Any good European author for Bogleheads?

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gorion83
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Any good European author for Bogleheads?

Post by gorion83 »

Since I stumbled upon Bogleheads I did read quite a bit.. Bogle, Swensen, Bernstein... all nice and interesting books. However while the important part of the advice is applicable to Europeans as well, there are some aspect which are peculiar to US citizens.

Do you know good European authors in line with the Bogleheads philosophy?
Stryker
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Re: Any good European author for Bogleheads?

Post by Stryker »

gorion83 wrote:Since I stumbled upon Bogleheads I did read quite a bit.. Bogle, Swensen, Bernstein... all nice and interesting books. However while the important part of the advice is applicable to Europeans as well, there are some aspect which are peculiar to US citizens.

Do you know good European authors in line with the Bogleheads philosophy?
I notice you're located in Italy. You might want to do a search at your local online bookstore. Amazon has a branch in Italy as well. I don't know what you call them in Italy, but at Amazon's UK site, I just did a search for "Tracker Funds" and got quite a number of selections. Sometimes the customer reviews can help in making a choice of which books. Also check the shelves and online for investment books through your library system. I've found some interesting, helpful books that way.
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Charybdis
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Re: Any good European author for Bogleheads?

Post by Charybdis »

You can apply most of the advice found here.

For your bond portfolio, I don't know what to hold. I hold Hungarian treasury inflation protected bonds (4% real yield currently). But they are "junk bonds". But I don't want to bear the currency risk in my bond portfolio.

I think you should hold Italian and/or EU bonds, but first understand their risk factors.

I hold my equity portfolio in USD, a global equity ETF + global REIT ETF. I also hold a small (2%) portion of my portfolio in home equities in home currency, because I get tax benefits, so it is worth to me to overweight my home market.

Now you can decide whether to hold your equity portfolio in EUR, or in USD. I don't know the right answer. But you can buy the European ETFs either in EUR or in USD. Even if the base currency of the ETF is USD, you can buy it in EUR, without currency conversion. Usually the fund providers quote the NAV both in USD and in EUR. This is handy because you avoid the costly currency conversion. But you still bear the currency risk.

But there are EUR-hedged ETFs as well (iShares). If you invest in them, you can invest in EUR, and you don't have currency risk. I think it is a wonderful innovation.

Research the tax system of your country: are there tax-sheltered, or tax-deferred accounts there? How can you save the most tax?

Also note that in the EU, there are capitalizing and distributing ETFs. Capitalzing ETFs don't pay out dividends, distributing ETFs pay you dividends quarterly.

I don't know why would anyone invest in a distributing ETF. I don't know the tax system of Italy, but it is likely that you want to avoid the distributing ETFs: invest only in capitalizing ETFs (but first check your tax rules).

Don't invest in US ETFs/index funds, unless you want to pay 30% dividend withholding tax. Invest only ETFs domiciled in the EU (Ireland and Luxembourg).

You can find all the ETFs here: http://www.etfinfo.com
There aren't any good index funds, just ETFs.

Just type in keywords in the search box, you will find all the ETFs you need. This database contains all the European ETFs.

For example, if you want EUR hedged ETFs, just type "hedged" into the search box. Type in "REIT" if you want real estate funds etc.

These are the best ETF providers in the EU:
http://ishares.eu
http://www.spdrseurope.com
http://www.etf.db.com/

Remember to choose only capitalizing ETFs.

More things to look for: the replication method (synthetic, physical optimized, full physical).
The bid-ask spread is also important. Unfortunately, a lot of ETFs have high spread (as much as 1%).

Finally, this is a good website: http://www.indexuniverse.eu/
Valuethinker
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Re: Any good European author for Bogleheads?

Post by Valuethinker »

Charybdis wrote:You can apply most of the advice found here.

For your bond portfolio, I don't know what to hold. I hold Hungarian treasury inflation protected bonds (4% real yield currently). But they are "junk bonds". But I don't want to bear the currency risk in my bond portfolio. /
If we look at this yield vs. comparable inflation linked bonds (France, UK, Sweden) then we see that you are being awarded a considerable premia for 3 risks:

- currency (devaluation of forint) but only to extent it would violate Purchasing Power Parity (ie more devaluation than relative inflation would indicate)

- liquidity (small bond market)

- default

Given the credit rating, I would argue it's mostly the third.
Last edited by Valuethinker on Sun Jun 24, 2012 11:41 am, edited 1 time in total.
Valuethinker
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Re: Any good European author for Bogleheads?

