[Wiki] Cash equivalents for EU investors - seeking feedback and contributions

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DJN
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[Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by DJN » Sat Mar 23, 2019 3:43 am

Hi,
I have spent some time trying to unravel the possibilities for Non US investors in respect to cash equivalent investment assets. I have restricted my study to EU investors which includes the UK. I would appreciate feedback, comments, corrections and input to the paper which is a work in progress draft and can be accessed here: https://www.bogleheads.org/wiki/Cash_eq ... _investors
The paper is not specifically aimed at any country within the EU and differences will emerge and country specific approaches could assist in giving a better overall picture. I have included some money market, short term bond and ultra short term bond ETF examples and this would merit some criticism. I would also see it important to add a short piece on the performance of bonds in EU for instance. Tell me what's missing.
thanks for your help,
DJN
Yah shure

finrod_2002
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Re: Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by finrod_2002 » Sat Mar 23, 2019 4:33 am

I don't understand why you emphasize so much the deposit risk in the EU.

100000 might be not enough, but I can just open accounts in different banks if I exceed 100000 in any one bank. What is the issue with that in your view?

And using for example a CD ladder can give more or the same interest then the riskier and more complex Money markets and short term bonds constructions, of course with a little bit less flexibility.

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DJN
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Re: Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by DJN » Sat Mar 23, 2019 5:16 am

Hi finrod_2002,
thanks for the comments. I guess that the deposit risk emphasis is due to the much reduced limits over what's available in the US, in addition managing multiple accounts for larger sums can be a burden especially for dependents. Perhaps the language deserves to be softened.
I would be interested in a example of a CD ladder including interest rates and provders in the EU and an illustration of how easy it was to construct.
DJN
Yah shure

TedSwippet
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Re: Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by TedSwippet » Sat Mar 23, 2019 5:58 am

DJN wrote:
Sat Mar 23, 2019 5:16 am
I would be interested in a example of a CD ladder including interest rates and provders in the EU and an illustration of how easy it was to construct.
I use what you might call a 'CD ladder' -- though the UK term would be '1 year bond' or '... certificate' or similar -- to manage my cash. Rates on the bond ('gilt'!) funds available to me are poor, yet they have significant volatility risk that I would rather avoid outside of pension savings. I get better returns on cash by chasing 'teaser' rates from smaller and less well known UK banks.

However, detailing my 'ladder' would not help anyone. If it were a real ladder it would have two-metre gaps in some places and rungs a hand's width apart in others. Not so much designed as evolved over time. Also, everything in it is only available to UK investors (still technically in the EU, albeit probably only temporarily, sigh), and even then for just a limited time -- nearly every UK savings product with a decent rate is fully subscribed within a week at the outside -- so none of it would really be of much use to your article.

Sorry that I can't be more help, then. Though I might be wrong, I get the feeling that unlike with ETFs where UCITS gives EU-wide coverage, there may be no such thing as a 'CD ladder' that is usable EU-wide.

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DJN
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Re: Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by DJN » Sat Mar 23, 2019 6:05 am

TedSwippet wrote:
Sat Mar 23, 2019 5:58 am
Though I might be wrong, I get the feeling that unlike with ETFs where UCITS gives EU-wide coverage, there may be no such thing as a 'CD ladder' that is usable EU-wide.
Hi Ted,
as usual I think that you have hit the nail on the head and with respect to CD ladders, I can't find any other than within the money market funds and they are not very attractive.
That's why I would like to get feedback to try and understand the complexities across the EU and see what others are doing. I suspect not a lot.
I would appreciate your views on the o/a article.
thanks and much appreciated.
DJN
Yah shure

TedSwippet
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Re: Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by TedSwippet » Sat Mar 23, 2019 8:37 am

DJN wrote:
Sat Mar 23, 2019 6:05 am
That's why I would like to get feedback to try and understand the complexities across the EU and see what others are doing. I suspect not a lot. ... I would appreciate your views on the o/a article.
Though you would think it should really be simpler, managing my cash takes me considerably more effort currently than managing my stock funds.

Funds, inside or out of pensions? Invest the money, collect the dividends, and fill out a tax form once a year. Maybe a little rebalancing or taking some capital gains to use up the UK's annual allowance, but that's it.

