Author Topic: Advice for a newbie European investor  (Read 7760 times)

fabyab

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Advice for a newbie European investor
« on: January 17, 2014, 07:52:17 AM »
Dear Mustachians

I wonder if you can help. I am planning to invest in Vanguard FTSE Developed Europe UCITS ETF, and in Vanguard S&P 500 UCITS ETF. I can  trade these either in London or in Amsterdam, and I'm looking for advice on where. I am based in Belgium, so my currency is the EUR.

I imagine that London has the advantage of higher volumes, but that Amsterdam has the advantage of me being able to trade in my own currency.

I'm a new investor who has these last weeks avidly read  MMM and the forums and had some bad advice from a financial advisor which I'm ignoring, but which has spurred me on to learn more. I've opened a KeyTrade bank account, which has minimal fees, and so now I'm ready for action!

I'd be grateful for any advice you can give me.


Lex

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Re: Advice for a newbie European investor
« Reply #1 on: January 17, 2014, 12:00:55 PM »
I'm not sure whether the volume makes any difference. Personally, I can't get my head around the conversion from euro to pence (dollar - euro is no problem), so I prefer to buy my funds on the continent. Good luck!

fabyab

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Re: Advice for a newbie European investor
« Reply #2 on: January 19, 2014, 01:39:23 AM »
Thanks Lex - yes, I think I'll go with EUR

Panly

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Re: Advice for a newbie European investor
« Reply #3 on: January 19, 2014, 05:26:21 AM »
Better to look for european based equivalent etfs, that automatically reinvest the dividends. Amundi, local iShares, db xtrackers, etc.

Because belgian tax law guarantees a double dividend tax in this case, while at the same time does not tax capital gain at all for stocks or stock funds.

Unless you like di rupo so much you want to send him some extra pocket money...

If you insist on vanguards anyway,  there are cheaper brokers than keytrade,  like lynx or interactive brokers directly.

Lex

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Re: Advice for a newbie European investor
« Reply #4 on: January 19, 2014, 08:16:01 AM »
Mostly I work with Amundi and have been happy with them so far. Fab, your local library should have the Test Aankoop/Test Achat investment journals. They are a good source to start with. They tell you what stocks and funds to avoid and which may be interesting.


fabyab

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Re: Advice for a newbie European investor
« Reply #5 on: January 19, 2014, 11:22:33 AM »
Panly,

Thanks for this input.

I recently read the tax info  posted online online by the Belgian federal government, but I clearly misunderstood something: I thought Vanguard  (and in fact any) investments would not be liable to capital gains tax, only income tax on dividends or realised gains.

So... would you be able to explain what's meant by a double dividend tax, and in what instances one is liable to it? Also, when you say local iShares - does this mean iShares solely in Belgian companies, European iShares purchased through a local broker, or something completely different? Can I venture into US and European ETFs without incurring the double dividend tax?

I'm trying to understand as much as I can about the situation here in Belgium so I avoid making stupid mistakes, and your input is really helpful.

Thanks again for your help,
fabyab

fabyab

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Re: Advice for a newbie European investor
« Reply #6 on: January 19, 2014, 11:24:41 AM »
Lex,

Test achat/aankoop in local library: that's a top tip - thank you. I'll make my way to the local library. I'm already signed up, as a true, if inexperienced Mustachian.

Best
fabyab

daverobev

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Re: Advice for a newbie European investor
« Reply #7 on: January 19, 2014, 08:04:57 PM »
AFAIK Vanguard stuff (even on the LSE) will be 'American domiciled'; you want stuff that is Irish or Luxembourg domicile, as there is no withholding there.

DB x-trackers are very low fee, but are 'synthetic replication' which... well, it's ok as long as you trust the underlying 'counterparty agent', as far as I understand it (which is DB itself) - if you have 'physical/full replication' then the ETF actually holds the shares in question in the right proportions.

I have a couple of HSBC ETFs (three actually - FTSE 100, FTSE 250, and Euro Stoxx 50). They do other ETFs too, and are Irish domiciled, so no withholding tax by them (no idea about your government, sorry).

