[Germany] Starting to invest in Germany

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
shirow
Posts: 5
Joined: Sun May 30, 2021 7:12 am

[Germany] Starting to invest in Germany

Post by shirow »

Country of Residence: Germany

International Lifestyle: I like to consider myself a citizen of Europe, if not the world.

Currency: EUR

Emergency funds: 6-12 months of expenses (self-employed).

Debt: I have no debt!

Age: 30

Desired Asset allocation: 70% stocks / 30% bonds (Going by the “1% bonds per year of age” rule of thumb)
I don’t really care to place my bets on my country of origin or even Europe... so I’m thinking not to prefer German/European stocks because I grew up there, and invest indiscriminately instead?

I have no portfolio at this time. Nada.

At the current rate I will likely receive a minimal state pension from Germany (“Grundsicherung”), however as far as I know that inversely scales with other income.

_______________________________________________________________

Current retirement assets

Niente! Not investing at this time.

_______________________________________________________________
Questions:

(I’ve read the “Investing in Germany / EU” wiki pages and some related threads, and I’m reading the “Bogleheads guide to Investing”. I’m using the US numeric format below, i.e., comma to delimit digits and period to indicate fractions.)

1. I’m earning more than I spend, but due to being self-employed it’s not always clear to me how much surplus cash I will end up with each year. I think I want to buy €0-10,000 of ETFs at the end of each year depending on how the year went. This year I would start with €5,000. I made a broker account with DKB where account fees boil down to €10 per ETF order <€10,000. I chose DKB because my “Dorfbank’s” fees seemed unreasonable (high monthly fees + percentage of order volume per order but at least €25). I am considering ETFs instead of a mutual fund because I expect to invest largish chunks in longish intervals and have poor predictions with regard to regularity. Does this seem like a sensible approach to get started?

2. I intend to buy iShares Core MSCI World UCITS ETF IE00B4L5Y983, and Amundi Prime Euro Govies UCITS ETF DR (C)
LU2089238898 (as per https://www.bogleheads.org/wiki/Investi ... _investing but with the bonds ETF substituted because the suggested ETF does not exist anymore?) Sensible or insane? Suggestions welcome especially with regards to the bond portion! Again: I feel internationalist.

3. Regarding taxes: as far as I understand I have to pay 26.375% + church tax on any gains. While I am holding an ETF this is managed annually by my account provider and I have to ensure there is enough cash in a checking account to cover taxes. And if I understand correctly, once I sell ETFs I have to pay 26.375% + church tax of the value difference between purchase and sale. Did I grok this?

Many thanks in advance to anyone taking the time to help me!
namajones
Posts: 331
Joined: Sat Aug 08, 2020 12:41 pm

Re: [Germany] Starting to invest in Germany

Post by namajones »

I like your age in bonds approach. Wise.

Is it true that you have to pay cap gains every year in germany regardless of whether you've sold anything (that is, pay cap gains on unrealized "gains")? That was my understanding, and frankly it's a factor in preventing me from moving to germany longterm.
Topic Author
shirow
Posts: 5
Joined: Sun May 30, 2021 7:12 am

Re: [Germany] Starting to invest in Germany

Post by shirow »

namajones wrote: Sat Jun 19, 2021 7:45 am Is it true that you have to pay cap gains every year in germany regardless of whether you've sold anything (that is, pay cap gains on unrealized "gains")? That was my understanding, and frankly it's a factor in preventing me from moving to germany longterm.
As far as I understand the intent and implementation of the current law you pay a flat tax on all cap gains. That’s actually simple in comparison with Germany income taxation which is progressive?

And yes you have to pay those every year for gains over a low threshold (I think €801?). If I understand correctly you see this as a downside because that “tax” could be accumulating value if the taxation only happened when you finally sell the ETF? At least they take what you already paid in taxes into account once you sell the ETF, so you’re only getting taxed on your actual gains. So I’m not sure of “pay cap gains on unrealized gains” is an accurate description (the gains of the year are real after all—you own that “value” and benefit from its accumulation?). Again: AFAIK. I know little hence I’m here. :-)
User avatar
tre3sori
Posts: 266
Joined: Wed Jul 24, 2019 3:13 am

