Investor from Finland

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Investor from Finland

Post by TheCounselor »

Hello!

I am a person living in Finland and I`ve rapidly grown interested in financial independence and other financial decisions that affect my life. Now, i live in a country where there are no good, cheap ETF-trackers for the US (looking at s&p500), possibly emerging markets and also developed EX-US.

Now, I can possibly deposit a maximum of 2600euros the first time and the brokerage commission is high (can`t open a Vanguard account here either), like 15 euros per trade for EU/US , so I`d need to split my portfolio into two or three ETF:s at MAXIMUM.

I`m still very young so I won`t be looking into bonds at all, right now I only seek maximum long-time returns.

Can you give me any advice? In short: European (euro country), need 2 or 3 ETF:s that preferably track US, emerging markets and developed markets EX-NA. If those fit into 2 ETF:s it would be even better. Also, as s I`ve understood it, I should look for an American ETF (us-dollar) for the US ETF and an European one for developed markets and emerging markets (as I negate the currency risk that way)?
User avatar
wbond
Posts: 1089
Joined: Wed Dec 10, 2008 5:55 pm

Re: Investor from Finland

Post by wbond »

I don't know the answer to your queries, but suspect someone here will.

As an aside, I imagine that sisu will be a good counter to "behavioral risk."
User avatar
BL
Posts: 9874
Joined: Sun Mar 01, 2009 1:28 pm

Re: Investor from Finland

Post by BL »

I would try to do it less frequently (annually or at least not more often than quarterly) and maybe buy one each time and limit the total number. You will slowly reach your desired allocation but never be exactly there this way.

I have no idea of the funds you can purchase, but the cost sounds high.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

BL wrote:I would try to do it less frequently (annually or at least not more often than quarterly) and maybe buy one each time and limit the total number. You will slowly reach your desired allocation but never be exactly there this way.

I have no idea of the funds you can purchase, but the cost sounds high.
I can purchase most funds through my broker, and yes, the commission is high (9 euros for domestic, 15 for EU/US). Not much to do about that though, I`m already a customer in the cheapest brokrage service/bank in Finland, all factors considered.

Would buying quarterly hurt the compound interest that I´ll be getting? Or does it not matter if I buy less frequently? (quarterly buys would be good, that way I could invest about 3600 each time and limit the % cost that the commissions take)
NOLA
Posts: 373
Joined: Sun Jul 10, 2011 1:23 pm

Re: Investor from Finland

Post by NOLA »

Wish I could help you, but don't know much about how it works in Finland. I understand that you were asking about US stocks and not sure how long you plan on staying there. However, if you plan on staying there for a while, Finland might have something similar to Sweden(Avanza zero) that doesn't charge any fee for their top 30 company index fund. No ER whatsoever.

Good luck from a Swede living in the US!
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

NOLA wrote:Wish I could help you, but don't know much about how it works in Finland. I understand that you were asking about US stocks and not sure how long you plan on staying there. However, if you plan on staying there for a while, Finland might have something similar to Sweden(Avanza zero) that doesn't charge any fee for their top 30 company index fund. No ER whatsoever.

Good luck from a Swede living in the US!
Well, I`m probably not moving to the US in the foreseeable future atleast, so that is out of the question. Also, we don`t have any similar things to AZ here in Finland and even if we had, I`d need to invest a big lump sum every time to cover up for the relatively high commission fees. This would lead to overweight in the domestic side, I`m not very hopeful for the future of the economy of Finland and that is why I´d like to diversify more.

The question, paraphrased, was: What ETF:s would be best for me? I`ve looked into Vanguard total market ETF and total international EX-US (two portfolio fund, no bonds in this stage of my life yet), and Vanguard total market ETF (or s&p500 etf), Vanguard developed countries EX-NA and Vanguard emerging markets (three-fund portfolio).

Which of these would be better and does quarterly investing hurt compounding somehow? (I don`t earn enough to be able to push in money each month as the brokerage commission fees would eat up way too much of the cash each time) I`m looking for a balanced portfolio with maximal diversification and a healthy amount of different stock holdings. Basically: TM (or s&P500) and TI or TM (or s&P500), Developed-EX-NA and Emerging.
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

First of all, when investing in stock market ETFs, you shouldnt really care about the currency said ETFs trade in beyond considering the costs of exchanging currencies when you buy and sell ETF shares. An S&P500 ETF will give you the same return regardless of whether you pay for it in USD, EUR or chickens.

As an example: shares of Nokia can be bought on the Helsinki exchange for euros or on a US exchange for dollars. You carry no additional currency risk if you happen to pay for your Nokia shares in dollars, it's still the same exact underlying company regardless of what currency you used to pay for the shares. Currency risk is defined by the actual assets you own, not the currency you used to purchase said assets.

Second: since you are in Finland, your best bet is to open an account with Nordnet. They offer you a system where you can deposit money with them montly and it automatically gets invested into ETFs of your choice at NO COST. Obviously not all ETFs are available under this system, but they give you access to iShares ETFs and some other major ETF providers, so it's trivial to build yourself a good ETF basket to invest in.

Third: if what you want is cheap and passive index investing, you may want to look at mutual funds offered by Seligson. You don't HAVE to use ETF's after all.

Disclaimer: I live in Finland.
User avatar
BL
Posts: 9874
Joined: Sun Mar 01, 2009 1:28 pm

Re: Investor from Finland

Post by BL »

Vanguard total international includes Emerging markets so it is a pretty good all-in-one international fund.
User avatar
LadyGeek
Site Admin
Posts: 95696
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Investor from Finland

Post by LadyGeek »

FYI - The OP had a duplicate thread in the Investing - Theory, News & General, which I've moved into here. I also removed the OP's duplicate post.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:First of all, when investing in stock market ETFs, you shouldnt really care about the currency said ETFs trade in beyond considering the costs of exchanging currencies when you buy and sell ETF shares. An S&P500 ETF will give you the same return regardless of whether you pay for it in USD, EUR or chickens.

