than 8 years, this seems to be an average market run. Then re-balance to 50/50 or at minimum 60/40. (equity/bond)
cheers
I think this should be fun!
Pop Quiz Time:
[No cheating please. Just give your best guess.]
After adjusting for inflation and excluding dividends, what is the true Compound Annual Growth Rate (CAGR) of the S&P 500 over the period Jan 1, 2000 to Dec 31, 2016?
(a) -3% to -1%
(b) -1% to 1%
(c) 1% to 3%
(d) 3% to 5%
(e) 5% to 7%
(f) 7% to 9%
(g) 9% to 11%
(h) 11% to 13%
Its around 2%, but the CAGR of the market is actually not terribly relevant unless you are never going to earn another dime.
Sorry. You’re wrong. 🙂
The answer is (b). To be exact, it is 0.36% (Yes, zero point three six percent). Barely beats inflation.
This surprises a lot of people. The point is that timing and luck matter more than anything.
You can calculate the CAGR here: http://www.moneychimp.com/features/market_cagr.htm
Actually I am not wrong. If you are, hypothetically, holding the index for 17 years, why are you not reinvesting dividends?
Timing and luck only matter if you are an heir/heiress of a large fortune or a pension fund. Even then the index has broken even over 15 year periods in the past. The point here is that you should be looking at large time spans of 30+ years – i.e. retirement horizons.
Most people don’t invest lump sums (and yes I know statistically its better – but again, over what time window?). Most of us Dollar Cost Average. Incidentally Millennial-Revolution did an awesome post about why DCA kicks a$$. With DCA you get a series of entry points, so while some of your dollars break even, others lose, and yet others win. It’s not something you can simplify and visualize but it works.
I used the “short” 17 year time span because in most (if not all) reader cases that have been considered thus far on this site, the conclusion is that FI can be reached in <15 years.
You like a 30 year period and DCA? OK. Look here then:
http://allfinancialmatters.com/2012/08/30/dollar-cost-averaging-into-the-sp-500-over-30-year-periods-after-inflation/
That's with dividends.
It is easy to infer from the graph that timing is still very important.
Oh I see, so you’re implying that this site is basically a lucky anomaly. Well I disagree, and I’m sure FireCracker and Wanderer would agree with me. Timing is important, but you cannot control it. And even still, you will do much better in the stock market than in any other investing instrument.
With regard to achieving FI as has been suggested here and on other blogs, I will say three things to support my assertion here:
1. It has been repeatedly emphasized that it’s your savings rate, not the market return that drives FI.
2. People, including Wanderer and FireCracker talk about continuing to make some kind of money – essentially enough to support themselves without needing to save or commute.
3. Almost any FI blog you read has occurred during the very last set of 30 year periods in that attached pdf. This means that on average the market tripled the initial investment. This includes 00-10 which had nearly 0 in market returns on a lump sum basis. What this period does not include is the hyperinflation of the 1970s.
I’m not saying you shouldn’t invest in the markets. Heck, I am investing 100% in equities. And I’m also saving almost 100% of my salary (yes, that is possible).
Of course CAGR is relevant if you want to retire early and live off your portfolio for the next 30-40 years. It is nice to have a side gag in your retirement to provide some fun and games and supplemental income, but you should always plan for the case that what you’ve saved would be your only revenue stream.
The upshot again is that timing is paramount, and you should temper your expectations. I have. That’s why I’m saving at a 100% clip (almost). Who’s to say that there won’t be hyperinflation or a Great Depression within the next 30-40 years?
don’t agree ….
the lowest point is one day only .. . then it goes up big time .. .. big time
the 6 months cash reserve can be used to buy low … very low .. get a job for expenses in this time .. . i would work work and buy equities if equities were 40 % down
and then who cares .. we have dividends .
She is in her 20’s, so her investment timeframe does support her equity allocation. It WILL be pretty volatile though, but I think she understands that.
i am getting more and more to the idea of zero bonds .. i am old ; over 40.. yikes
and retired
my expenses are covered by the dividends ( yes i have a lot of money ) .. and i keep a cash stash ( in a bank ) .. for extra expenses . this can be easily replenished by selling in a bull market , which is most of the time … I have experienced a big drop in my investments and i didn’t like it but i sure didn’t sell .. instead i bought.. . … if my portfolio was down 40% i would do anything to find more money to buy equity ETF’s
Thanks for pointing that out spaceman. Actually I do know what a Depression and what a Recession is. I am quite well aware, that there will be market drops like the one in 2008, or even worse.
The blog entry clearly states, that I do not keep all my money invested in the stock market. But all the money that IS invested in the stock market, is 100% equity. I did not disclose the percentage I keep separate.
Average returns for 100% equity is much higher than a portfolio including bonds, so I’m not sure why you consider it suicidal. Just because some people crumble and fold when a crash hits doesn’t mean everyone does. Ride out the storm and you’ll come out just fine with a 100% equity portfolio.