Post by Valuethinker »

gorion83 wrote:Since I stumbled upon Bogleheads I did read quite a bit.. Bogle, Swensen, Bernstein... all nice and interesting books. However while the important part of the advice is applicable to Europeans as well, there are some aspect which are peculiar to US citizens.

Do you know good European authors in line with the Bogleheads philosophy?
I'd consider cutting my holdings in Italian government bonds. And having a bank account in Germany and/ or Switzerland. If it hits the fan in Italy, it's going to be truly messy.

OK most likely it doesn't hit the fan.

You don't need 'European' advice except around the tax and transaction costs of being in a particular European country. You can simply hold the global equity index *if* you can find the right funds or ETFs.

And then comes the thorny question of government bonds and you have to plan for a 'black Swan' of a total Euro meltdown. Probably it doesn't happen quite so messily. But 'may you live in interesting times' as the saying goes. So you probably want 20% of your assets in something that is still safe if we Black Swan.

Part of me wonders if the highest quality Italian corporate bonds are actually safer than your government. A hard call to be sure.
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VictoriaF
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Re: Any good European author for Bogleheads?

Post by VictoriaF »

Valuethinker wrote:You don't need 'European' advice except around the tax and transaction costs of being in a particular European country. You can simply hold the global equity index *if* you can find the right funds or ETFs.
Valuethinker,

Perhaps, instead of a book, the OP should read Financial Times?

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Charybdis
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Re: Any good European author for Bogleheads?

Post by Charybdis »

@Valuethinker I think that my global equity portfolio in USD is a good protection against the default of my country.

I considered opening a bank account in a safe foreign bank. But I get 8% interest rate in HUF, in my Hungarian bank, it is about 1.7% real interest rate after taxes (the government inflation linked bond yields 9.5% nominal, 4% real currently).

@gorion83 I forgot to mention that trade ETFs using real time data. Pay for the real time data for your broker. The bid-ask spread of the European ETFs could be as high as 1%. And it widens during the trading hours unexpectedly and without a warning. So you can lose a lot of money if you don't see the real time bid and ask prices.

If you want to buy a global equity ETF, then buy it only when most of the ETF's underlying markets are open. So in practice, buy the ETF when the US and European markets are open at the same time. Don't trade ETFs on a volatile day. Also avoid trading near the market open and market close.

You should monitor your desired ETF for 1-2 days. Monitor the average bid-ask spread, and the premium/discount to NAV. That way you can see the average spread. If you want to buy the ETF, but you see that the spread is higher than usual, then wait until the spread lowers. Market makers are tricky - they want your money!

Also make sure you use a limit order when buying the ETF - do not ever use a market order!

So yes, buying an ETF is a hassle :)
billco
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Re: Any good European author for Bogleheads?

Post by billco »

I agree with Valuethinker that the only 'European' advice one needs is that around the tax and transaction costs of being in a particular European country. However, as the OP asked about European authors I would like to suggest a couple. John Kay, a well-known British economist who is a regular columnist on the Financial Times, wrote quite a nice book 2-3 years ago entitled "Long and the Short of it: A Guide to Finance and Investment for Normally Intelligent People Who Aren't in the Industry": http://www.amazon.de/Long-Short-Investm ... 314&sr=1-3 His advice is compatible with, though not fully in line with, that given by most members on this site. Points on which he likely differs include his statement that the Efficient Market Hypothesis is "illuminating but not true" - although I think this is not an unreasonable viewpoint. He largely supports low cost index fund investing but does spend some time on individual stock picking (not for amateurs like me!).

For those who speak German, the books by Gerd Kommer are very much in line with the advice given on this site but adapted to the funds available to investors based in Germany. I see from Amazon that he has a new book coming out shortly: http://www.amazon.de/Herleitung-Umsetzu ... 168&sr=1-4 However, the price (EUR 49 :shock: ) is certainly not in line with that of a Boglehead!
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Charybdis
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Re: Any good European author for Bogleheads?

Post by Charybdis »

@billco "I agree with Valuethinker that the only 'European' advice one needs is that around the tax and transaction costs of being in a particular European country."

No, check my post above. There is a lot more than that:

-the different tax system
-learn how to trade ETFs without losing money
-learn about what the different shares of the same ETF mean: you can buy for example an ETF in EUR, in USD, or the EUR-hedged version. These three are entirely different; choosing between them is not obvious. They have different returns!
-learn about what are the different replication methods (funded or unfunded synthetic, physical optimized, full physical)
-learn about the impact of dividend withholding taxes on your return; learn the difference between the gross total return index and net total return index, and how it affects your return
-the huge difference between distributing and capitalizing ETFs
-choosing where to trade the ETF (in which stock exchange)
-what bonds to hold - it is a hard decision here in the Europe
-how to deal with currency risk
-how to rebalance efficiently
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gorion83
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Re: Any good European author for Bogleheads?