As an example: shares of Nokia can be bought on the Helsinki exchange for euros or on a US exchange for dollars. You carry no additional currency risk if you happen to pay for your Nokia shares in dollars, it's still the same exact underlying company regardless of what currency you used to pay for the shares. Currency risk is defined by the actual assets you own, not the currency you used to purchase said assets.

Second: since you are in Finland, your best bet is to open an account with Nordnet. They offer you a system where you can deposit money with them montly and it automatically gets invested into ETFs of your choice at NO COST. Obviously not all ETFs are available under this system, but they give you access to iShares ETFs and some other major ETF providers, so it's trivial to build yourself a good ETF basket to invest in.

Third: if what you want is cheap and passive index investing, you may want to look at mutual funds offered by Seligson. You don't HAVE to use ETF's after all.

Disclaimer: I live in Finland.
Thank you. I have already opened a Nordnet account after some research of the best alternatives.

Also, they only offer about 30 ETF:s with that system, most being db-x trackers and with hefty fees (0.4-0.6% yearly), so I don`t think that`s my cup of tea. I`m not looking to invest 100 or 200 euros a month (if I did, It`d of course be very advantageous to avoid the hefty commissions when buying with such small sums), so I think I`ll pass.

Seligson only has a good OMX helsinki ETF and the rest of their funds are very expensive to own (fees), so I think I´ll skip them.

I don`t need to invest each month, I could do it quarterly and instead invest in Vanguard total stock market and vanguard total international stock (exposes me to whole US market, developed world and emerging markets/pacific in a nice blend). Since Nordnet takes 15euros for US securities, I`d need to invest less often, but this is not a problem I assume?

Is a two-ETF vanguard portfolio not good? It seems to give good diversification and the costs are almost non existent (0.05% yearly for total market, 0.15% for total international).
User avatar
BL
Posts: 9874
Joined: Sun Mar 01, 2009 1:28 pm

Re: Investor from Finland

Post by BL »

In her Forbes article, How To Diversify With Just Three Funds, Boglehead Laura F. Dogu describes this approach and comments "With only these three funds (Vanguard Total Stock Market Index fund, Vanguard Total International Stock Market Index fund, and the Vanguard Total Bond Market fund), investors can create a low cost, broadly diversified portfolio that is very easy to manage and rebalance.... Some investors may be uncomfortable with holding only three funds and will question whether they are truly diversified. With these three holdings the answer on diversification is a resounding 'YES'."
from http://www.bogleheads.org/wiki/3-fund_portfolio
TIAX
Posts: 1434
Joined: Sat Jan 11, 2014 11:19 am

Re: Investor from Finland

Post by TIAX »

You could also consider a single ETF, Vanguard Total World Stock (VT). Although the expense ratio is a bit higher (0.18%). it would lower your commissions.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

Thanks for the tips. I am kinda young still however so I think I`ll opt for just Total Market and Total international.

I don`t feel like investing in only one fund (the total world stock that was brought up) simply because the ETF has such a short history and it`s rebalanced very often, moving to a more US-heavy build every time. I also get more exposure to Pacific and emerging markets with these two ETF:s. Isn`t the two-fund portfolio cheaper, by the way? 0.15%+0.05%/2=0.10%? vs 0.18%. Or am I counting something wrong here?

Thanks for the tips!
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

You seem to be very confused on a multitude of issues.

First of all, the DB-X and iShares ETFs with 0,4-0,6% TER are VERY CHEAP. You are failing to take into account that these ETFs automatically reinvest the dividends back into the fund, allowing you to dodge the need to pay taxes on them. As a person liable for taxes in Finland, you'd otherwise be paying a 30% tax on the dividends paid out by the ETFs you own. Taxes matter. 30% taxes on dividend income matters A LOT and not having to pay these taxes makes the reinvesting/accumulating ETFs easily worth the price of 0,4-0,6 TER and then some.

You don't see such funds available in the US because of they way US tax code works compares to how it does in most european countries. In US, you would still have to pay taxes on the reinvested dividends, which is why such funds forcing this feature don't really exist in the US.

There is also absolutely nothing wrong with the Vanguard VT ETF, it's one of their best products ever. It's not moving to being more US-centric due to some imaginary "rebalancing very often". In fact, the fund is free-float, meaning it's not rebalanced EVER. The only times the fund has had to be rebalanced is when they had changed the underlying index used by the fund and to my knowledge this has so far happened exactly once, when the fund switched to a noticably better, broader index which also included small caps. A fantastic change.

The reasong why you see the portion of the fund devoted to US to grow over the past few years is precisely because the fund does not do any "rebalancing": US stocks just happened to be in a massive bull market over the past few years, outperforming all other large markets by a wide margin. Since the US stock market has grown more than the stock markets of other countries, OF COURSE the US portion of the total world stock market is now accordingly also larger.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:You seem to be very confused on a multitude of issues.

First of all, the DB-X and iShares ETFs with 0,4-0,6% TER are VERY CHEAP. You are failing to take into account that these ETFs automatically reinvest the dividends back into the fund, allowing you to dodge the need to pay taxes on them. As a person liable for taxes in Finland, you'd otherwise be paying a 30% tax on the dividends paid out by the ETFs you own. Taxes matter. 30% taxes on dividend income matters A LOT and not having to pay these taxes makes the reinvesting/accumulating ETFs easily worth the price of 0,4-0,6 TER and then some.

You don't see such funds available in the US because of they way US tax code works compares to how it does in most european countries. In US, you would still have to pay taxes on the reinvested dividends, which is why such funds forcing this feature don't really exist in the US.