Yes Buffet keeps cash but that’s not to reduce volatility it’s to take advantage of opportunities when they arise. Most people aren’t Warren Buffet though, and don’t know when an opportunity arises and don’t want to take that risk when it does. It’s easier to just keep buying equities forever and guarantee a 9%+ return long-term than to try and find opportunities like Buffet does.
25 years old is the perfect time to be in 100% equities by the way. I wouldn’t recommend it for someone nearing retirement but Mrs. Maxi can go through crashes and come out without needing to touch her portfolio.
Maybe I missed it, but where does the American portfolio address the dividends?
Address the dividends? What do you mean?
All the ETFs pay dividends into the accounts if that what you’re referring to.
Hello Kristy & fellow millenials! OMG I feel like I am falling so far behind. I only just finalized the opening of my Questrade account and I have 10,000 ready to invest and I feel completely lost. I’ve been trying to read through the Workshops but I keep falling asleep because of (work, 2 kids & 83 yr old mother). I have 40! workshops to catch up to. If you have ANY advice, tips, ideas how I can get this investment ball rolling I will be eternally grateful.
(1) Max out your 401k, IRAs, HSA/FSA
(2) Put your savings into ETFs such VTI and BND
That would be a very good start. It is simpler than most people realize.
Take your time and don’t rush things. Only start investing when you have a solid grasp of the core concepts of building an investment portfolio, and don’t worry. Investing isn’t complicated.
Interesting. I had no idea the taxes were so high in Germany.
Yeah they’re still trying to repair the damage of that whole “Our country got bombed to all Hell and then divided up in half by the Soviets” thing.
There’s actually a specific tax for that: the Solidaritätszuschlag, or Solidarity Tax which is a 5.5% surcharge levied on all taxpayers to help pay for the reunification of West Germany and the former DDR.
But those 5.5% are on top of our tax rate!
Well, I think we have to pay a lot of taxes, but we also receive a benefit from it:
For example we have a very good infrastructure (think Autobahn!!!) and we do have decent schools with (almost) free education. So yes, we do pay more taxes, but we also have benefits.
Student loans of 100.000k? Unheard of! A doctor will get his/her education almost for free, and we as a whole will pay for the education of that doctor.
Right, exactly! But the trouble is that such benefits take decades to become obvious as benefits. Much longer than the typical election cycle.
Well, actually now they are quite visible. It has been almost 30 years now.
The trouble is now, that the cities in the eastern part are now often in better shape than their counterparts in the west…
We just had elections, and some parties are talking about removing the tax. Let’s see what happens…
I’m 100% equity. Actually, I have money outside in a normal account that’s not invested. It’s 6 months living expenses. But the rest is 100% equity.
love this method .. . sell stocks to replenish . yeah
Man we got a lot of cowboys on this blog. And cowgirls. Specifically, German cowgirls.
Hmmmm not sure if that’s a thing…
Rule 34
Mrs Maxi, thank you for sharing this information! I am married to a German and we live and invest in Germany. My German language skills are super rubbish (so it’s hard to read German FI blogs), but was wondering if you could eloborate about the country where the fund is domiciled for your ETF (Ireland and Luxembourg) and the implications this has for tax. We have only been buying ETF that are domiciled in Germany because otherwise I thought I would get doubled taxed (to be honest it is hard to find stuff in english about the tax stuff).
Also does this Tradegate really not charge fees for buying ETFs? We use Flatex (they charge 5.90€ per trade, but I see that this somehow links to Tradegate… but how does that work exactly?
Looking forward to your next installment!!
Good Morning Julie,
well, mine are situated actually in Ireland and Luxembourg (one each). But with the new law which is going to be past next year, this should not matter anymore.
During my research I actually looked both ETFs up in the “Bundesanzeiger”.
We have something called “tax-beautiful” and “tax-ugly”. Tax-Ugly means that you will have a hard time during tax time. Tax-Beautiful means that the tax time will be easier.
So it does not matter where the ETF is domiciled, it does matter however if the ETF is “tax-beautiful” or not. At least until next year.
Well, Tradegate in connection with ING-Diba does not charge me anything. It is actually quite simple.
But thank you for pointing that out, I think I will take some screenshots the next time I will buy ETFs and put them on my blog.
Feel free to contact me via E-Mail!
Best regards
Ms. Maxi
Hi Ms. Maxi,
Thank you so much for reply! I will keep an eye on your blog for the screenshots when you next purchase your ETFs as that would be great to not be charged fees when purchasing ETFs!
Many thanks also for the information about the “tax-beautiful”. I sort of avoided anything that wasn’t domiciled in Germany, but it’s good to know that we don’t have to.
Many thanks,
Julie
Hi,
here another expat (millenial coming from spain, excuse my english grammar) living-working-investing in Germany.