Cash? I have nearly a dozen 'rungs' in my CD ladder, and because I stay very much at the short end of the interest rate range, this means that I'm having to scramble to roll one or more of these CDs about every month. The easiest is to roll it to another CD at the same bank, but invariably a bank never offers the best interest rate two years in a row, meaning that I have to withdraw the money, find a new home for it, set up a new account and jump through their know-your-customer and anti-money laundering hoops, confirm yet again that I am not a US citizen (FATCA!), and then transit the cash through my ordinary bank account (in multiple chunks where it exceeds single transaction or daily transfer limits). And if I'm on vacation when a CD matures, I can lose weeks of interest, or sit in a bar struggling with my phone trying to find a new home for it, or ...

In other words, what you are trying to write up in this wiki page is, to my mind, an even harder and more intractable topic than most. I'll see if I can offer more feedback when I have time to read it through thoroughly, but my main takeaways are currently (a) yes, this is a really thorny problem area just as I've always thought, and (b) no, I have not missed any obvious solutions to it. :-)

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Re: [Wiki] Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by LadyGeek » Sat Mar 23, 2019 10:33 am

I clarified the thread title to indicate this is a wiki article. (Otherwise, readers will assume it's an academic paper.)

I have modified the page formatting and added an introduction. See: Cash equivalents for EU investors

Update: Further clarified the title to remove "new paper".
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: [Wiki] Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by Thesaints » Sat Mar 23, 2019 10:45 am

I still don’t understand why the OP lists CD’s and short term (european) treasuries ETF, but not directly held short term (european) treasuries which are available at essentially no cost in any eurozone country.
I’ve told him in another thread he started, but oh no: a 1-year CD is a “cash equivalent”, but a 3-month italian BOT is not :confused

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DJN
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by DJN » Sat Mar 23, 2019 11:29 am

Hi Thesaints,
thanks for the useful feedback. I will look at the section on CDs and see what else I can add. I have made the point that access would be via funds but perhaps I will look to incorporate something about direct access also.
As a matter of interest what's a 3-month Italian BOT?
DJN
Yah shure

finrod_2002
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by finrod_2002 » Sat Mar 23, 2019 12:41 pm

DJN wrote:
Sat Mar 23, 2019 11:29 am

As a matter of interest what's a 3-month Italian BOT?
It is essentially a 3 month Italian treasury bill. Regarding the CD ladder, I will come back later when I have some more time.

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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by Epsilon Delta » Sat Mar 23, 2019 2:38 pm

For an EU investor considering a dollar investing short term bond fund as a "cash equivalent" is a bit of a stretch. It at least needs some discussion. It may also be worth discussing EU countries that do not use the euro.

IMHO at least for retail investors the situation is still too fragmented generalize to the entire EU. There are still a lot of country specific things such as bank accounts and various analogs of US savings bonds (e.g. UK premium bonds, which have from time to time been a darn good cash alternative.)

finrod_2002
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Re: Cash equivalents for EU investors - new paper seeking feedback and contributions

Post by finrod_2002 » Sun Mar 24, 2019 3:10 am

DJN wrote:
Sat Mar 23, 2019 5:16 am
Hi finrod_2002,
thanks for the comments. I guess that the deposit risk emphasis is due to the much reduced limits over what's available in the US, in addition managing multiple accounts for larger sums can be a burden especially for dependents. Perhaps the language deserves to be softened.
I would be interested in a example of a CD ladder including interest rates and provders in the EU and an illustration of how easy it was to construct.
DJN
Essentially every bank in the EU offers CDs which are insured up to a total of 100000. So there is plenty of choice depending on the country and even in the same country. Personally the one I like is the following: https://www.leaseplanbank.nl. They offer an online only saving account with an interest rate of 0.35%. Once you've opened the "standard" saving account which allows you to move the money in and out as you want, you can open deposits.

There are the following available:
- 3 month: 0.30%
- 6 month: 0.45%
- 9 month: 0.55%
- 1 year: 0.65%
- 2 years: 0.75%
- 3 years: 0.85%
- 4 years: 0.95%
- 5 years: 1.05%

Minimum investment in a CD is 1000€, which allows one quite some flexibility to build the ladder he wants. For example you can buy 7 deposits of 1000€ each from 6 month to 5 years. At this moment the 3 month is lower then the normal savings account, so I don't think it is worth to do it.

