No need to invest for Europeans?

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

No need to invest for Europeans?

Post by TheoLeo » Mon Apr 13, 2020 4:36 pm

Living in one of the wealthier countries in Europe, I benefit from:

- universal healthcare
- unemployment insurance which pays 60 % of income for 12 months and then social security
- a pension that will cover about 70 % of my averaged salary
- zero or very low student debt for me and future children, good public education

My basic needs are covered. If I would now add a permanent disability insurance and a life insurance if I plan on having a family, why would I defer consumption now for a likely but not guaranteed capital appreciation so that I can likely but not surely consume in the future? What makes the habit of investing even more questionable is a capital gains tax in Sweden of 30 %, in Germany of 30 %, in France of 25 % and so on.

So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.

User avatar
Stef
Posts: 965
Joined: Thu Oct 10, 2019 10:13 am

Re: No need to invest for Europeans?

Post by Stef » Mon Apr 13, 2020 4:51 pm

TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
That might be true with 10 years, but I guess close to 1/3 could achieve it within 20-25 years. Your list is close to what I have in Switzerland. Just 70-80% unemployment for 2 years.

Why invest? What if you don't get 70% when you retire but 50% due to a much lower working population? What if social security gets lower too? What if you get fired at 50-55 years and you're not able to find a new job? What if the whole system in your country fails?

Why not be independent?

Starfish
Posts: 1854
Joined: Wed Aug 15, 2018 6:33 pm

Re: No need to invest for Europeans?

Post by Starfish » Mon Apr 13, 2020 4:56 pm

You make a good point.
I don't want to go into general socio-economic issues, we can keep it individual.
You invest if you are not satisfied with what you get from the government (retirement age, amounts etc).
You invest if you do not believe that these benefits will last (Europe has major demographic issues coming up, earlier that US).

With education and, partially, health care I think US has completely wrong, so Europeans have a great advantage here.

aspiringboglehead
Posts: 104
Joined: Sat Sep 03, 2011 9:28 pm

Re: No need to invest for Europeans?

Post by aspiringboglehead » Mon Apr 13, 2020 4:58 pm

Of the people I know in the richer European countries, exceedingly few defer consumption in order to invest more, so they seem to agree with you or at least act as if they do.

Some of it is just cultural, too. America (and, e.g., Switzerland) seem to have cultures that promote capital appreciation by a wider range of individuals far more than (e.g.) Germany or the UK. I say that without any judgment in either direction (as an American who spends virtually nothing and invests virtually everything but doesn't really know why).

petulant
Posts: 1329
Joined: Thu Sep 22, 2016 1:09 pm

Re: No need to invest for Europeans?

Post by petulant » Mon Apr 13, 2020 5:26 pm

I completely agree. Might be smart to have a bit of wealth stashed away in case system fails, but no need to target your retirement income and maybe a reduced need for emergency fund.

Starfish
Posts: 1854
Joined: Wed Aug 15, 2018 6:33 pm

Re: No need to invest for Europeans?

Post by Starfish » Mon Apr 13, 2020 5:39 pm

The funny thing in all these is that the saving rates are smaller in US than in Europe.
So the investing American is more of an exception than the investing European. The investing American usually goes for more aggressive portfolios, as stocks are more common instead of cash and RE.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Mon Apr 13, 2020 6:08 pm

Thank you all for the replies so far.
Stef wrote:
Mon Apr 13, 2020 4:51 pm
That might be true with 10 years, but I guess close to 1/3 could achieve it within 20-25 years. Your list is close to what I have in Switzerland. Just 70-80% unemployment for 2 years.

Why invest? What if you don't get 70% when you retire but 50% due to a much lower working population? What if social security gets lower too? What if you get fired at 50-55 years and you're not able to find a new job? What if the whole system in your country fails?

Why not be independent?
To answer your question, I´d say it depends on the cost of this independence. I am in the top 15 % of earners in my country and by living very frugally, without supporting a family, I can save about 50 % of my net income. This means that after taxes and various mandatory insurances, I only consume 35 % of my gross income every month. If we assume that FI is achieved at 25 x the yearly expenditures, then I could achieve FI in 15-20 years if I don´t have a family and if I continue to live very frugally, assuming my salary stays the same. By then the average academic in Europe will be 40-50.
One in 50 thirty year olds won´t live to celebrate their 50 th birthday. Depending on your dreams, maybe you instead want to take a year long sailing trip around the world while you are able bodied and adventurous. Or maybe instead of working 40-50 hours a week you want to work only 30 hours a week while raising a young family.

123
Posts: 5996
Joined: Fri Oct 12, 2012 3:55 pm

Re: No need to invest for Europeans?

