Author Topic: Money markets for European investors?  (Read 1023 times)

JohnnyZ

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Money markets for European investors?
« on: April 01, 2019, 04:05:22 PM »
 Hi,

 I'm thinking about how to diversify outside of stocks, as an emergency fund/cushion for when the market goes down.

 I'm currently about 46% stocks/54% savings account, which is grossly overweight in savings (kicking myself for putting my money in there all those years). This savings account earns 2.11% after-tax, which is not bad for an emergency fund, but any withdrawal would close it, meaning I can't just take from this account to rebalance to say 90% stocks/10% savings - either I take everything, or I take nothing.
 I feel this is only dragging me down until I fire and it could at last be useful, so right now I'm in a bit of a bind:
- is it worth keeping this account and trading years of market returns for 2,11% and a protection again sequence of returns years from now?
- should I close the account, put most of the money in stocks and a few 1000s in something else - what? I've looked at bond ETFs, are there any good ones? People here have mentioned money markets, are any of those available to European investors? What kind of return do you get?
 Any advice?
« Last Edit: April 02, 2019, 07:30:40 AM by JohnnyZ »

MustacheAndaHalf

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Re: Money markets?
« Reply #1 on: April 01, 2019, 10:23:05 PM »
I think this savings account is encouraging you to keep too much in cash.  Does it hold more than 12 months of your expenses?  Is it a large emergency fund?  If it's reasonable, I'd suggest opening a savings account somewhere else that allows withdrawals.

Wait - is that account a scam of some kind?  CDs don't let you add money to them, and you can still reinvest.  The only time I've heard "if you withdraw, take all your money back" is when reading about Bernie Maddoff, who used that approach to threaten investors.  And he was running the largest pyramid scheme of all time, with fake account statements.   Probably not your situation - but that restriction is very odd.

Can you explain the "46% stocks"?  Did you buy mutual funds / UCITS or did you buy stocks of specific companies?

JohnnyZ

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Re: Money markets?
« Reply #2 on: April 02, 2019, 04:00:53 AM »
I think this savings account is encouraging you to keep too much in cash.  Does it hold more than 12 months of your expenses?  Is it a large emergency fund?  If it's reasonable, I'd suggest opening a savings account somewhere else that allows withdrawals.

 You're right, it's more than a year's expenses and waayyy more that I'd like to have in an emergency fund (while I work I'd be ok with a 1000-2000 emergency fund because if needed I can take out about the same amount from bank accounts for just a few of interests over a month, but when I fire I'd like to have maybe 3000-6000 available). This is because that's where I was putting my savings before I learned about index investing.
 I am now considering closing this account to put most of the money in ETFs and keep 1-2k as an emergency fund, but what I'm wondering is whether it's worth losing this guaranteed 2% account for later, and where to put this emergency fund. I could use a regular savings account (with withdrawals allowed) but that only earns 0.75%. That's why I'm looking for something less volatile than the market for this emergency fund, but with a better yield than .75%. I guess what I'm asking is, when people allocate their money between stocks and bonds, where exactly do they put the bond portion (I don't have access to VBTX), and also, for people who use money markets, what return do they yield?


Wait - is that account a scam of some kind?  CDs don't let you add money to them, and you can still reinvest.  The only time I've heard "if you withdraw, take all your money back" is when reading about Bernie Maddoff, who used that approach to threaten investors.  And he was running the largest pyramid scheme of all time, with fake account statements.   Probably not your situation - but that restriction is very odd.

 Ha ha no, it's not a scam (well I certainly hope not, as it's run by the government :). It's a kind of savings account that's meant to incite people to save over medium-term (usually for a home down payment): it's tax-advantaged and gives decent interests compared to regular saving accounts, but the trade-off is you have to put some money in there every month, you can't withdraw money without closing the account, and if you close it before a certain period of time (4 or 5 years) you lose the tax benefits.


Can you explain the "46% stocks"?  Did you buy mutual funds / UCITS or did you buy stocks of specific companies?

 These are broad-market ETFs (total world, euro stoxx, ...).

Maenad

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Re: Money markets?
« Reply #3 on: April 02, 2019, 05:17:01 AM »
You may want to update the title to add (Europe) or something, to point it out to our EU members who could give you better specific advice. There's also an EU-focused subreddit: https://www.reddit.com/r/EuropeFIRE.

Just scanning through, there's actually a specific thread on bonds: https://www.reddit.com/r/EuropeFIRE/comments/b2mn4b/bonds_instead_of_cash/



reeshau

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Re: Money markets?
« Reply #4 on: April 02, 2019, 07:47:25 AM »

Wait - is that account a scam of some kind?  CDs don't let you add money to them, and you can still reinvest.  The only time I've heard "if you withdraw, take all your money back" is when reading about Bernie Maddoff, who used that approach to threaten investors.  And he was running the largest pyramid scheme of all time, with fake account statements.   Probably not your situation - but that restriction is very odd.

 Ha ha no, it's not a scam (well I certainly hope not, as it's run by the government :). It's a kind of savings account that's meant to incite people to save over medium-term (usually for a home down payment): it's tax-advantaged and gives decent interests compared to regular saving accounts, but the trade-off is you have to put some money in there every month, you can't withdraw money without closing the account, and if you close it before a certain period of time (4 or 5 years) you lose the tax benefits.


Odd, yes, to an American.  But not a scam, nor even uncommon.  I have my cash in Europe in a plain-old savings account, because I couldn't stomach the withdrawal limitations, for a pittance.  And American-style, instant access money markets are paying -0.2%.  (yes, negative)  So the 0% my savings account pays is...above average.  Yippee.  My US cash is paying more, but exchange rates aren't relatively favorable to transfer money at the moment:  one wrong transfer could wipe out years of interest, at these rates.

Still, @JohnnyZ , your current investment mix is conservative beyond the point of a senior citizen.  It would be worth it to you (better expected returns) to cash out, and get to 80% stocks / 20% cash or bonds, even if you joined me with a 0% savings account.  In the end, how risky or safe you invest is up to you.  But getting hung up on an account mechanism is the wrong thing to focus on when making your decision.  Decide on your risk tolerance and desired balance, and then find the places to put those categories.  You seem to be stuck because you did the the other way around.

Andy R

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Re: Money markets for European investors?
« Reply #5 on: April 02, 2019, 08:20:35 AM »

daverobev

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Re: Money markets for European investors?
« Reply #6 on: April 02, 2019, 10:29:32 AM »
Yuo need to give a specific country, because every country is different.

You need to sit down, work out your risk profile/investor policy statement (ie, what percentage stock ETFs, what percentage bonds, what percentage if any cash outside an emergency fund; what home country/region bias if any you want to have (ie, do you want 50% US stocks, or do you want to increase the amount of European listed companies? Does your government give any incentive for having domestic stocks?).

Once you have a written (or spreadsheet) target, you work out what you can get that is cheapest in terms of expense ratios, and where you would keep that money (what tax shelters do you have).