Portfolio for belgian (Europe) investor

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TM90
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Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 2:40 am

Hi everybody, first of all I would like to say that this is a great forum and the people who post here are absolutely fantastic. So thank you for having the opportunity to ask and read from some of the most experienced bogleheads in the world.

As stated in the book "The Bogleheads guide to investing" based on my age (I'm 26) my portfolio should preferably be the following:

Domestic large cap stocks 55%
Domestic mid/small cap stocks 25%
Intermediate term bonds 20%

However there aren't a lot of index funds available in my country at my current broker there actually is just one:

https://www.medirectbank.be/mutual-fund ... 0P00016MNP

This is the EMU version, there's also an US version

In case of etfs there's a bit more choice including ischares msci world and vanguard acwi.

https://www.medirectbank.be/invest/etfs ... 0P0000YXJO

https://www.medirectbank.be/invest/etfs ... 0P0000MLIH

Notice how they are taxed differently because of the kapitalisation/distribution form.

This is the same situation for bond funds, because of the tax difference its hard to choose which form to go with. What do you think is most tax efficient?

As for bonds the mutual funds are all more expensive then the etfs so it's a no brainer. But which bond etf should i choose? I have read all the "investing from europe" wiki pages but I don't know which type of bond etf suits the buy and hold portfolio.

Almost all the EU bond etfs contain large portions of Italian French and Spanish bonds.

Maybe a global aaa aa government bond etf containing all maturities is best?

And the biggest question to me is, what is meant by domestic stock? Because I am an European investor should I only invest in European stocks and bonds?

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nedsaid
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Re: Portfolio for belgian (Europe) investor

Postby nedsaid » Mon Mar 06, 2017 11:36 am

As a European investor, you should focus your Stock investments on an All-World ETF or fund. Your bond investments should be denominated mostly in Euros as that is your home currency. For US Investors, Vanguard recommends 30% of bonds to be International. Translated to a European Investor, that would be 70% bonds denominated in Euros and 30% denominated in other currencies. I don't know how to get around the Spain/France/Italy problem with bond funds. You might see if single country bond funds denominated in Euros are available. For example, no one thinks Germany is going bankrupt soon. Ditto for Netherlands.
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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 12:01 pm

Hi nedsaid thank you for your reply

I looked at the available etfs from my broker and there are a couple of which I'm interested in

For example

Ishares core euro government bond etf (includes lower rating countries but to me it followes the boglehead strategy to "buy the market")

Ishares global aaa aa government bond etf (mostly g7 countries including japan)

Ishares eb.rexx government German (all durations, not diversified)

CD are at an interest rate of nearly zero so that is not really a good choice, what do you think is most suited for the buy and hold investor?

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nedsaid
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Re: Portfolio for belgian (Europe) investor

Postby nedsaid » Mon Mar 06, 2017 12:22 pm

I have been to Europe five times in the last six years and I have some feel for what happens there but that does not make me an expert. For example, I don't know much about your tax systems and can't begin to tell you which investment is more tax efficient than others. What I can tell you are some general investing principles.

I would have some concern about holding bonds in countries with weaker economies that are part of the Eurozone. Folks here have talked about the PIIGS: Portugal, Italy, Ireland, Greece, and Spain. The problem is that the US press probably sounds alarmist to European residents and certain events are probably exaggerated. I have some concerns about the Eurozone breaking up but what I don't know is how this looks to European residents.

Bottom line, European countries are mostly wealthy and their populations are productive. This bodes well for the Euro or whatever successor currencies that might arise. If you were worried about Eurozone breakup, I would do single-country funds with the strongest economies like Germany and The Netherlands. I would happily accept German Marks or Dutch Guilders in an exchange for Euros as I know the underlying economies are strong. If you weren't worried about a Eurozone breakup, the Core Euro Government Bond ETF would be good enough.

If you don't worry about Eurozone breakup, probably 70% of your bonds in the Core Euro Government Bond ETF and 30% in iShares Global AAA AA Government Bond ETF would be good enough. At age 26, the bulk of your investments will be in stocks anyway. Again, I would put your stocks in an all-world stock ETF.

Hope this helps. Best wishes, Ned.
A fool and his money are good for business.

TM90
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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 12:39 pm

Actually with elections in The Netherlands and France this year on the agenda and i believe Germany next year, I'm a bit worried about the eurozone breaking up.

Although in my local news there's nobody mentioning the possibility of it which leads to the public not regarding it as a possibility. But that doesn't make it any less of a possibility. I can see why you're worried about it, I actually am too. But my gut tells me the European Union is here to stay. Maybe not in it's current form but it definetly won't break up and dissapear. The union has brought peace and stability to the region.

About your suggestion of buying 2 bond etf's i think it would work out nicely but I want the most basic portfolio and to minimize transaction kosts (7,5 euro minimum without taxes). I plan to initially invest 10K and afterwards make a yearly contribution/balancing of 1.2k or 1k.

Maybe the Germany ETF is the safest bet, it is diversified in duration and has a good credit rating.

