VERY beginner on this investment thing, international situation

[JoanOfSnark]

So, this might be less "showing me how to fish" and more "explaining the basic concept of a fish-hook before we can even START with that fishing business" but...

I have been working for about 5 years, and since I've always lived significantly below my means, I have a good bit stashed away. Currently it stands at about 19K USD and 30K EUR. Yeah, I'm rocking the dual-currencies... I worked for a couple of years in the US, and then almost 3 years ago moved to Germany, where I am now a permanent resident but for the time being will retain my US citizenship. Complicated!

Much of the talk I see here revolves around maximizing pretax accounts like 401K and IRAs... which I did when I was in the US, and still HAVE; but due to a weird combination of working for the same parent-company and yet not the same branch or in the same country, I'm neither able to roll these into anything else NOR continue adding to them. Cool. Is there anyone out there familiar with the German system that could point me in a direction of their equivalent? Because I'm American (and banking with Deutsche Bank, if that matters), I am through them ineligible to do anything like a Förderrente or Riesterrente or whatever, because they don't want to have to comply with all the hoops the IRS is lately making banks jump through when it comes to the stock market. So, I can't do ANYTHING that touches the stock market (or mutual funds, by extension), with them at least.

Past that... Index funds! I kind of understand what they are, I think. Kind of.... a tiny fraction of a stock of the top 500 companies all packaged up as one unit for you to buy like that for the S&P 500... but there are lots of other acronyms being thrown around that I don't really understand. Is the Thing to Do just to open a Vanguard account and get index funds through them? Why Vanguard as opposed to any of the 5 million online trader things? Does it have to do with fees assessed or the products offered or something else entirely? Is this the sort of thing that would pay dividends, or that one would have to sell off to get the profit? I have no idea what I'm talking about here honestly... I love lamp.

Other options: I'm looking into buying some property locally as well- first an apartment for myself to live in (I'm currently renting, but in the perfect location for work and in a hilariously-favorable contract and legal-environment for renters, hey Berlin!) and possibly a second as a rental property in the future, so it's not like all this cashmoney will be parked in market-things indefinitely, or at least will have to be taken out for mortgages and then put back in later. What is a reasonable timeframe to let the market do its magic, and what does one do with the money in the meanwhile?

thanks, and sorry for the cluelessness. I will also happily take book/article suggestions to get even a basic understanding of which end is up.

[RichMoose]

I can't comment on anything specific to German investment, but you also asked why Vanguard? Most people here love them because they started the first real index funds, have the most competitive fees in the mutual fund industry, and the company is uniquely structured so that it is actually owned by the people that invest through them. This means that you as a lowly customer/investor are truly their top priority.

Second comment, if Berlin property market is so favourable to tenants (you even describe it as laughable) why the hell would you want to buy or become a landlord? Seems counter intuitive.

Third, you should only invest for the long term. Stock markets are very volatile and 3 years from now could be worth 30% less than today. Look for at least a 10 year time frame if you purchase stocks in any form. Any less I would consider to call it speculation, not investment.

[DaKini]

Is there anyone out there familiar with the German system that could point me in a direction of their equivalent?

Hi there,
unfortunately the options you have were already mentioned: Riesterrente and Eichelförderung. The Eichel-Thing can only be done through your employer and is usually rigged with a insurance contract which kills your returns.
The Riester-Thing you can always open yourself. In that case be very aware of the contract you sign, because i would say all of them are rigged insurance contracts too. The problem with these is that by law the company must give you back at least what you have put in, and even products investing directly in ETFs are usually quite expensive. At least i was not able to find some products that would beat a after-tax investment by myself (with accounting for liquidity). Be aware that in Germany there is no rollover trick. Your assets are locked away until official retirement age (65-67 depending on current age). the only exception to this rule is that you can use your Riesterrente account to fund a property in which you must live yourself; however the riester account must be repaid for the ammount.

Getting to housing; i think most housing markets, at least in all major regions in germany, are quite expensive currently. Germans don't have trust in stocks and usually invest only in savings accounts or in housing.

I would advise to buy stocks or bonds directly, thats at least what i do.

[JoanOfSnark]

thank you both for the replies-

as to housing: the specific contract I have for my apartment is really, really good, in that my landlord apparently hasn't gotten the memo that prices have doubled in Berlin since they last checked. So, I'm getting my place for about half what I SHOULD be paying for the area and size... however it isn't particularly future-proof, since there's definitely not enough room here to have kids. I'll have to move eventually, so I figure I might as well grab a cheap foreclosure and do a bunch of work on it in the meanwhile (I'm an engineer, my partner is an architecht), rather than pay a landlord to do it for me and before I need it (but before the market in my area improves further... the neighborhood has hit the "students and artists" stage of gentrification, but not yet "mommies and upmarket gay couples" for the most part). Getting a second place and playing landlord is my backup plan for if I can't invest in Euro.