Post by gorion83 »

Wow.. thanks for the answers, everyone..

@Stryker. Didn't have much luck with amazon (or other stores). I did manage to find a couple of decents books so far, but nothing comparable to Bogle, Swensen or W. Bernstein.

@Valuethinker: you hit the point. I'm mainly looking for specific advice on taxation and regulation of european funds. The whole asset allocation/historical analysis is just fine on American books. I'd also like to find something like the Ibbotson SBBI for the EU, just in case anyone knows.

Also, on portfolio suggestions: I do pay attention in holding Italian bonds since I read Unconventional Success. However I cannot fully control my "retirement vehicle", because I can just choose a single fund and not the ones I'd like like you in the US. So I had to stick with a decent one, but which actually holds some Italian bonds (along with French and German ones). I'd say that it is an acceptable risk.

In my taxable account I hold mainly German, EIB and Italian bonds (the latter through an ETF on European inflation linked bonds).

I really don't think it makes any sense to have bank accounts outside Italy, as long as most of my holdings are in exchange traded funds or individual bonds. Even if Italy should collapse and quit the euro (which I think will never happen, by the way), ETFs will still be in Euros or US dollars, and invididual bonds will still be in Euros.

As for corporates... I don't think that any corporate bond can be safer than government bonds, but that's really an hard call for most globally present Italian companies.

@Charybdis: thanks for the info, but I do follow most of your advice since quite a bit. The only thing which I disagree on are EUR-hedged funds. It's just really adding a layer of cost, as in the long term currency fluctuations will just adjust on their own. And I don't invest in equities if I plan to sell in 4-5 years ;).
Also in your list of good ETFs providers I think you miss 2: Vanguard, which just quoted 5 on the LSE, and Credit Suisse, which has quite a good number of phisycal replication ones.

@billco: thanks for the two links, I'll check them out. I don't speak German, but perhaps I can find a translation.
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Re: Any good European author for Bogleheads?

Post by Valuethinker »

gorion83 wrote: @Valuethinker: you hit the point. I'm mainly looking for specific advice on taxation and regulation of european funds. The whole asset allocation/historical analysis is just fine on American books. I'd also like to find something like the Ibbotson SBBI for the EU, just in case anyone knows.
We are on a page.
Also, on portfolio suggestions: I do pay attention in holding Italian bonds since I read Unconventional Success. However I cannot fully control my "retirement vehicle", because I can just choose a single fund and not the ones I'd like like you in the US. So I had to stick with a decent one, but which actually holds some Italian bonds (along with French and German ones). I'd say that it is an acceptable risk.
It's probably OK, then. Perfect is the enemy of the good.

The late, great Aurelio Zen (Michael Dibdin) would recognize your approach ;-). B--ger that they cancelled the series.

I really don't think it makes any sense to have bank accounts outside Italy, as long as most of my holdings are in exchange traded funds or individual bonds. Even if Italy should collapse and quit the euro (which I think will never happen, by the way), ETFs will still be in Euros or US dollars, and invididual bonds will still be in Euros.
We would not be holding this conversation if we were in Greece.

If Greece goes, then the first thing that happens is bank accounts are frozen. That's why Greeks have pulled their deposits out: the rich ones to Switzerland, the UK etc. The poor ones into their mattresses.

When a country stages a foreign exchange crisis, the first thing it does (almost before the IMF negotiators arrive) is impose exchange controls. That usually happens in concert with a massive bank run and widespread insolvency of financial institutions.

Usually the new currency the Central Bank bails out the depositors (at a massive effective writeoff: the new Drachma will presumably trade at a 40-50% discount to the Euro).

But that period when you cannot get access to your bank account, and your ability to recover your money is limited, and then you take a massive hit to that money....

this has happened in Iceland, and in any host of countries. The lead up to the Argentine default, which had many similarities to the Greek one, was just like this. And of course Spain, Portugal and Italy are the closest countries to Argentina in the Eurozone (that and Wales ;-)).