Am I wrong to maybe to a certain extent consider Germany as the USA of Europe? It certainly is the economic engine of the continent imo.

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 06, 2017 12:48 pm

TM90 wrote:Hi nedsaid thank you for your reply

I looked at the available etfs from my broker and there are a couple of which I'm interested in

For example

Ishares core euro government bond etf (includes lower rating countries but to me it followes the boglehead strategy to "buy the market")

Ishares global aaa aa government bond etf (mostly g7 countries including japan)

Ishares eb.rexx government German (all durations, not diversified)

CD are at an interest rate of nearly zero so that is not really a good choice, what do you think is most suited for the buy and hold investor?


Choose the global equity ETF that gives you the best tax situation.

Don't get too caught up on small cap, mid cap. For example the FTSE100, the 100 largest companies in the UK, is 84% of all market capitalisation of the FTSE All-Share. The FTSE350 which would include the "mid" sized companies is 96%. In other words, the performance of the indices should be close to each other.

It's more important to get the global spread, including if possible Emerging Markets. You may in the future find a suitable small cap world product, but it is not likely to really hurt you if you don't have it now.

As to bonds:

- staying in Eurozone bonds, or a fund hedged into Euros, is probably best

- if a Eurozone country gets into trouble (i.e. the next Greece) then it will be downgraded below investment grade, and the fund will sell those bonds. Of course you will have to take the pain of the fall to that point, but it is not likely to be holding defaulted bonds.

There is a certain degree of event risk around 2 national elections. If France chooses the extreme right wing candidate as president, then German bonds will rise, and almost all other Eurozone government bonds will fall.

Similarly if Mrs. Merkel is unable to form a coalition or extreme right wing parties find their way into having more influence.

I find the German scenario very unlikely but I am no sage of the German electorate's mind. The French one I am manic-depressive on. Unfortunately it probably matters.

If you need to take this decision before the French election (bearing in mind that if the worst does not happen, French government bonds will probably go *up*) then I would consider putting my money into the German government bond fund and the global government bond fund-- ie a split decision. Or 1/3rd in each.

Post these 2 elections the European government bond fund should do. Assuming the political risk does not crystallize.

Does the latter hedge currency exposure back to Euros? (not just its reporting currency, does it actually use derivatives (futures & forwards) to hedge its value back into Euros). Generally taking currency exposure in a bond fund is not wise-- the fund becomes a currency bet rather than a place of safe haven for non-equity investments.

Equity normally one takes the currency risk because in the long run that should even out so the costs of hedging are not worth it.

The reason CDs are so bad, btw, is because there is still a significant risk of Eurozone deflation, and because the European Central Bank is practising quantitative easing (buying bonds to lower market interest rates).

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 06, 2017 12:51 pm

TM90 wrote:Actually with elections in The Netherlands and France this year on the agenda and i believe Germany next year, I'm a bit worried about the eurozone breaking up.

Although in my local news there's nobody mentioning the possibility of it which leads to the public not regarding it as a possibility. But that doesn't make it any less of a possibility. I can see why you're worried about it, I actually am too. But my gut tells me the European Union is here to stay. Maybe not in it's current form but it definetly won't break up and dissapear. The union has brought peace and stability to the region.

About your suggestion of buying 2 bond etf's i think it would work out nicely but I want the most basic portfolio and to minimize transaction kosts (7,5 euro minimum without taxes). I plan to initially invest 10K and afterwards make a yearly contribution/balancing of 1.2k or 1k.

Maybe the Germany ETF is the safest bet, it is diversified in duration and has a good credit rating.

Am I wrong to maybe to a certain extent consider Germany as the USA of Europe? It certainly is the economic engine of the continent imo.


Yes but the analogy is perhaps closer to Germany is the California, Michigan, Minnesota, Wisconsin, Texas, Massachusetts & Indiana of Europe. i.e. the big manufacturing and agricultural heartlands.

They are running a budget and current account surplus, and a significant trade surplus with the rest of the Eurozone.

The real threat to the EU is nationalistic politics-- and in particular, France. They can live without Great Britain (glad to be rid of us in some ways, in truth) but France is the original partner along with Germany Belgium Netherlands. If France elects the ultra-nationalist as president, all bets are off on what shape the future EU might take.

It's a good bet that German government bonds will be OK even if the Eurozone breaks up.
Last edited by Valuethinker on Mon Mar 06, 2017 1:28 pm, edited 1 time in total.

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nedsaid
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Re: Portfolio for belgian (Europe) investor

Postby nedsaid » Mon Mar 06, 2017 12:59 pm

Boy, election outcomes are hard to predict and in any case it usually doesn't work invest in accordance with politics. Markets react in ways that you don't expect, for example it seemed that a lot of concerns about Brexit were overblown. In other words, markets could react positively to what you perceive as bad news.

Another solution would be a World Bond ETF, if such a thing existed, that is currency hedged. Vanguard has a Total International Bond Index that is currency hedged and which they can offer at low cost. If something like that existed in Europe, I would consider it. You spend in Euros and you want most of your Bonds in Euros.

