Author Topic: Investing newbie questions  (Read 909 times)

JohnnyZ

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Investing newbie questions
« on: January 28, 2019, 06:23:13 AM »
 Hi,

I've come into some money (15k) that allows me to invest for the first time. I've read many MMM posts as well as "The simple path to wealth" and "The intelligent asset allocator", but I'm unsure about what to do.
 After reading about dollar cost averaging, I've invested ~6300 of that money in a couple of ETFs in the beginning of the month, with the plan to invest ~1500 each subsequent month until July (mostly in S&P500).
However, 2 things have happened since then: I've read some texts that advocate against dollar cost averaging, and my stocks have increased over 6% in value (7% for S&P).
So between that and the S&P P/E and P/B being quite high, I am wondering what to do: stick to my original plan? change the frequency of the 1500 investments to something like every 3 months? invest the rest of the lump sum right now?
Also, I don't especially want to have 100% invested in stocks and would like to diversify, but as I understand it does not seem to be a good time to invest in bonds. Is that correct? If not, are US bonds available to Europeans? I should also note that I have a savings accounts that yields 2.11% after taxes (the catch being I can't withdraw from that account without closing it), should I use that to diversify until bonds get more interesting?

What do you think?
Thanks!

MustacheAndaHalf

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Re: Investing newbie questions
« Reply #1 on: January 28, 2019, 09:01:22 AM »
Note those books tend to be from a U.S. investors point of view, and that might have led you to 100% U.S. stocks (the S&P 500).  An American investor first invests in the U.S. market, and then diversifies into international.  But to flip that around to your perspective, you should view it as investing in Europe, and diversifying away from Europe.

So I'd recommend you find an international ex-US fund or ETF to invest in.  That will diversify your stock portfolio.

Bonds protect your nest egg, while stocks grow your nest egg.  Since you're just starting out investing, you have a long way to go until retirement.  And that translates to only 0% to 10% bonds.  This year or month may seem dramatic to you, but put that in the context of investing for decades.

robartsd

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Re: Investing newbie questions
« Reply #2 on: January 28, 2019, 12:47:50 PM »
Dollar cost averaging (DCA) is OK. It is especially a good argument to encourage people to invest regularly. I DCA contributions to my accounts all the time - as I earn, I set aside money and invest it. Is DCA a windfall optimal? No! Had you invested all of your windfall, all of it would have gone up the 6% instead of just the 6300 you invested. Since we invest because we expect the market to go up, it is not optimal to delay the investment. I wouldn't be particularly concerned about the recent rapid increase it is just a (partial) recovery of the drop we saw before Christmas. Although DCA a windfall is not optimal, some people still do it because they can't stand to invest it all at once (and risk seeing a big drop right after they invest). Once in a while somebody investing a windfall with DCA will see the markets drop and be better off for having held some money back; but usually they just forego some of the gains the would have captured.

marty998

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Re: Investing newbie questions
« Reply #3 on: January 28, 2019, 01:06:43 PM »
I'm impressed you get 2.11% after tax on your Euro accounts.

I'm (a corporate accountant) looking at trying to get a better rate than negative 0.40% on the Euro accounts that my employer has....

JohnnyZ

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Re: Investing newbie questions
« Reply #4 on: January 28, 2019, 01:52:09 PM »
Thanks for your replies!

Note those books tend to be from a U.S. investors point of view, and that might have led you to 100% U.S. stocks (the S&P 500).  An American investor first invests in the U.S. market, and then diversifies into international.  But to flip that around to your perspective, you should view it as investing in Europe, and diversifying away from Europe.

So I'd recommend you find an international ex-US fund or ETF to invest in.  That will diversify your stock portfolio.

Bonds protect your nest egg, while stocks grow your nest egg.  Since you're just starting out investing, you have a long way to go until retirement.  And that translates to only 0% to 10% bonds.  This year or month may seem dramatic to you, but put that in the context of investing for decades.

 The European market seemed a bit too volatile to me... I did buy some Euro stoxx 50 to diversify, but basically everything I've read mentions a stock/bond mix and I was wondering if it was a good advice to follow for a new investor, with the current rates. I guess I can leave out the bonds for now.


