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[Germany] First time investor_Seeking advice_Beginner

Posted: Sat Jun 27, 2020 10:37 am
by Jackleh_jon
I am new to investing and to this forum as well. “The little book of common sense investing” brought me here and additional to the wiki sections, I have also checked relevant questions (related to Germany) in this forum. I would also like to kindly ask to keep the acronyms to a minimum since I am very new at this.

Short facts:
Country: Germany
(I am from Albania, so non-EU citizen, but I am living and paying taxes in Germany)
Age: 26
Debt: 0
Currency: EUR (I plan to stay in Germany long term, so I think it makes sense to invest in euros)
Amount to invest: 10k (adding 5-8k yearly)
Investing duration: Long term.
Preferences: Passively managed index funds (stocks) are what I want to invest in as a beginner. Between a fund that tracks the Total Stock Market or the S&P 500, I would go for the latter just because of the slightly higher returns. However, if you have a better suggestion I would be happy to hear it.

Questions:
1. Can I buy an index fund tracking S&P500 or US stock market while being a resident in Germany? If yes, how? / If no, what is an alternative?
2. Because of reading and getting the majority of the information from Jack Bogle’s book and this forum, then my obvious investment company is Vanguard (because I don’t have info about other companies). Is there a superior choice in my case?
3. How does the taxation work for investments in stocks? I know that income in Germany is taxed at up to 45%. Is it the same or are there specific rules?

Thank you everyone in advance

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Mon Jun 29, 2020 2:18 pm
by Jackleh_jon
Two days gone and still zero comments.
Should I improve something about posting in this forum or what's wrong?

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Mon Jun 29, 2020 2:37 pm
by BeBH65
Hello,

The Bogleheads® originated in the United States, and the principles are applicable worldwide. The non-US section of this wiki and the Non-US investing forum focus on topics that specifically affect non-US investors. Both the wiki and forum were built by volunteers who are dedicated to helping people begin or improve their investing by applying our investing principles.

Here is the starting page for non-US investors: https://www.bogleheads.org/wiki/Getting ... _investors.
We have a specific page for Germany: https://www.bogleheads.org/wiki/Investing_from_Germany


Regards,

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Mon Jun 29, 2020 3:04 pm
by tre3sori
Two days gone and still zero comments.
Should I improve something about posting in this forum or what's wrong?
This:
(I am from Albania, so non-EU citizen, but I am living and paying taxes in Germany)
I have no idea if there are any special circumstances for non-EU citizens who live and pay taxes in Germany and will probably stay there.
1. If yes: Open an account with a Germany-based broker (they have to do taxes for you), transfer your money and order the index fund of your choice.
2. Bogle's books are written for US investors. S&P 500 and Total Stock Market are US-only indices. For a non-US investor it is probably more advisable to go with global stock/bond index fund that track MSCI World/FTSE Developed/All-World/Bloomberg Barclays Global Aggregate indices. I would not worry much about investment company. ETFs and mutual funds are separate from the investment company.
3. The tax on financial investments in Germany is called Abgeltungssteuer. It is 25% on interest, dividends and capital gains. It is irrespective of income and there is a tax free amount of €801 p.a. for a single person (if you have little income, you can get the tax refunded). I don't know if the tax applies to you as non-EU citizen. If it does, the broker pays it automatically to German tax authorities.
if you have a better suggestion I would be happy to hear it
For a 26 year old I would advise an asset allocation of 80/20 or 75/25 stock/bond. Being 100% in stocks does not give you much return for the extra risk.
Classic 2-fund 80/20 portfolios would be
80% iShares Core MSCI World UCITS ETF/20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged
or
80% Vanguard FTSE All-World UCITS ETF/20% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged

Also take a look at the wiki https://www.bogleheads.org/wiki/Outline ... _domiciles

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Mon Jun 29, 2020 4:20 pm
by Jackleh_jon
@BeBH65 Thank you for the information provided.

@tre3sori - I really appreciate your help. it's a way to start for me :)
Firstly, being a non-EU citizen should not have special circumstances. As long as I am paying taxes in Germany it is the same for all residents. However, I will search more on this.

2. I wanted to go for US market, because it does better than average (Word market). Why is it not advisable to do that?

How are they separate? I thought the investment companies are the ones who created the fund. For example Vanguard created VFIAX. That means that Vanguard only decides the expense ratio which in long-term effects your returns.

Regarding the 2-fund portfolio: The suggested funds have a management fee 0.2-.022%. That is an actively managed fund right? Why would I need such a fund if I am not gonna buy/sell often?