Jappe

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Re: Advice for a newbie European investor
« Reply #8 on: January 20, 2014, 03:31:38 AM »
Pretty new in investing in Belgium as well, but like people told before: Make sure that you take ETF's or funds that are located in Ireland or luxembourg. You'll recognize these by the ISIN code, as they start with IE or LU (or BE for belgian ones). Basicly you'll want a country with which Belgium has a "dubbelbelastingsverdrag" (double tax treaty). With Ireland and Luxembourg being the most versatile and known.
Else they'll withhold taxes in the country of origin, and then the belgian state sees the remaining income still as untaxed income. For example, let's say you get 100$ dividend from a US company. The bank withholds 25% tax (don't know the us rates but for the sake of example) so it sends you 75$.
Belgium now says: yeah you get 75$ from dividends so you still need to pay the 25% belgian tax so you'll get 56.25$ net in the end (and therefor paying 43.75% taxes instead of 25%). That's something you don't want.

Also, if you're going for trackers, don't worry about the volumes too much. Volumes only matter if you have an enormous amount of them and want to buy/sell. Or if it concerns a very small or rare stock.

You'll also want to make sure you know about the costs for buying stocks/trackers/funds. They can be quite high. Cheapest I found (that also provided a lot of different investment trackers, stocks and funds) were Binck and Keytrade, depending on the amount of money you want to invest. You don't want to buy 100 worth of indexes and then pay a fixed 10 already on investments cost since that brings your investments on a -10% start. You'll want to save up to 1000 then and start with a rather normal 1% for example.

Another tip: having a few trackers in euro and a few in dollars is not a bad idea either in the long run. Normally your broker will only pay you out in at the current exchange rate. Just the same as you want to invest in both EU and US (and Asia/south america and in the future probably Africa). Just to have a wide spread. Unless you really know stuff, don't go speculating on smaller markets/smaller currencies. Especially not as beginner.

And last piece of advice: be careful when choosing your tracker. If you do a search for S&P 500 you get 50 trackers but they are certainly not all the same! Some of them follow the S$P options, others the normal index, ...  Just take your time and do your homework to make sure you're not investing in something high risk.

Good luck :)

fabyab

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Re: Advice for a newbie European investor
« Reply #9 on: January 20, 2014, 08:54:32 AM »
Lex, daverobev, Panly,

Thanks a million for your truly helpful answers. You rock!

fabyab

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Re: Advice for a newbie European investor
« Reply #10 on: January 20, 2014, 09:01:57 AM »
Jappe, you rock too :-)

fabyab

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Re: Advice for a newbie European investor
« Reply #11 on: January 20, 2014, 02:03:14 PM »
AFAIK Vanguard stuff (even on the LSE) will be 'American domiciled'; you want stuff that is Irish or Luxembourg domicile, as there is no withholding there.

DB x-trackers are very low fee, but are 'synthetic replication' which... well, it's ok as long as you trust the underlying 'counterparty agent', as far as I understand it (which is DB itself) - if you have 'physical/full replication' then the ETF actually holds the shares in question in the right proportions.

I have a couple of HSBC ETFs (three actually - FTSE 100, FTSE 250, and Euro Stoxx 50). They do other ETFs too, and are Irish domiciled, so no withholding tax by them (no idea about your government, sorry).

Daverobev,

Here's what I found on one of the Vanguard investments: Vanguard S&P 500 ETF - ISIN IE00B3XXRP09. Am I reading this right that this means it's Irish domiciled and thus "Out of Scope" of the EU Savings Directive (thank you Wikipedia) - ie there should be no double taxation? (I'm not saying that I'll go for this fund, I'll look at other ones too, checking out their TERs; I'm just double checking that I'm understanding the ISIN codes and getting this double tax risk thing right).

Cheers,
fabyab

 

daverobev

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Re: Advice for a newbie European investor
« Reply #12 on: January 20, 2014, 06:22:51 PM »
AFAIK Vanguard stuff (even on the LSE) will be 'American domiciled'; you want stuff that is Irish or Luxembourg domicile, as there is no withholding there.

DB x-trackers are very low fee, but are 'synthetic replication' which... well, it's ok as long as you trust the underlying 'counterparty agent', as far as I understand it (which is DB itself) - if you have 'physical/full replication' then the ETF actually holds the shares in question in the right proportions.

