Feedback on plan (NL/EU) appreciated!

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Topic Author
Sinsji
Posts: 61
Joined: Sat Oct 06, 2018 6:23 am

Feedback on plan (NL/EU) appreciated!

Post by Sinsji » Mon Aug 12, 2019 6:51 am

Currently I put savings aside according to the following plan:

Equity:: 76.25%
1. iShares acc developed markets large cap (IE00B4L5Y983), 43.1%
2. iShares acc developed markets small cap (IE00BF4RFH31), 7.2%
3. iShares acc emerging markets (IE00BKM4GZ66), 18%
4. Individual stocks, 7.5%

"Fixed": 23.75%
1. iShares euro hedged aggregate bond market (IE00BKM4GZ66), 15%
2. REITS iShares (IE00B1FZSF77) & (IE00B0M63284), 5%
3. Cash, 3.75%

Total weighted expense ratio: 0.2% approximately.
Country of residence is the Netherlands and age is 34.
I know the precision of the percentages is a bit ridiculous/arbitrary. :happy

Got a couple of questions myself:

1. I chose an aggregate bond market ETF for simplicity. This forum is full of extensive discussions on fixed income. I'm not an expert. A downside of this fund is that my current broker (DeGiro) charges 4,- euro for transactions. I already opened an account with FlatEx, here it is supposed to be free of charge. A recent topic on fixed income suggested short term TIPS and commodities as the best protections against unexpected inflation. I put a negligible amount of money into gold.

2. As a European investor I've come to the conclusion that it's (almost) impossible to buy US domiciled ETFs. According to the wiki Ireland domiciled suck for NL/EU investors because it increases tax on US companies (about 55-60%) of all DM stocks! Any suggestions are welcome.

3. Almost all ETFs I chose where accumulating because of simplicity. Recently I saw the total return of an Acc EM ETF from iShares was lower compared to the distributing cousin. According to the wiki it is not supposed to be a problem? I like the sound of dividends coming in, so all these accumulating ETFs feel a bit sterile. Still it is not supposed to matter right? Especially not with reinvesting free of charge?

Looking forward to any comments and suggestions!

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BeBH65
Posts: 1472
Joined: Sat Jul 04, 2015 7:28 am

Re: Feedback on plan (NL/EU) appreciated!

Post by BeBH65 » Mon Aug 12, 2019 7:02 am

Your AA and funds seem OK.
- Reits are stocks, they are not stable assets, they need to be classified in your equity allocation.

To nitpick:
- your EM% seems high - EM is about 12-&'% of the total stock market - you have overweight to about the double.
- you play account with individual stocks is a bit larger then what is mostly recommended here : (max 5%)
3. ... Recently I saw the total return of an Acc EM ETF from iShares was lower compared to the distributing cousin. According to the wiki it is not supposed to be a problem? I like the sound of dividends coming in, so all these accumulating ETFs feel a bit sterile. Still it is not supposed to matter right? Especially not with reinvesting free of charge?
Can you elaborate on this. Which two funds did you compare?
Sinsji wrote:
Mon Aug 12, 2019 6:51 am
2. As a European investor I've come to the conclusion that it's (almost) impossible to buy US domiciled ETFs. According to the wiki Ireland domiciled suck for NL/EU investors because it increases tax on US companies (about 55-60%) of all DM stocks! Any suggestions are welcome.
Indeed as EU based investor is it almost impossible to buy US-domiciled funds. Ierland based funds are not bad, they have good tax-treaties and tax laws. A lot of other fund-domiciles are a lot worse.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Valuethinker
Posts: 38417
Joined: Fri May 11, 2007 11:07 am

Re: Feedback on plan (NL/EU) appreciated!

Post by Valuethinker » Mon Aug 12, 2019 7:08 am

Sinsji wrote:
Mon Aug 12, 2019 6:51 am
Currently I put savings aside according to the following plan:

Equity:: 76.25%
1. iShares acc developed markets large cap (IE00B4L5Y983), 43.1%
2. iShares acc developed markets small cap (IE00BF4RFH31), 7.2%
3. iShares acc emerging markets (IE00BKM4GZ66), 18%
4. Individual stocks, 7.5%
I think you could simplify this with just a world index fund. Or if that fund does not cover EM then 2 funds. I would definitely not make investments into individual stocks, and I don't think you need small cap.
"Fixed": 23.75%
1. iShares euro hedged aggregate bond market (IE00BKM4GZ66), 15%
2. REITS iShares (IE00B1FZSF77) & (IE00B0M63284), 5%
3. Cash, 3.75%
Cash I presume is for rebalancing?