Post by 123 » Mon Apr 13, 2020 6:12 pm

TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
...So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
We wouldn't dream of forcing you to invest if you don't want to. You don't even have to read or participate in this blog if you don't want to.
The closest helping hand is at the end of your own arm.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Mon Apr 13, 2020 6:18 pm

123 wrote:
Mon Apr 13, 2020 6:12 pm
TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
...So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
We wouldn't dream of forcing you to invest if you don't want to. You don't even have to read or participate in this blog if you don't want to.
I think an investment forum is the right place to discuss the need, ability and willingness to invest. If you are a European investor, then maybe you can share your reasons to invest.

ThriftyPhD
Posts: 870
Joined: Mon Jul 31, 2017 10:43 am

Re: No need to invest for Europeans?

Post by ThriftyPhD » Mon Apr 13, 2020 7:44 pm

TheoLeo wrote:
Mon Apr 13, 2020 6:08 pm
To answer your question, I´d say it depends on the cost of this independence. I am in the top 15 % of earners in my country and by living very frugally, without supporting a family, I can save about 50 % of my net income. This means that after taxes and various mandatory insurances, I only consume 35 % of my gross income every month. If we assume that FI is achieved at 25 x the yearly expenditures, then I could achieve FI in 15-20 years if I don´t have a family and if I continue to live very frugally, assuming my salary stays the same.
There is a whole lot range between 50% savings rate and 0%.

People in the US often include pensions and social security as part of their retirement 'income'. So the 25x yearly expenditures is the expenditure in excess of SS/Pension. The other portion is the expenditures between the date you retire and when SS/Pension begins.

Will your 70% pension cover all of your expenses? Will that be the case if you're used to spending 100% of your salary? Or will you need savings to cover amounts in addition to the 70%?

At what age can you start collecting SS/Pension? If it's 65 and that will cover all of your needs, then perhaps you would want the option to retire at 60, and in that case only need 5x yearly expenses.

Starfish
Posts: 1854
Joined: Wed Aug 15, 2018 6:33 pm

Re: No need to invest for Europeans?

Post by Starfish » Mon Apr 13, 2020 8:36 pm

There is not that much difference between US and Europe.
In US you have SS. Yes, it's not great (but it could be decent for people who contributed many years, maximum is ~3000$ a month at full retirmenet age), but also the equivalent "pensions" in Europe are not good.
US has Medicare, so healthcare is not a major issue after a certain age.
So the reasons to invest are very similar in Europe and US.

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: No need to invest for Europeans?

Post by MotoTrojan » Mon Apr 13, 2020 8:43 pm

70% pension sounds great but does it have a cost-of-living or inflation adjustment? If not, I would want some equities growing alongside it to compensate.

User avatar
whodidntante
Posts: 8371
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: No need to invest for Europeans?

Post by whodidntante » Mon Apr 13, 2020 8:55 pm

In your situation, I would save less. My situation requires more saving and borderline scandalous risk taking. Are y'all taking applications?

junior
Posts: 1051
Joined: Wed Sep 10, 2008 6:14 pm
Contact:

Re: No need to invest for Europeans?

Post by junior » Mon Apr 13, 2020 9:13 pm

A few reasons why you might want to invest:

1) You want to increase consumption in retirement over consumption during your working years (i.e. increase travel spending)

2) You are afraid that your society could decline due to a political or environmental event and think money may help

3) The social services in your country are inadequate to old age if you have, say dementia and need 24 hour care. (I have no idea if this applies to your country)

whereskyle
Posts: 897
Joined: Wed Jan 29, 2020 10:29 am

Re: No need to invest for Europeans?

Post by whereskyle » Mon Apr 13, 2020 9:27 pm

TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
Living in one of the wealthier countries in Europe, I benefit from:

- universal healthcare
- unemployment insurance which pays 60 % of income for 12 months and then social security
- a pension that will cover about 70 % of my averaged salary
- zero or very low student debt for me and future children, good public education

My basic needs are covered. If I would now add a permanent disability insurance and a life insurance if I plan on having a family, why would I defer consumption now for a likely but not guaranteed capital appreciation so that I can likely but not surely consume in the future? What makes the habit of investing even more questionable is a capital gains tax in Sweden of 30 %, in Germany of 30 %, in France of 25 % and so on.

So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
This is a great point. Jack says, "Invest we must." In the US, I think that it may be uniquely true. I started investing because I want to work in public service in the U.S., and I make about a median salary. There is just no way I can save enough to retire and maintain a semblance of my standard of living in the US when I'm in my 60s and 70s unless I invest, even if I collect all the safety net benefits currently available here. Jack is right. I must invest. This just might not be the case in certain countries due to their safety nets where a constant standard of living can be virtually guaranteed.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 5:29 am

ThriftyPhD wrote:
Mon Apr 13, 2020 7:44 pm
There is a whole lot range between 50% savings rate and 0%.

People in the US often include pensions and social security as part of their retirement 'income'. So the 25x yearly expenditures is the expenditure in excess of SS/Pension. The other portion is the expenditures between the date you retire and when SS/Pension begins.

Will your 70% pension cover all of your expenses? Will that be the case if you're used to spending 100% of your salary? Or will you need savings to cover amounts in addition to the 70%?