There is also absolutely nothing wrong with the Vanguard VT ETF, it's one of their best products ever. It's not moving to being more US-centric due to some imaginary "rebalancing very often". In fact, the fund is free-float, meaning it's not rebalanced EVER. The only times the fund has had to be rebalanced is when they had changed the underlying index used by the fund and to my knowledge this has so far happened exactly once, when the fund switched to a noticably better, broader index which also included small caps. A fantastic change.

The reasong why you see the portion of the fund devoted to US to grow over the past few years is precisely because the fund does not do any "rebalancing": US stocks just happened to be in a massive bull market over the past few years, outperforming all other large markets by a wide margin. Since the US stock market has grown more than the stock markets of other countries, OF COURSE the US portion of the total world stock market is now accordingly also larger.
AFAIK both Vanguard ETF:s automatically reinvest all dividends. I don`t need to pay taxes unless I own normal stock.

AH, I understand about the VT ETF now. Still, I don`t get what you mean. The 0.4-0.6% fee is way too high and as I said earlier, the dividends on the ETF:s are automatically reinvested, thus letting me duck double taxation (dividend and again when I sell the instrument for a profit).

Or are you saying that the ETF-instrument behaves like normal stocks, meaning that they pay out dividens that I have to tax on every time and manually reinvest myself? Did not know this. Also, how come the db-etf:s don`t do the same thing then? AFAIK the db-x tracker ETF:s function in the exact same way that these (TM and total international) Vanguard ETF:s do.
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

NONE of the Vanguard ETFs automatically reinvest dividends. Not a single one.

DB-X offers some ETFs that reinvest dividends and some that don't. Same thing for iShares. You need to look up each fund and look at info page for "use of income". Some will say "reinvesting" and some will say "distributing".

As I mentioned before, you will not find any ETFs that trade on US exchanges that will automatically reinvest the dividends for you because this makes no sense whatsoever for US residents. US residents who want their dividends reinvested use the DRIP feature of their brokerage (and do pay taxes anyway) to handle this, but this is not done by the fund itself.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:NONE of the Vanguard ETFs automatically reinvest dividends. Not a single one.

DB-X offers some ETFs that reinvest dividends and some that don't. Same thing for iShares. You need to look up each fund and look at info page for "use of income". Some will say "reinvesting" and some will say "distributing".

As I mentioned before, you will not find any ETFs that trade on US exchanges that will automatically reinvest the dividends for you because this makes no sense whatsoever for US residents. US residents who want their dividends reinvested use the DRIP feature of their brokerage (and do pay taxes anyway) to handle this, but this is not done by the fund itself.
Well, the dividends are pretty small anyway and I`m mostly looking for increases in value of the stocks so I can sell off at a later date (retirement).

Are you seriously implying it`s worth to pay 0.4-0.6% for db-etf:s when I can get the same shit for 0.05% from Vanguard? Even if I need to pay 30% capital gains taxes on dividends it`s such a small amount of money. Isn`t it like 1/100th of the worth of the share? Paying taxes on that is still cheaper than paying higher fees to some db-x tracker ETF.

EDIT: Just checked the ETFs that my brokerage gives without commissions (for monthly, small investing) and none of them had reinvested dividends (not the Europe/emerging markets/US atleast).

Also, could you please explain where I can find figures of how much Total stock market/total international market pay in dividends and if it is yearly or quarterly? Just to get a picture of how much money I`ll need to tax and then reinvest (if the dividend is an extreme small percentage of the rising stock value, then I don`t really care).

If the stock goes up 7% yearly (hypothetical scenario), how much of that is in dividends? How much do I lose each year by paying 30% taxes on the dividends and then reinvesting them?
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:
dnaumov wrote:NONE of the Vanguard ETFs automatically reinvest dividends. Not a single one.

DB-X offers some ETFs that reinvest dividends and some that don't. Same thing for iShares. You need to look up each fund and look at info page for "use of income". Some will say "reinvesting" and some will say "distributing".

As I mentioned before, you will not find any ETFs that trade on US exchanges that will automatically reinvest the dividends for you because this makes no sense whatsoever for US residents. US residents who want their dividends reinvested use the DRIP feature of their brokerage (and do pay taxes anyway) to handle this, but this is not done by the fund itself.
Well, the dividends are pretty small anyway and I`m mostly looking for increases in value of the stocks so I can sell off at a later date (retirement).

Are you seriously implying it`s worth to pay 0.4-0.6% for db-etf:s when I can get the same shit for 0.05% from Vanguard? Even if I need to pay 30% capital gains taxes on dividends it`s such a small amount of money. Isn`t it like 1/100th of the worth of the share? Paying taxes on that is still cheaper than paying higher fees to some db-x tracker ETF.

EDIT: Just checked the ETFs that my brokerage gives without commissions (for monthly, small investing) and none of them had reinvested dividends (not the Europe/emerging markets/US atleast).
Over the very long term, HALF of stock market returns comes from dividends, no matter how small this 2-3% dividend yield of today looks to you right now. Are you sure you want to be paying 30% taxes on that?

Lets put it this way: assume you buy an ETF that yields 2,5%. You have to pay 30% worth of taxes on it. 30% of 2,5% is 0',75%. All of a sudden, that 0,4-0,6% TER doesn't look so bad, does it?
User avatar
dratkinson
Posts: 6116
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Investor from Finland

Post by dratkinson »

Try here for EU investing advice: http://www.bogleheads.org/wiki/EU_investing

Best of success.

Welcome.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dratkinson wrote:Try here for EU investing advice: http://www.bogleheads.org/wiki/EU_investing

Best of success.

