[Germany] My asset allocation - suggestions needed

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Topic Author
AS_25f
Posts: 7
Joined: Fri Sep 02, 2022 7:14 am

[Germany] My asset allocation - suggestions needed

Post by AS_25f »

Hello Bogleheads,

I am a non-EU citizen currently employed in Germany. I'm about to start investing and have multiple questions while trying to figure out my options. I would really love to hear your suggestions and opinions about my planned asset allocation. My current status and planned portfolio follows:

Emergency fund: 4 months (already saved in Tagesgeldkonto/normal deposit account with almost 0 interest)
Debt: none
Tax Rate: 26% on capital gains/dividends
State of Residence: Germany, longterm
Age: 27
Goal: help with retiring early (when I reach 50 years)

Planned portfolio to start:
1. Hold emergency funds in a savings bank account with decent interest (~2% p.a, such as Barclays or ING) so that it is liquid

2. Stock ETFs - I'm confused between two ways of diversification
a. Option 1:
MSCI World 80% allocation (SPDR MSCI World UCITS ETF Acc TER:0.12%)
b. Option 2:
S&P 500 65% allocation (iShares Core S&P 500 UCITS ETF TER:0.07%) + Stoxx 600 Europe 15% allocation (Invesco STOXX Europe 600 Acc TER:0.19%)

3. Stock ETFs - MSCI Emerging Markets ETF 10% allocation (iShares MSCI EM TER:0.18%)
4. Stock ETFs - additionally, add MSCI Momentum Factor ETF 10% allocation (iShares Edge MSCI USA Momentum Factor TER: 0.20%)
5. Confused if I should add any other ETF for better diversification beyond the ones mentioned above


Ideas for future asset allocation:
1. Start with aggressive investment (100% stocks + Emergency funds)
2. Slowly add gold ETFs (say upto 7% of total portfolio)
3. Add bonds/bond ETFs when I turn 35-40 years old to stabilize my portfolio
4. Add REITS as well, upto 7-8% of total portfolio (not sure if this is worth it)
5. I'm tempted to try cryptocurrency as well, probably 5% of total portfolio
6. Eventually look into prospects of investing in Real-estate, maybe buying an apartment for living/renting

Questions:
1. Does my planned portfolio make sense? Are there things that you would recommend against/would do differently?
2. I'm trying to pick ETFs where TER is low. Hence, in most cases, I cannot pick Vanguard. Does the ETF provider make a big difference or can I continue to pick SPDR instead of Vanguard for example?
3. Planning on buying Ireland domiciled ETFs; Planning on buying Accummulating ETFs - any remarks about my choices?
4. Is adding Momentum Factor ETF an overkill? I would like to specifically track the MSCI USA MF index due to better returns and the flexibility to use them as short-term investments in certain situations. Have I understood this part right?
5. Do you have any other suggestions for ETFs to diversify my portfolio further?
6. What is the general opinion about Gold ETFs and REITS? Does it make sense to add them or just get stock ETFs instead?
7. Any opinions/tips about real-estate investment in Germany?
8. Is it recommended to have Emerging Market Bonds instead of stock ETFs? Why/Why not?

I'm looking forward to hear suggestions and remarks from more experienced Bogleheads here! :sharebeer
Thank you very much in advance :D
User avatar
typical.investor
Posts: 5263
Joined: Mon Jun 11, 2018 3:17 am

Re: [Germany] My asset allocation - suggestions needed

Post by typical.investor »

AS_25f wrote: Mon Mar 20, 2023 1:56 pm
I am a non-EU citizen currently employed in Germany.
Welcome!

First things first. Your plan is for a non-US person (not a US citizen or green card holder). If you are a US person (as defined by the IRS), then this plan will not work. Please confirm.
Topic Author
AS_25f
Posts: 7
Joined: Fri Sep 02, 2022 7:14 am

Re: [Germany] My asset allocation - suggestions needed

Post by AS_25f »

Hi, thanks for your reply!