So, Black Swan, indeed. But if it hits the fan, those with bank accounts in safe countries are going to be in better shape than those without.
As for corporates... I don't think that any corporate bond can be safer than government bonds, but that's really an hard call for most globally present Italian companies.
It's an old debate at the ratings agencies. And yet, one somehow imagines, that when a country defaults, its not immediately clear its multinationals have to default, nor would they benefit from doing so.
@Charybdis: thanks for the info, but I do follow most of your advice since quite a bit. The only thing which I disagree on are EUR-hedged funds. It's just really adding a layer of cost, as in the long term currency fluctuations will just adjust on their own. And I don't invest in equities if I plan to sell in 4-5 years ;).
We've struggled to get Charybdis to see that point-- I thought he did understand that. That if the fund does not undertake hedging back into its own currency of denomination, it does not matter what currency it is denominated in.
Also in your list of good ETFs providers I think you miss 2: Vanguard, which just quoted 5 on the LSE, and Credit Suisse, which has quite a good number of phisycal replication ones.
Lyxor and iShares (Blackrock) are the two I am most familiar with, but not necessarily the best.
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Charybdis
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Re: Any good European author for Bogleheads?

Post by Charybdis »

But Vanguard has only 5 distributing ETFs.

Why would you buy a distributing ETF? Also did you check the tax treaty for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income between Italy and Luxembourg, Ireland? Does Ireland or Luxembourg withheld any dividend taxes?

Also check your broker fees: when you receive the dividends from the ETF, you must immediately reinvest them, because cash is a drag on equity returns. But if your broker charges high fees, youcannot immediately reinvest the dividends cost effectively. Also you must pay half of the bid-ask spread when you reinvest the dividends back into the ETF.

And when you receive the dividend from the ETF, you may have to pay dividend tax in Italy. This is not the case with a capitalizing ETF, since it doesn't pay out dividends. (You could claim back the foreign tax, but it is very complicated).

In short, just avoid distributing ETFs! Unfortunately, Vanguard has only distributing ETFs.

And make sure you hold as few ETFs as possible. I think you should no more than 3 ETFs, because of the high bid-ask spreads and broker fees. I hold only 2 ETFs.

As for the currency risk, "in the long term currency fluctuations will just adjust on their own" - well, at least in theory :) You should seriously consider the EUR-hedged ETFs.
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Re: Any good European author for Bogleheads?

Post by Valuethinker »

Charybdis wrote: As for the currency risk, "in the long term currency fluctuations will just adjust on their own" - well, at least in theory :) You should seriously consider the EUR-hedged ETFs.
If you are in Italy, and Italy leaves the Euro, then ETFs which invest in the remaining Euro zone countries (or the dollar) will do well.

If you invest in the USA say and hedge back into Euros, then you lose the currency volatility Euro v. dollar but you tend to pay a considerable price for it-- in the Canadian/ USD example I've had numbers quoted to me of 1% pa.

It does not matter what the fund is denominated in, unless it hedges back into that currency. In which case you are paying the cost of that hedge (back into Euros say) and you could achieve that hedge in your total portfolio by buying German government bonds (the cost of the hedge will be roughly the interest rate differential between your currency and the Euro).

If it does not, and the USD goes up, then 45% of your portfolio (global ETF) goes up. Euro goes up then c. 20%. Sterling c. 10% etc. The currency of denomination of the units is irrelevant-- it only matters what the underlying investments do.

Generally you find bond funds are currency hedged (international bond funds) but equity funds are not-- the volatility of currency returns exceeds bond returns, so the bond fund would become a currency play. On equities, the prevalent view seems to be why incurr costs unnecessarily, when one of the benefits of international investing is currency diversification?
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Re: Any good European author for Bogleheads?

Post by Valuethinker »

VictoriaF wrote:
Valuethinker wrote:You don't need 'European' advice except around the tax and transaction costs of being in a particular European country. You can simply hold the global equity index *if* you can find the right funds or ETFs.
Valuethinker,

Perhaps, instead of a book, the OP should read Financial Times?

Victoria

VF

FT is good for a general understanding of economics and financial trends.

But as an individual investor, it has a (UK only?) piece on individual investing on the Saturday, and that's it, really.

What one needs is help navigating the tax and ETF issues.

The asset allocation story is dead simple. A percentage in your domestic bonds (or if in the Euro Zone, German government bonds) and a percentage in global equities. Why make life difficult for yourself?

As the Euro Crisis hits there will be a moment when European stock markets are undervalued. But no way of determining that moment, so the best strategy is to be globally diversified.

The odd one right now is we cannot assume sovereign bonds are risk free. At least outside of US, UK, Germany, Australia, Canada, Sweden (I presume) and a few emerging markets...