Welcome.
Thanks for the link!
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

Is this a dividend reinvesting ETF?
http://www.spdrseurope.com/product/fund ... =SPY5%20GY

Looks good, pretty cheap too (TER 0.15%) and it can be bought in Euros.

Still need to find a global-EX US ETF though.
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

Now, to confuse you even further:

In my personal opinion, picking Vanguard ETFs that distribute dividends or european-domiciled ETFs that reinvest them is really a matter of taste. If "cheap" is the one and only thing that truly matters to you, you do, in fact, want the european-domiciled ETFs with 0,4-0,5% TERs, because over the long run they WILL be cheaper for you due to taxes. Significantly so.

But just staring at the fees is the wrong approach, as there are other things to consider. Some european-domiciled ETFs expose you to swap counterparty risks (99% of DB-X ETFs do this, but none of the iShares ones do, as they generally use optimized replication). European-domiciled ETFs also generally have worse liquidity and as a result, bigger bid/ask spreads. Additionally most broad european-domiciled global stock ETFs do not include small caps, as they tend to follow large cap indices, while the broad Vanguard ETFs do include them.

So in the end, this is really not such a cut and dry choice. Believe me, paying 30% in taxes on your dividend distributions every single year will make a BIG impact on your overall total returns. However, european-domiciled ETFs also do have some negatives as a counterweight to their wonderful dividend reinvestment ability.
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:Is this a dividend reinvesting ETF?
http://www.spdrseurope.com/product/fund ... =SPY5%20GY

Looks good, pretty cheap too (TER 0.15%) and it can be bought in Euros.

Still need to find a global-EX US ETF though.
Income Treatment: Distribution.

On a sidenote: considering you live in Finland, why are you so stuck up on the idea of using a combination of US + ex-US funds? Why not a combination of Developed Markets + Emerging Markets or just a single truly global fund?
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:
TheCounselor wrote:Is this a dividend reinvesting ETF?
http://www.spdrseurope.com/product/fund ... =SPY5%20GY

Looks good, pretty cheap too (TER 0.15%) and it can be bought in Euros.

Still need to find a global-EX US ETF though.
Income Treatment: Distribution.

On a sidenote: considering you live in Finland, why are you so stuck up on the idea of using a combination of US + ex-US funds? Why not a combination of Developed Markets + Emerging Markets or just a single truly global fund?
Because there are no good developed markets+ emerging markets reinvesting ETF:s in my country, so I need to look for them in Europe or from the US.

Also, I want a maximum of two different ETF:s, so US and EX-US would be good for that.

Please link any "truly global" fund that has a low TER and reinvests the dividends. There are SOO many ETF:s, it`s like trying to find a needle in a haystack...
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:Now, to confuse you even further:

In my personal opinion, picking Vanguard ETFs that distribute dividends or european-domiciled ETFs that reinvest them is really a matter of taste. If "cheap" is the one and only thing that truly matters to you, you do, in fact, want the european-domiciled ETFs with 0,4-0,5% TERs, because over the long run they WILL be cheaper for you due to taxes. Significantly so.

But just staring at the fees is the wrong approach, as there are other things to consider. Some european-domiciled ETFs expose you to swap counterparty risks (99% of DB-X ETFs do this, but none of the iShares ones do, as they generally use optimized replication). European-domiciled ETFs also generally have worse liquidity and as a result, bigger bid/ask spreads. Additionally most broad european-domiciled global stock ETFs do not include small caps, as they tend to follow large cap indices, while the broad Vanguard ETFs do include them.

So in the end, this is really not such a cut and dry choice. Believe me, paying 30% in taxes on your dividend distributions every single year will make a BIG impact on your overall total returns. However, european-domiciled ETFs also do have some negatives as a counterweight to their wonderful dividend reinvestment ability.
Thanks, I guess? Now it`s even foggier :P.

Anyway, I understand that DB x-trackers are swap-based so I`ll stay away from them. I guess I`ll try to find an ETF that reinvests dividends and has a relatively low TER...easier said than done, though.
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:
dnaumov wrote:
TheCounselor wrote:Is this a dividend reinvesting ETF?
http://www.spdrseurope.com/product/fund ... =SPY5%20GY

Looks good, pretty cheap too (TER 0.15%) and it can be bought in Euros.

Still need to find a global-EX US ETF though.
Income Treatment: Distribution.

On a sidenote: considering you live in Finland, why are you so stuck up on the idea of using a combination of US + ex-US funds? Why not a combination of Developed Markets + Emerging Markets or just a single truly global fund?
Because there are no good developed markets+ emerging markets reinvesting ETF:s in my country, so I need to look for them in Europe or from the US.

Also, I want a maximum of two different ETF:s, so US and EX-US would be good for that.

Please link any "truly global" fund that has a low TER and reinvests the dividends. There are SOO many ETF:s, it`s like trying to find a needle in a haystack...
Finnish stock exchange has a poor ETF selection, so you will be buying ETFs from a foreign exchange no matter what you do.

Consider these:

Global: http://fi.ishares.com/fi/rc/tuotteet/SSAC
Developed: http://fi.ishares.com/fi/rc/tuotteet/SWDA
Emerging: http://fi.ishares.com/fi/rc/tuotteet/SEMA
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

Would any of you guys be kind enough to try to find me ETF:s that reinvest dividends and that can be bought on the Euronext (to avoid extra taxes that buying from UK/France will be put on me cuz I live in Finland). I only need a low TER, dividends reinvested and preferrably a developed/emerging markets split or maybe US/all-world ex US.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:
TheCounselor wrote:
dnaumov wrote:
TheCounselor wrote:Is this a dividend reinvesting ETF?
http://www.spdrseurope.com/product/fund ... =SPY5%20GY

Looks good, pretty cheap too (TER 0.15%) and it can be bought in Euros.