Re: [Germany] Starting to invest in Germany

Post by tre3sori »

shirow wrote: Sat Jun 19, 2021 6:56 am 1. I’m earning more than I spend, but due to being self-employed it’s not always clear to me how much surplus cash I will end up with each year. I think I want to buy €0-10,000 of ETFs at the end of each year depending on how the year went. This year I would start with €5,000. I made a broker account with DKB where account fees boil down to €10 per ETF order <€10,000. I chose DKB because my “Dorfbank’s” fees seemed unreasonable (high monthly fees + percentage of order volume per order but at least €25). I am considering ETFs instead of a mutual fund because I expect to invest largish chunks in longish intervals and have poor predictions with regard to regularity. Does this seem like a sensible approach to get started?
Make sure to have good insurance before investing. disability (Berufsunfähigkeit) and liability (Haftpflicht) insurance are a must have. Since you are in Germany, health insurance is obligatory. What about pension? Since you are self-employed, should a private pension come solely from your investments (private Altersvorsorge)? Have you checked what you will need in 35 years and how much you have to save to get there? ETFs are of course a decent choice. They are cheap.
shirow wrote: Sat Jun 19, 2021 6:56 am 2. I intend to buy iShares Core MSCI World UCITS ETF IE00B4L5Y983, and Amundi Prime Euro Govies UCITS ETF DR (C)
LU2089238898 (as per https://www.bogleheads.org/wiki/Investi ... _investing but with the bonds ETF substituted because the suggested ETF does not exist anymore?) Sensible or insane? Suggestions welcome especially with regards to the bond portion! Again: I feel internationalist.
The wiki entry on investing from Germany is a bit dated. Better to look at the sample portfolios from EU_investing:
https://www.bogleheads.org/wiki/EU_inve ... portfolios

As stated in several other posts, consider these ETFs:
Vanguard LifeStrategy® 60% Equity UCITS ETF (EUR) ACCUMULATING
Vanguard LifeStrategy® 80% Equity UCITS ETF (EUR) ACCUMULATING

or this
70% iShares MSCI ACWI UCITS ETF USD Acc
30% iShares Global Aggregate Bd ETF EUR Hedged Acc

or this
70% Vanguard FTSE All-World UCITS ETF USD Acc
30% Vanguard Global Aggregate Bd ETF EUR Hedged Acc

Nice thing about Vanguard Lifestrategy ETFs: they do the rebalancing for you. One source less for behavioral mistakes.

shirow wrote: Sat Jun 19, 2021 6:56 am 3. Regarding taxes: as far as I understand I have to pay 26.375% + church tax on any gains. While I am holding an ETF this is managed annually by my account provider and I have to ensure there is enough cash in a checking account to cover taxes. And if I understand correctly, once I sell ETFs I have to pay 26.375% + church tax of the value difference between purchase and sale. Did I grok this?
There is the tax allowance (Steuerfreibetrag) of €801. No capital gains tax before you reach that number. Just to give you a feeling for what that means: the distributing version of Vanguard FTSE All-Word ETF has a distribution yield (Ausschüttungsrendite) of 1.27% as of May 2021. You need about 63.070€ invested in this fund before you pay any taxes (if you don't sell anything). Some suggest to invest in the distributing version up to this number and than use the accumulating version to make full use of the tax allowance.

Yes. With accumulating ETFs you have to make sure that the clearing account (Verrechnungskonto) associated with your securities account (Wertpapierdepot) covers the advance flat rate tax (Vorabpauschale). If there is not enough money on that account, you will have to declare taxes manually to German tax authorities.
Let every man divide his money into three parts, and invest a third in land, a third in business, a third let him keep by him in reserve. Talmud | 35% Real Estate, 45% Stocks, 15% Bonds, 4% Gold, 1% Cash
Topic Author
shirow
Posts: 5
Joined: Sun May 30, 2021 7:12 am

Re: [Germany] Starting to invest in Germany

Post by shirow »