At what age can you start collecting SS/Pension? If it's 65 and that will cover all of your needs, then perhaps you would want the option to retire at 60, and in that case only need 5x yearly expenses.
These are good points. Will 70 % be enough to cover all of my expenses? I don´t know. But I think it is reasonable to expect it to not miss the mark by a lot. Will I be able to retire earlier if i want to? Yes I could, but there would be deductions to this pension. Will these be big enogh to impact my standard of living significantly? I don´t know, too many variables here. The question I have to ask myself is: Is my safety net reasonably strong to hold in a range of reasonable scenarios? :? If I believe it to be reasonably strong, then the risk that I should hedge against, is maybe not a shortcomming of my safety net, but the constant deferral of consumption or time at my own disposal on the one side and the "black swan" (I know this metaphor is abused too much, but I can´t help myself) of early disease and death on the other side.

You are absolutely correct about the range between 0 and 50 % saving rate :D I have a tendency to think in black and white.

minimalistmarc
Posts: 949
Joined: Fri Jul 24, 2015 4:38 pm

Re: No need to invest for Europeans?

Post by minimalistmarc » Tue Apr 14, 2020 5:34 am

aspiringboglehead wrote:
Mon Apr 13, 2020 4:58 pm
Of the people I know in the richer European countries, exceedingly few defer consumption in order to invest more, so they seem to agree with you or at least act as if they do.

Some of it is just cultural, too. America (and, e.g., Switzerland) seem to have cultures that promote capital appreciation by a wider range of individuals far more than (e.g.) Germany or the UK. I say that without any judgment in either direction (as an American who spends virtually nothing and invests virtually everything but doesn't really know why).
UK has very generous tax shelters for accumulators.

We get 20k per year ISA (Roth) and 40k per year pension (401k) allowance.

In taxable accounts we get 12k per year capital gains allowance and 2k per year dividends tax free.

Downside: high income tax rates. The main sting being 62% tax on earnings between 100 - 125k
Last edited by minimalistmarc on Tue Apr 14, 2020 6:01 am, edited 1 time in total.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 5:34 am

MotoTrojan wrote:
Mon Apr 13, 2020 8:43 pm
70% pension sounds great but does it have a cost-of-living or inflation adjustment? If not, I would want some equities growing alongside it to compensate.
50 % of it is covered by the income of my future younger colleagues. 50 % is covered by stock/bond/real estate investments. So it does adapt to inflation theoretically, but there are no guarantees.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 6:31 am

Thinking about it some more, I think these are the underlying assumptions that make me think Europeans might not need to invest, or at least less:

If you aren´t very wealthy to begin with, then
1. The income from your job determines your standard of living
2. investing and insurances serve to secure this standard of living
3. investing to increase your standard of living above what the income from your work allows for requires taking risks that aren´t adequately compensated for. These risks are either investment risks (stock picking, option trading etc.) or deferral risks (bodily decay and death decreasing the utility of future profits below the utility of your present savings).

I am arguing that No. 2 is covered by the government and the society as a whole in some European countries and so investing privately serves No. 3. Someone quoted Bogle: " Invest me must". I´d say he means " Invest me must - to secure our standard of living" and not "Invest me must - to further increase our standard of living".

I understand this is an investment forum and questioning investing might feel like an attack on peoples life choices. I don´t mean it as an attack, just an opportunity to get a feeling for how other people decide on their need to invest. :sharebeer

Maybe some of you can weigh in on No. 3?

megabad
Posts: 2789
Joined: Fri Jun 01, 2018 4:00 pm

Re: No need to invest for Europeans?

Post by megabad » Tue Apr 14, 2020 6:34 am

Honest question—if you don’t invest, what do you plan on doing with excess funds? Just spend more? If a European had invested in US Dollar denominated equities, he/she would have an impressive real return consistently over a very long period. Hard to see what a better alternative would be long term though I am admittedly biased.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 6:44 am

megabad wrote:
Tue Apr 14, 2020 6:34 am
Honest question—if you don’t invest, what do you plan on doing with excess funds? Just spend more? If a European had invested in US Dollar denominated equities, he/she would have an impressive real return consistently over a very long period. Hard to see what a better alternative would be long term though I am admittedly biased.
All investors here have a conflict of interest, i.e. are biased: my spending will increase your returns :D

Yes, I would spend more or not produce these excess funds in the first place to have more time for something that isn´t work.

dziuniek
Posts: 769
Joined: Mon Jul 23, 2012 2:54 pm
Location: Corrupticut

Re: No need to invest for Europeans?

Post by dziuniek » Tue Apr 14, 2020 6:52 am

I guess I wouldn't assume that everyone invests so that they can retire. Maybe I want a portfolio to kick out money on an annual basis now to help me with my expenses or to have a higher standard of living now.