Still need to find a global-EX US ETF though.
Income Treatment: Distribution.

On a sidenote: considering you live in Finland, why are you so stuck up on the idea of using a combination of US + ex-US funds? Why not a combination of Developed Markets + Emerging Markets or just a single truly global fund?
Because there are no good developed markets+ emerging markets reinvesting ETF:s in my country, so I need to look for them in Europe or from the US.

Also, I want a maximum of two different ETF:s, so US and EX-US would be good for that.

Please link any "truly global" fund that has a low TER and reinvests the dividends. There are SOO many ETF:s, it`s like trying to find a needle in a haystack...
Finnish stock exchange has a poor ETF selection, so you will be buying ETFs from a foreign exchange no matter what you do.

Consider these:

Global: http://fi.ishares.com/fi/rc/tuotteet/SSAC
Developed: http://fi.ishares.com/fi/rc/tuotteet/SWDA
Emerging: http://fi.ishares.com/fi/rc/tuotteet/SEMA
Thanks, are those ETF:s that reinvest dividends? And can I buy them on the finnish market (with the low 9 euro commission with Nordnet)?

EDIT: Just noticed that those are funds-in-funds. Blackrock seems to manage the funds and iShares then sells the funds to the consumer. :( Meaning TER is high...
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.

Lets put it this way: if you intend to buy once and sit on it forever without ever buying more shares, I'd go with SSAC as it would reinvest the dividends back and compound over time. If you intend to buy once and then regularly buy more shares, I'd go with Vanguard's VT (despite the taxes) as I consider it to be a technically better fund and with regular purchases making the fact that dividends hit my brokerage account a bit less of an issue (as I would reinvest them when making new purchases).
Last edited by dnaumov on Sat Apr 12, 2014 2:07 pm, edited 1 time in total.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.
They seem to only be listed on the London exchange, meaning that I have to pay 0.50% extra as taxes each time I buy securities from that exchange. Ah, tax laws. :twisted:
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:
dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.
They seem to only be listed on the London exchange, meaning that I have to pay 0.50% extra as taxes each time I buy securities from that exchange. Ah, tax laws. :twisted:
You are not looking hard enough. They are also listed in Germany and several other markets.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.

Lets put it this way: if you intend to buy once and sit on it forever without ever buying more shares, I'd go with SSAC as it would reinvest the dividends back and compound over time. If you intend to buy once and then regularly buy more shares, I'd go with Vanguard's VT (despite the taxes) as I consider it to be a technically better fund and with regular purchases making the fact that dividends hit my brokerage account a bit less of an issue (as I would reinvest them when making new purchases).
Okay, so you would recommend the VT-ETF:s anyways? Tbh, they seem to have extremely low costs, high liquidity. The only downside is the taxes on dividends...are you from Finland too by the way?
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:
dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.

Lets put it this way: if you intend to buy once and sit on it forever without ever buying more shares, I'd go with SSAC as it would reinvest the dividends back and compound over time. If you intend to buy once and then regularly buy more shares, I'd go with Vanguard's VT (despite the taxes) as I consider it to be a technically better fund and with regular purchases making the fact that dividends hit my brokerage account a bit less of an issue (as I would reinvest them when making new purchases).
Okay, so you would recommend the VT-ETF:s anyways? Tbh, they seem to have extremely low costs, high liquidity. The only downside is the taxes on dividends...are you from Finland too by the way?
If you intend to regularly (at least once a year) buy more shares, yes I would go with VT. If you don't intend to regularly buy more shares, I would go with a fund that reinvests dividend, such as SSAC. Yes, I am from Finland :)
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:
TheCounselor wrote:
dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.

Lets put it this way: if you intend to buy once and sit on it forever without ever buying more shares, I'd go with SSAC as it would reinvest the dividends back and compound over time. If you intend to buy once and then regularly buy more shares, I'd go with Vanguard's VT (despite the taxes) as I consider it to be a technically better fund and with regular purchases making the fact that dividends hit my brokerage account a bit less of an issue (as I would reinvest them when making new purchases).
Okay, so you would recommend the VT-ETF:s anyways? Tbh, they seem to have extremely low costs, high liquidity. The only downside is the taxes on dividends...are you from Finland too by the way?
If you intend to regularly (at least once a year) buy more shares, yes I would go with VT. If you don't intend to regularly buy more shares, I would go with a fund that reinvests dividend, such as SSAC. Yes, I am from Finland :)
To clarify: I intend to buy atleast quarterly (4x a year minimum, maybe even 5 or 6) and invest it into two different ETF:s (bonds too later on, splitting it into a three-part portfolio once I age and need the security of bonds). You mean that I should just go VT in my case? If so, why? How often are these dividends paid by the way and do they come automatically to my account at Nordnet or is there some hassle with US tax authorities? I assume I have to pay 15% to US and 15% to Finland in capital gains for the dividends.
hafius500
Posts: 217
Joined: Sat Sep 10, 2011 4:31 pm

Re: Investor from Finland

Post by hafius500 »

It has often been written on this forum that "capitalizing funds are superior".
I want to stress that any advantage or disadvantage depends on national tax laws that can be completely different.

For example, consider these (national) tax laws that make capitalizing funds less attractive:

1) Capitalizing mutual funds or ETFs that use physical replication:

1a) The funds are not domiciled abroad:

The fund or ETF itself pays the tax on accumulated dividends or interest or realized capital gains at year end.
No adavantage versus distributing funds.

1b) The funds are domiciled abroad:

The tax authority assumes a fictive distribution of dividends, interest payments and realized capital gains at year end.
The investor herself has to add this taxable income to her annual tax declaration.