Thank you for the detailed reply!
tre3sori wrote: Sat Jun 19, 2021 8:42 am
shirow wrote: Sat Jun 19, 2021 6:56 am 1. I’m earning more than I spend, but due to being self-employed it’s not always clear to me how much surplus cash I will end up with each year. I think I want to buy €0-10,000 of ETFs at the end of each year depending on how the year went. This year I would start with €5,000. I made a broker account with DKB where account fees boil down to €10 per ETF order <€10,000. I chose DKB because my “Dorfbank’s” fees seemed unreasonable (high monthly fees + percentage of order volume per order but at least €25). I am considering ETFs instead of a mutual fund because I expect to invest largish chunks in longish intervals and have poor predictions with regard to regularity. Does this seem like a sensible approach to get started?
Make sure to have good insurance before investing. disability (Berufsunfähigkeit) and liability (Haftpflicht) insurance are a must have. Since you are in Germany, health insurance is obligatory. What about pension? Since you are self-employed, should a private pension come solely from your investments (private Altersvorsorge)? Have you checked what you will need in 35 years and how much you have to save to get there? ETFs are of course a decent choice. They are cheap.
I have private liability insurance (and as you said the obligatory health insurance). Last time I checked a “business” private insurance was prohibitively expensive, but its on my radar. Likewise, with disability insurance I haven’t found attractive offers for my situation last time I checked. Maybe time to look again.

Pension... again the options in Germany seem very inflexible, “expensive”, and hard to understand to me. I looked at some common options but decided they weren’t attractive to me.

With regard to forecasts: I’m trying to avoid those. My point of view is that I have no idea how life is going to look like. But I want to start somewhere. So my current strategy is: save/invest as much as possible with low/medium risk and high flexibility. Part of what makes ETFs attractive to me is that I can somewhat understand their terms and limitations and have control over when I can access the money.
tre3sori wrote: Sat Jun 19, 2021 8:42 am
shirow wrote: Sat Jun 19, 2021 6:56 am 2. I intend to buy iShares Core MSCI World UCITS ETF IE00B4L5Y983, and Amundi Prime Euro Govies UCITS ETF DR (C)
LU2089238898 (as per https://www.bogleheads.org/wiki/Investi ... _investing but with the bonds ETF substituted because the suggested ETF does not exist anymore?) Sensible or insane? Suggestions welcome especially with regards to the bond portion! Again: I feel internationalist.
The wiki entry on investing from Germany is a bit dated. Better to look at the sample portfolios from EU_investing:
https://www.bogleheads.org/wiki/EU_inve ... portfolios

As stated in several other posts, consider these ETFs:
Vanguard LifeStrategy® 60% Equity UCITS ETF (EUR) ACCUMULATING
Vanguard LifeStrategy® 80% Equity UCITS ETF (EUR) ACCUMULATING

or this
70% iShares MSCI ACWI UCITS ETF USD Acc
30% iShares Global Aggregate Bd ETF EUR Hedged Acc

or this
70% Vanguard FTSE All-World UCITS ETF USD Acc
30% Vanguard Global Aggregate Bd ETF EUR Hedged Acc

Nice thing about Vanguard Lifestrategy ETFs: they do the rebalancing for you. One source less for behavioral mistakes.
Thank you! Will look at those!
tre3sori wrote: Sat Jun 19, 2021 8:42 am
shirow wrote: Sat Jun 19, 2021 6:56 am 3. Regarding taxes: as far as I understand I have to pay 26.375% + church tax on any gains. While I am holding an ETF this is managed annually by my account provider and I have to ensure there is enough cash in a checking account to cover taxes. And if I understand correctly, once I sell ETFs I have to pay 26.375% + church tax of the value difference between purchase and sale. Did I grok this?
There is the tax allowance (Steuerfreibetrag) of €801. No capital gains tax before you reach that number. Just to give you a feeling for what that means: the distributing version of Vanguard FTSE All-Word ETF has a distribution yield (Ausschüttungsrendite) of 1.27% as of May 2021. You need about 63.070€ invested in this fund before you pay any taxes (if you don't sell anything). Some suggest to invest in the distributing version up to this number and than use the accumulating version to make full use of the tax allowance.
That’s interesting. I though that from a tax perspective distributing and accumulating were treated the same, i.e., yearly tax covers both distributed and accumulated gains. I’ll have to read up on that. If you have a source handy it’d be welcome!