Yes - I am not a US Citizen or a Green Card Holder.
Non US/EU here citizen living and working in Germany :happy
User avatar
tre3sori
Posts: 460
Joined: Wed Jul 24, 2019 3:13 am

Re: [Germany] My asset allocation - suggestions needed

Post by tre3sori »

AS_25f wrote: Mon Mar 20, 2023 1:56 pm Questions:
1. Does my planned portfolio make sense? Are there things that you would recommend against/would do differently?
2. I'm trying to pick ETFs where TER is low. Hence, in most cases, I cannot pick Vanguard. Does the ETF provider make a big difference or can I continue to pick SPDR instead of Vanguard for example?
3. Planning on buying Ireland domiciled ETFs; Planning on buying Accummulating ETFs - any remarks about my choices?
4. Is adding Momentum Factor ETF an overkill? I would like to specifically track the MSCI USA MF index due to better returns and the flexibility to use them as short-term investments in certain situations. Have I understood this part right?
5. Do you have any other suggestions for ETFs to diversify my portfolio further?
6. What is the general opinion about Gold ETFs and REITS? Does it make sense to add them or just get stock ETFs instead?
7. Any opinions/tips about real-estate investment in Germany?
8. Is it recommended to have Emerging Market Bonds instead of stock ETFs? Why/Why not?
ad 1.: You seem to be very cost sensitive. And this leads to complexity that may (or may not) be more costly in the end. For an example: Vanguard FTSE All-World has a TER of 0.22%, Vanguard FTSE Developed a TER of 0.12%, everything else equal, that will result in a difference after a holding period of 30 years of (1+.0022-.0012)³⁰ ~ 3%. While 3% is al lot when you have a million, the EM part of FTSE All World could easily outperform the developed part of FTSE All-World in this period making up for the difference in TER.

ad 2.: As a very cost sensitive person you could go with Vanguard by selecting
90% Vanguard FTSE Developed World ETF Acc + 10% Vanguard FTSE EM ETF Acc
and later add
Vanguard Global Aggregate Bond ETF EUR Hedged

The ETF provider does make a difference in tracking error and bid-ask spread. If you look at xetra ETF statistics here:
https://www.deutsche-boerse-cash-market ... tatistiken

Top 10 most actively traded ETFs on Xetra in February 2023
Equities
Product Name
iShares Core MSCI World UCITS ETF
iShares Core DAX UCITS ETF (DE) EUR (Acc)
iShares Core EURO STOXX 50 UCITS ETF (DE)
iShares STOXX Europe 600 UCITS ETF (DE) EUR (Dist)
iShares STOXX Europe 600 Oil & Gas UCITS ETF (DE)
iShares EURO STOXX Banks 30-15 UCITS ETF (DE) EUR (Dist)
iShares Core S&P 500 UCITS ETF USD (Acc)
iShares Global Clean Energy UCITS ETF USD (Dist)
iShares MSCI USA SRI UCITS ETF USD (Acc)
Vanguard FTSE All-World UCITS ETF - (USD) Accumulating

The trading is dominated by iShares ETFs. These will have the lowest bid-ask spreads. Vanguard is starting to get better know in Germany due to marketing campaigns and youtube influencers.
And if you look here https://www.trackingdifferences.com you can see that some ETFs/providers may have low TER but have a large tracking difference, don't do a good job of tracking their benchmark.

ad 3.: no complains

ad 4.: Adding a single factor ETF does not make sense IMHO. There is a theory behind factor investing. The factor space (also called factor zoo, there are literally hundreds of factors discovered with mathematics) can in a mathematical sense be spanned by these 5 factors for example: size, value, momentum, quality, political risk. There are other combinations of factors that can also span that space.
Read this blog post by Gerd Kommer https://gerd-kommer.de/factor-investing-die-basics/ but don't forget to also read this https://gerd-kommer.de/pains-of-factor-investing/.
My take on factor investing: When doing it yourself, I think you must have some understanding of the theory behind factor investing in order to be successful.