I have the ~19K USD invested at the moment (I'm piggybacking onto my parents' financial advisor for the time being), because I don't plan to need it for a while, but the Euro are just hanging out in a savings account, which seems silly. What does one do with a sub-10-year timeframe?

Also, where does one independantly buy stocks and bonds? I'd rather not try to pick winners, because I know just enough to know that I don't know my ass from a hole in the ground. Can I get index funds on my own? Or am I just better off converting euro to dollar, doing the Vanguard thing, and converting back all at a loss on the currency conversions? I found this (http://jlcollinsnh.com/2014/01/27/stocks-part-xxi-investing-with-vanguard-for-europeans/) which seems to imply that with the whole ireland-plus-germany-tax I might be just better off taking the currency conversion penalties.

[DaKini]

Hm, the currency penaltys could also become currentcy profits.

[JoanOfSnark]

yeah, that just adds another layer of speculation on to the whole game though. I'd really like to be able to do SOMETHING in my home-currency, and not play with the volatility of currencies on top of the volatility of markets.

So- is there a bank/broker/whatever out there that will sell an american index funds in Euro?

also, is the sub-10-year-term place for money seriously just a savings account?

[RichMoose]

I don't see why you couldn't open an account with a low-cost German online brokerage. Then buy Vanguard ETF's in Euros. I believe Vanguard's ETF's are listed on the Irish stock exchange. You may have to pay some Irish tax, but I'm sure you can find online how much tax that may be. Irish taxes are generally low and there are numerous tax treaties in place and some may benefit you.
Don't forget you will always have some currency risk unless you invest only in the developed European markets that use the Euro. If you purchase the Irish based Vanguard ETF for the S&P 500 you still have currency risk Euro-Dollar. It's just reflected in the returns on your ETF.

Doesn't the German market have decent ETF options?

[dungoofed]

All things considered (nationality, experience level, etc) my suggestion is to send USD5000 home whenever you save that amount and throw it in your (taxable) US brokerage account.

[milesdividendmd]

Why not max out a Roth IRA every year in America?  Tax free growth and tax free withdrawals don't suck at all. They are easy to set up and usually free.

[Captain and Mrs Slow]

Perhaps you could edit the title of the thread to say German American Investing, this would make it more clear what the subject matter is.

Unfortunately as an American living aboard the US tax system considers you to be some kind of apparition that they can't quite understand and it treats you accordingly. I pity your  accountant as he tries to sort all of this out. Although he will be amply rewarded for his efforts. I'm a Canadian living in Germany and planning on retiring here so I'm in a similar situation, other than not having to file a non German tax return.

So what I'm seeing you have several issues

1. Where to hold my investments USA or Germany
2. Buy funds or individual stocks
3. Rurup
4. German Real Estate


1. Where to Invest.

As an American you are very very limited to what and where you can invest. Generally speaking you can buy stocks and bonds anywhere in the world but for funds you are limited to those that can be sold in the states. Secondly based on personal experience you're better off holding your US investments in a US brokerage, cheaper and better options. For me I have all my dollar investments with TD Waterhouse Canada.

For more information on investing as an American in Germany check out this thread. If you're interested in investing in Germany I highly recommend contacting Starshollow (click on his user name)

http://www.toytowngermany.com/forum/index.php?showtopic=22604


3. Buying Funds or Individual Stocks

A good starting point for ETFs and is Andrew Hallam's book Millionaire Teacher. It's a great beginner investing book. For stocks check out Dividend Growth Stocks or DGS David Crosetti from Seeking Alpha has written some fantastic articles.

http://www.amazon.com/Millionaire-Teacher-Wealth-Should-Learned/dp/0470830069#
http://seekingalpha.com/author/david-crosetti?s=david-crosetti


5. Rurup

A Rurup is basically a personal Defined Benefit Pension plan. That is unlike an IRA or RSP you have a guaranteed payout at the end, but it also means if you die one day after you retire the money stays with the insurance company  (generally speaking). As an American I'm not even sure you can open one.

German Real Estate

There are a ton of misconceptions about German real estate and I could write a very lengthy article about this but for now I'll give a quick summary.

The German real estate market is very very different from the markets elsewhere. First off most investment properties are bought for yield rather than for capital gains, prices have remained mostly flat (with the exception of some areas like Munich) for the last decade. Germans are also long term renters and it's not unusual to look at a property where the people have lived there since the 60s.