Given the historic volatility, you should not treat a REITs fund as "fixed interest". In any case I think 5% is too small to make a difference. Either be 10% or don't have it. But it is definitely part of your equity portfolio - look at how REIT funds performed 2008-09.
Total weighted expense ratio: 0.2% approximately.
Country of residence is the Netherlands and age is 34.
I know the precision of the percentages is a bit ridiculous/arbitrary. :happy

Got a couple of questions myself:

1. I chose an aggregate bond market ETF for simplicity. This forum is full of extensive discussions on fixed income. I'm not an expert. A downside of this fund is that my current broker (DeGiro) charges 4,- euro for transactions. I already opened an account with FlatEx, here it is supposed to be free of charge. A recent topic on fixed income suggested short term TIPS and commodities as the best protections against unexpected inflation. I put a negligible amount of money into gold.
At current interest rates, the fixed income fund is good enough.

Inflation linked bonds in the same currency protect against unexpected inflation. In the Eurozone your choices include France & Italy. Due to credit/ political risk these are less attractive (it's a nightmare scenario should either ever leave the Euro, but the market thinks the bonds are riskier than the bonds of NL or Germany - that's what the higher yield tells you). TIPS protect you against USD inflation but not EUR inflation, necessarily.

I would not get too worried about it at this point. It's absolutely true that when you are 50% bonds, putting 25% of them into inflation-linked is not a bad strategy. But at 15% bonds, I would not worry about having them.

Commodities never seem to work out for the individual investor. There was a period when pension funds piled in (after very good performance by commodities) and they then did quite badly and I think many funds have reappraised their allocation to commodities.

2. As a European investor I've come to the conclusion that it's (almost) impossible to buy US domiciled ETFs. According to the wiki Ireland domiciled suck for NL/EU investors because it increases tax on US companies (about 55-60%) of all DM stocks! Any suggestions are welcome.
There are enough Irish-domiciled ETFs for what you are trying to do.
3. Almost all ETFs I chose where accumulating because of simplicity. Recently I saw the total return of an Acc EM ETF from iShares was lower compared to the distributing cousin. According to the wiki it is not supposed to be a problem? I like the sound of dividends coming in, so all these accumulating ETFs feel a bit sterile. Still it is not supposed to matter right? Especially not with reinvesting free of charge?

Looking forward to any comments and suggestions!
If the fund is accumulating and the investments then have a negative return, the accumulating fund should, I think, show a worse return? It depends upon when the income from the distributing fund was reinvested.

For a UK taxpayer, outside of tax protected accounts, one should never buy an Accumulating fund. Working out the tax at disposal verges on the impossible. Your tax system may vary.

Topic Author
Sinsji
Posts: 61
Joined: Sat Oct 06, 2018 6:23 am

Re: Feedback on plan (NL/EU) appreciated!

Post by Sinsji » Mon Aug 12, 2019 9:04 am

BeBH65 wrote:
Mon Aug 12, 2019 7:02 am
Your AA and funds seem OK.
- Reits are stocks, they are not stable assets, they need to be classified in your equity allocation.

To nitpick:
- your EM% seems high - EM is about 12-&'% of the total stock market - you have overweight to about the double.
- you play account with individual stocks is a bit larger then what is mostly recommended here : (max 5%)
3. ... Recently I saw the total return of an Acc EM ETF from iShares was lower compared to the distributing cousin. According to the wiki it is not supposed to be a problem? I like the sound of dividends coming in, so all these accumulating ETFs feel a bit sterile. Still it is not supposed to matter right? Especially not with reinvesting free of charge?
Can you elaborate on this. Which two funds did you compare?
Sinsji wrote:
Mon Aug 12, 2019 6:51 am
2. As a European investor I've come to the conclusion that it's (almost) impossible to buy US domiciled ETFs. According to the wiki Ireland domiciled suck for NL/EU investors because it increases tax on US companies (about 55-60%) of all DM stocks! Any suggestions are welcome.
Indeed as EU based investor is it almost impossible to buy US-domiciled funds. Ierland based funds are not bad, they have good tax-treaties and tax laws. A lot of other fund-domiciles are a lot worse.
@BeBH65 and @ValueThinker: thanks

Sorry, I can't find the exact ETFs anymore that I compared. The only thing I can find know is that IEMA (IE00B4L5YC18) shows a hypothethical growth of 10.000 dollar was 28.1% for IEMA vs 37.9% of the index starting in sept 2009, according to the iShares website. This difference was much smaller for the distributing EM ETF in my memory. Maybe I'm confusing some concepts here.