Dollar cost averaging (DCA) is OK. It is especially a good argument to encourage people to invest regularly. I DCA contributions to my accounts all the time - as I earn, I set aside money and invest it. Is DCA a windfall optimal? No! Had you invested all of your windfall, all of it would have gone up the 6% instead of just the 6300 you invested. Since we invest because we expect the market to go up, it is not optimal to delay the investment. I wouldn't be particularly concerned about the recent rapid increase it is just a (partial) recovery of the drop we saw before Christmas. Although DCA a windfall is not optimal, some people still do it because they can't stand to invest it all at once (and risk seeing a big drop right after they invest). Once in a while somebody investing a windfall with DCA will see the markets drop and be better off for having held some money back; but usually they just forego some of the gains the would have captured.

 I think I'll invest the rest as a lump sum.
 I actually borrowed those 15k to get a feel for investing on the market, as I'll get 80k in a couple of years when I leave my job. This is a good learning experience.


I'm impressed you get 2.11% after tax on your Euro accounts.

I'm (a corporate accountant) looking at trying to get a better rate than negative 0.40% on the Euro accounts that my employer has....

It's a govt-regulated account that had a decent rate and low taxation if you leave the money on it for a minimal duration, I get this rate because I've been holding it for a while but they've really been killing those benefits (decreasing the rate and increasing taxation) so if you opened one now you'd only get about 0.7% after taxes.

MustacheAndaHalf

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Re: Investing newbie questions
« Reply #5 on: January 28, 2019, 08:49:35 PM »
When you buy Europe, you're missing South America, Asia, the Middle East, and Africa.  Do you have access to a "total world" fund (like "VT")?  Or a total international (non-US) ETF (like "VXUS")?  Or maybe you have access to ETFs that track the developed ("VEA") and emerging markets ("VWO")?

patrickza

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Re: Investing newbie questions
« Reply #6 on: January 29, 2019, 08:09:22 AM »
Bogleheads generally recommend the Vanguard FTSE all world ETF. It's available in many currencies:
Vanguard FTSE All-World ETF LSE:VWRD USD
Vanguard FTSE All-World ETF CHF XSWX:VWRL CHF
Vanguard FTSE All-World ETF CHF CHIX:VWRLz CHF
Vanguard FTSE All-World ETF EUR XAMS:VWRL EUR
Vanguard FTSE All-World ETF EUR XTER:VGWL EUR
Vanguard FTSE All-World ETF EUR FRA:VGWL EUR
Vanguard FTSE All-World ETF GBP LSE:VWRL GBP

The USD version makes up the majority of my holdings.

JohnnyZ

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Re: Investing newbie questions
« Reply #7 on: January 29, 2019, 08:45:35 AM »
Attached is a list of the Vanguard ETFs I can get. I don't seem to have access to a total world fund but I do have access to ETFs with something other than eurozone. Which ones would you recommend?

- I have bought some of this, which includes Asia but is still mostly Europe:
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001CLYU

- I don't have VXUS but there's VWRL:
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXJO
still mostly US, but also some Asia and UK.

- How about VHYL or VMVL?
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P00017ATK
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXJU

JohnnyZ

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Re: Investing newbie questions
« Reply #8 on: January 29, 2019, 09:14:44 AM »
 I was writing my previous reply when you posted this,  I hadn't seen your post.

Bogleheads generally recommend the Vanguard FTSE all world ETF. It's available in many currencies:
Vanguard FTSE All-World ETF LSE:VWRD USD
Vanguard FTSE All-World ETF CHF XSWX:VWRL CHF

 I do have access to this fund, thanks for the recommendation!

JohnnyZ

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Re: Investing newbie questions
« Reply #9 on: February 07, 2019, 01:57:29 AM »
I have another question.
 I have access to these S&P ETFs without broker fees:
Vanguard (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXKB&InvestmentType=FE) and Amundi (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001CLZ9&InvestmentType=FE).

 From what I can tell the main differences are:
- Vanguard distributes dividends, Amundi doesn't
- Vanguard has slightly lower fees (0.07% vs. 0.15%)
- Amundi is in (my own currency), Vanguard is in $
Comparing their returns (https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=IE00B3XXRP09 / https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=LU1681048804) it seems they're basically the same (depending on which period of time you look at).

Which one should I choose? Should I stick to the fund in or go with Vanguard? Is it better to have the option not to reinvest dividends and not have to sell if you need some income? Am I missing something?
« Last Edit: February 07, 2019, 02:15:54 AM by JohnnyZ »

flipboard

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Re: Investing newbie questions
« Reply #10 on: February 07, 2019, 10:40:08 AM »
I have another question.
 I have access to these S&P ETFs without broker fees:
Vanguard (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXKB&InvestmentType=FE) and Amundi (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001CLZ9&InvestmentType=FE).