Which then means if you live in a Euro zone country, you have to take a view about that 'Black Swan' if your country were to exit the Euro. Now if I am in France, Denmark, Germany, Finland, Austria probably that means relatively little (ditto I presume Slovakia and Slovenia and Malta, although I have no information about their economies or deficits). It's the rest I would have to think about: where would I want my money to be, and what restrictions would there be on my banking?

A small probablility of a Black Swan is not a zero probability.

Simply opening a bank account in a stable country (Germany, Switzerland), if feasible, might seem a reasonable precaution. As to moving money there-- one presumably will have *some* warning of a blowout (Portugal, Greece I wouldn't count on it; unsure re Ireland but a UK bank account is an afternoon's drive to the north or a short trip to London; Spain who knows? Italy?).

'May you live in interesting times'.

Interesting times.
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gorion83
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Re: Any good European author for Bogleheads?

Post by gorion83 »

Valuethinker wrote:

We would not be holding this conversation if we were in Greece.

If Greece goes, then the first thing that happens is bank accounts are frozen. That's why Greeks have pulled their deposits out: the rich ones to Switzerland, the UK etc. The poor ones into their mattresses.

When a country stages a foreign exchange crisis, the first thing it does (almost before the IMF negotiators arrive) is impose exchange controls. That usually happens in concert with a massive bank run and widespread insolvency of financial institutions.

Usually the new currency the Central Bank bails out the depositors (at a massive effective writeoff: the new Drachma will presumably trade at a 40-50% discount to the Euro).

But that period when you cannot get access to your bank account, and your ability to recover your money is limited, and then you take a massive hit to that money....

this has happened in Iceland, and in any host of countries. The lead up to the Argentine default, which had many similarities to the Greek one, was just like this. And of course Spain, Portugal and Italy are the closest countries to Argentina in the Eurozone (that and Wales ;-)).

So, Black Swan, indeed. But if it hits the fan, those with bank accounts in safe countries are going to be in better shape than those without.
I'm in a hurry, I'll try to be concise but clear.
I think we must split the discussion between assets and bank deposits.

Assets (and I mean mutual funds, etfs and individual bonds) will still be in the underlying currency. Let's say I have an ETF investing in the US stock market. The underlying currency are dollars, and NAV (in dollars) will just be denominated in the new EuroB-Lira-Whatever. No problems with that (heck, I don't need retirement funds now)

On bank deposits it's right: there will be limitations. But if I have a nest of 100 and pure and simple bank deposits plus local government bonds (and similar issues) is 5, risk is negligible. Also, the hardest hit I'd get wouldn't be on that money, but in future devaluation of my human capital, mostly. And the only solution would be to move outside of the country, provided I can find a job somewhere else.. Do you disagree?


On the topic of ETFs taxation/rulings I'll be back this evening (european time, obviously)
Valuethinker
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Re: Any good European author for Bogleheads?

Post by Valuethinker »

gorion83 wrote: I'm in a hurry, I'll try to be concise but clear.
I think we must split the discussion between assets and bank deposits.
We would not do that if we were Argentine or South African. But it's an assumption we can make for Europe (we hope!).
Assets (and I mean mutual funds, etfs and individual bonds) will still be in the underlying currency. Let's say I have an ETF investing in the US stock market. The underlying currency are dollars, and NAV (in dollars) will just be denominated in the new EuroB-Lira-Whatever. No problems with that (heck, I don't need retirement funds now)
We are on a page.
On bank deposits it's right: there will be limitations. But if I have a nest of 100 and pure and simple bank deposits plus local government bonds (and similar issues) is 5, risk is negligible. Also, the hardest hit I'd get wouldn't be on that money, but in future devaluation of my human capital, mostly. And the only solution would be to move outside of the country, provided I can find a job somewhere else.. Do you disagree?


On the topic of ETFs taxation/rulings I'll be back this evening (european time, obviously)
When we get to Greece, and let's hope that's the only case in the Eurozone, it gets a bit more chronic than that (loss of access to bank accounts). It would not be the case that deposits and local government (ie sovereign nation-- US meaning would be 'municipal' and I don't think that is what you mean) bonds are safe assets.
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gorion83
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Re: Any good European author for Bogleheads?

Post by gorion83 »

Charybdis wrote:But Vanguard has only 5 distributing ETFs.

Why would you buy a distributing ETF? Also did you check the tax treaty for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income between Italy and Luxembourg, Ireland? Does Ireland or Luxembourg withheld any dividend taxes?
I'm pretty sure that Ireland and Luxembourg doesn't withheld any taxes for non-residents. On Ireland I'm pretty sure, I just got paid a dividend and checked on the issuer website. I had a payment of gross -20% Italian tax.
Also check your broker fees: when you receive the dividends from the ETF, you must immediately reinvest them, because cash is a drag on equity returns. But if your broker charges high fees, youcannot immediately reinvest the dividends cost effectively. Also you must pay half of the bid-ask spread when you reinvest the dividends back into the ETF.