Secondly unlike renting in the UK or Canada/US the tenants are responsible for most of the day to day running costs. This includes but is not limited to things such as cleaning the building, landscaping etc. Tenants also pay the property tax (which is much lower than elsewhere).

Rents can be increased by as much as 10% per year but can not exceed the local average. Oddly German landlords are very very slow to increase the rent, so it's not unusual to look at properties where the rent is 50% below market values. Note it is very difficult to kick someone out of a place if you wish to live there.

Culturally it's not unusual for someone moving in to completely renovate the property, this includes painting the whole place, putting in new flooring, kitchen and of course German apartments are built without closets.

Depending on what is written in the lease (leases typically run to 40 to 50 pages) the landlord can make the tenant repaint every 5 years plus upon moving out paint and clean the apartment to move in standards. - On this issue I've seen many many complaints about the landlord coming in with a fine tooth comb and having over a huge list of repairs that need to done before he will return the deposit. Which by the way, up to 3 months rent, which in Munich can mean 3500€ or more.

Also many landlords outsource the finding of a new tenant to a makler or real estate agent, this fee is capped at 2.5 months rent, paid buy the tenant. It wouldn't be to far of a stretch to say that a move could run 10,000€ or more depending on if you have to put in a kitchen.

Generally speaking buying in the right location you can expect yields in the 5-8% range.

Eventually I plan to create a TT (toytowngermany) Wiki on German real estate and hope to submit a guest post to Financial Samurai on buying German Real Estate for Americans.

If you have more questions feel free to drop me a line via TT my user name is Tim Hortons Man.

Rob

[JoanOfSnark]

1. ok, so from what I'm getting from here (http://www.toytowngermany.com/forum/index.php?showtopic=22604), it sounds like I personally am allowed to buy whatever I want, but the bank is not allowed to advise me to buy something not approved for sale in the US. Does this extend to an online account through someone like Deutsche Bank or DKB? Is the only limiting factor here the interaction with a person?

2. thanks for the recommendations, I'll check them out!

3. I already have a retirement thing called, I believe, "5-Sterne Ansparrente" through Deutsche Bank. It was the only thing the advisor said he could sell me, since it doesn't deal with Fonds, but it doesn't really seem to be tax-advantaged in any way. I am also a direct-hire of a German company (with an American parent company), so I get paid in Euro and couldn't do anything tax-advantaged with an IRA in the US- my entire income is already exempt from US-taxes since I don't earn a ton and am a full-time resident of Germany, with whom they have a treaty against double-taxation.

4. real estate: oh boy, do I know about the whole build-it-yourself mentality here. I learned to tile based on youtube and a book from Hornbach with lots of pictures, because I had to redo my bathroom in my (rented) apartment myself. I've lived as a renter in Berlin for the past 3 years. In a perfect world, I'd buy one apartment (maybe an unfinished unterdach something) and fix it up myself and live there forever, possibly buying another apartment to rent out as a source of semi-passive income. If you have advice on the landlording side, please lay it on me! I am really interested, since it is the one thing I can DEFINITELY do with my euro that doesn't involve me converting to dollars.

[DaKini]

this fee is capped at 2.5 months rent, paid buy the tenant.

I rember that there is a new law out, that does not allow the landlord or seller to charge the fees of the makler. The bottom line of the decision was, that fees caused from orders etc. must be paid from the person issuing the order.
Dont know if the law is already active, however.

The other things mentioned regarding the special german housing market i can support.
However i never had problems with the renovation when movin in/out. I also never paid a "Kaution", probably because im such a nice person :) haha
There are also appartments with closets and also flooring is usually the responsibility of the landlord (like central heating), however, like said, it is often so that you want new flooring when moving in. I did this once at my own expense but this was only neccessary because the old floor was still in good shape and thus the landlord was rightfully in the position to say "no i wont pay this". I was glad, that he allowed me to replace the flooring.
Painting is the responisibility of the tenant and he can paint however he wishes. The only law is, that you need to have it "neutral" after leaving. There are laws that state that even painting newly could not always be asked from a leaving tenant; it depends on the condition of the painting (if it is neutral white).

[Captain and Mrs Slow]

Their is talk of the law changing but nothing yet, it makes sense to me that the landlord should pay the fee not the tenant.

Painting the apartment is probably the most confusing part of the new laws, some people say yes some say no, really depends on what agreement with the landlord you made. My advice is to always paint when you move in to avoid problems when you leave.

Edit: you do have to fill all nail holes and such like

[dungoofed]

Related, in yesterday's Guardian:

http://www.theguardian.com/money/2014/sep/24/americans-chased-by-irs-give-up-citizenship-after-being-forced-out-of-bank-accounts