 From what I can tell the main differences are:
- Vanguard distributes dividends, Amundi doesn't
- Vanguard has slightly lower fees (0.07% vs. 0.15%)
- Amundi is in (my own currency), Vanguard is in $
Comparing their returns (https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=IE00B3XXRP09 / https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=LU1681048804) it seems they're basically the same (depending on which period of time you look at).

Which one should I choose? Should I stick to the fund in or go with Vanguard? Is it better to have the option not to reinvest dividends and not have to sell if you need some income? Am I missing something?
Mate, you need to diversify:
1. The S&P 500 isn't diversified enough even for the US.
2. Single-country bias is bad enough if you were to live in the US, but it's just plain stupid if you don't. If the US market stagnates or tanks, you're screwed. If the USD tanks, you're screwed. If the US decides to confiscate non-resident's property, you're screwed.

Back to your questions: currency really doesn't matter, it's the same underlying value. Euro's might be easier in terms of not having to convert currency, but in the long run the fund costs matter more.

Accumulating vs distributing depends on the taxation regime in your country of residence. Some countries don't tax dividends from accumulating funds, some do...

JohnnyZ

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Re: Investing newbie questions
« Reply #11 on: February 07, 2019, 02:45:23 PM »
I have another question.
 I have access to these S&P ETFs without broker fees:
Vanguard (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXKB&InvestmentType=FE) and Amundi (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001CLZ9&InvestmentType=FE).

 From what I can tell the main differences are:
- Vanguard distributes dividends, Amundi doesn't
- Vanguard has slightly lower fees (0.07% vs. 0.15%)
- Amundi is in (my own currency), Vanguard is in $
Comparing their returns (https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=IE00B3XXRP09 / https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=LU1681048804) it seems they're basically the same (depending on which period of time you look at).

Which one should I choose? Should I stick to the fund in or go with Vanguard? Is it better to have the option not to reinvest dividends and not have to sell if you need some income? Am I missing something?
Mate, you need to diversify:
1. The S&P 500 isn't diversified enough even for the US.
2. Single-country bias is bad enough if you were to live in the US, but it's just plain stupid if you don't. If the US market stagnates or tanks, you're screwed. If the USD tanks, you're screwed. If the US decides to confiscate non-resident's property, you're screwed.

Well those are not the only funds I'm considering, I'm considering allocating 30% each to S&P 500 (Amundi or Vanguard) and Vanguard FTSE all-world (VWRL) ETFs, and some to Euro stoxx and a broad All-world Amundi ETF. It may be too heavy on the USA and too light on emerging markets though, but I'm not sure how to diversify outside of those (as someone pointed out, my readings have mostly been US-centric) so recommendations are welcome.

flipboard

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Re: Investing newbie questions
« Reply #12 on: February 08, 2019, 11:26:09 AM »
I have another question.
 I have access to these S&P ETFs without broker fees:
Vanguard (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXKB&InvestmentType=FE) and Amundi (http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001CLZ9&InvestmentType=FE).

 From what I can tell the main differences are:
- Vanguard distributes dividends, Amundi doesn't
- Vanguard has slightly lower fees (0.07% vs. 0.15%)
- Amundi is in (my own currency), Vanguard is in $
Comparing their returns (https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=IE00B3XXRP09 / https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=LU1681048804) it seems they're basically the same (depending on which period of time you look at).

Which one should I choose? Should I stick to the fund in or go with Vanguard? Is it better to have the option not to reinvest dividends and not have to sell if you need some income? Am I missing something?
Mate, you need to diversify:
1. The S&P 500 isn't diversified enough even for the US.
2. Single-country bias is bad enough if you were to live in the US, but it's just plain stupid if you don't. If the US market stagnates or tanks, you're screwed. If the USD tanks, you're screwed. If the US decides to confiscate non-resident's property, you're screwed.

Well those are not the only funds I'm considering, I'm considering allocating 30% each to S&P 500 (Amundi or Vanguard) and Vanguard FTSE all-world (VWRL) ETFs, and some to Euro stoxx and a broad All-world Amundi ETF. It may be too heavy on the USA and too light on emerging markets though, but I'm not sure how to diversify outside of those (as someone pointed out, my readings have mostly been US-centric) so recommendations are welcome.
If you're buying VWRL you can skip the S&P 500: VWRL already contains close to 60% US stock.

