Because of European Union, it's very easy and tax efficient to buy Vanguard ETFs actually.
I am in Italy and I buy the Europe Market ETF and the emerging market ETF on the Dutch stock exchange.
Europe: https://www.vanguard.nl/portal/site/institutional/nl/en/detail/etf/overview?portId=9520&assetCode=EQUITY#%23overview
Emerging: https://www.vanguard.nl/portal/site/institutional/nl/en/detail/etf/overview?portId=9507&assetCode=EQUITY#%23overview
It's possible that the situation with Vanguard in Europe improved since the last time I checked. However: I would not give the EU too much credit in making anything tax efficient. Note that both of these funds are "tax-ugly" in Germany (the EM one more so than the EU one): They are domiciled abroad (in Ireland) and they have dividend income that they do not fully distribute -- they retain it partially. If you hold these in Germany, you need to:
1.) pay taxes on the retained part via your tax return every year (OK, that's not so bad)
2.) keep proof that you did this. Forever. Because, once you sell, you will be taxed on the retained earnings as well as on capital gains. You can only avoid that if you can prove that you already paid those taxes in step 1.
This might change next year . It might become worse or better. I haven't followed the most recent developments.
For this reason all the funds I hold are either domiciled in Germany or are Swappers (so formally they have no dividend income). But I will have to check again, especially Vanguard. My understanding of all this complicated tax stuff remains incomplete, unfortunately...
The German property is financed with a mortgage at 4.25% as was the going rate at the time of purchase and does have the option to further reduce the total debt by a one off cash payment of max. 5% pa. So far I have been doing this as you can see that I was otherwise not doing almost any investment and considering the spread between a pretty much 0% interest rate I get for my savings at the bank vs. the mortgage rate it made sense for me to do so.
The purchase price vs current market value has an increase of about 40% conservatively estimated over the last 8 years due to a very good location
[...]
The monthly mortgage is 1100€ and the rental income is 900€.
OK, looks like this property has worked out fairly we for you so far.
Considering that you said you have 80k€ left to pay on the mortgage and it is now 65% paid off, the original mortgage must have been 230k€, so if we conservatively assume that you financed 100% of the property, the current value would be 230k€+40% = 336k€. Assuming my math (and my assumptions) is right, this would give you an income of about 13k€/year or 1100€/month if you sold the property and invested the money in index funds, too. In reality it will be a bit worse because you might have to pay tax on the appreciation. However, it might be worthwhile to look into the possibility of selling the property.
Not having the option of a Vanguard instrument available to us in Germany is really a shame for novice investors like myself. The costs are very moderate and it seems like a maintenance low investment too. I am looking into the possiblity of opening an account with a US broker but it seems to come with tax implications that surpass my knowledge in that area - though I will try and further investigate.
Considering Seppia's post, maybe Vanguard is a good alternative after all. I will also have to check again. Personally, I will do anything I can in order to stay away from US tax authorities.
In case of the government bonds a silly question: Since they generate below 0% rate for the "10 jaehrige Bundesanleihe" what is the purpose of having them a part of the AA? Clearly a novice question - sorry!
The question is not silly at all and the whole thing about bonds or no bonds is complicated enough that if fills many threads on Investor Alley. First, my bonds have longer terms (~30 years) and come with a huge yield of about 0.5-0.6% ;-)
The important non-intuitive point is this: In the end, we want a high Safe Withdrawal Rate (SWR). Government bonds certainly decrease the average return of my portfolio. But since they also decrease the volatility, the can actually increase the SWR. Nevertheless, there is also a good case for 100% stocks. But you need even more nerves of steel (see my first post).
The market distribution you mention for the portfolio looks good to me. I might consider a 30% Europe allocation coupled with a 45% North America portion since I have more faith in the North American markets due to the Eurozone being such a fragile political construct. Elections in 2017 in France and other political events like the Brexit this year make the outlook seem more negative than positive to me.
In my opinion, this is tea leaves reading ;)
Nevertheless, you will probably be fine with either AA.
What are the fees for the funds you listed? Will google them after writing this.
If my notes are correct, 0.2%, 0.3% and 0.25%. justETF probably has more up-to-date values.
Btw is there an online broker you recommend? (flatex, etc.?) Currently I only have an online brokerage account with my German bank with quite high fees as it is tricky to set a new one up while being away from Germany. The joys of living abroad :0
I currently use Consorsbank. Comdirect and ING-DiBa should be similarly priced. I recall flatex more geared towards traders (with serious discounts if you do lots of transactions) but maybe that has changed: I just checked their website and they seem a bit cheaper that Consorsbank. But I haven't checked the terms carefully.
I think I will be able to sit it out. With individual shares I might be more tempted to panic but with total market funds I am more confident of them recovering over time. I do admit however that starting to put the money in now is a difficult proposition seeing that all the indexes trade near all time highs. I have read the linked post of "Bob the worst market timer of all times" but of course it is still a shame I am that late [...]
You might be late, but by waiting, you will be later ;)
Nevertheless, don't rush it. Know what you are doing. And it is absolutely not a shame to start slowly. It is not be perfect from a purely mathematical point of view but psychology is important. My suggestion would be this (step by step):
- Figure out what your Asset Allocation will be. This is important. The plan is to stick with it forever! No tinkering based on feelings about this or that market.
- Then figure out which funds to use and how and where to buy them.
- The start buying slowly. Each month invest whatever you save and a part of your cash stash. While it is not ideal from a total return standpoint, it is better than not doing anything because you think a crash might be coming.
- Eventually, a correction or a crash will come. When? I have no clue. Neither do you. Neither does anyone else, whatever they say.
- Once the crash comes (and what comes now is the key) you: Keep doing
exactly what you were doing. Each month invest whatever you save and a part of your cash stash (until the latter is gone).
- Keep doing this.
- Once the next crash comes you will have nerves of steel because you have been through this before and it worked out OK.
- Keep doing it more.