When this investor sells her shares, the broker will deduct a flat tax on all accumulated dividends, interest payments and realized capital gains. This means all income is double-taxed!
The investor has to add this deduction to her annual tax declaration and must prove all accumulated income and capital gains have been taxed in the previous years. Then she must hope the tax authority pays back the additional taxes.

2) Capitalizing funds that use synthetic replication (swaps):

These funds generate income from derivatives (not from dividends or interest).
The investor only pays taxes when the fund is sold. Theoretically, this adds a compounding effect because the taxation is postponed.

But is it guaranteed that future governments won't eliminate this favorable taxation?
dbx-trackers and other companies that offered swap-based products announced to switch to physical replication.
You have to take into account the higher transaction costs of accumulating funds if you rebalance your portfolio or if you make withdrawals.
My parents would not have been able to sell ETFs to generate (monthly) income. I doubt if older people who need to make withdrawals can manage a portfolio of (capitalizing) ETFs.
prior username: hafis50
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

hafius500 wrote:It has often been written on this forum that "capitalizing funds are superior".
I want to stress that any advantage or disadvantage depends on national tax laws that can be completely different.

For example, consider these (national) tax laws that make capitalizing funds less attractive:

1) Capitalizing mutual funds or ETFs that use physical replication:

1a) The funds are not domiciled abroad:

The fund or ETF itself pays the tax on accumulated dividends or interest or realized capital gains at year end.
No adavantage versus distributing funds.

1b) The funds are domiciled abroad:

The tax authority assumes a fictive distribution of dividends, interest payments and realized capital gains at year end.
The investor herself has to add this taxable income to her annual tax declaration.

When this investor sells her shares, the broker will deduct a flat tax on all accumulated dividends, interest payments and realized capital gains. This means all income is double-taxed!
The investor has to add this deduction to her annual tax declaration and must prove all accumulated income and capital gains have been taxed in the previous years. Then she must hope the tax authority pays back the additional taxes.

2) Capitalizing funds that use synthetic replication (swaps):

These funds generate income from derivatives (not from dividends or interest).
The investor only pays taxes when the fund is sold. Theoretically, this adds a compounding effect because the taxation is postponed.

But is it guaranteed that future governments won't eliminate this favorable taxation?
dbx-trackers and other companies that offered swap-based products announced to switch to physical replication.
You have to take into account the higher transaction costs of accumulating funds if you rebalance your portfolio or if you make withdrawals.
My parents would not have been able to sell ETFs to generate (monthly) income. I doubt if older people who need to make withdrawals can manage a portfolio of (capitalizing) ETFs.
By "capitalizing" do you mean that the ETF doesn`t reinvest dividends?

Also, which of these would you suggest to me then? We have a 30% capital gains tax in Finland AFAIK (on dividends and stock sold for profit). I`m also pretty sure that US dividends are taxed 15% to them/15% to Finland, so the same percentage.
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:
hafius500 wrote:It has often been written on this forum that "capitalizing funds are superior".
I want to stress that any advantage or disadvantage depends on national tax laws that can be completely different.

For example, consider these (national) tax laws that make capitalizing funds less attractive:

1) Capitalizing mutual funds or ETFs that use physical replication:

1a) The funds are not domiciled abroad:

The fund or ETF itself pays the tax on accumulated dividends or interest or realized capital gains at year end.
No adavantage versus distributing funds.

1b) The funds are domiciled abroad:

The tax authority assumes a fictive distribution of dividends, interest payments and realized capital gains at year end.
The investor herself has to add this taxable income to her annual tax declaration.

When this investor sells her shares, the broker will deduct a flat tax on all accumulated dividends, interest payments and realized capital gains. This means all income is double-taxed!
The investor has to add this deduction to her annual tax declaration and must prove all accumulated income and capital gains have been taxed in the previous years. Then she must hope the tax authority pays back the additional taxes.

2) Capitalizing funds that use synthetic replication (swaps):

These funds generate income from derivatives (not from dividends or interest).
The investor only pays taxes when the fund is sold. Theoretically, this adds a compounding effect because the taxation is postponed.

But is it guaranteed that future governments won't eliminate this favorable taxation?
dbx-trackers and other companies that offered swap-based products announced to switch to physical replication.
You have to take into account the higher transaction costs of accumulating funds if you rebalance your portfolio or if you make withdrawals.
My parents would not have been able to sell ETFs to generate (monthly) income. I doubt if older people who need to make withdrawals can manage a portfolio of (capitalizing) ETFs.
By "capitalizing" do you mean that the ETF doesn`t reinvest dividends?

Also, which of these would you suggest to me then? We have a 30% capital gains tax in Finland AFAIK (on dividends and stock sold for profit). I`m also pretty sure that US dividends are taxed 15% to them/15% to Finland, so the same percentage.
Capitalilzing means reinvesting automatically,
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

TheCounselor wrote:
dnaumov wrote:
TheCounselor wrote:
dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.

Lets put it this way: if you intend to buy once and sit on it forever without ever buying more shares, I'd go with SSAC as it would reinvest the dividends back and compound over time. If you intend to buy once and then regularly buy more shares, I'd go with Vanguard's VT (despite the taxes) as I consider it to be a technically better fund and with regular purchases making the fact that dividends hit my brokerage account a bit less of an issue (as I would reinvest them when making new purchases).
Okay, so you would recommend the VT-ETF:s anyways? Tbh, they seem to have extremely low costs, high liquidity. The only downside is the taxes on dividends...are you from Finland too by the way?
If you intend to regularly (at least once a year) buy more shares, yes I would go with VT. If you don't intend to regularly buy more shares, I would go with a fund that reinvests dividend, such as SSAC. Yes, I am from Finland :)
To clarify: I intend to buy atleast quarterly (4x a year minimum, maybe even 5 or 6) and invest it into two different ETF:s (bonds too later on, splitting it into a three-part portfolio once I age and need the security of bonds). You mean that I should just go VT in my case? If so, why? How often are these dividends paid by the way and do they come automatically to my account at Nordnet or is there some hassle with US tax authorities? I assume I have to pay 15% to US and 15% to Finland in capital gains for the dividends.
VT (as well as VTI and VXUS) pay out their dividends quarterly and they willl arrive in your Nordnet account automatically within 1-2 weeks of the official payment date.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:
TheCounselor wrote:
dnaumov wrote:
TheCounselor wrote:
dnaumov wrote:Look at the pages, they have all the info. Yes they reinvest dividends and no, they are not listed on the finnish exchange.