ad 5. and 6.: Rick Ferri comes to my mind:
A successful index fund investor goes through four phases:
1) Darkness - takes advice from everyone;
2) Enlightenment - realizes a market return is superior to their return;
3) Complexity - overdoing everything to find optimal;
4) Simplicity - invests in a few total market funds
Skip 3) and embrace 4)

ad 7.: If you buy to live in it yourself fine, otherwise for the investor with net worth under a million or so an apartment with 3 rooms in a major German city will easily cost 300-400k and lead to a large concentration risk in the portfolio. Real estate investing is a job, not comparable with ETF investing. You have to attend owners' meetings (Eigentümerversammlungen), organize handymen and maybe get a tax advisor to do the taxes for you. My experience: if your apartment is worth 300k, you get 9k of rent, pay 1k for handymen, 0.5k for tax advisor, 2k for general maintenace (roof, sewage pipes, contribution to road rehabilitation in some states), 1k for all the services around the building per annum which leaves you with half of your rent as return. Rental yield on the 300k after all costs: 1.5%. Not worth the hassel! You may be lucky and get an apartment with lower overall cost than I did. IN THE PAST the appreciation of the apartment value was VERY NICE (almost 400% in 15 years, 12% p.a.)! There is no guarantee and a very low probability that the appreciation of the past will repeat in the future.

ad 8.: There are two major categories of EM Bond ETFs: in hard currency and in local currency. Hard currency EM bond ETFs have higher credit risk since debitors own debt in a currency that they don't control. Local currency have higher currency risk since debitors can devaluate their currency. Turkey comes to my mind. Bonds in general play a different role in the portfolio than stocks. They are money that somebody owes you and gives back to you (hopefully) in the future. So they lack the potential magnitude of appreciation that stocks provide. The riskier bonds are, the more they correlate with stocks and the less is their value in providing diversification to a stock heavy portfolio. So instead of buying an Emerging Market bond fund you could put 1/3 into global stocks and 2/3 into say global bonds and achieve the same result (or even a better result: more return for less risk)

Hope that helps. :sharebeer
The information provided is intended to be entertaining. It is not to be construed as professional advice. Use it at your own risk.
Siaigi
Posts: 130
Joined: Sun May 17, 2020 4:24 am
Location: Italy

Re: [Germany] My asset allocation - suggestions needed

Post by Siaigi »

It is difficult to add something as tre3sori has been so detailed.

I'd recommend you to notice your competitive advantage is your age. So please begin as soon as possible to invest in stocks and the compound interest will work for you independently.

Then, the suggested two-fund portfolio is the easiest solution for you.

With this choice you will be fully focused on your work activity and may be your savings will grow more. Further at the beginning you should not have any rebalance need because you can rebalance investing in the first or the second fund directly and easily.
Topic Author
AS_25f
Posts: 7
Joined: Fri Sep 02, 2022 7:14 am

Re: [Germany] My asset allocation - suggestions needed

Post by AS_25f »

tre3sori wrote: Wed Mar 22, 2023 12:59 am
AS_25f wrote: Mon Mar 20, 2023 1:56 pm Questions:
1. Does my planned portfolio make sense? Are there things that you would recommend against/would do differently?
2. I'm trying to pick ETFs where TER is low. Hence, in most cases, I cannot pick Vanguard. Does the ETF provider make a big difference or can I continue to pick SPDR instead of Vanguard for example?
3. Planning on buying Ireland domiciled ETFs; Planning on buying Accummulating ETFs - any remarks about my choices?
4. Is adding Momentum Factor ETF an overkill? I would like to specifically track the MSCI USA MF index due to better returns and the flexibility to use them as short-term investments in certain situations. Have I understood this part right?
5. Do you have any other suggestions for ETFs to diversify my portfolio further?
6. What is the general opinion about Gold ETFs and REITS? Does it make sense to add them or just get stock ETFs instead?
7. Any opinions/tips about real-estate investment in Germany?
8. Is it recommended to have Emerging Market Bonds instead of stock ETFs? Why/Why not?
ad 1.: You seem to be very cost sensitive. And this leads to complexity that may (or may not) be more costly in the end. For an example: Vanguard FTSE All-World has a TER of 0.22%, Vanguard FTSE Developed a TER of 0.12%, everything else equal, that will result in a difference after a holding period of 30 years of (1+.0022-.0012)³⁰ ~ 3%. While 3% is al lot when you have a million, the EM part of FTSE All World could easily outperform the developed part of FTSE All-World in this period making up for the difference in TER.