Thanks, yes I will trim it down a lot with the EM. Considering the number of people living in 'emerging markets', I'm interested though. A big problem apparently is lack of liquidity. Further, dictatorships and extensive corruption don't work in the long run for the citizens, maybe for the leadership. Anyway...

I bough REITS focused on Europe and US because of the lower expense ratio compared to a global REIT etf. I could just put this portion with equity as well. It's about 3-4% of the DM ETF if I'm correct.

User avatar
BeBH65
Posts: 1472
Joined: Sat Jul 04, 2015 7:28 am

Re: Feedback on plan (NL/EU) appreciated!

Post by BeBH65 » Mon Aug 12, 2019 9:40 am

The free float of Emerging markets is about 10-15% of the total world free float.


Related to differences between EM funds,
- IEMA: ER=0.65% : is only large caps -- the fund that you mention -- this one that is not often mentioned
- EMIM: ER=0.18% : is full market incl mid-caps en small-caps -- more often mentioned
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
Sinsji
Posts: 61
Joined: Sat Oct 06, 2018 6:23 am

Re: Feedback on plan (NL/EU) appreciated!

Post by Sinsji » Tue Aug 13, 2019 7:07 am

BeBH65 wrote:
Mon Aug 12, 2019 9:40 am
The free float of Emerging markets is about 10-15% of the total world free float.

Related to differences between EM funds,
- IEMA: ER=0.65% : is only large caps -- the fund that you mention -- this one that is not often mentioned
- EMIM: ER=0.18% : is full market incl mid-caps en small-caps -- more often mentioned
I simplified it in the following way:

Equity:: 75%
1. iShares acc developed markets large cap (IE00B4L5Y983), 49.25%
2. iShares acc developed markets small cap (IE00BF4RFH31), 8.75%
3. iShares acc emerging markets (IE00BKM4GZ66), 12%
4. Individual stocks, 5%

"Fixed": 23.75%
1. iShares euro hedged aggregate bond market (IE00BKM4GZ66), 20%
2. Cash, 5%

Conclusion:
- REIT/property is now as much as DM and EM ETFs invest in the property sector (about 3.5% each), lower expense ratio.
- Small cap is still there, because to my understanding they give good returns in the long run, I don't see reason to be concerned about volatility.
- less emerging markets (12% instead of 18%)
- less individual stocks (5% instead of 7.5%)
- more Total Bond Market (20% instead of 15%)
- cash currently 5%, because I prefer this to putting it all in bonds. Reading about quantitative easing, negative interest rates all based on the assumption there will NOT be an increase in inflation, makes me weary. My understanding is to limited to put it all in bonds, 20% is enough for me.

Thanks, and will reevaluate in time.

User avatar
BeBH65
Posts: 1472
Joined: Sat Jul 04, 2015 7:28 am

Re: Feedback on plan (NL/EU) appreciated!

Post by BeBH65 » Tue Aug 13, 2019 7:30 am

one can now think about the rebalancing bands (and use rounded numbers there).
Eg.
45 to 55
12 to 07
15 to 09
25 to 15
07 to 03
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Valuethinker
Posts: 38417
Joined: Fri May 11, 2007 11:07 am

Re: Feedback on plan (NL/EU) appreciated!

Post by Valuethinker » Tue Aug 13, 2019 8:38 am

Sinsji wrote:
Tue Aug 13, 2019 7:07 am
BeBH65 wrote:
Mon Aug 12, 2019 9:40 am
The free float of Emerging markets is about 10-15% of the total world free float.