And when you receive the dividend from the ETF, you may have to pay dividend tax in Italy. This is not the case with a capitalizing ETF, since it doesn't pay out dividends. (You could claim back the foreign tax, but it is very complicated).

In short, just avoid distributing ETFs! Unfortunately, Vanguard has only distributing ETFs.
What's better? A bad accumulating ETF or a good distributing one? :wink:
The first thing I look for is the index. I want a particular index, so I don't care if there are other ETFs on similar indexes... and then I look at physical replication. If I have to choose between a synthetic fund or a physical one I'd always stick with the latter, no matter the dividend policy.

So, if I have distributing ETFs I can simply pool the dividends with my monthly savings and reinvest. Chances are that I'd wait at most 4-5 months on 2-3% of my portfolio (perhaps even less, given that most distributing etfs I own are quarterly or semi-annually distributing)

And make sure you hold as few ETFs as possible. I think you should no more than 3 ETFs, because of the high bid-ask spreads and broker fees. I hold only 2 ETFs.
Well.. you pay the bid-ask spread only once. The longer you mantain the ETF, the lesser the impact. The same is for broker fees. Surely I like simplicity as well.
As for the currency risk, "in the long term currency fluctuations will just adjust on their own" - well, at least in theory :) You should seriously consider the EUR-hedged ETFs.
Nope, really.

Think about it. You want currency diversification, along with asset class diversification. If the problem are the big swings of the currencies, just reduce your amount exposed to that risk. That's why I hold only Eur denominated bonds.
Swensen got a nice analysis on that in his book, Unconventional Success. Grab a copy in your local library.
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Charybdis
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Re: Any good European author for Bogleheads?

Post by Charybdis »

So exactly which ETFs do you intend to buy? And which share class (USD, EUR or EUR-hedged)?

I also prefer full physical replication ETFs, but if I can find only synthetic or optimized physical ETFs which are appropriate, then I buy them.

So you pay dividend tax after the ETF dividends??? Then why do you buy a distributing ETF? You could avoid the dividend tax if you would buy a capitalizing ETF! :confused
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gorion83
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Re: Any good European author for Bogleheads?

Post by gorion83 »

Charybdis wrote:So exactly which ETFs do you intend to buy? And which share class (USD, EUR or EUR-hedged)?

I also prefer full physical replication ETFs, but if I can find only synthetic or optimized physical ETFs which are appropriate, then I buy them.

So you pay dividend tax after the ETF dividends??? Then why do you buy a distributing ETF? You could avoid the dividend tax if you would buy a capitalizing ETF! :confused
I already own the ETF I want.. i have CS ETF on MSCI EMU (IE00B53QG562, Physical --->Ph, acc), Amundi World Ex-Emu (the only one on this index, Sy, acc), ishares on MSCI EM (DE000A0S3GS7, ph, distr, but narrower spreads and more liquid than the acc version), Ishares FTSE/EPRA dev markets (IE00B1FZS350, ph, distr) and Ishares FTSE/EPRA European (phy, IE00B0M63284, distr). Then some bond ones, but I'll spare you this ones :)

Taxes on dividends are far less important to me than liquidity and physical replication ;)
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Charybdis
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Re: Any good European author for Bogleheads?

Post by Charybdis »

You pay unnecessary taxes? Why? Read the Bogleheads rules. 1st rule: minimize your costs, including taxes.

Do you at least claim back the foreign tax credit? You pay taxes twice, this is a double taxation: First the ETF itself pays dividend withholding taxes to foreign governments, then you yet again pay dividend tax on the same dividend. In short, just don't do it!

For example, if the dividend yield is 3%, you pay an unnecessary 0.6% / year tax. Most people on this board would kill for a 0.6% per year enhancement at the same risk level LOL.

You pay the spread only once, but you keep paying the dividend tax over and over again. And why do you bring up liquidity? An ETF is always liquid thanks to the market makers. You should only care about the bid-ask spread and the premium/discount to iNAV.

Why not just hold the SPDR® MSCI ACWI IMI ETF? It includes developed and emerging market, large-, mid- and small-cap (98% of the global stock market, but it is a physical optimized ETF, so the ETF only holds about 600 stocks out of the tracked 9000).

The less ETF you own, the less you pay on spreads and broker commission when rebalancing and investing.
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Re: Any good European author for Bogleheads?