ad 2.: As a very cost sensitive person you could go with Vanguard by selecting
90% Vanguard FTSE Developed World ETF Acc + 10% Vanguard FTSE EM ETF Acc
and later add
Vanguard Global Aggregate Bond ETF EUR Hedged

The ETF provider does make a difference in tracking error and bid-ask spread. If you look at xetra ETF statistics here:
https://www.deutsche-boerse-cash-market ... tatistiken

Top 10 most actively traded ETFs on Xetra in February 2023
Equities
Product Name
iShares Core MSCI World UCITS ETF
iShares Core DAX UCITS ETF (DE) EUR (Acc)
iShares Core EURO STOXX 50 UCITS ETF (DE)
iShares STOXX Europe 600 UCITS ETF (DE) EUR (Dist)
iShares STOXX Europe 600 Oil & Gas UCITS ETF (DE)
iShares EURO STOXX Banks 30-15 UCITS ETF (DE) EUR (Dist)
iShares Core S&P 500 UCITS ETF USD (Acc)
iShares Global Clean Energy UCITS ETF USD (Dist)
iShares MSCI USA SRI UCITS ETF USD (Acc)
Vanguard FTSE All-World UCITS ETF - (USD) Accumulating

The trading is dominated by iShares ETFs. These will have the lowest bid-ask spreads. Vanguard is starting to get better know in Germany due to marketing campaigns and youtube influencers.
And if you look here https://www.trackingdifferences.com you can see that some ETFs/providers may have low TER but have a large tracking difference, don't do a good job of tracking their benchmark.

ad 3.: no complains

ad 4.: Adding a single factor ETF does not make sense IMHO. There is a theory behind factor investing. The factor space (also called factor zoo, there are literally hundreds of factors discovered with mathematics) can in a mathematical sense be spanned by these 5 factors for example: size, value, momentum, quality, political risk. There are other combinations of factors that can also span that space.
Read this blog post by Gerd Kommer https://gerd-kommer.de/factor-investing-die-basics/ but don't forget to also read this https://gerd-kommer.de/pains-of-factor-investing/.
My take on factor investing: When doing it yourself, I think you must have some understanding of the theory behind factor investing in order to be successful.

ad 5. and 6.: Rick Ferri comes to my mind:
A successful index fund investor goes through four phases:
1) Darkness - takes advice from everyone;
2) Enlightenment - realizes a market return is superior to their return;
3) Complexity - overdoing everything to find optimal;
4) Simplicity - invests in a few total market funds
Skip 3) and embrace 4)

ad 7.: If you buy to live in it yourself fine, otherwise for the investor with net worth under a million or so an apartment with 3 rooms in a major German city will easily cost 300-400k and lead to a large concentration risk in the portfolio. Real estate investing is a job, not comparable with ETF investing. You have to attend owners' meetings (Eigentümerversammlungen), organize handymen and maybe get a tax advisor to do the taxes for you. My experience: if your apartment is worth 300k, you get 9k of rent, pay 1k for handymen, 0.5k for tax advisor, 2k for general maintenace (roof, sewage pipes, contribution to road rehabilitation in some states), 1k for all the services around the building per annum which leaves you with half of your rent as return. Rental yield on the 300k after all costs: 1.5%. Not worth the hassel! You may be lucky and get an apartment with lower overall cost than I did. IN THE PAST the appreciation of the apartment value was VERY NICE (almost 400% in 15 years, 12% p.a.)! There is no guarantee and a very low probability that the appreciation of the past will repeat in the future.