If you're content, you probably don't need to save that much. Still, having some investments and income sources outside of your job/career is a good idea regardless of where in the world you live. Yes, you might have stronger workplace protections but they are not infinite. You can still lose your job. You can still become disabled and receive less than your salary. You could become divorced (if married) and all of a sudden your salary might not be enough to cover expenses on your house/apartment by yourself.

Oh, if you're ok on 70% of your current salary in retirement, save the difference of 30% now :twisted:

megabad
Posts: 2789
Joined: Fri Jun 01, 2018 4:00 pm

Re: No need to invest for Europeans?

Post by megabad » Tue Apr 14, 2020 6:56 am

TheoLeo wrote:
Tue Apr 14, 2020 6:44 am

Yes, I would spend more or not produce these excess funds in the first place to have more time for something that isn´t work.
Makes sense. Something like reduced working hours would seem appealing to many. I have considered this myself.

User avatar
BeBH65
Posts: 1655
Joined: Sat Jul 04, 2015 7:28 am

Re: No need to invest for Europeans?

Post by BeBH65 » Tue Apr 14, 2020 7:03 am

TheoLeo wrote:
Tue Apr 14, 2020 5:29 am
These are good points. Will 70 % be enough to cover all of my expenses? I don´t know.
Actually you stated that it is 70% of your average salary. SO how mauch is this from your final (or even current) salary. I assume your salary of the first years in your career was lower, also inflation will eat away on this; while building it and during the 23-30 years of your retiremetn as well.
Also, what is counted in this "salary", and what benefits do you get next to your salary. Benefits that you will have to pay yourself if you stop working.

Who guarantees this pension? How secure is that?
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
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 7:24 am

BeBH65 wrote:
Tue Apr 14, 2020 7:03 am
TheoLeo wrote:
Tue Apr 14, 2020 5:29 am
These are good points. Will 70 % be enough to cover all of my expenses? I don´t know.
Actually you stated that it is 70% of your average salary. SO how mauch is this from your final (or even current) salary. I assume your salary of the first years in your career was lower, also inflation will eat away on this; while building it and during the 23-30 years of your retiremetn as well.
Also, what is counted in this "salary", and what benefits do you get next to your salary. Benefits that you will have to pay yourself if you stop working.

Who guarantees this pension? How secure is that?
This pension is not tied to one employer. It is a pension for all doctors and dentists working in my country and we all have to contribute to this pension. 50 % is covered by future colleagues income and 50 % is invested in RE/stocks/bonds. So to some extend it adapts to changes in the market and the workforce and should keep up with inflation. They don´t give guarantees on the return. The pension itself is guaranteed by the government. Assuming no dynamic in my contributions and interest rates, inflation etc stay the same, then I would come out with 70 % of my current purchase power. Since I am in the beginnings of my carreer, it will likely be more. Once I stop working, health insurance and long-term care insurance will be covered by the pension (the 70 % number is already after these expenses).

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 7:59 am

dziuniek wrote:
Tue Apr 14, 2020 6:52 am
I guess I wouldn't assume that everyone invests so that they can retire. Maybe I want a portfolio to kick out money on an annual basis now to help me with my expenses or to have a higher standard of living now.
Definitely! I would do that in a heartbeat. :moneybag But is it possible to invest now to have more money now?
If I want more money now, then investing it for a fee, giving it no time to make a profit and then selling it again for a fee to use this money is less efficient than just spending it directly. Thats tongue in cheek of course, but the sooner I want to benefit from my money, the less sense it makes to invest it and vice versa. In order to build a portfolio that throws off some money every year for your current needs, you first have to save the money for it and therefore deferring consumption.

Let´s say in five years of frugal living you save 50 000 Euro or Dollar (833/ month). Now you want to profit from that withing the next 5 years. This time frame to me would still feel like improving my "current" living situation. Lets say I now want to get 1000/month out of my investment, because after all, I want this to improve my standard of living now. I invest 70 % US stocks 30 % Total Bond. According to Portfoliovisualizer, the 10 th percentile until you run out of money is 4 years, the 90 th percentile is 6 years. That is without accounting for fees and taxes. :(

edited to remove wrong link

MotoTrojan
Posts: 9955
Joined: Wed Feb 01, 2017 8:39 pm

Re: No need to invest for Europeans?

Post by MotoTrojan » Tue Apr 14, 2020 8:13 am

TheoLeo wrote:
Tue Apr 14, 2020 5:34 am
MotoTrojan wrote:
Mon Apr 13, 2020 8:43 pm
70% pension sounds great but does it have a cost-of-living or inflation adjustment? If not, I would want some equities growing alongside it to compensate.
50 % of it is covered by the income of my future younger colleagues. 50 % is covered by stock/bond/real estate investments. So it does adapt to inflation theoretically, but there are no guarantees.
Not what I meant. Does your annual pension income adjust or is it fixed at the dollar amount of the 1st year?

User avatar
Schlabba
Posts: 539
Joined: Sat May 11, 2019 9:14 am
Location: Netherlands

Re: No need to invest for Europeans?