I recommend that people put the bulk of their bond investments in their home currency. You want stability from bonds, indeed the whole idea of buying bonds when you are young is to reduce the volatility of your portfolio. Currency risk is fine for stock investments and less so for bond investments.

The problem is that I don't know too much about what investments are available to Europeans, much less the tax consequences of their investments. For example, it seems that the UK has a big tax on foreign dividend income. So I can't give anything but general advice. There are a lot of European Bogleheads and I have talked to some here on this forum. Perhaps you could send a personal message to Valuethinker and ask him to comment on this thread. He seems to be the most knowledgeable. Wow, I see that Valuethinker has already chimed in.
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nedsaid
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Re: Portfolio for belgian (Europe) investor

Postby nedsaid » Mon Mar 06, 2017 1:01 pm

Valuethinker, while you are here, could you comment on the most appropriate investments for a young 26 year old in Belgium? Thanks. Edit: I see that you already have. Thank you.
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BeBH65
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Re: Portfolio for belgian (Europe) investor

Postby BeBH65 » Mon Mar 06, 2017 1:37 pm

Hello tm,

For equity (growth) - choose one of the accumulating world Etf's.
For bonds (protection) - you can choose one of the government heavy euro bonds funds. Alternatively, for smaller regular amounts, there are still some savings accounts in Belgium that give some Interest with government guarantee (see for instance here)

If you are saving for retirement, don't forget to fund the tax-advantaged accounts (pension saving account, long term saving account).

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

TM90
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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 1:43 pm

Thank you for your replies, it's great to get some advice on these things!

I'm still struggling with choosing between lump sum and DCA maybe wait until the elections are over?

Crashes in recent years were 10 years apart 1999, 2008 who knows maybe is 2017 next.. I only hope I don't invest a shortly afterwards a crash happens

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nedsaid
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Re: Portfolio for belgian (Europe) investor

Postby nedsaid » Mon Mar 06, 2017 2:01 pm

TM90 wrote:Thank you for your replies, it's great to get some advice on these things!

I'm still struggling with choosing between lump sum and DCA maybe wait until the elections are over?

Crashes in recent years were 10 years apart 1999, 2008 who knows maybe is 2017 next.. I only hope I don't invest a shortly afterwards a crash happens


If you are nervous about the markets, it is okay to dollar cost average your investments into the markets. The thing is, you are 26 years old and very young for an investor. All the literature says that you are better off to put it all in at once. I differ in that I counsel dollar cost averaging for those who are nervous, investor regret is powerful psychologically, particularly if the dollar amounts are large. My guess is that we are talking smaller amounts here.
Last edited by nedsaid on Mon Mar 06, 2017 2:13 pm, edited 1 time in total.
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BeBH65
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Re: Portfolio for belgian (Europe) investor

Postby BeBH65 » Mon Mar 06, 2017 2:04 pm

Hello,

Lump sum vs DCA:
- read the wiki page
- do a search for the previous threads on this forum: there are many.
- also Google for "bob the worst market timer"

From the wiki: "The answer depends on the degree to which you are willing to accept lower expected returns in exchange for lower potential losses (aversion to possible loss)."

Also consider your "risk tolerance" and " asset allocation": %equity vs %bonds; what will you do if equity drops with 50% ?


Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 2:50 pm

Well here's the case

Emergency reserve: 10k
Loans: car loan, 1 year left to pay, around 3k
Blocked cash: 1100 (2 months worth rent)

Investments:
- Pension fund: 3.1k with monthly contribution of € 78,34 (max deposit/year is 940 euro with tax return of 30%) pension fund is 80% stock and 20% bonds
- Own investments: I sold nearly all of my mutual funds because I wanted to start indexing I also own 2 stock (ab inbev and greenyard) so if I sell everything: 10k.

Etf portfolio will be: 80/20 stocks and bonds I consider my emergency fund big enough to not have to hold extra cash.

Plan is to save each month 100 euro extra for my personal investments and each year rebalance or just buy extra with this saved money.

Truth is when I bought my first mutual funds in 2015 it went down pretty fast and they have only just recovered so I gained nothing on them (Msci world is +10%). So I know the market will recover. I just had a bad strategy first but I'm sure the boglehead investment strategy is the best.

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 4:16 pm

Ex European member of parliament just said this on national TV;

"If Le Pen wins the election, France would leave the EU and because it wouldn't receive anymore EU funds it would default fast because of its huge debt. Europe will fall apart, there would still be some countries clinging to Germany but that would be the end of the EU as we know it."

Interesting times lie ahead

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Re: Portfolio for belgian (Europe) investor

Postby nedsaid » Mon Mar 06, 2017 4:24 pm

It sounds like you are off to a good start. A $20,000 or so net worth at age 26 isn't bad.

You got some good investment advice and I am pleased that Valuethinker chimed in. He is one of the best regarded posters here. Hope all of this has been helpful to you.

My first trip to Europe, our tour group drove through Belgium on the way to Amsterdam. I could see the exit signs to Antwerp from our tour bus window. We didn't stop. Hopefully, I will visit Belgium some time on another trip. I would like to see Bruges.

