Funds/ETFs for EU Citizens - Which to choose?

[Sev]

Hello Community,

its finally time to start saving for retirement but choosing what to buy baffles me a little...

I had a look into my banks offerings and sadly they do not offer a selection of the ever popular Vanguard Funds.

There is one which which can be bought (without any order fee):

VANGUARD US OPPORTUNITIES - ISIN: IE00B03HCV24

Is that one an ok choice? What are other possible choices here in Europe?
Ideally I would like to keep expenses on fees and hassle to buy on a minimum.

EDIT:

Preferred would be funds or etfs paying a "dividend" to slowly build some additional income without having to sell any shares. Is that a sensible idea?

Thank you for your help! :)

[Grog]

Dividends are useful as income stream if you have to pay a transaction fee to buy/sell. This is the case in many countries in EU. Some country even tax every transaction, but not dividend! (example: Switzerland, 0.15% tax on every transaction, no tax in dividend).
If you can buy or sell without taxes or transaction fee, then dividend are irrelevant: you could create your own dividend by selling shares. For european equity, that have a safe withdrawal rate of maybe 3-3.5%, I would suggest to sell 3% max as your own dividend

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[Mr FrugalNL]

I completely agree with Grog's assessment of dividends. In two words: it depends. As regards safe withdrawal rate: I'll reserve judgment.

We'd be able to give better advice if we knew what country you're in and any relevant tax rules.

If you can open an investment account with a good execution-only broker, you should be able to access many ETFs listed on all sorts of exchanges, including New York, Amsterdam, London, Paris, etc. You should be able to buy Vanguard FTSE All World UCITS ETF, which is an index fund that invest in companies across the world, with an expense ratio of 0.25%. It's an excellent baseline to compare other stock funds to. You should also be able to buy Vanguard EUR Eurozone Government Bond UCITS ETF, which is an index fund that invests in euro-denominated bonds issued by EU countries. Its expense ratio is 0.12%.

An investment portfolio can be as simple as just those two ETFs. There may be good reasons not to buy either of them, though. For example if your home currency isn't the euro or if your country taxes the bejeezus out of Irish funds (these Vanguard ETFs are both domiciled in Ireland).

Vanguard's US Opportunities fund is probably not what you're looking for. It has an expense ratio of 0.85-0.95%, depending on share class. It's not an index fund, and its objective is to invest in US stocks.

[Seppia]

Let me recommend VEUR
it's vanguard Europe stock index fund, has an expense ratio of 0.12%, and you can buy it in euro (Amsterdam), CHF (Zurich) and GBP (London).

Today, European stocks are valued lower compared to us stocks, and the dollar is very much on the high side versus the euro, so I would avoid USA equities if you're in Europe for the moment.

[daverobev]

Get a brokerage account, buy ETFs. Vanguard ones are good, but so are HSBC, Deutsche Bank, BlackRock, etc.

VEUR, VUKE/VMID, there are plenty.

Try and find a brokerage that doesn't charge you a 'maintenance fee'. Interactive Brokers are really good, IF you have > $100k USD invested. Otherwise there is an account fee I believe.

And you should probably stick to trading in your local currency. There is no point or need to convert to USD, to then buy US-domiciled stuff - it just makes life more complex (even to save 0.1 or 0.2% MER - just don't do it).

[Dago]

Some country even tax every transaction, but not dividend! (example: Switzerland, 0.15% tax on every transaction, no tax in dividend).

I have a doubt about what you say concerning Switzerland. Dividends are considered as revenue and are taxed as such. Moreover, 1/3 is immediately taken as "impôts anticipés".

[Grog]

Some country even tax every transaction, but not dividend! (example: Switzerland, 0.15% tax on every transaction, no tax in dividend).

I have a doubt about what you say concerning Switzerland. Dividends are considered as revenue and are taxed as such. Moreover, 1/3 is immediately taken as "impôts anticipés".

well you have to consider it in the light of his question: he wanted to build an income stream. Depending on how he is taxed and his transaction costs, he must decide what is best. Every european country is different.

In regards to your observation: I didn't mention the income tax on dividend because (and thi is the case only for switzerland) you pay the exact same amount on dividend of ETF in both case that is a distributing or accumulating funds. So even if you create your own "dividend" by selling shares of an accumulating funds (that doesn't distribute) you still have to pay income taxes on the "internal"dividend. You will find the exact amount here:
https://www.ictax.admin.ch/extern/de.html
that's why I didn't use it as a criterion, since it doesn't matter what fund you own, you will always pay income tax on dividends, even if it is reinvested automatically.
What i was saying is that on dividend you don't pay the 0.15% swiss federal duty, while if you sell shares you must pay it.