ad 8.: There are two major categories of EM Bond ETFs: in hard currency and in local currency. Hard currency EM bond ETFs have higher credit risk since debitors own debt in a currency that they don't control. Local currency have higher currency risk since debitors can devaluate their currency. Turkey comes to my mind. Bonds in general play a different role in the portfolio than stocks. They are money that somebody owes you and gives back to you (hopefully) in the future. So they lack the potential magnitude of appreciation that stocks provide. The riskier bonds are, the more they correlate with stocks and the less is their value in providing diversification to a stock heavy portfolio. So instead of buying an Emerging Market bond fund you could put 1/3 into global stocks and 2/3 into say global bonds and achieve the same result (or even a better result: more return for less risk)

Hope that helps. :sharebeer
Thank you very very much for your detailed answer! It cleared many questions and confusions I had with starting to follow Bogle's strategy. I also did some individual research, which points me towards the direction of your suggestions.

As of now, I plan to start with a lumpsum investment of 10000 euros from my savings, split between (90% and 10%):
1. Vanguard FTSE Developed World UCITS ETF - (USD) Accumulating
a. ISIN: IE00BK5BQV03
b. TER: 0.12% pa
c. Inception: 2019
d. physical
e. Accummulating
f. Currency unhedged
g. Ireland domicile
2. Vanguard FTSE Emerging Markets UCITS ETF - (USD) Accumulating
a. ISIN: IE00BK5BR733
b. TER: 0.22% pa
c. Inception: 2019
d. Physical
e. Accummulating
f. Currency unhedged
g. Ireland domicile

I have the following questions:
1. After this lumpsum investment, I can try and invest 200-300 euros monthly in a savings plan on the same ETFs. Would you recommend that? Or is it better to save up some lumpsum and invest after 10 months or so?
2. On Scalable capital, it is cheaper to invest on Gettex. Would it be fine that I invest in Gettex during the opening hours of Xetra? do you know of any disadvantages for this?


I plan to buy them on Scalable capital Free broker and I found these ETFs with the correct ISIN.

About Bonds:
I plan to invest later.

About Single factor ETFs:
Thank you for the material. I shall learn more about it and understand if it suits my strategy before investing

About REITS:
I'm reading about these. I understand that as a cool passive monthly income, REITS provides good dividends, so I was wondering if it would be a good idea to save up some 2000 euros and invest them in distributing REITS ETF, just for the dividends
I'm still yet to read about investing in REITS during the Bull vs Bear market, which I plan to do soon.

About Real estate in Germany:
I, as a single person do not have a built up capital for downpayent, and the interest rates are too high now. So I"ll think about it a bit later.

Thank you once again for your answer, it helps me a lot!! :sharebeer
Last edited by AS_25f on Wed Apr 05, 2023 4:34 am, edited 2 times in total.
Topic Author
AS_25f
Posts: 7
Joined: Fri Sep 02, 2022 7:14 am

Re: [Germany] My asset allocation - suggestions needed

Post by AS_25f »

Siaigi wrote: Fri Mar 24, 2023 11:08 am It is difficult to add something as tre3sori has been so detailed.

I'd recommend you to notice your competitive advantage is your age. So please begin as soon as possible to invest in stocks and the compound interest will work for you independently.

Then, the suggested two-fund portfolio is the easiest solution for you.

With this choice you will be fully focused on your work activity and may be your savings will grow more. Further at the beginning you should not have any rebalance need because you can rebalance investing in the first or the second fund directly and easily.
Thank you for your answer!