Perhaps one thing to take into account is that even though the 100000€ is an EU level deposit insurance, every country has its own implementation. This can lead to some differences on how you will get the money if it really comes to that. Personally I think it's wise to have the insurance of the country where you live in, so for example, if you live in Spain you should have only Spanish 100000€ insurances. It is the case that in one country also banks from other EU countries are offering CDs and saving accounts and often they are under the insurance of their own country.

So, if for example you live in the Netherlands and you buy a savings product from a Luxembourg bank and this one goes bankrupt, you have to deal with the Luxembourg authorities and fill the papers in in their language. If in contrast you own a Dutch bank saving products and this goes bankrupt and you're living in the Netherlands you are pretty sure to receive your money back automatically in a short amount of time, almost without doing anything.

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DJN
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by DJN » Sun Mar 24, 2019 3:35 am

Hi finrod_2002,
much obliged for your inputs.
I am contemplating whether it would be useful to try and put together a table of countries across the EU with some typical local "bond" and bank account arrangements that might be helpful to readers. It would be a very onerous task however.
DJN
Yah shure

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DJN
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by DJN » Wed Mar 27, 2019 5:09 am

Hi,
I have had some good responses so far to the post regarding the Wiki section on cash equivalents for EU investors. Thank you.

I have amended the paper on Wiki as far as possible both in reaction to the posts and also with new material and some clarifications, please have a look and leave your comments in reply here.

I have struggled to get any clear guidance on direct purchase of cash equivalents without having to go through intermediaries, one poster said that there are options available. I would appreciate some clarification on this subject for all asset types.

One other subject that I think would be very helpful to expand would be to review the performance of the funds suggested so as to understand what deviation from the invested amounts are.

The objective remains to prepare a paper that provides a good background to cash equivalents for EU investors including the UK which can be used as a practical template for retail investors using BH principles.
DJN
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Mors
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by Mors » Sun Apr 07, 2019 2:29 pm

Medirect also has competitive rates for term deposits and saving accounts.

tsrz
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by tsrz » Mon Apr 08, 2019 9:08 am

Medirect seems legit but unfortunately is only for Belgians..

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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by Mors » Mon Apr 08, 2019 12:36 pm

tsrz wrote:
Mon Apr 08, 2019 9:08 am
Medirect seems legit but unfortunately is only for Belgians..
This seems to me incorrect, in the light of the fact that it is a Maltese financial institution. I cannot confirm it, but I think anyone in EU can open an account with them.

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DJN
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by DJN » Tue Apr 09, 2019 7:02 am

Hi,
I have enquired with Medirect bank and there are in fact two locations for the bank (it would appear to be a Malta based bank owned by AnaCap Financial Partners LLP, a UK private equity firm).
Locations
1. Belgium
2. Malta

To bank at the Belgium one you have to be resident in Belgium, this is what they have said in response to my enquiry:
"if...…. you wish to open accounts with MeDirect Bank SA/NV in Belgium you can do so online however you must have your official and fiscal residence in Belgium. You must hold a Belgian ID card and be at least 18 years old."

For Malta you can either become a customer at one of their local branches or alternatively you can join up online. According to their reply for Malta: "....Our accounts are available to both EU citizens and expat EU citizen and are subject to Bank’s review and acceptance, according to its business parameter...................... by visiting our website https://www.medirect.com.mt/ ................."
This would mean that you can become a customer of Medirect Malta on line without being a Maltese resident. I haven't gone through the detailed customer application process so I am not sure what that might reveal.
I hope that helps to clarify.
DJN
Yah shure

tsrz
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by tsrz » Tue Apr 09, 2019 8:19 am

Mors and DJN you are right.

I found FIMBank as well! https://www.fimbank.com/direct/home.jsp

Topic Author
DJN
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Re: [Wiki] Cash equivalents for EU investors - seeking feedback and contributions

Post by DJN » Tue Apr 09, 2019 9:44 am

thanks Mors and tsrz.
I have added Medirect bank and FIMBank to the section on online banks in the paper on cash equivalents https://www.bogleheads.org/wiki/Cash_eq ... k_accounts. I really don't know how well capitalised or how strong these banks are, they are both however covered by the Malta deposit guarantee system.
DJN
Yah shure

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