And all funds not domiciled in switzerland (for instance the vanguard funds in Ireland) do not have the  "impôts anticipés".
Only swiss funds and stocks (also ETF with the ISIN starting with CH..........) are subjected to the anticipated withdrawal.

But this is only for switzerland.

In respond to the OP: looks at the taxation on your country, look at different stockbroker, choose a cheap one and starts buying etf. Depending on your IPS (investment Policy statement) decide the allocation and just buy ETF. It is actually quite easy.

For the income streams, the taxation and the transaction costs are decisive.

[Sev]

Thank you for the answers so far. I appreciate the input.

Some clarifications:
- location Germany
- capital gains from selling stocks are taxed at 25% currently
- dividends are taxed at 25% too (though the source tax may be deducted, so if I pay 15% source tax in the US only an additional 10% will be taxed here, given proper documentation)
- currently Funds/ETFs which do not report earnings/profit to the German tax agency are penalized, which means holders of shares pay extra tax on these (this limits the choices extremely, as example all Vanguard funds except the one mentioned in the OP are in this category)
- Buy and Sell fees may change at a whim here too, so a share selling strategy seems not too good. (Flat fee + 4% of the sales value as fee seems usual)

[Chargem]

I am from the UK, but here there are 3 or 4 competitors to most of Vanguard's products. I'll list the UK version below of world equity index trackers and you should be able to find a German/Euro version of one of these?

Fidelity Index World Fund I (GB00B7LWFW05) OCF 0.15%
HSBC MSCI World ETF (HMWO) OCF 0.15%
db X-trackers MSCI World ETF (XDEX) OCF 0.19%
iShares Core MSCI World ETF (SWDA) OCF 0.2%
HSBC FTSE All-World Index Fund C (GB00BMJJJG09) OCF 0.2%

If you're looking for something specific (e.g. small caps or emerging markets) I could also find the UK equivalent of the vanguard trackers for these, just let me know what you are looking for.

[daverobev]

Thank you for the answers so far. I appreciate the input.

Some clarifications:
- location Germany
- capital gains from selling stocks are taxed at 25% currently
- dividends are taxed at 25% too (though the source tax may be deducted, so if I pay 15% source tax in the US only an additional 10% will be taxed here, given proper documentation)
- currently Funds/ETFs which do not report earnings/profit to the German tax agency are penalized, which means holders of shares pay extra tax on these (this limits the choices extremely, as example all Vanguard funds except the one mentioned in the OP are in this category)
- Buy and Sell fees may change at a whim here too, so a share selling strategy seems not too good. (Flat fee + 4% of the sales value as fee seems usual)

Well, why not just go DB? https://etf.deutscheam.com/GLOBAL/ENG/Entry

Stuff like https://etf.deutscheam.com/GBR/ENG/ETF/LU1242369327/-/MSCI-Europe-Index-UCITS-ETF-%28DR%29

TER of 0.3% isn't bad.

[P0IS0N]

Like others pointed out - it depends.
And like others mentioned, if you want your fees to be kept at a minimum and hassle-free, go with Interactive Brokers.
One thing to keep in mind is that brokerage firms may charge differently depending on the market you want to trade on.
I was interested in iShares in the beginning, but Interactive Brokers charge 1$/transaction for NASDAQ or NYSE and 5$/transaction for London traded stocks (like iShares).
With the difference in TER, I realized that even if I were to be taxed on the dividends, I'd still be better off by going with Vanguard (the U.S. traded one).
If you're taxed the same by the government,  whether you trade on the Berlin stock market or New York, then it's really no reason not to go with Interactive Brokers and Vanguard stocks.

[Grog]

Germany has a lot of ETF sparpläne, that I very much envy:
https://www.justetf.com/en/etf-sparplan/sparplan-vergleich.html

you can easily setup something with DB or CommerzBank (they have very good etf)
In general my advice is to look at
https://www.justetf.com/de/
and you will find the optima l ETF sparplan with your desired ETF.
Interactive Broker for less then 100k it makes you pay 10$ a month if I^m not mistaken, so an ETF sparplan is definitely better.