Yes, I do acknowledge that my age gives me an advantage :) I am planning to go for the 2-fund portfolio, as suggested. I plan to invest 10000 euros from my savings now. I hope to save more in the following months and then invest more :sharebeer
Valuethinker
Posts: 49023
Joined: Fri May 11, 2007 11:07 am

Re: [Germany] My asset allocation - suggestions needed

Post by Valuethinker »

AS_25f wrote: Mon Mar 20, 2023 1:56 pm
b. Option 2:
S&P 500 65% allocation (iShares Core S&P 500 UCITS ETF TER:0.07%) + Stoxx 600 Europe 15% allocation (Invesco STOXX Europe 600 Acc TER:0.19%)
Ignores Asia. There is no reason to do that. You don't want to own Toyota, Samsung, Hyundai?

Ideas for future asset allocation:
1. Start with aggressive investment (100% stocks + Emergency funds)
At 27 this is fine. You will discover your risk tolerance in the next bear market. Most of us found we wished we'd had more bonds (but not in 2022!).
2. Slowly add gold ETFs (say upto 7% of total portfolio)
I don't believe in gold, particularly. I view the inherent real return as 0 to negative.
3. Add bonds/bond ETFs when I turn 35-40 years old to stabilize my portfolio
Fine.
4. Add REITS as well, upto 7-8% of total portfolio (not sure if this is worth it)
It won't make a big difference to your final outcome. Since there's no need for income from the portfolio right now, it would only be to get diversification benefit v ordinary equities. There's so much structural change going on in Real Estate right now (eg the role of offices post Covid) that I am not so sure one wants to have that diversification?
5. I'm tempted to try cryptocurrency as well, probably 5% of total portfolio
[/quote]
Just don't. It's throwing money away on a scam.
6. Eventually look into prospects of investing in Real-estate, maybe buying an apartment for living/renting
In the Anglosphere, it has generally paid to do that. However some cities have done much better than others: Toronto v Montreal. San Francisco v Buffalo. London v almost anywhere else in the UK except Oxford and Cambridge.

Germans rent for much longer periods and often never own. You have to work out your economics for doing that -- to see which is better. Housing prices in "hot" German cities like Munich have done very well.
8. Is it recommended to have Emerging Market Bonds instead of stock ETFs? Why/Why not?

I'm looking forward to hear suggestions and remarks from more experienced Bogleheads here! :sharebeer
Thank you very much in advance :D
Since you are not planning to hold bonds, and in the long run equities should outperform bonds, there seems to be limited reason to do this. The main reason is potentially greater diversification -- lots more EMs issue bonds than have well developed stock markets.
User avatar
tre3sori
Posts: 460
Joined: Wed Jul 24, 2019 3:13 am

Re: [Germany] My asset allocation - suggestions needed

Post by tre3sori »

AS_25f wrote: Wed Apr 05, 2023 4:29 am
I have the following questions:
1. After this lumpsum investment, I can try and invest 200-300 euros monthly in a savings plan on the same ETFs. Would you recommend that? Or is it better to save up some lumpsum and invest after 10 months or so?
2. On Scalable capital, it is cheaper to invest on Gettex. Would it be fine that I invest in Gettex during the opening hours of Xetra? do you know of any disadvantages for this?

About REITS:
I'm reading about these. I understand that as a cool passive monthly income, REITS provides good dividends, so I was wondering if it would be a good idea to save up some 2000 euros and invest them in distributing REITS ETF, just for the dividends
A savings plan has the advantage of not being discretional (investing is done automatically) and that reduces the room for behavioral issues. Whereas waiting for 10 months and investing a lumpsum is cheaper but prone to behavioral issues (market timing, etc). This is the tradeoff in my eyes.

A trading platform like Gettex (or TradeGate) has cheaper transaction cost. I wouldn't use it for larger sums though. Liquidity with larger sums is much better on Xetra. I don't know where to draw the line. With a lumpsum of 10.000€ I myself would choose Xetra.