Related to differences between EM funds,
- IEMA: ER=0.65% : is only large caps -- the fund that you mention -- this one that is not often mentioned
- EMIM: ER=0.18% : is full market incl mid-caps en small-caps -- more often mentioned
I simplified it in the following way:

Equity:: 75%
1. iShares acc developed markets large cap (IE00B4L5Y983), 49.25%
2. iShares acc developed markets small cap (IE00BF4RFH31), 8.75%
3. iShares acc emerging markets (IE00BKM4GZ66), 12%
4. Individual stocks, 5%

"Fixed": 23.75%
1. iShares euro hedged aggregate bond market (IE00BKM4GZ66), 20%
2. Cash, 5%

Conclusion:
- REIT/property is now as much as DM and EM ETFs invest in the property sector (about 3.5% each), lower expense ratio.
- Small cap is still there, because to my understanding they give good returns in the long run, I don't see reason to be concerned about volatility.
- less emerging markets (12% instead of 18%)
- less individual stocks (5% instead of 7.5%)
- more Total Bond Market (20% instead of 15%)
- cash currently 5%, because I prefer this to putting it all in bonds. Reading about quantitative easing, negative interest rates all based on the assumption there will NOT be an increase in inflation, makes me weary. My understanding is to limited to put it all in bonds, 20% is enough for me.

Thanks, and will reevaluate in time.
It is perfectly reasonable to say that given negative Eurozone yields on safe government bonds, it's better to keep your money in the bank i.e. as cash. 0% is best than negative % return and is just as safe *if* you are within 100k EUR insurance limit per financial institution (and you are confident your government can bail out a bank that goes bad a la Northern Rock; and indeed the Dutch government almost certainly can).

But you should count your cash as part of your fixed income allocation.

So you are 25% bonds, not 20% nor 23.75%.

I would not count "individual stocks" in my asset allocation, probably. It's your gambling account and I'd keep it completely separate. Here's hoping you hit a Reckitt Benkeiser (something like 2000 per cent return over 25 years).

Topic Author
Sinsji
Posts: 61
Joined: Sat Oct 06, 2018 6:23 am

Re: Feedback on plan (NL/EU) appreciated!

Post by Sinsji » Tue Aug 13, 2019 11:54 am

Valuethinker wrote:
Tue Aug 13, 2019 8:38 am
Sinsji wrote:
Tue Aug 13, 2019 7:07 am
BeBH65 wrote:
Mon Aug 12, 2019 9:40 am
The free float of Emerging markets is about 10-15% of the total world free float.

Related to differences between EM funds,
- IEMA: ER=0.65% : is only large caps -- the fund that you mention -- this one that is not often mentioned
- EMIM: ER=0.18% : is full market incl mid-caps en small-caps -- more often mentioned
I simplified it in the following way:

Equity:: 75%
1. iShares acc developed markets large cap (IE00B4L5Y983), 49.25%
2. iShares acc developed markets small cap (IE00BF4RFH31), 8.75%
3. iShares acc emerging markets (IE00BKM4GZ66), 12%
4. Individual stocks, 5%

"Fixed": 23.75%
1. iShares euro hedged aggregate bond market (IE00BKM4GZ66), 20%
2. Cash, 5%

Conclusion:
- REIT/property is now as much as DM and EM ETFs invest in the property sector (about 3.5% each), lower expense ratio.
- Small cap is still there, because to my understanding they give good returns in the long run, I don't see reason to be concerned about volatility.
- less emerging markets (12% instead of 18%)
- less individual stocks (5% instead of 7.5%)
- more Total Bond Market (20% instead of 15%)
- cash currently 5%, because I prefer this to putting it all in bonds. Reading about quantitative easing, negative interest rates all based on the assumption there will NOT be an increase in inflation, makes me weary. My understanding is to limited to put it all in bonds, 20% is enough for me.

Thanks, and will reevaluate in time.
It is perfectly reasonable to say that given negative Eurozone yields on safe government bonds, it's better to keep your money in the bank i.e. as cash. 0% is best than negative % return and is just as safe *if* you are within 100k EUR insurance limit per financial institution (and you are confident your government can bail out a bank that goes bad a la Northern Rock; and indeed the Dutch government almost certainly can).

But you should count your cash as part of your fixed income allocation.

So you are 25% bonds, not 20% nor 23.75%.

I would not count "individual stocks" in my asset allocation, probably. It's your gambling account and I'd keep it completely separate. Here's hoping you hit a Reckitt Benkeiser (something like 2000 per cent return over 25 years).
Just when I thought it got easy, I discovered VWRA in another post around here.
My combination of IWDA en EMIM (both iShares) has a bit lower expense rate, with otherwise similar coverage. Both options are accumulating.
Reason to choose VWRA would be simplicity and comfort again(?)

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