Post by Schlabba » Tue Apr 14, 2020 9:38 am

TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
Living in one of the wealthier countries in Europe, I benefit from:

- universal healthcare
- unemployment insurance which pays 60 % of income for 12 months and then social security
- a pension that will cover about 70 % of my averaged salary
- zero or very low student debt for me and future children, good public education

My basic needs are covered. If I would now add a permanent disability insurance and a life insurance if I plan on having a family, why would I defer consumption now for a likely but not guaranteed capital appreciation so that I can likely but not surely consume in the future? What makes the habit of investing even more questionable is a capital gains tax in Sweden of 30 %, in Germany of 30 %, in France of 25 % and so on.

So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
Nonsense
Secretly a dividend investor. Feel free to ask why.

User avatar
Watty
Posts: 19765
Joined: Wed Oct 10, 2007 3:55 pm

Re: No need to invest for Europeans?

Post by Watty » Tue Apr 14, 2020 9:58 am

I am not sure how it is now but a few years ago when Greece had a financial crisis a lot of people that were depending on the things you mentioned were looking at a pretty dire situation until they got bailed out. The EU is still really new so I would not want to depend on it existing in its current form in 50 years.

User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: No need to invest for Europeans?

Post by watchnerd » Tue Apr 14, 2020 10:00 am

At what point can I spend my working years in USA, maximizing human capital, and then move to Europe for retirement for the nice social programs?

I think, at one point, Spain allowed immigration status based on a 300k euro investment, which is basically a small condominium in southern Spain.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 10:12 am

Schlabba wrote:
Tue Apr 14, 2020 9:38 am
TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
Living in one of the wealthier countries in Europe, I benefit from:

- universal healthcare
- unemployment insurance which pays 60 % of income for 12 months and then social security
- a pension that will cover about 70 % of my averaged salary
- zero or very low student debt for me and future children, good public education

My basic needs are covered. If I would now add a permanent disability insurance and a life insurance if I plan on having a family, why would I defer consumption now for a likely but not guaranteed capital appreciation so that I can likely but not surely consume in the future? What makes the habit of investing even more questionable is a capital gains tax in Sweden of 30 %, in Germany of 30 %, in France of 25 % and so on.

So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
Nonsense
Ok cool. Median salary where I live is 2500 gross income. Married couple, two young kids, one works 50 % and the other 100 %. Leaves them with 2600 combined net income after taxes. To achieve FI in 10 years they need to save 60 % of their net income, so they need to live on 1040 Euro per month for 4 people. A flat for 4 people will cost you maybe 800. Leaves 2 Euro per day per person for food, clothes, books, furniture, electronics etc. Sounds reasonable :oops:

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 10:22 am

watchnerd wrote:
Tue Apr 14, 2020 10:00 am
At what point can I spend my working years in USA, maximizing human capital, and then move to Europe for retirement for the nice social programs?

I think, at one point, Spain allowed immigration status based on a 300k euro investment, which is basically a small condominium in southern Spain.
On the italian islands (Sardinia and Sicily) in the mediterranean sea you can still buy houses for 1 Euro :D

Tellurius
Posts: 119
Joined: Mon Jul 23, 2018 6:42 pm

Re: No need to invest for Europeans?

Post by Tellurius » Tue Apr 14, 2020 10:29 am

European from Cyprus here.

I suspect that even in the northern/western countries where you have high wages and high provisions by government, there is a big difference in those provisions.

Eg Cyprus has low wages but free university for those who can get through the entrance exams. Single-payer healthcare. No property taxes. No capital gains taxes on stock. Maximum marginal income tax 35%.

At the same time, wages are generally low for most people. Maximum monthly pension from social security is 2.000 EUR for someone who contributed the maximum, which is rare.

I would say things are different in most countries, as eg some have high property taxes, some have capital gains and high dividend taxes and more generous provisions.

Or less generous. Look at Greece or Romania.
La nuit semblait profonde. L'hiver interminable.

rich126
Posts: 1560
Joined: Thu Mar 01, 2018 4:56 pm

Re: No need to invest for Europeans?

Post by rich126 » Tue Apr 14, 2020 10:44 am

TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
Living in one of the wealthier countries in Europe, I benefit from:

- universal healthcare
- unemployment insurance which pays 60 % of income for 12 months and then social security
- a pension that will cover about 70 % of my averaged salary
- zero or very low student debt for me and future children, good public education

My basic needs are covered. If I would now add a permanent disability insurance and a life insurance if I plan on having a family, why would I defer consumption now for a likely but not guaranteed capital appreciation so that I can likely but not surely consume in the future? What makes the habit of investing even more questionable is a capital gains tax in Sweden of 30 %, in Germany of 30 %, in France of 25 % and so on.

So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
I'm curious, how long do you have to work until you are eligible for that pension? Is it based on age or years working or a combination of the two?