REITs have minimum distribution requirements in many countries. They often HAVE TO distribute about 90% of their taxable income. This may seem good to income-seeking investors but on the other hand leads to a number of issues: REITs cannot finance internally as much and as a consequence have to use external funding. This leads to higher leverage, more interest rate sensitivity, larger financial risk. The high distributions may lead to tax inefficiencies in taxable accounts. The correlation to global stock markets is in the range of 70-80% if I remember correctly. So there is a small diversification benefit with REITs. My take on REITs: since I don't want to have the potential of growth be taxed away by income taxes on distributions, I stick to the whole market where companies can (tax) optimize their distributions to owners. And by doing this, these companies optimize for me as a shareholder.
It comes down to the fundamental question: Are you a maximizer or a satisficer? Do you splice and dice in the quest to find the optimal portfolio (and probably not find it) or are you satisfied by the return the market gives you?

Disclamer: The real estate in my signature: no REITs in there.
The information provided is intended to be entertaining. It is not to be construed as professional advice. Use it at your own risk.
daviddem
Posts: 274
Joined: Wed Jul 06, 2016 12:53 pm

Re: [Germany] My asset allocation - suggestions needed

Post by daviddem »

Tax-wise, if I am not mistaken, in Germany, you have to pay tax on the dividends even for ACC funds.

I know nothing about the possibility of having a tax-deferred account for your private pension savings in Germany, but a quick Google yielded this:

https://www.howtogermany.com/pages/priv ... plans.html
https://www.iamexpat.de/expat-info/germ ... advantages

So if you can, take advantage of these options to pay less tax.
User avatar
tre3sori
Posts: 460
Joined: Wed Jul 24, 2019 3:13 am

Re: [Germany] My asset allocation - suggestions needed

Post by tre3sori »

daviddem wrote: Wed Apr 05, 2023 8:22 am Tax-wise, if I am not mistaken, in Germany, you have to pay tax on the dividends even for ACC funds.

I know nothing about the possibility of having a tax-deferred account for your private pension savings in Germany, but a quick Google yielded this:

https://www.howtogermany.com/pages/priv ... plans.html
https://www.iamexpat.de/expat-info/germ ... advantages

So if you can, take advantage of these options to pay less tax.
Yes, you have to pay "advance fee" (Vorabpauschale) on accumulating funds. This will happen for the first time at the beginning of 2024. In the past, because of negative interest rates, there was no advance fee. So even if you have accumulating funds there should be some cash in your brokerage account at the beginning of 2024. If you don't have cash in the account, the bank cannot pay the advance fee for you and you have to do it manually with the help of a (rather expensive) tax advisor.

There are no tax-deferred accounts for private pension savings in Germany comparable to IRAs in the US. Riester- and Rürup-Rente are pension plans, not accounts that you own. They are rather unattractive because of high cost, low risk - low return, excessive regulation, hard (if at all possible) to pass on to heirs. At bigger companies there are company pension schemes for employees. Definitely to be considered! Sales proceeds from real estate are tax exempt if you hold the real estate for more than 10 years. Sales proceeds from physical gold and some gold ETFs that hold physical gold are tax exempt if you hold them for more than 1 year.
The information provided is intended to be entertaining. It is not to be construed as professional advice. Use it at your own risk.
Topic Author
AS_25f
Posts: 7
Joined: Fri Sep 02, 2022 7:14 am

Re: [Germany] My asset allocation - suggestions needed

Post by AS_25f »

Valuethinker wrote: Wed Apr 05, 2023 6:36 am
AS_25f wrote: Mon Mar 20, 2023 1:56 pm
b. Option 2:
S&P 500 65% allocation (iShares Core S&P 500 UCITS ETF TER:0.07%) + Stoxx 600 Europe 15% allocation (Invesco STOXX Europe 600 Acc TER:0.19%)
Ignores Asia. There is no reason to do that. You don't want to own Toyota, Samsung, Hyundai?