The moderators here monitor the forum for political discussion thus I kept my comments rather tempered. Keep in mind that whatever happens, the markets might respond in a manner you don't expect. Markets often rise on what appears to be bad news. It is also good practice to not let your political views influence your investments too much. But given the concerns that have been expressed here, I do recommend "world" portfolios for European investors and in fact for all investors.

As I said previously, Vanguard is recommending that 40% of stocks and 30% of bonds be in International investments. The founder of Vanguard says that a U.S. only portfolio is fine for U.S. investors but his own company that he founded disagrees with him.
A fool and his money are good for business.

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 06, 2017 4:47 pm

Yes it has been very helpful thank you and the others for the advice!

Visiting Bruges is nice I've been there a couple of times myself it's a very romantic city so your spouse will be pleased.

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 06, 2017 5:25 pm

TM90 wrote:Ex European member of parliament just said this on national TV;

"If Le Pen wins the election, France would leave the EU and because it wouldn't receive anymore EU funds it would default fast because of its huge debt. Europe will fall apart, there would still be some countries clinging to Germany but that would be the end of the EU as we know it."

Interesting times lie ahead


Consider though that the market knows this. Which means by the time of the election, some of that will be priced in.

*Not* all of it. As we saw with Brexit vote, market got it spectacularly wrong. The hit was on the exchange rate-- a 10% drop in a couple of hours (and down further since-- lowest against the dollar in over 30 years). The stock market actually rallied (FTSE100 companies make c. 60-70% of their profits outside GBP, so a fall in GBP increases their profits).

I wouldn't freak about this, because if you do wait, you could be in the position of paying 10% *more* (when the worst doesn't happen).

Simply invest a monthly lump sum, or whatever is efficient to minimize transactions costs.

Given your age and relatively small amounts, if the worst *does* happen you will lose something on the bond funds you select. Tant pis as the French say ;-). In the course of your investing life, this will be but a small blip. In truth, with the US stock market 55% of world equity markets, *that* is where your real risk lies.

Split the money into 2 or 3 of the bond funds you could select, and start investing regularly. That way you can never be totally wrong, and you'll never be totally right ;-).

The main thing is to minimize costs, minimize tax, and keep investing for the long haul.

The Icelandic-Korean war of 2046, fought in the ice free Northwest Passage between New Canada and the Pacific Ocean, *that* will hurt your portfolio. The disappearance of the European Union in 2023 after Vladimir Putin is elected King of England? It will seem as nothing ;-).

When in doubt as to future events, we should always consult the Doctor ;-).

http://www.bbc.co.uk/doctorwho/classic/ ... tail.shtml

http://tardis.wikia.com/wiki/Icelandic_Alliance

http://tardis.wikia.com/wiki/Supreme_Alliance

;-).

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 06, 2017 5:27 pm

TM90 wrote:Yes it has been very helpful thank you and the others for the advice!

Visiting Bruges is nice I've been there a couple of times myself it's a very romantic city so your spouse will be pleased.


I *really* liked Antwerp. Amsterdam without quite the tourism and the sleaze. And great restaurants.

Bruges is chocolate-box pretty. A relation won a Victoria Cross at Zeebrugge (actually, Ostend) so it has a place for me in my heart ;-). Someday I shall visit Ghent (which is supposed to be also very interesting).

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Thu Mar 09, 2017 3:34 am

So I did some research on taxes on etfs

The German bond etf is listed on the German stock exchange so they tax: 25% on dividend in Germany + 30% on dividend in Belgium so net dividend would be around 55% :(

That's a bit expensive to me!

I'm now considering this etf:
https://www.medirectbank.be/invest/etfs ... 0P00018GF7

This etf is capitalizing and has:
50% German bonds
30% French bonds
10% Dutch bonds
5% Austrian bonds
3% Finnish bonds

It does have a lot of French bonds And tax is 1,32% on buy and on selling this etf

What do you think would be more tax friendly?

Other etfs I can buy are either distributing, not currency hedged or contain to much French, Italian, Spain etc bonds

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Thu Mar 09, 2017 4:54 am

TM90 wrote:So I did some research on taxes on etfs

The German bond etf is listed on the German stock exchange so they tax: 25% on dividend in Germany + 30% on dividend in Belgium so net dividend would be around 55% :(

That's a bit expensive to me!

I'm now considering this etf:
https://www.medirectbank.be/invest/etfs ... 0P00018GF7

This etf is capitalizing and has:
50% German bonds
30% French bonds
10% Dutch bonds
5% Austrian bonds
3% Finnish bonds

It does have a lot of French bonds And tax is 1,32% on buy and on selling this etf

What do you think would be more tax friendly?

Other etfs I can buy are either distributing, not currency hedged or contain to much French, Italian, Spain etc bonds


Belgian taxes I know nothing about.

Eurozone bonds of high credit quality are on very low yields. For the moment at least, taxes on distributions should not be too much of an issue?

From a credit quality perspective, it's not a bad fund. Can't speak to expense ratios (didn't click thru the link) nor to the cost of investing (high, but against alternatives?).