Most people I know simply buy VT (not available to EU residents) or VWRL, thus buying the world. It's simple, and is well diversified - it includes both developed and emerging markets. Given the size of the Eurozone, a hint of home-bias isn't terrible (e.g. with Euro STOXX) - as long as you don't overdo it, but buying a second all-world fund is redundant, and buying more US is just dangerous.

Honestly, a single all-world fund really is good enough for most people in the world. Most things beyond that are just gambling.

MustacheAndaHalf

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Re: Investing newbie questions
« Reply #13 on: February 09, 2019, 05:08:08 AM »
From what I can tell the main differences are:
- Vanguard distributes dividends, Amundi doesn't
- Vanguard has slightly lower fees (0.07% vs. 0.15%)
- Amundi is in (my own currency), Vanguard is in $
Comparing their returns (https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=IE00B3XXRP09 / https://www.justetf.com/de-en/etf-profile.html?tab=chart&isin=LU1681048804) it seems they're basically the same (depending on which period of time you look at).
This is the only good reason to look carefully at returns from the recent past: to see how much two funds are alike.  If they both claim to be international, and they differ in performance, they might be doing something different.

You generally have the option to "reinvest dividends" or not in the U.S.  Are you sure Vanguard doesn't allow you to reinvest in your country?

You could spread the currency risk and make purchases at both companies (which seems like your existing plan).  Currencies tend to cancel out over the long term.  So if you have the same two funds in different currencies, you can buy in $ when the $ drops, and buy in when the drops.  Those expense ratios are fairly close together. 

Here's how a 0.08% expense ratio difference adds up over 20 years:
1.0008 ^ 20 = 1.6%.
Most likely, a lot of other events will wash away that difference (currency fluctuations, timing of your purchases, etc).

flipboard

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Re: Investing newbie questions
« Reply #14 on: February 09, 2019, 07:33:19 AM »
You generally have the option to "reinvest dividends" or not in the U.S.  Are you sure Vanguard doesn't allow you to reinvest in your country?

You could spread the currency risk and make purchases at both companies (which seems like your existing plan).  Currencies tend to cancel out over the long term.  So if you have the same two funds in different currencies, you can buy in $ when the $ drops, and buy in when the drops.  Those expense ratios are fairly close together. 
OP wouldn't be buying from Vanguard since they don't offer services outside the US,  but they can probably ask their brokerage to reinvest dividends. However: the accumulating fund would automatically reinvest dividends (and depending on country of residence: avoids income tax on dividends). OP hasn't actually clarified what their tax situation is though.

Your currency risk statement makes no sense: if the US$ drops relative to Euro, then the Euro-denominated value of US stocks also drops - so regardless of currency, both funds become cheaper by the same amount (unless one of the funds is hedged - but having one hedged and one unhedged fund makes even less sense).

JohnnyZ

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Re: Investing newbie questions
« Reply #15 on: February 11, 2019, 06:42:28 AM »
If you're buying VWRL you can skip the S&P 500: VWRL already contains close to 60% US stock.

Most people I know simply buy VT (not available to EU residents) or VWRL, thus buying the world. It's simple, and is well diversified - it includes both developed and emerging markets. Given the size of the Eurozone, a hint of home-bias isn't terrible (e.g. with Euro STOXX) - as long as you don't overdo it, but buying a second all-world fund is redundant, and buying more US is just dangerous.

Honestly, a single all-world fund really is good enough for most people in the world. Most things beyond that are just gambling.

 Yeah, my idea was to diversify but after checking the contents of the funds it turns out they have a lot of overlap and their returns are similar, so the Amundi all-world fund and S&P500 are not needed.
 I'll just go with Vanguard All-world VWRL, and maybe 5% of Euro stoxx 50.

Outside of these, how about a REIT ETF? Would you invest in this one?
https://www.justetf.com/de-en/etf-profile.html?groupField=none&cmode=compare&sortOrder=asc&sortField=name&from=search&isin=LU1832418856&tab=chart


You generally have the option to "reinvest dividends" or not in the U.S.  Are you sure Vanguard doesn't allow you to reinvest in your country?

I don't have access to Vanguard (well technically I think it should be possible; it seems quite complicated though and oh, you need to have 100k to invest), I have a taxable account with the broker Degiro.
 I haven't found anything to this end in the options, but the help section says "Application to reinvest dividends in stocks is possible, provided that the issuer offers this option". There are fees for this and I'd need to make the request by e-mail but it seems possible, depending on the issuer.