I have a couple of HSBC ETFs (three actually - FTSE 100, FTSE 250, and Euro Stoxx 50). They do other ETFs too, and are Irish domiciled, so no withholding tax by them (no idea about your government, sorry).

Daverobev,

Here's what I found on one of the Vanguard investments: Vanguard S&P 500 ETF - ISIN IE00B3XXRP09. Am I reading this right that this means it's Irish domiciled and thus "Out of Scope" of the EU Savings Directive (thank you Wikipedia) - ie there should be no double taxation? (I'm not saying that I'll go for this fund, I'll look at other ones too, checking out their TERs; I'm just double checking that I'm understanding the ISIN codes and getting this double tax risk thing right).

Cheers,
fabyab

D'you know what? It looks like I'm lying:

https://www.vanguard.co.uk/uk/mvc/investments/etf

They are all Irish domicile. I'll have to ask my broker why any tax was withheld.

*Edit* Ok, from what I can tell they must've changed their domicile for 2013 (UK tax year runs April 5th). In the 2012/13 distributions (dividends) I had 20% tax withheld; for distributions after the start of this tax year, it looks like 0% withheld.

So - yay, Vanguard are the way to go!
« Last Edit: January 20, 2014, 06:33:03 PM by daverobev »

Jappe

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Re: Advice for a newbie European investor
« Reply #13 on: January 21, 2014, 02:35:40 AM »
Useful to know! Thanks for figuring that out for us daverobev!

Panly

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Re: Advice for a newbie European investor
« Reply #14 on: January 21, 2014, 04:56:37 AM »
Daverobev, that is very interesting.  Looks like it makes a lot of sense to make some adjustments in my portfolio.

Thanks a lot!

fabyab

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Re: Advice for a newbie European investor
« Reply #15 on: January 24, 2014, 09:21:13 AM »
So here's an additional question.

Given that there's no capital gains tax in Belgium, but that dividends are taxed as income (did I get this right?), then it would make sense to invest in tracker funds which churn any dividends from the underlying investments back into the fund rather than paying it out as dividends. Do you know of any low TER European domiciled tracker funds which do this, or do such funds not exist?


daverobev

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Re: Advice for a newbie European investor
« Reply #16 on: January 24, 2014, 10:51:25 AM »
So here's an additional question.

Given that there's no capital gains tax in Belgium, but that dividends are taxed as income (did I get this right?), then it would make sense to invest in tracker funds which churn any dividends from the underlying investments back into the fund rather than paying it out as dividends. Do you know of any low TER European domiciled tracker funds which do this, or do such funds not exist?

I think db do 'inc' and 'acc' versions of their ETFs; I go to http://www.etf.db.com/GBR/ENG/Home and UK/Retail, look at Equities, and sort by TER (yay!!); there is a Stoxx 50 E Capitalising and Stoxx 50 E Distributing, both with 0% TER. I have some of the distributing, but yeah if you can avoid any tax by doing Capitalising, go for it. BUT you may find that, even though the cash is reinvested, you still pay tax on it as it *counts* as a contribution? I'm not sure, sorry. It's XESC, listed on the LSE, the German, and the Swiss exchanges.

fabyab

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Re: Advice for a newbie European investor
« Reply #17 on: January 25, 2014, 07:24:45 AM »
Thanks daverobev  - I'll check them out.

Paulie

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Re: Advice for a newbie European investor
« Reply #18 on: January 29, 2014, 02:38:17 AM »
Maybe you already saw it, but this blog was posted on investing with vanguard for europeans. Interesting to check out.

http://jlcollinsnh.com/2014/01/27/stocks-part-xxi-investing-with-vanguard-for-europeans/

fabyab

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Re: Advice for a newbie European investor
« Reply #19 on: January 29, 2014, 03:27:55 PM »
Maybe you already saw it, but this blog was posted on investing with vanguard for europeans. Interesting to check out.

http://jlcollinsnh.com/2014/01/27/stocks-part-xxi-investing-with-vanguard-for-europeans/

Paulie - many thanks - I hadn't seen this yet. Useful!