I should add, a bank CD within the European guarantee limits (100k Euros?) is a reasonable alternative.

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Re: Portfolio for belgian (Europe) investor

Postby BeBH65 » Thu Mar 09, 2017 5:27 am

Hi TM90,


Taxation is indeed not an easy topic. Let me give a start, hopefully ohters will chime in.

There are 3 countries that are typically raising taxation:
#1- the taxation by country of the actual asset (e.g. the stock, or the bond)
#2- the taxation by country where the fund is domiciled ( etf or mutual fund)
#3- the taxation of the investor that holds the fund. (see Taxation_of_investments_in_Belgium for you)

These taxations are influenced on treaties between the countries.
See also our wiki pages international domiciles taxation.
Generally, but not always, Irish domiciled funds are good.
- Ireland has "good" treaties with many countries --> this limits the #1 tax (I believe German and Luxemburg have less advantagous treaties)
- Ireland typically does not do any taxation itself; limiting #2 tax

TM90 wrote:So I did some research on taxes on etfs

The German bond etf is listed on the German stock exchange so they tax: 25% on dividend in Germany + 30% on dividend in Belgium so net dividend would be around 55% :(
German domiciled funds are taxed by Germany, dividends distributed to a Belgian investor are taxed by Belgium.
You forget about the Tax on stock exchange transactions (0.09%, 0.27% or 1.32%) in Belgium, and the Belgian 30% tax on the capital gain on bonds portion :-)


That's a bit expensive to me!

I'm now considering this etf:
https://www.medirectbank.be/invest/etfs ... 0P00018GF7

This etf is capitalizing and has:
50% German bonds
30% French bonds
10% Dutch bonds
5% Austrian bonds
3% Finnish bonds

It does have a lot of French bonds And tax is 1,32% on buy and on selling this etf
This 1.32% is the Belgian transaction tax, Don't forget the Belgian 30% tax on the capital gain on bonds portion. Also, as this is a Luxemburg domiciled fund, not sure what taxation Luxemburg raises.

What do you think would be more tax friendly?

Other etfs I can buy are either distributing, not currency hedged or contain to much French, Italian, Spain etc bonds


Personally, as a fellow Belgian, I have invested the protection portion of my portfolio in
1- Irish Domiciled ETFs on EURO government focussed bonds. Many are distributing, but the dividends are so low so taxation is low :-)
2- Government agreed savings account; amount below the taxation treshold
3- Some older CDs and individual bonds that still give me good (taxed) interest

Hope this helps,

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

TM90
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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Thu Mar 09, 2017 7:41 am

Hi thank you for your reply!

Although I didn't mention them, I haven't forgotten about the other costs but I didn't mention them because they were clear to me.

I also would like to invest in euro government bonds but most irish domiciled ETF's either distributing or capitalising contain bonds from italy, spain, france.

The good side is they have low transaction tax

these are the etf's i'm interested in and i'm going to list the good and negative sides to me:

Distributing (0,09/0,27 transaction tax, 30% capital gain tax, 30% tax on dividends):
ishares core euro government: lower rated country bonds, no currency risk
ishares global aaa aa gov: good credit rating countries but also France, has currency risk
ishares global government bonds: contains a lot of lower rated country bonds, has currency risk
ishares db rexx government germany: AAA rating, double taxation on dividends, no currency risk

Capitalisation (0,09/0,27/1,32 transaction tax, 30% tax on capital gains)
Lyxor EuroMTS All-Maturity Investment Grade: contains lower rated country bonds, no currency risk
Lyxor EuroMTS Highest Rated Macro-Weighted Govt Bond (DR) UCITS ETF: good credit rated country bonds, no currency risk, has 1,32% transaction tax

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Thu Mar 09, 2017 8:03 am

TM90 wrote:Hi thank you for your reply!

Although I didn't mention them, I haven't forgotten about the other costs but I didn't mention them because they were clear to me.

I also would like to invest in euro government bonds but most irish domiciled ETF's either distributing or capitalising contain bonds from italy, spain, france.

The good side is they have low transaction tax

these are the etf's i'm interested in and i'm going to list the good and negative sides to me:

Distributing (0,09/0,27 transaction tax, 30% capital gain tax, 30% tax on dividends):
ishares core euro government: lower rated country bonds, no currency risk
ishares global aaa aa gov: good credit rating countries but also France, has currency risk
ishares global government bonds: contains a lot of lower rated country bonds, has currency risk
ishares db rexx government germany: AAA rating, double taxation on dividends, no currency risk

Capitalisation (0,09/0,27/1,32 transaction tax, 30% tax on capital gains)
Lyxor EuroMTS All-Maturity Investment Grade: contains lower rated country bonds, no currency risk
Lyxor EuroMTS Highest Rated Macro-Weighted Govt Bond (DR) UCITS ETF: good credit rated country bonds, no currency risk, has 1,32% transaction tax


I would go for the All_maturity investment grade.