User avatar
Stef
Posts: 965
Joined: Thu Oct 10, 2019 10:13 am

Re: No need to invest for Europeans?

Post by Stef » Tue Apr 14, 2020 10:57 am

TheoLeo wrote:
Tue Apr 14, 2020 10:12 am
Ok cool. Median salary where I live is 2500 gross income. Married couple, two young kids, one works 50 % and the other 100 %. Leaves them with 2600 combined net income after taxes. To achieve FI in 10 years they need to save 60 % of their net income, so they need to live on 1040 Euro per month for 4 people. A flat for 4 people will cost you maybe 800. Leaves 2 Euro per day per person for food, clothes, books, furniture, electronics etc. Sounds reasonable :oops:
Well you only proved that it's not possible to reach FI in 10 years for 50% of the population. You were talking about 99.9% though.

User avatar
Schlabba
Posts: 539
Joined: Sat May 11, 2019 9:14 am
Location: Netherlands

Re: No need to invest for Europeans?

Post by Schlabba » Tue Apr 14, 2020 10:59 am

TheoLeo wrote:
Tue Apr 14, 2020 10:12 am
Schlabba wrote:
Tue Apr 14, 2020 9:38 am
TheoLeo wrote:
Mon Apr 13, 2020 4:36 pm
Living in one of the wealthier countries in Europe, I benefit from:

- universal healthcare
- unemployment insurance which pays 60 % of income for 12 months and then social security
- a pension that will cover about 70 % of my averaged salary
- zero or very low student debt for me and future children, good public education

My basic needs are covered. If I would now add a permanent disability insurance and a life insurance if I plan on having a family, why would I defer consumption now for a likely but not guaranteed capital appreciation so that I can likely but not surely consume in the future? What makes the habit of investing even more questionable is a capital gains tax in Sweden of 30 %, in Germany of 30 %, in France of 25 % and so on.

So except for the very wealthy who can´t get any utility out of spending even more, why invest? The only reason I can think of, that would justify frugal living for maybe 10 years, would be if you could achieve financial independence in this time frame. But in Europe, that is impossible for anyone except maybe the top 0,1 % of earners.
Nonsense
Ok cool. Median salary where I live is 2500 gross income. Married couple, two young kids, one works 50 % and the other 100 %. Leaves them with 2600 combined net income after taxes. To achieve FI in 10 years they need to save 60 % of their net income, so they need to live on 1040 Euro per month for 4 people. A flat for 4 people will cost you maybe 800. Leaves 2 Euro per day per person for food, clothes, books, furniture, electronics etc. Sounds reasonable :oops:
Having 2 kids is a choice. Working part-time is a choice. When I was earning less than median income I was saving 30% of my after tax income. I live in The Netherlands. You should also consider that it is rare for a person to be below average his/her entire life. Normally income moves during the lifetime, and if you do stay low income your entire life it is probably your own fault.

Don't pretend to be a victim for being born in a high tax country. If you are part of the EU you can move wherever you want, even if you are not you still have many options.

Also the goal doesn't have to be 10 years.

--

To answer your original question: I am investing for the freedom. I want to be able to do whatever I want and not have to worry about money. I'd hate to be 50 and working a job I hate just for the money.
Right now I enjoy my work very much, but I am sure this job isn't my last and we will never know what will happen. If I keep enjoying my job I might just end up buying a larger house or a more expensive car, but the goal is freedom.
Secretly a dividend investor. Feel free to ask why.

EddyB
Posts: 1362
Joined: Fri May 24, 2013 3:43 pm

Re: No need to invest for Europeans?

Post by EddyB » Tue Apr 14, 2020 11:06 am

watchnerd wrote:
Tue Apr 14, 2020 10:00 am
At what point can I spend my working years in USA, maximizing human capital, and then move to Europe for retirement for the nice social programs?

I think, at one point, Spain allowed immigration status based on a 300k euro investment, which is basically a small condominium in southern Spain.
Depends on the country and your own details, but even for a citizen of an EU country who is not ordinarily resident there, moving to the EU doesn't necessarily mean complete or immediate access to all social programs. E.g., eligibility for healthcare and university education will generally be dependent on some version of residency status, while pensions are generally dependent on having paid in. If you have kids, EU resident status for university tuition is generally dependent on being resident at least a few years (although may be three of the prior five, or something like that).

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 11:08 am

Stef wrote:
Tue Apr 14, 2020 10:57 am
TheoLeo wrote:
Tue Apr 14, 2020 10:12 am
Ok cool. Median salary where I live is 2500 gross income. Married couple, two young kids, one works 50 % and the other 100 %. Leaves them with 2600 combined net income after taxes. To achieve FI in 10 years they need to save 60 % of their net income, so they need to live on 1040 Euro per month for 4 people. A flat for 4 people will cost you maybe 800. Leaves 2 Euro per day per person for food, clothes, books, furniture, electronics etc. Sounds reasonable :oops:
Well you only proved that it's not possible to reach FI in 10 years for 50% of the population. You were talking about 99.9% though.
True. The same calculation for a top 1 % income housold would actually already work. It would leave 14 euro per person per day for food, clothes etc.