Ideas for future asset allocation:
1. Start with aggressive investment (100% stocks + Emergency funds)
At 27 this is fine. You will discover your risk tolerance in the next bear market. Most of us found we wished we'd had more bonds (but not in 2022!).
2. Slowly add gold ETFs (say upto 7% of total portfolio)
I don't believe in gold, particularly. I view the inherent real return as 0 to negative.
4. Add REITS as well, upto 7-8% of total portfolio (not sure if this is worth it)
It won't make a big difference to your final outcome. Since there's no need for income from the portfolio right now, it would only be to get diversification benefit v ordinary equities. There's so much structural change going on in Real Estate right now (eg the role of offices post Covid) that I am not so sure one wants to have that diversification?
5. I'm tempted to try cryptocurrency as well, probably 5% of total portfolio
Just don't. It's throwing money away on a scam.
6. Eventually look into prospects of investing in Real-estate, maybe buying an apartment for living/renting
In the Anglosphere, it has generally paid to do that. However some cities have done much better than others: Toronto v Montreal. San Francisco v Buffalo. London v almost anywhere else in the UK except Oxford and Cambridge.

Germans rent for much longer periods and often never own. You have to work out your economics for doing that -- to see which is better. Housing prices in "hot" German cities like Munich have done very well.

Thank you for your suggestions!
1. You're right. I have decided to go with FTSE developed world + FTSE EM
2. I'm planning to start investing in bonds probably after 10 years or so, and I'll slowly increase the proportion with age. As of now, I don't understand why I need bonds, but as you say, I think a bear market experience would make me realize the importance of bonds.
3. My Asian parents recommend gold. The value of (physical) gold increased significantly during their time and was also quite liquid. I don't know if it's the same now, or if I really need it in my portfolio. I'll try to read more about it :)
I am not in a position to buy real estate property now, but I would like to do it at some point. Until then, I'll just keep investing my savings in ETFs. Hopefully, I can start building a real estate fund soon and buy a property at some point.
Topic Author
AS_25f
Posts: 7
Joined: Fri Sep 02, 2022 7:14 am

Re: [Germany] My asset allocation - suggestions needed

Post by AS_25f »

tre3sori wrote: Wed Apr 05, 2023 6:44 am
A savings plan has the advantage of not being discretional (investing is done automatically) and that reduces the room for behavioral issues. Whereas waiting for 10 months and investing a lumpsum is cheaper but prone to behavioral issues (market timing, etc). This is the tradeoff in my eyes.

A trading platform like Gettex (or TradeGate) has cheaper transaction cost. I wouldn't use it for larger sums though. Liquidity with larger sums is much better on Xetra. I don't know where to draw the line. With a lumpsum of 10.000€ I myself would choose Xetra.

REITs have minimum distribution requirements in many countries. They often HAVE TO distribute about 90% of their taxable income. This may seem good to income-seeking investors but on the other hand leads to a number of issues: REITs cannot finance internally as much and as a consequence have to use external funding. This leads to higher leverage, more interest rate sensitivity, larger financial risk. The high distributions may lead to tax inefficiencies in taxable accounts. The correlation to global stock markets is in the range of 70-80% if I remember correctly. So there is a small diversification benefit with REITs. My take on REITs: since I don't want to have the potential of growth be taxed away by income taxes on distributions, I stick to the whole market where companies can (tax) optimize their distributions to owners. And by doing this, these companies optimize for me as a shareholder.
It comes down to the fundamental question: Are you a maximizer or a satisficer? Do you splice and dice in the quest to find the optimal portfolio (and probably not find it) or are you satisfied by the return the market gives you?

Disclamer: The real estate in my signature: no REITs in there.
Thank you for your answer!

As of now, I invested the Emerging Markets part as lumpsum (10% of planned total). For the Developed world part, I'll think about the best possible way.

About REITS: wow, nice perspective! I thought it would be a nice way to diversify my portfolio further (like gold), but I was not aware of the tax-related differences. I guess i have to read more about it to make a decision. To start with, I'll just focus on Developed World + Emerging Markets ETF :)
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