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Mon Jun 29, 2020 10:55 pm
by tre3sori
Jackleh_jon wrote: Mon Jun 29, 2020 4:20 pm I wanted to go for US market, because it does better than average (Word market). Why is it not advisable to do that?
You could be late to the game. Take a look at https://www.portfoliovisualizer.com/bac ... ion2_2=100. The red line are NOT US stocks.
Also look at the following graph to assess your statement: viewtopic.php?t=571&start=200#p4440859
Jackleh_jon wrote: Mon Jun 29, 2020 4:20 pm How are they separate? I thought the investment companies are the ones who created the fund. For example Vanguard created VFIAX. That means that Vanguard only decides the expense ratio which in long-term effects your returns.
ETFs and mutual funds are separate legal entities assets. They are created but not owned by the fund company.
Jackleh_jon wrote: Mon Jun 29, 2020 4:20 pm Regarding the 2-fund portfolio: The suggested funds have a management fee 0.2-.022%. That is an actively managed fund right? Why would I need such a fund if I am not gonna buy/sell often?
No, all suggested funds are index funds. In 20 years the accumulated cost difference between a country-specific fund that costs 0.07% compared to a global fund that costs 0.2% is less than 3%. Is there a good chance that the US (for example) underperforms the global market by more than 5% in that time period (the percentage the US would have to underperform the global market in order to justify the extra cost). I would say yes. Others would say no. This is why I wouldn't go with a country-specific investment vehicle. It is a bet on one country.

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Tue Jun 30, 2020 12:50 am
by WienerG
Please familiarise yourself with taxation in Germany. Assuming you can invest from Germany, you can use flatex (I'm in Austria and use them). Flatex give you access to the big european exchanges. You can purchase Vanguard & Ishare UCIT ETF's (check out www.justetf.com for a full list or ask in the forum) domiciled in Ireland via the Xetra Dax, Stuttgart etc. In terms asset allocation, 80 % stock / 20 % bonds should be fine at your age. I think accumulating ETFs are taxed as distribution in Germany so you may want to spend some time comparing the pros & cons taxwise.

You may find the following tool (written by a fellow BH) useful in deciding upon funds:
https://www.boglebot.com

Good luck!

WienerG

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Tue Jun 30, 2020 6:24 am
by sean.mcgrath
Jackleh_jon wrote: Sat Jun 27, 2020 10:37 am Questions:
1. Can I buy an index fund tracking S&P500 or US stock market while being a resident in Germany? If yes, how? / If no, what is an alternative?
2. Because of reading and getting the majority of the information from Jack Bogle’s book and this forum, then my obvious investment company is Vanguard (because I don’t have info about other companies). Is there a superior choice in my case?
3. How does the taxation work for investments in stocks? I know that income in Germany is taxed at up to 45%. Is it the same or are there specific rules?
Hi JJ,
Welcome to BH! Mostly in line with what others say, but here are mine:

1. Two ways of breaking the market are by geography and sector. I have seen persuasive arguments that the recent better performance in the US is because it is heavy in the tech sector, while other sectors have performed similarly to the rest of the world. If that's true, it would be more efficient to invest directly in "Global Tech" than in total US. But it raises the same question: are you sure it will outperform in future just because it has in the past? I am not, so I go for total world rather than placing all of my bets on one recently successful sector or geography.

2. Go for whichever one can give you German tax reporting at the lowest fees. I know many Europeans like Degiro, also flatex was mentioned above. If you post a question on discount brokers in Germany, I'm sure that you can get other suggestions.

3. It is worth finding out about German taxation and any tax treaties with Albania. You might want to ask other Albanians in Germany about the second one. I have some knowledge about general German taxation from a while ago, but things do change. It seems there was a significant change in taxation for investments in 2018.

Good luck!

Re: [Germany] First time investor_Seeking advice_Beginner

Posted: Tue Jun 30, 2020 7:44 am
by BeBH65
Jackleh_jon wrote: Mon Jun 29, 2020 4:20 pm I wanted to go for US market, because it does better than average (Word market). Why is it not advisable to do that?
You need to change the verb tense on your statement: "does" --> "did".
There are a few countries that did even better then the US: SouthAfrica, Denmark, Australia. Why not choose those?
There is a reason why the financial industry is obliged to state: "Past performance is no guarantee of future results"
Nobody knows what the future will bring.

Have a read of this wiki page
One of the Boglehead principles is to diversify. The principle mentions that rather than trying to pick the specific securities or sub-asset classes of the market that will outperform in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market.
Owning the whole worldwide stock market seems to implement the diversify principle the most closely.