User avatar
Stef
Posts: 965
Joined: Thu Oct 10, 2019 10:13 am

Re: No need to invest for Europeans?

Post by Stef » Tue Apr 14, 2020 11:10 am

10 years is just not enough for compounding to work. 20 years are way more realistic. Reaching FI within 20 years should be possible for 1/3 of the population. We aren't even taking SS and pension into account, you'll get that too eventually.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 11:41 am

Schlabba wrote:
Tue Apr 14, 2020 10:59 am
Having 2 kids is a choice. Working part-time is a choice. When I was earning less than median income I was saving 30% of my after tax income. I live in The Netherlands. You should also consider that it is rare for a person to be below average his/her entire life. Normally income moves during the lifetime, and if you do stay low income your entire life it is probably your own fault.

Don't pretend to be a victim for being born in a high tax country. If you are part of the EU you can move wherever you want, even if you are not you still have many options.

Also the goal doesn't have to be 10 years.

--

To answer your original question: I am investing for the freedom. I want to be able to do whatever I want and not have to worry about money. I'd hate to be 50 and working a job I hate just for the money.
Right now I enjoy my work very much, but I am sure this job isn't my last and we will never know what will happen. If I keep enjoying my job I might just end up buying a larger house or a more expensive car, but the goal is freedom.
Having 2 kids is the default choice. If it wasn´t, lots of things we take for granted (like a safe retirement from whatever source) would not be sustainable. How you arrange taking care of the kids is a choice, but in one way or another, you will have to pay for it (daycare and/ or working part time).

Thanks for offering your perspecitve on why you try to achieve FI :happy If you can achieve FI at 50 in good health without deferring or missing opportunities and experiences that would have been important to you, you win. Most likely you then are either a very frugal person without children or you have a very high income. Both don´t apply for the majority of people.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 11:44 am

Watty wrote:
Tue Apr 14, 2020 9:58 am
I am not sure how it is now but a few years ago when Greece had a financial crisis a lot of people that were depending on the things you mentioned were looking at a pretty dire situation until they got bailed out. The EU is still really new so I would not want to depend on it existing in its current form in 50 years.
Very true and made me think :?
Last edited by TheoLeo on Tue Apr 14, 2020 12:40 pm, edited 1 time in total.

User avatar
Stef
Posts: 965
Joined: Thu Oct 10, 2019 10:13 am

Re: No need to invest for Europeans?

Post by Stef » Tue Apr 14, 2020 11:52 am

Pension funds can get closed too, it happened. Sometimes they only got 2/3 of what was theoretically inside. Whole states can go bankrupt. Currencies can lose their value.

As a global investor you don't have to worry about any of these things. You just depend on the world as a whole doing good.

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 11:55 am

Stef wrote:
Tue Apr 14, 2020 11:52 am
Pension funds can get closed too, it happened. Sometimes they only got 2/3 of what was theoretically inside. Whole states can go bankrupt. Currencies can lose their value.

As a global investor you don't have to worry about any of these things. You just depend on the world as a whole doing good.
Stef, living in Switzerland, I think you are good :D You won the game. Good salaries, stable political climate (the most stable?), nice coutry, kind people.

User avatar
Tourne
Posts: 44
Joined: Mon Jul 17, 2017 1:42 pm

Re: No need to invest for Europeans?

Post by Tourne » Tue Apr 14, 2020 12:03 pm

In many European countries, it is important to have a certain amount of emergency money available to pay for private health care, rather than waiting for the state health care system to provide you with the scan/procedure that you need. State-sponsored health-care is wonderful, but not when you have to wait four months for that MRI you urgently need. But since you said you are in the health care field, I guess you know the situation in your country quite well.

The same goes for retirement/nursing homes. While state-sponsored nursing homes are available (in the UK) for my Mother in Law, there is absolutely no way we are putting her into a state-sponsored nursing facility - so we have invested money to prepare for that contingency in the future.

Many/most EU countries have raised their state retirement age from 62-64 to 65-67 in recent years. Demographics dictate that this trend will continue. If one is lucky enough to have excess capital after taxes and (modest) expenses, why not aim for early retirement, and then defer your state pension until the full retirement age?

As for myself, I'd much rather have 3-5 extra years of financial independence when I am 50 than that Porsche 911 now. But maybe that's just me.
Plans are nothing; planning is everything - Dwight D. Eisenhower

Dottie57
Posts: 8675
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: No need to invest for Europeans?