Lower taxes, and the 1.32% charge would really hurt (remember, Anglo-Saxons use "." where you use "," ;-))

OK if the Euro hits the fan you will be hurt. However if the bonds drop below investment grade, they will be sold. That will be painful in terms of capital losses, but it is quite unlikely the fund will wind up with holdings in defaulted bonds.

Otherwise split 50/50 between the 2 Lyxor funds, to avoid paying tax on the income.

If there is a global government bonds fund I would consider that, to dilute the impact of certain southern European countries.

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Thu Mar 09, 2017 8:28 am

There is a global bonds etf but it is not capitalizing and it is valued in usd

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Thu Mar 09, 2017 9:36 am

TM90 wrote:There is a global bonds etf but it is not capitalizing and it is valued in usd


In essence then, you have your answer.

You either go 100% in the EUropean govt bonds fund, or 50% that and 50% in the high quality one. You will probably wind up in about the same place, less the transaction fee (compounded by the return of the fund, over your holding period of the fund ie (1+0.0132)^yrs - 1).

If the Euro breaks up it will all be a bit complicated. But if a major southern borrower (Italy or Spain) were to default/ restructure, well then the EU is in for a really serious bout of pain, and I am not sure any investment is particularly "safe". Can we really see the German voter agreeing to pay for the restructuring of Italy or Spain?

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Thu Mar 09, 2017 11:10 am

So your saying if there would be a default or restructuring all euro countries would be affected and thus it doesn't matter which countries the etf holds most?

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Fri Mar 10, 2017 6:04 am

TM90 wrote:So your saying if there would be a default or restructuring all euro countries would be affected and thus it doesn't matter which countries the etf holds most?


If the Euro breaks up the Italian and Spanish new currencies would fall. You'd take real pain there. Possibly France as well.

If there was a default or restructuring of Spain or Italy it would stress the Euro and the European Union to the breaking point. OK you'd want to own German (or Swiss!) government debt. But it's very hard to believe the EU would allow that to occur. The ECB would print money to fund a bailout.

It is, a nightmare scenario. A bank CD within insurance limits would be protected as long as government stays solvent. Of course Belgium has its own history of weak governments and one of the highest debt/ GDP ratios in the EU. But it seems to muddle along, and I don't imagine a scenario where Belgium cannot make good on the 100k Euro guarantee.

The thing is, these things are so remote. In the end, only total German intransigence would create such a scenario. Whilst I worry about elections, and about France (a lot) and Germany (some) it seems hard to believe these countries would write such a suicide note. With MLP whatever she says in opposition, in government she will still have to face "Le Blob" of the French state & technocracy, and that will constrain her (a lot).

I don't think you should panic. Given your limited choices, the tax issues and the need to minimize costs, an investment grade Euro zone government debt fund looks like a reasonable alternative.

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Thu Mar 16, 2017 11:00 am

So today I took a leap of faith and I bought my etfs my portfolio now is:

- iShares Core MSCI World UCITS ETF USD (Acc) 30%
- BNP Paribas B Pension Growth 25%
- Vanguard EUR Eurozone Government Bond UCITS 15%
- Threadneedle European Select Fund Retail Accumulation EUR 15% (will be sold or replaced with an etf but in lower weighting)
- Greenyard nv 7,5%
- AB InBev 7,5%

All in all it's around 13k and my emergency fund is 10k do you think my emergency fund is too big?

General weighting
11% bonds 45% stock 44% cash

10% on a 100k portfolio is a different kind of emergency fund than 10% on a 23k portfolio.. but on the other hand the cash is just sitting there melting away..

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Thu Mar 16, 2017 4:02 pm

Anybody?

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Fri Mar 17, 2017 12:38 pm

TM90 wrote:So today I took a leap of faith and I bought my etfs my portfolio now is:

- iShares Core MSCI World UCITS ETF USD (Acc) 30%


Fine

- BNP Paribas B Pension Growth 25%


Don't know it. What does it do? Passively managed? Expese ratio?

- Vanguard EUR Eurozone Government Bond UCITS 15%


Fine.

- Threadneedle European Select Fund Retail Accumulation EUR 15% (will be sold or replaced with an etf but in lower weighting)


Active management? Expense ratio?

- Greenyard nv 7,5%
- AB InBev 7,5%


Why would you hold individual stocks. You take on their risk, but portfolio theory says you are not rewarded for diversifiable (non systematic) risk.

All in all it's around 13k and my emergency fund is 10k do you think my emergency fund is too big?


Emergency funds are for household emergencies, unemployment etc. As a Belgian you presumably do not have to face uninsured medical bills? As Americans do? Also it's much more difficult to make someone redundant in Belgium than in the USA, and I believe unemployment benefits are more generous (and for longer)?

So it really depends on your "normal" household expenses and how long you figure you would have to live on your savings. Suggested ranges for Americans can be anywhere from 3-18 months depending on job, age etc.

General weighting
11% bonds 45% stock 44% cash

10% on a 100k portfolio is a different kind of emergency fund than 10% on a 23k portfolio.. but on the other hand the cash is just sitting there melting away..