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Re: Any good European author for Bogleheads?

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Re: Any good European author for Bogleheads?

Post by gorion83 »

Charybdis wrote:You pay unnecessary taxes? Why? Read the Bogleheads rules. 1st rule: minimize your costs, including taxes.

Do you at least claim back the foreign tax credit? You pay taxes twice, this is a double taxation: First the ETF itself pays dividend withholding taxes to foreign governments, then you yet again pay dividend tax on the same dividend. In short, just don't do it!

For example, if the dividend yield is 3%, you pay an unnecessary 0.6% / year tax. Most people on this board would kill for a 0.6% per year enhancement at the same risk level LOL.


The less ETF you own, the less you pay on spreads and broker commission when rebalancing and investing.
Charybdis, I'm starting to wonder if you read my post.
you don't pay double tax on ETFs.. Check it.

Also as you can see from my list my distributing dividends are just some, not all. And btw by Euro amount they don't even make up to 40% of the stock allocation. So.. 40% of 70% it's 28%. On that you have a yield of 3%? ok, that's 0.84%, reduced by taxes for a total amount of 0,17%.

What's better? Paying a 0,17% more in taxes or using a better instrument, even if not distributing?

If your local exchange makes them available, check spread stats. You'll see that not all etfs and market makers are equal :mrgreen:
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Re: Any good European author for Bogleheads?

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Re: Any good European author for Bogleheads?

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You sure pay double tax on ETFs. Unless you use the foreign tax credit. Do you use it?

Let's say your Irish ETF holds a US stock. The ETF receives dividend from that stock. The ETF pays about 15% dividend withholding tax to the US government. Strike one. (note: the ETF can reduce the dividend withholding tax payable via security lending and synthetic tracking)

You receive the same dividend from the ETF via distribution. You pay 20% dividend tax in Italy. Strike two.

Now you should use the foreign tax credit: you should only pay 20%-15% = 5% dividend tax in Italy, not 20%. This is surely double taxation. It is your job to do someting against it: claim back the tax or buy a capitalizing ETF.

Do you know that the ETFs track the net total return indexes, not the gross total return indexes?

Given that the majority of the European ETFs are capitalizing, I don't know why don't you choose a good capitalizing ETF. There are many.
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Re: Any good European author for Bogleheads?

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Charybdis wrote:You sure pay double tax on ETFs. Unless you use the foreign tax credit. Do you use it?
Charybdis, this is plain wrong.
Ireland doesn't witheld any tax on dividends for foreign individual investors.

http://www.revenue.ie/en/tax/dwt/leafle ... lines.html Go to 5.a)

Given that this is the third time I write it, a bit of research from your part before writing again the same thing could help.

Btw, find me a good capitalizing ETF on the FTSE/EPRA REIT indexes or similar, traded on Milan Exchange, with physical replication. I fear you won't find any.
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Re: Any good European author for Bogleheads?

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The db X-trackers FTSE EPRA/NAREIT GLOBAL REAL ESTATE ETF is a capitalizing REIT ETF. the stock exchange doesn't matter, only the share classes matter. Also ETFs aren't subject to UK stamp duty reserve tax. It is a synthetic ETF, but full replication ETFs aren't riskless either. They use security lending, so they also have counterparty risk.

Also if the synthetic ETF is over-collaterized, there is little counterparty risk. Also in the case of db X-trackers, the swap counterparty is Deutsche Bank. The ETF is also managed by Deutsche Bank. So what is the problem?

You don't understand what I am talking about - not Ireland withholds dividend tax. The ETF itself pays the dividend withholding tax, but it is hidden from you. You can check their annual report. The ETF only receives the net dividends, that is dividends reduced by dividend withholding tax. Because they track the net total return indexes. The ETF then distributes that net (=after tax) dividend to you, and you pay dividend tax in Italy yet again = double taxation. Unless the dividend tax in Italy is zero, but you mentioned it is 20%. Double taxation not between Italy and Ireland, but double taxation between Italy and all the countries where the ETF holds a stock. For example, if the ETF holds US stocks, then there is double taxation between Italy and the US, unless you do something about it (claim back the tax from the Italian taxman, or buy a capitalizing ETF).

You are double-taxed, and you don't even know about it. Learn more about Foreign tax credit here: Foreign tax credit

Also I suggest you to learn the difference between a net total return index (ETFs use that), and a gross total return index: Dividend Tax Leakage In Popular Equity Indices

In short, just buy always capitalizing ETFs, and avoid the distributing ETFs.
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Re: Any good European author for Bogleheads?