Lets put it this way: if you intend to buy once and sit on it forever without ever buying more shares, I'd go with SSAC as it would reinvest the dividends back and compound over time. If you intend to buy once and then regularly buy more shares, I'd go with Vanguard's VT (despite the taxes) as I consider it to be a technically better fund and with regular purchases making the fact that dividends hit my brokerage account a bit less of an issue (as I would reinvest them when making new purchases).
Okay, so you would recommend the VT-ETF:s anyways? Tbh, they seem to have extremely low costs, high liquidity. The only downside is the taxes on dividends...are you from Finland too by the way?
If you intend to regularly (at least once a year) buy more shares, yes I would go with VT. If you don't intend to regularly buy more shares, I would go with a fund that reinvests dividend, such as SSAC. Yes, I am from Finland :)
To clarify: I intend to buy atleast quarterly (4x a year minimum, maybe even 5 or 6) and invest it into two different ETF:s (bonds too later on, splitting it into a three-part portfolio once I age and need the security of bonds). You mean that I should just go VT in my case? If so, why? How often are these dividends paid by the way and do they come automatically to my account at Nordnet or is there some hassle with US tax authorities? I assume I have to pay 15% to US and 15% to Finland in capital gains for the dividends.
VT (as well as VTI and VXUS) pay out their dividends quarterly and they willl arrive in your Nordnet account automatically within 1-2 weeks of the official payment date.
Okay, so four dividend payouts a year and no hassle with the payout. Seems like a good deal? Can`t find any ETF:s from Europe that have such a low TER and most of them are not capitalizing (reinvesting dividends) either. Not sure what to do now...

Someone said that dividends amount to 50% of the rise in stock value and that I`ll have to pay 30% tax on those dividends, thus drastically reducing my compound interest over time. Is this true? I thought that most of the value came from the stock values rising, not from the dividend payouts...
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

Such is the magic of compounding reinvested dividends over a long period of time. Over a short timeframe, such as 3-5 years, obviously stock price movements will have the biggest impact by far, but over 25-30 years or even longer periods, roughly half of your overall total return will come from reinvested dividends.

http://bonds.about.com/od/Investing-For ... Return.htm

This applies to stock funds, but even more so to bond funds. Do not, under any circumstance, buy a bond fund that pays out it's distributions forcing you to pay a 30% tax on them.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:Such is the magic of compounding reinvested dividends over a long period of time. Over a short timeframe, such as 3-5 years, obviously stock price movements will have the biggest impact by far, but over 25-30 years or even longer periods, roughly half of your overall total return will come from reinvested dividends.

http://bonds.about.com/od/Investing-For ... Return.htm

This applies to stock funds, but even more so to bond funds. Do not, under any circumstance, buy a bond fund that pays out it's distributions forcing you to pay a 30% tax on them.
Lets say I`m investing for about 20 years (maybe more, but for early retirement 20 would be ideal), currently starting with 0 bonds and then moving to about 30% bond allocation. Would it be better to buy some European ETF:s with TER:s of 0.4-0.7% yearly which reinvest dividends or instead buy Vanguard ETF:s where I need to pay 30% tax on dividends each time?
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

Personally, I consider both distributing and reinvesting ETFs to be roughly equally reasonable choices. I own VT myself, because it's a fantastic 1-fund solution with both developed and emerging markets and with both large and small caps, all in one, with good liquidity and low spreads. But if there was a reinvesting fund similar to SSAC I previously linked, but tracking an index that includes small caps, I would probably switch to that.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:Personally, I consider both distributing and reinvesting ETFs to be roughly equally reasonable choices. I own VT myself, because it's a fantastic 1-fund solution with both developed and emerging markets and with both large and small caps, all in one, with good liquidity and low spreads. But if there was a reinvesting fund similar to SSAC I previously linked, but tracking an index that includes small caps, I would probably switch to that.
All right, well haven`t found any good reinvesting funds with good spread/liquidity/low TER so I guess I`ll go with VTM and VTI-ex US.

So you only invest in Vanguard Total World (not counting bonds)? Interesting. I think I`ll go with the two (three with bonds) -fund solution myself. If I do this, is there any hassle with taxation (when I use Nordnet and am from Finland)? Or is it all done automatically, taking into account that I`ll reinvest the dividends each time I invest?? Also, I assume the total tax on dividends is 30%, just like the capital tax is in Finland?
User avatar
LadyGeek
Site Admin
Posts: 95696
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Investor from Finland

Post by LadyGeek »

We have a recent blog article on a two-fund portfolio, but I don't know if it will help your situation (I don't have the experience to answer your questions). See: Vanguard Total World Stock Index Fund and a two-fund portfolio | Bogleheads® Blog

You can also ask in the referenced discussion thread: Blog: Total World Index and the two fund portfolio
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
Epsilon Delta
Posts: 8090
Joined: Thu Apr 28, 2011 7:00 pm

Re: Investor from Finland

Post by Epsilon Delta »

dnaumov wrote:Such is the magic of compounding reinvested dividends over a long period of time. Over a short timeframe, such as 3-5 years, obviously stock price movements will have the biggest impact by far, but over 25-30 years or even longer periods, roughly half of your overall total return will come from reinvested dividends.