Post by Dottie57 » Tue Apr 14, 2020 12:42 pm

TheoLeo wrote:
Tue Apr 14, 2020 6:31 am
Thinking about it some more, I think these are the underlying assumptions that make me think Europeans might not need to invest, or at least less:

If you aren´t very wealthy to begin with, then
1. The income from your job determines your standard of living
2. investing and insurances serve to secure this standard of living
3. investing to increase your standard of living above what the income from your work allows for requires taking risks that aren´t adequately compensated for. These risks are either investment risks (stock picking, option trading etc.) or deferral risks (bodily decay and death decreasing the utility of future profits below the utility of your present savings).

I am arguing that No. 2 is covered by the government and the society as a whole in some European countries and so investing privately serves No. 3. Someone quoted Bogle: " Invest me must". I´d say he means " Invest me must - to secure our standard of living" and not "Invest me must - to further increase our standard of living".

I understand this is an investment forum and questioning investing might feel like an attack on peoples life choices. I don´t mean it as an attack, just an opportunity to get a feeling for how other people decide on their need to invest. :sharebeer

Maybe some of you can weigh in on No. 3?
I think it is risky to assume what exists today will exist during your later years.

bloom2708
Posts: 7881
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: No need to invest for Europeans?

Post by bloom2708 » Tue Apr 14, 2020 12:50 pm

OP,

Let's say you go from 50% savings to 20% (or less). What would you do with the 30%?

Saving is future spending. The benefits you outline likely put you at the "exist" level. You can probably make it. Do you want to just exist and get by? Most don't.

If your plan is to take the 30% and buy stuff or travel (not a great example at this moment in time), then you have to weight the opportunity cost of spending now vs spending when retired.

No guarantees in this life.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

User avatar
Stef
Posts: 965
Joined: Thu Oct 10, 2019 10:13 am

Re: No need to invest for Europeans?

Post by Stef » Tue Apr 14, 2020 1:01 pm

TheoLeo wrote:
Tue Apr 14, 2020 11:55 am
Stef, living in Switzerland, I think you are good :D You won the game. Good salaries, stable political climate (the most stable?), nice coutry, kind people.
Very globalized economy with some big players like Nestle, Novartis and Roche. 90% of the revenues from Switzerland are made abroad, so the country is not dependent on domastic revenues. Low taxes and no taxes on capital gains, just on interest and dividends (great for investing). Basically free school and universities, big inflow of high skilled workers from abroad, great political system, great welfare system, low criminality, good health care system with a massive amount of doctors and hospitals. On top of that it's very beautiful in the Alps, great for hiking or skiing. Only 0.1% of the global population lives here, so I feel very privileged for being born here. In my opinion one of the best places in the world to live, at least before retiring.

But I still started investing because the feeling of being financially independent 10-15 years prior to the official retirement age will be great!

Topic Author
TheoLeo
Posts: 138
Joined: Mon Apr 02, 2018 11:39 am

Re: No need to invest for Europeans?

Post by TheoLeo » Tue Apr 14, 2020 1:08 pm

bloom2708 wrote:
Tue Apr 14, 2020 12:50 pm
OP,

Let's say you go from 50% savings to 20% (or less). What would you do with the 30%?

Saving is future spending. The benefits you outline likely put you at the "exist" level. You can probably make it. Do you want to just exist and get by? Most don't.

If your plan is to take the 30% and buy stuff or travel (not a great example at this moment in time), then you have to weight the opportunity cost of spending now vs spending when retired.

No guarantees in this life.
From the additional 30 % I would propably move into a bigger flat (now its one room, no balcony or garden) or save it for three years and then be gone sailing for a year :happy Assuming I will work until 65, then the pension will allow me to more than just exist. It will most likely be worth more than what I live on now.

bloom2708
Posts: 7881
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: No need to invest for Europeans?

Post by bloom2708 » Tue Apr 14, 2020 1:26 pm

TheoLeo wrote:
Tue Apr 14, 2020 1:08 pm
From the additional 30 % I would propably move into a bigger flat (now its one room, no balcony or garden) or save it for three years and then be gone sailing for a year :happy Assuming I will work until 65, then the pension will allow me to more than just exist. It will most likely be worth more than what I live on now.
Many people, all over the globe save less to have better housing. More space, closer to work/shops.

Also, saving might mean you can retire at 55 or 57 or 60 instead of 65. Buy back a few years.

I think it completely fine to pull back on saving to upgrade your flat. It sounds like you can do both and still be in good shape for options.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

dziuniek
Posts: 769
Joined: Mon Jul 23, 2012 2:54 pm
Location: Corrupticut

Re: No need to invest for Europeans?

Post by dziuniek » Tue Apr 14, 2020 1:30 pm

Hmm...

There's also the % of life you have left, which you don't know. What if your 'end date' is 66? (pension start at 65?). Would saving some % of your pay to buy your workforce exit sooner not make sense?

Would you save 5% of your salary so you can retire at 60, instead of 65? (knowing end* at 66?) - buy 5 years.

Would you save 10% of your salary so you ca retire at 57, instead of 65? (knowing end* at 66?) - buy 8 years.

What about 50%? Some people do. I am not one of them, but still, they exist!

Post Reply