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Quite in an hurry, so forgive me if I don't go deep in details.

Security lending is risky, but I still prefer that to replication with derivates. Just a matter of personal preferences, I like to understand what I am buying.
Btw every issuer has its own policy, and that's why I really like the CS one, despite having less liquidity.

The stock exchange matters to me. I pay just 2.9 euros trading on Milan, but I'd pay 20 in a foreign exchange (broker fees). So I have an easier rebalancing and reinvesting with ETFs quoted in Milan.

Your point on dividends doesn't make any sense, to me.
Let's keep things simple: suppose we have a fund with 2 different share classes: a distributing one and a capitalizing one. For the sake of simplicity let's assume that we have no other difference. When the underlying securities pay the dividend both classes receive it, and if they have to pay a tax both do that. Then the accumulating one increase its NAV with those dividends and the distributing one pays them to you. But if they paid any taxes on the underlying security distribution, both paid that, so your point seems wrong to me.
Now, if the distributing one is based in Ireland, the only tax you are going to pay is your local government one (and that would be the only extra one with respect to the accumulating one).
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Re: Any good European author for Bogleheads?

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That's right. Both the capitalizing and distributing share classes pay the same dividend withholding tax. The only extra tax you pay is the Italian dividend tax, if you choose the distributing share class.

Ok seems like you aware of the fact that you pay unnecessary dividend tax in Italy, but you bear the tax burden because you like the distributing share class better. So if you understand this, then you do it right.

By the way you could still reduce the Italian dividend tax. I don't know whether it's worth the hassle or not, but you could claim back the foreign dividend tax from the Italian taxman somehow. For example if the dividend tax in Italy is 20%, but the ETF already paid 15% dividend withholding tax, then you should pay only 5% dividend tax in Italy.

What is your strategy when trading ETFs? When do you buy them during the day? And do you pay for the real time data, or do you use the 15 minutes delayed pricing?

Here is how I do it: I only buy the ETF when the stock exchange of the underlying securities are open. If the ETF is a global equity ETF, then I buy it when the US and the European markets are open at the same time. It is important because the iNAV is the most accurate when the markets are open. I also avoid trading near market open and near market close.

I pay for the real time data, and only use limit orders (market orders are dangerous). I also monitor the spread, and only buy when the spread is relatively the lowest.


The db X-trackers ETF are over-collaterized. So if Deutsche Bank goes bankrupt, it is possible that you will receive more cash than the actual NAV.
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Re: Any good European author for Bogleheads?

Post by gorion83 »

Charybdis wrote:
What is your strategy when trading ETFs? When do you buy them during the day? And do you pay for the real time data, or do you use the 15 minutes delayed pricing?
I do have real time data on the Milan exchange as a freebie from my bank. I always try to trade when the underlying markets are open, but It's not always possible. Limit orders, always ;)
The db X-trackers ETF are over-collaterized. So if Deutsche Bank goes bankrupt, it is possible that you will receive more cash than the actual NAV.
Sure. But what's in that collateral? How often is it reset?

Take the annual report of the same ETF I wrote you about. It's physical and, according to the report, loaned at year end just 27 millions on over 500 of the fund assets, with gurantees over 33. I prefer this approach, honestly.
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Re: Any good European author for Bogleheads?

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I also agree that the full physical replication is the best (and not the optimized physical, or synthetic replication).

But I couldn't find any full physical replication fund which is appropriate to me. So I won't avoid an ETF just because it uses optimized physical, or synthetic replication.

The db X-trackers ETF has a bunch of Japanese and US government bonds, and various stocks not related to the tracked index in the collateral basket.

So yes, it is a bit funny. Let's say the ETF tracks the global REIT index. The swap counterparty goes bankrupt, and you will end up with Japanese bonds and UK large-cap equities (for example), even though you bought a REIT ETF.

Ah, ETFs are complicated beasts!
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Re: Any good European author for Bogleheads?

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Charybdis wrote: So yes, it is a bit funny. Let's say the ETF tracks the global REIT index. The swap counterparty goes bankrupt, and you will end up with Japanese bonds and UK large-cap equities (for example), even though you bought a REIT ETF.

Ah, ETFs are complicated beasts!
Indeed. And the next question would be: what if the thing which caused the swap counterparty to go bankrupt also cause the Japanese and US bonds and large cap equities to fall by 50%?
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Re: Any good European author for Bogleheads?

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That's a good question. But if Deutsche Bank goes bankrupt, here in the EU we will have bigger things to worry about. Maybe it is also a good idea to diversify among ETF providers.
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