[Belgium] Saving for retirement or for a house?

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Topic Author
lcomet
Posts: 3
Joined: Mon Aug 26, 2019 1:09 pm

[Belgium] Saving for retirement or for a house?

Post by lcomet » Mon Mar 23, 2020 8:16 am

Country of Residence: Belgium

International Lifestyle: I expect to move abroad within ~4 years, then come back and stay in Belgium within ~6-7 years.

Currency: EUR

Emergency funds: Six months of expenses.

Debt: None.

Age: 21

Desired Asset allocation: Currently my AA is 80% stocks / 20% bonds, but subject to change (see questions).

Size of portfolio: low 6-figures (mostly donated by my parents).

_______________________________________________________________

Current assets

General investment account, taxable
0% cash
60% SPDR MSCI World UCITS ETF (SPPW) (ER 0.12%)
10% iShares Core MSCI EM IMI UCITS ETF (EMIM) (ER 0.18%)
10% Individual stocks from developed markets (I bought them before discovering the Bogleheads philosophy; I intend to sell them in the near future and buy SPDR MSCI World instead)
20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (EUNA) (ER 0.10%)

_______________________________________________________________

New investments

Currently I have no income as a student, but starting from September 2020 I will have an income of ~2000 EUR net/month. I'm not sure yet how much I will be able to save, but I target 50% of my net income (1000 EUR/month).
These savings will principally go into my taxable account, and maybe also a Belgian Tak 21 insurance investment account (990 EUR / year; for tax benefits and government protection).
I will not benefit from any employer retirement savings.
_______________________________________________________________

Questions:
My main question concerns the goal of my investments. I am making the following assumptions:
(a) Within 10 years, I intend to settle somewhere in Belgium and not move for a long time.
(b) If one stays somewhere for a long time, it is preferable to own a house than rent it.
(c) When buying a house, it is preferable to take the smallest possible mortgage.
If the three assumptions are reasonable, then my conclusion is that all my savings should be directed towards a house (I expect to spend 250k€), and therefore my investment horizon is shorter than 10 years. Hence, my asset allocation should be more conservative (something like 50/50).
However, if one assumption is wrong, then the argument fails and all my current savings should be directed towards retirement. In this case, the current asset allocation (80/20) is appropriate.

My question therefore is: Are my assumptions reasonable? What portion of my portfolio should be dedicated to a future home purchase: 0%, 100% or somewhere in between? Are the asset allocations corresponding to each goal reasonable?

The consensus among Bogleheads is for young people to start saving for retirement as early as possible with an aggressive asset allocation. But what happens when they want to buy a house: will they save for downpayment and take a mortgage for the rest, or pay the house in full using their savings (very bad idea if the market is down...)?

Please feel free to criticize any part of my reasoning, and redirect me to relevant forum posts if I have missed something.

Thanks a lot in advance!

User avatar
BeBH65
Posts: 1651
Joined: Sat Jul 04, 2015 7:28 am

Re: [Belgium] Saving for retirement or for a house?

Post by BeBH65 » Tue Mar 24, 2020 2:27 am

lcomet wrote:
Mon Mar 23, 2020 8:16 am
Country of Residence: Belgium

International Lifestyle: I expect to move abroad within ~4 years, then come back and stay in Belgium within ~6-7 years.

Currency: EUR

Emergency funds: Six months of expenses.

Debt: None.

Age: 21

Desired Asset allocation: Currently my AA is 80% stocks / 20% bonds, but subject to change (see questions).

Size of portfolio: low 6-figures (mostly donated by my parents).

_______________________________________________________________

Current assets

General investment account, taxable
0% cash
60% SPDR MSCI World UCITS ETF (SPPW) (ER 0.12%)
10% iShares Core MSCI EM IMI UCITS ETF (EMIM) (ER 0.18%)
10% Individual stocks from developed markets (I bought them before discovering the Bogleheads philosophy; I intend to sell them in the near future and buy SPDR MSCI World instead)
20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (EUNA) (ER 0.10%)
This is an acceptable altough aggressive portfolio. How do you feel with the current 1/3 loss on your stock?

_______________________________________________________________

New investments

Currently I have no income as a student, but starting from September 2020 I will have an income of ~2000 EUR net/month. I'm not sure yet how much I will be able to save, but I target 50% of my net income (1000 EUR/month).
These savings will principally go into my taxable account, and maybe also a Belgian Tak 21 insurance investment account (990 EUR / year; for tax benefits and government protection). Why so conservative? In your above portfolio - for a medium term goal of q house - you are agressive, here - for a long long term goal of retirement - you are very conservative. Your tak-21 will not keep track with inflation!
I will not benefit from any employer retirement savings.
_______________________________________________________________

Questions:
My main question concerns the goal of my investments. I am making the following assumptions:
(a) Within 10 years, I intend to settle somewhere in Belgium and not move for a long time.
(b) If one stays somewhere for a long time, it is preferable to own a house than rent it. >>> Depends
(c) When buying a house, it is preferable to take the smallest possible mortgage. >>> Depends
If the three assumptions are reasonable, then my conclusion is that all my savings should be directed towards a house (I expect to spend 250k€), and therefore my investment horizon is shorter than 10 years. Hence, my asset allocation should be more conservative (something like 50/50).
However, if one assumption is wrong, then the argument fails and all my current savings should be directed towards retirement. In this case, the current asset allocation (80/20) is appropriate.

My question therefore is: Are my assumptions reasonable? What portion of my portfolio should be dedicated to a future home purchase: 0%, 100% or somewhere in between? Are the asset allocations corresponding to each goal reasonable? "within" 10 years is not that long. read [url-https://www.bogleheads.org/wiki/Investi ... edium-term]this[/url]

The consensus among Bogleheads is for young people to start saving for retirement as early as possible with an aggressive asset allocation. But what happens when they want to buy a house: will they save for downpayment and take a mortgage for the rest, or pay the house in full using their savings (very bad idea if the market is down...)? The consensus is to determine your goals and then save/invest for it in an adapted way. You need to decide if your are saving for retirement (long term) or a house (medium term). Distinct goals need destinct strategies. Maybe yo need both.

Please feel free to criticize any part of my reasoning, and redirect me to relevant forum posts if I have missed something.

Thanks a lot in advance!
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
lcomet
Posts: 3
Joined: Mon Aug 26, 2019 1:09 pm

Re: [Belgium] Saving for retirement or for a house?

Post by lcomet » Fri Mar 27, 2020 7:31 pm

Hi BeBH65, thanks for your insight.

I feel comfortable with my AA. The only action I took during this downturn was to rebalance when my allocation hit 75/25.

I have investigated Tak21 further, and have come across your calculations on spaargids.be :happy . You're right: the tax benefit is negligible at my age. A bond fund can easily beat it at reasonably low risk.

Your comments as well as reading other threads made me realize that my life plans are currently too uncertain to include a house in my goals. Any of the assumptions I stated can easily fail, and I have several alternatives: waiting, taking a mortgage, or not buying at all.

For now my goal remains saving for retirement and my AA remains 80/20. Maybe I will include the goal of buying a house later, and direct my new contributions to that goal with an appropriate AA.

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