To the points of ugly/transparent ETFs (from 2018 all is changing), according to my research on the internet, it does matters where is the ETF domiciled. What I know about it (I did de research like 5-6 months ago when I was starting investing) ugly ETFs are those fonds which retain a particular yield from one year to the other (if you check justetf.de, they have a link to the annual report and there are 2 sections you have to look to see if this fond retained that yield last years (i. e., some accumulative ETFs and even some yielding ETFs that make the last yields on sept-oct-nov, and there is some yielding accumulated from Dezember)
This is problematic when the fond is domiciled in some countries as Ireland, Luxemburg, where taxes are not communicated to Germany and bla,bla,bla (there is a lot of info in german about, tell your partner to look after it). Worst case scenario: you have to declare manually every gain and it is a bit complicated/confusing because you have to ask for reports, etc. but it is doable.
To conclude: until this year, you would have to look careful what you were buying, hence, I decided to buy german-domiciled yielding ETFs, between ishares and db-x trackers you have plenty options (low TER around 0,15-0,40, +800M€).
From 2018 and avobe with the new law which will tax capital gains retrospectively once you sell (so there will be almost no difference between yield/accum.) , I did some calculations for a 10-15 years scenario and for my level of savings, yielding ETFs give slightly better because of the 800€ gains free of taxes per year(it is not exactly that simple but you will have to look deeper here).
On top of that, I feel safer splitting the gain in capital gain and yields in case of another recession because yielding rate usually does not go down so abruptly and I need to do less transactions to rebalance as I get money without selling.
Respect to tradegate, it is a private institution not regulated with the same regulations of prices as Frankfurt/Munich/Stuttgar… börsen, I read some articles saying that they play a bit wiht buy/sell orders to make profit and despite a lot of people are using it and seems to have a lot of traffic and therefore a low spread ratio, I don´t know how would it be on the moment I want to sell and I prefer to buy in official “Börsen”.
http://www.wiwo.de/finanzen/boerse/plattform-fuer-privatanleger-orders-fuer-tradegate/10367106-2.html
Respect to the 100% of investments on equities, I disagree completely. After reading the intelligent investor and The Intelligent Asset Allocator, one can conclude that adding 15-20% of bonds, with rebalancing every 6-12 months, the performance of the portfolio is almost not touched and you have much less volatility (see https://www.google.de/search?q=the+intelligent+asset+allocator&source=lnms&tbm=isch&sa=X&ved=0ahUKEwi9-vmIydrWAhWHF8AKHRYsAoMQ_AUICigB&biw=1366&bih=662#imgrc=NoLuYlNgnbcXNM:
I find Bogle´s rule ilustrative and in my case, 25 years old, I go 75 stock / 25 Bonds. If you are able to translate from spanish (google translator) here there are a few useful links about lazy portfolios for european investors (tilt to eurozone as it is better to have more money in the currency you will be spending on retiring phase to protect a bit against foreign currency risk)
http://inversorinteligente.net/9-carteras-de-etfs-para-espanoles-vagos/
http://inversorinteligente.net/si-los-bonos-son-el-demonio-mejor-tener-unos-pocos/
Of course, on tax deferred accounts where I can take the money only at 65 years old I would go 100% equities but, and I say BUT, if we have another recession/crisis on the stock market and you lose 70% of the value and, lets say, yourself/your sister/brother/son/best friend went on vacation without the proper healthcare Insurance, has a car accident, and needs a repatriation or a long stance in a private hospital, ant it is a dead-live situation… are you going to resist to sell 100k$ to pay the bill? (I am not so dramatic, last year my best friend had a car accident in Spain where 2 ppl were killed, 2 years ago my cousing fell from a 4 stock building in the US without insurance and my uncle`s inssurance did not cover 50-60k $ (death-life accident), 4 years ago a work mate was working for 6 months in India and got a climbing accident and needed a repatriation (death-life accident) which was not included in the inssurance and the spanish embassy had to interceed (the bill was +100k€), etc. This all histories are all true, the posibilities are low, but a car/motorbike/ski/climbing accident of a near person in a foreign country is not that weird, and not everyone buys the proper insurance neither all insurance companies make their exceptions clear.
That is the very very extreme situations but I guess that everyone has people who matter that much that would destroy our FIRE strategy in a bear market if we go 100% equities.
“I it is much more easier to know how to prepare and how to climb the Everest that climbing it”
Hi Juli,
I read your story I am in a similair situation as you. Live in Germany, studying but am not native German and invest as well.
I also have a Flatex account and I invest in ETF’s too.
Like in the article is written you can look up the ETF’s in justetf.com and to (almost) not pay any transactions fees, do a sparplan. Unfortunetly it is fixed to invest on first day of the month or the 15th day of the month automatically. However be very carefull since for many sparplan they ask for 0.9% fee. So far I know is Comstage ETF’s totally free and in those I invest, before Ishares were free.
I also have a question for Ms Maxi,
What about the tax after €801 a year received from your dividends? So far I know you will be taxed after you reached the €801 and for every euro above you have to pay a tax of 25% which I find really a lot.
Do you know any way to receive this money back? Since I didn’t saw anything in this article about this regulation.
I would really appreaciate you answer about this.
kind regards,
Hemei
42 percent tax rate in Germany not 46 percent!