Actually not. In the sense that Eurozone inflation is c. 1.7% pa? (I'd have to look it up). So on 10k EUR you are losing 170 EUR of buying power each year (assuming no interest). That's not a lot.

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Fri Mar 17, 2017 3:25 pm

Hey thanks for your reply

The first fund is my pension fund, every year I invest 940 euros (maximum amount in 2017) in it and I get 30% of the 940 as a tax benefit.

The threadneedle fund is an actively managed mutual fund and I intend to sell it.

As for the individual stocks I don't intend to invest more in them they are buy and hold at 1k each.

And that's the thing with the emergency fund. If I have medical costs I'm insured so I don't pay anything. When I lose my job I will get money from the government. The only risk is me becoming unable to work and even in this case I would still get money from the government but a whole lot less so the risk is actually pretty limited... but inflation in Belgium is a bit higher it's 2,9% at the moment..

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Re: Portfolio for belgian (Europe) investor

Postby BeBH65 » Fri Mar 17, 2017 3:59 pm

hi TM90,

TM90 wrote:The first fund is my pension fund, every year I invest 940 euros (maximum amount in 2017) in it and I get 30% of the 940 as a tax benefit.
Take a god look at the cost of the funds: both the entry cost as the yearly expense ratio are important. In Belgium there are provider that still dare to charge 3 or even 6 % entry fees, and also the yearly ER vary a lot (often >1.2%). Spaargids.be has a few nice overviews.

The threadneedle fund is an actively managed mutual fund and I intend to sell it.

As for the individual stocks I don't intend to invest more in them they are buy and hold at 1k each.
Individual stocks are very volatile. Generally on this site the advise is to keep such play money below 5% of the total. you are at 15%....

And that's the thing with the emergency fund. If I have medical costs I'm insured so I don't pay anything. When I lose my job I will get money from the government. The only risk is me becoming unable to work and even in this case I would still get money from the government but a whole lot less so the risk is actually pretty limited... but inflation in Belgium is a bit higher it's 2,9% at the moment..
While you might have insurance, they do not immediately pay and maybe do not pay for everything. Also an emergeny fund is useful if you need to buy large items in a short time. e.g. new car. It would be a wast if you need to sell your investments at a low point to fund these.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Fri Mar 17, 2017 5:03 pm

BeBH65 wrote:hi TM90,

TM90 wrote:The first fund is my pension fund, every year I invest 940 euros (maximum amount in 2017) in it and I get 30% of the 940 as a tax benefit.
Take a god look at the cost of the funds: both the entry cost as the yearly expense ratio are important. In Belgium there are provider that still dare to charge 3 or even 6 % entry fees, and also the yearly ER vary a lot (often >1.2%). Spaargids.be has a few nice overviews.

The threadneedle fund is an actively managed mutual fund and I intend to sell it.

As for the individual stocks I don't intend to invest more in them they are buy and hold at 1k each.
Individual stocks are very volatile. Generally on this site the advise is to keep such play money below 5% of the total. you are at 15%....

And that's the thing with the emergency fund. If I have medical costs I'm insured so I don't pay anything. When I lose my job I will get money from the government. The only risk is me becoming unable to work and even in this case I would still get money from the government but a whole lot less so the risk is actually pretty limited... but inflation in Belgium is a bit higher it's 2,9% at the moment..
While you might have insurance, they do not immediately pay and maybe do not pay for everything. Also an emergeny fund is useful if you need to buy large items in a short time. e.g. new car. It would be a wast if you need to sell your investments at a low point to fund these.


The pension fund has 3% entry costs and TER around 1,2 next year I am changing to a fund without entry costs with the same TER.

At the moment the stocks are a big chunk of my portfolio but I invested 1k to minimise transaction costs, over time as I invest more in ishares msci world and the vanguard etf the weighting will lower.

Well the insurance gives you a card like a bank would so you can just pay your medical costs with that card and it's all included so you don't pay a dime. And even if you don't have this kind of "extra" insurance the regular health care insurance has medical bills maxed at 1500 or so a year. So if your bill reaches this amount you don't need to pay anything above this amount. The extra insurance costs 16 euros per month.

I agree it's always usefull to have some cash on hand but for example if I needed a new car I would just take a loan. It's a big decision because the more I have invested the more there is to compound!

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Sun Mar 19, 2017 1:42 pm

I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash

Yearly rebalancing with shifting 5% to bonds from stock each 5 years

Thoughts?

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 20, 2017 4:16 am

TM90 wrote:I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash

Yearly rebalancing with shifting 5% to bonds from stock each 5 years

Thoughts?


Absolutely fine, but except for emergency funds don't hold cash or unless you need to meet certain minimums to buy funds.

The biggest drag on my portfolio the last 3-4 decades has been too much cash. Had I merely put it in short term bonds or term deposits (CDs) I would have made a significant difference. I realize that ST bond funds don't pay much interest now, but historically it has added up.

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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 20, 2017 7:22 am

Valuethinker wrote:
TM90 wrote:I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash

Yearly rebalancing with shifting 5% to bonds from stock each 5 years

Thoughts?