http://bonds.about.com/od/Investing-For ... Return.htm

This applies to stock funds, but even more so to bond funds. Do not, under any circumstance, buy a bond fund that pays out it's distributions forcing you to pay a 30% tax on them.
The long period of time for accumulating shares to come out ahead can be quite long. For an investment with annual capital gains of 7.5% and dividends of 2.5% it takes over 30 years for an accumulating fund with 0.5% extra cost to come out ahead. If you do the calculation don't forget that reinvested dividends increase your basis and decrease future taxes.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

Epsilon Delta wrote:
dnaumov wrote:Such is the magic of compounding reinvested dividends over a long period of time. Over a short timeframe, such as 3-5 years, obviously stock price movements will have the biggest impact by far, but over 25-30 years or even longer periods, roughly half of your overall total return will come from reinvested dividends.

http://bonds.about.com/od/Investing-For ... Return.htm

This applies to stock funds, but even more so to bond funds. Do not, under any circumstance, buy a bond fund that pays out it's distributions forcing you to pay a 30% tax on them.
The long period of time for accumulating shares to come out ahead can be quite long. For an investment with annual capital gains of 7.5% and dividends of 2.5% it takes over 30 years for an accumulating fund with 0.5% extra cost to come out ahead. If you do the calculation don't forget that reinvested dividends increase your basis and decrease future taxes.
So, basically, I should just get the two Vanguard funds? (TM and TI-EX US, possibly 30% bond fund after 10 or so years once I get older)

I don`t plan on investing for more than 30 years, I should be retired by then (if I survive that long, of course :P ). Also, I assume dividends of 2.5% is a pretty high figure, so it could very well be 40+ years until an European fund with about 0.5% higher yearly TER becomes more efficient?

Thanks for the advice, I`ll probably just go with Vanguard then!
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

Epsilon Delta wrote:
dnaumov wrote:Such is the magic of compounding reinvested dividends over a long period of time. Over a short timeframe, such as 3-5 years, obviously stock price movements will have the biggest impact by far, but over 25-30 years or even longer periods, roughly half of your overall total return will come from reinvested dividends.

http://bonds.about.com/od/Investing-For ... Return.htm

This applies to stock funds, but even more so to bond funds. Do not, under any circumstance, buy a bond fund that pays out it's distributions forcing you to pay a 30% tax on them.
The long period of time for accumulating shares to come out ahead can be quite long. For an investment with annual capital gains of 7.5% and dividends of 2.5% it takes over 30 years for an accumulating fund with 0.5% extra cost to come out ahead. If you do the calculation don't forget that reinvested dividends increase your basis and decrease future taxes.
We are talking about an annual 30% capital gains tax situation, not 7,5%. Also a 2,5% yield is not at all a very high figure. VT currently yields around 2,4% and this is after a massive bull market driving stock fund dividend yields lower.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:
Epsilon Delta wrote:
dnaumov wrote:Such is the magic of compounding reinvested dividends over a long period of time. Over a short timeframe, such as 3-5 years, obviously stock price movements will have the biggest impact by far, but over 25-30 years or even longer periods, roughly half of your overall total return will come from reinvested dividends.

http://bonds.about.com/od/Investing-For ... Return.htm

This applies to stock funds, but even more so to bond funds. Do not, under any circumstance, buy a bond fund that pays out it's distributions forcing you to pay a 30% tax on them.
The long period of time for accumulating shares to come out ahead can be quite long. For an investment with annual capital gains of 7.5% and dividends of 2.5% it takes over 30 years for an accumulating fund with 0.5% extra cost to come out ahead. If you do the calculation don't forget that reinvested dividends increase your basis and decrease future taxes.
We are talking about an annual 30% capital gains tax situation, not 7,5%. Also a 2,5% yield is not at all a very high figure. VT currently yields around 2,4% and this is after a massive bull market driving stock fund dividend yields lower.
He meant that the instrument has a 7.5% growth rate yearly (dividends not included), not that the taxes would be 7.5%.

Anyway, you seem to be Finnish too and you hold VT ETF:s. Why would you point out that it`s a "bad" instrument in that case?
User avatar
dnaumov
Posts: 495
Joined: Tue Jul 27, 2010 6:04 pm
Location: Finland
Contact:

Re: Investor from Finland

Post by dnaumov »

I am not at all saying it is a bad instrument.

The main point I was trying to make to you is that the european-domiciled reinvesting ETFs are not at all expensive when you take into account the effect of taxation and that just simply comparing their TER to Vanguard ETF TER is not smart.

One should make an informed decision based on all the facts available, such as: TER, the effects of taxation, the index being followed, how well the fund actually manages to track said index, liquidity and spreads, etc etc.

All things considered together, I believe both solutions are acceptable.
Topic Author
TheCounselor
Posts: 26
Joined: Wed Mar 12, 2014 3:50 am

Re: Investor from Finland

Post by TheCounselor »

dnaumov wrote:I am not at all saying it is a bad instrument.

The main point I was trying to make to you is that the european-domiciled reinvesting ETFs are not at all expensive when you take into account the effect of taxation and that just simply comparing their TER to Vanguard ETF TER is not smart.

One should make an informed decision based on all the facts available, such as: TER, the effects of taxation, the index being followed, how well the fund actually manages to track said index, liquidity and spreads, etc etc.

All things considered together, I believe both solutions are acceptable.
Well, the VT ETF:s have better liquidity and spreads, better indexes being followed (more historical data), good index tracking history. The only downside is 30% total tax on dividends that you have to reinvest yourself, as mentioned, but VT has a MUCH lower TER as a result so the difference isn`t big.

I think I`ll go with Vanguard, keeping above facts in mind.
Post Reply