Thanks again!
Soulforged
Posts: 7
Joined: Sun Jun 06, 2021 6:41 am

Re: [Germany] Starting to invest in Germany

Post by Soulforged »

The best German private pension scheme is to have an ETF based portfolio handled by you. Otherwise be prepared to have high expenses.
User avatar
tre3sori
Posts: 266
Joined: Wed Jul 24, 2019 3:13 am

Re: [Germany] Starting to invest in Germany

Post by tre3sori »

shirow wrote: Sat Jun 19, 2021 9:25 am If you have a source handy it’d be welcome!
A youtube query "steuern ausschüttende thesaurierende etf" gives you some sources.
https://www.youtube.com/results?search_ ... erende+etf
First entry of Finanzfluss https://www.youtube.com/watch?v=t4eugMBXuRQ is good.
Let every man divide his money into three parts, and invest a third in land, a third in business, a third let him keep by him in reserve. Talmud | 35% Real Estate, 45% Stocks, 15% Bonds, 4% Gold, 1% Cash
Topic Author
shirow
Posts: 5
Joined: Sun May 30, 2021 7:12 am

Re: [Germany] Starting to invest in Germany

Post by shirow »

Thank you this has been most informative. :-)

I have one more question: once I prepare a buy order with DKB I get presented with a helpful overview of the costs of holding the selected ETF for ten years. Those seem to consist of:

- buy fee of 0.31%
- sell fee of 0.31%
- holding fee of 0.13% p.a.

Interestingly these differ slightly depending on the exchange used for the transaction, so I am not quite sure whos fees those are. They don’t correspond to the fees advertised by DKB, at least not in a way obvious to me. And they also don’t correspond to the ETFs advertised fess (0.20% p.a.), so I’m assuming those are additional fees.

Since these figures are significant with regards to the ETF fees, I’m wondering: are those extra fees typical?
User avatar
tre3sori
Posts: 266
Joined: Wed Jul 24, 2019 3:13 am

Re: [Germany] Starting to invest in Germany

Post by tre3sori »

shirow wrote: Tue Jun 22, 2021 2:15 pm I’m wondering: are those extra fees typical?
When I order at my broker I get the following message:
In accordance with the MiFID II regulation (2014/65 / EU), we are obliged to provide you with an ex-ante cost statement after each order is placed. Below you will find cost information for trading the product you have selected before placing an order. In the case of orders without a limit, the own and third-party costs are calculated based on the number of items you specified and the associated current price of the selected trading venue and are therefore preliminary. This cost information will be made available to you via a message function after you have placed your order. In addition, after the order has been executed, the securities statement will be sent to your postbox as a PDF.

You have issued the following order (s):

Order type: purchase
Name: xxxx ETF
Number: xxxx
In front. negotiating amount: EUR xxxx
Date / time: xxxx
Purchase cost: (xxxx EUR)

Own costs xxxx bank:

- Order commission: xxxx EUR
- Trading venue fee: EUR xxxx

External costs trading center:

- Exchange fees: EUR xxxx
- Brokerage fee: 0,00 EUR

Costs during the holding period (per year):

- Deposit fee: EUR 0,00
- Product cost: EUR xxxx
So the cost components as stated by the bank:
Own costs bank: (Eigenkosten Bank)
buy/sell fee or order commissions (Kauforder-/Verkauforder-provision)
trading venue fee (Handelsplatzentgelt)

External costs stock exchange: (Fremdkosten Handelsplatz)
stock exchange fees (Börsengebühren)
brokerage fees (Maklergebühr bei Börsengeschäften, Courtage)

External costs product provider:
product cost (TER of the ETF)
deposit fees (Depotgebühren)

In my case they give me actual numbers, in your case they seem to give you percentages relative to the size of the order.
For fixed cost components (in my case order commission, trading venue fee, stock exchange fee) it is important to note that the bigger the size of the order, the lower the relative size/percentage of the fees.
Let every man divide his money into three parts, and invest a third in land, a third in business, a third let him keep by him in reserve. Talmud | 35% Real Estate, 45% Stocks, 15% Bonds, 4% Gold, 1% Cash
Topic Author
shirow
Posts: 5
Joined: Sun May 30, 2021 7:12 am

Re: [Germany] Starting to invest in Germany

Post by shirow »

Hmm alright. So the most significant cost in my case seems to be:

Produktkosten / product cost which is 0.13% p.a.
(The other costs are fixed

So That bumps the p.a. cost of an ETF with a 0.20% fee to 0.33%... is that a lot or typical?

Seems like the only way for me to compare is to go through the signup process / deposit with other brokers to get to their final cost sheets for a particular ETF.

Anyone chiming in with their typical fees would help me a lot as data points.

Cheers,
Max
Post Reply