Absolutely fine, but except for emergency funds don't hold cash or unless you need to meet certain minimums to buy funds.

The biggest drag on my portfolio the last 3-4 decades has been too much cash. Had I merely put it in short term bonds or term deposits (CDs) I would have made a significant difference. I realize that ST bond funds don't pay much interest now, but historically it has added up.


Yes that's also one of my fears that's the reason I decided to make it 10% cash.. it's a mere 2.3k so and to be honest it makes me sleep better at night maybe when my portfolio grows I can make the percentage cash smaller and smaller.

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Re: Portfolio for belgian (Europe) investor

Postby BeBH65 » Mon Mar 20, 2017 8:12 am

Hi TM90,

TM90 wrote:I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash Is this part of your investments? or is this your cashflow and/or emergency fund? In general we keep these outside of the AA, as the AA for long term investment goals like retirement need another AA compared to saving for a medium-term goal like a downpayment for a house.
Personally, the protection portion of my long-term AA contains bond-funds and some individual bonds, some CDs and some saving accounts.


Yearly re-balancing with shifting 5% to bonds from stock each 5 years

Thoughts?
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 20, 2017 10:22 am

TM90 wrote:
Valuethinker wrote:
TM90 wrote:I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash

Yearly rebalancing with shifting 5% to bonds from stock each 5 years

Thoughts?


Absolutely fine, but except for emergency funds don't hold cash or unless you need to meet certain minimums to buy funds.

The biggest drag on my portfolio the last 3-4 decades has been too much cash. Had I merely put it in short term bonds or term deposits (CDs) I would have made a significant difference. I realize that ST bond funds don't pay much interest now, but historically it has added up.


Yes that's also one of my fears that's the reason I decided to make it 10% cash.. it's a mere 2.3k so and to be honest it makes me sleep better at night maybe when my portfolio grows I can make the percentage cash smaller and smaller.


Then I'd stick half of that in a ST bond fund ETF on the grounds that 5%, over your investing lifetime, will cost you a lot less performance than 10%.

An alternative is to keep it at 10%, but don't increase it when your other funds increase, until you are down to some lower target (like 5% on 100k or 200k, say).

TM90
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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 20, 2017 2:54 pm

BeBH65 wrote:Hi TM90,

TM90 wrote:I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash Is this part of your investments? or is this your cashflow and/or emergency fund? In general we keep these outside of the AA, as the AA for long term investment goals like retirement need another AA compared to saving for a medium-term goal like a downpayment for a house.
Personally, the protection portion of my long-term AA contains bond-funds and some individual bonds, some CDs and some saving accounts.


Yearly re-balancing with shifting 5% to bonds from stock each 5 years

Thoughts?


It is actually my emergency fund

TM90
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Re: Portfolio for belgian (Europe) investor

Postby TM90 » Mon Mar 20, 2017 2:58 pm

Valuethinker wrote:
TM90 wrote:
Valuethinker wrote:
TM90 wrote:I did some calculations and I feel comfortable with this AA:

75% stocks
15% bonds
10% cash

Yearly rebalancing with shifting 5% to bonds from stock each 5 years

Thoughts?


Absolutely fine, but except for emergency funds don't hold cash or unless you need to meet certain minimums to buy funds.

The biggest drag on my portfolio the last 3-4 decades has been too much cash. Had I merely put it in short term bonds or term deposits (CDs) I would have made a significant difference. I realize that ST bond funds don't pay much interest now, but historically it has added up.


Yes that's also one of my fears that's the reason I decided to make it 10% cash.. it's a mere 2.3k so and to be honest it makes me sleep better at night maybe when my portfolio grows I can make the percentage cash smaller and smaller.


Then I'd stick half of that in a ST bond fund ETF on the grounds that 5%, over your investing lifetime, will cost you a lot less performance than 10%.

An alternative is to keep it at 10%, but don't increase it when your other funds increase, until you are down to some lower target (like 5% on 100k or 200k, say).


I understand what you're saying but this 10% is my emergency fund

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Re: Portfolio for belgian (Europe) investor

Postby Valuethinker » Mon Mar 20, 2017 5:21 pm

TM90 wrote:
Valuethinker wrote:
Absolutely fine, but except for emergency funds don't hold cash or unless you need to meet certain minimums to buy funds.

The biggest drag on my portfolio the last 3-4 decades has been too much cash. Had I merely put it in short term bonds or term deposits (CDs) I would have made a significant difference. I realize that ST bond funds don't pay much interest now, but historically it has added up.


Yes that's also one of my fears that's the reason I decided to make it 10% cash.. it's a mere 2.3k so and to be honest it makes me sleep better at night maybe when my portfolio grows I can make the percentage cash smaller and smaller.


Then I'd stick half of that in a ST bond fund ETF on the grounds that 5%, over your investing lifetime, will cost you a lot less performance than 10%.

An alternative is to keep it at 10%, but don't increase it when your other funds increase, until you are down to some lower target (like 5% on 100k or 200k, say).


I understand what you're saying but this 10% is my emergency fund


Ah OK then, as above, my comment doesn't apply.


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