FI newbie - Denmark

[dk_mmm]

Hello everybody,

I have read a lot of posts, very very helpful!!

Unfortunately some of the information is not applicable here in Denmark :(

I live in Copenhagen; I have always been a big spender, until I made some big changes a few years ago, and with effort I have now saved around 1M dkk 😊

Unfortunately I have never invested, mostly due to a mix of fear and ignorance. Now I am ready to use my untapped dkks, that are sitting on my bank account.

Per my investigation I will have to use either Nordnet or Sparinvest.


As a newbie I have several questions:
- is Nordnet better than Sparinvest? or , perhaps should I use half my money on each?

- Both nordnet and sparinvest have so many investing options that is extremely hard to decide on one… What could be a good strategy for a newbie like me?

- Currently I am saving almost 90% of my salary; can either Nordnet or Sparinvest be automated in order to start investing as soon as I get my salary?

- Is there a financial advisor that anyone knows in CPH? I am willing to pay to get some face to face advise 😊



Thank you very much for reading.


Ps: on another note, my job pays for my PFA pension, but I do not understand. By 2060, the retiring age will be 74 in Denmark!!, which means that, any money I put in PFA, I won’t see it until I turn 74… Why is so many people putting money there?

[Metalcat]

Unfortunately I don't think we have any other Danes here, but we do have some Norwegians, I don't know if their system is similar or if they might know where to look for decent advice in that part of the world.

@Linea_Norway is early retired and may possibly have some insight?

I wish I could be of more help. I know Danish bureaucracy is famously complex (my family is from Denmark, but AMAZING job saving so much of your income.

Investing is generally much simpler than it seems, so once you get some decent guidance on the logistics, you are set.

[Scandium]

Unfortunately I don't know much about system in Denmark either, only looked into some basic info on other nordic countries. Your best bet might be checking FIRE reddit. There are a few under r/europeFIRE.
https://www.google.com/search?q=reddit+fire+denmark

Also a dedicated DK fire, but not very active
https://www.reddit.com/r/DKFIRE/

I don't know anything about the fund selection there, but anything that gives you basic global and EU/Dk index funds should be fine, for the lowest cost. I found some at nordnet, and sparinvest has a "index" filter. Though 0.7% ER seems high.

The biggest challenge I think will be figuring out, and minimize taxes! The discussions I saw revolved around this, and how punitive taxes are on any form of savings/investments/capital gains. Looks like you'll be hit with 42% tax on gains at sale. But also saw mentioned you can be taxed for unrealized gains every year? Too complex for me..

Like norway, the system is really set up for people to happily work for 40+ years, have 2.5 kids, get all services covered by government, spend everything (you'd be stupid not to), and not save any on their own (outside primary residence).
https://www.reddit.com/r/dkfinance/comments/m4u9py/is_denmark_just_the_wrong_place_if_you_want/
(have a hard time seeing how it's possible in these countries, and part of the reason why I'm not moving back..)

Being an EU citizen you're free to move, so perhaps that is something to consider to make this feasible? Even sweden has a much lower tax burden on capital than DK and NO. Just a short hop across the bridge from you!:)


edit: I also randomly found this danish guys website
https://www.frinans.dk/
Seems to have some good DK resources, including on investing options there. Though be aware it's sponsored, so not very objective

[Linea_Norway]

These pensions that you can only touch after you reach a certain age are not very useful for us who retire early. I haven't bought it, because I want access to my own money. How old are you? You can look if there are any financial tax advantages for people of your age. But that pension saving where you lock your money until the age of 74 don't allow you to change your mind and use your money in another way. Depending on your age, you might not be able to look ahead so far. Maybe in 10 years time, you wish to invest in rental places. Then you need access to you money. Unless it gives a big financial advantage to lock it. Then you could consider it.

Nordnet is something we have in Norway as well. It is a site where you can have your pension fund, as well as your private funds. They don't charge a high sum for doing this for you.

What funds to buy: in general we buy world wide index funds with low cost. For each fund, you can check what the yearly cost is. Managed funds are very expensive and they seldon perform better than index funds that cost a fraction. I have funds in KLP (Norwegian community pension fund) and pay 0,2% cost. That is very low. A managed fund usually costs 2,5-3.5%.

With some funds, you can insure against valuta changes. Denmark has a small valuta, like Norway. Therefore it might be smart to buy your funds in foreign valuta, and not in your local valuta. If Denmark gets inflation, your savings will go up. You are investing in 2 options. Your normal pension will be in DK crowns, as well as the house you own, and your private savings will be in foreign valuta. Usually one of those performs well. Keep in mind that you should rather not speculate in valuta changes with borrowed money.

About the financial advisor... please read the all mister money mustage blogg posts. After that, you are probably a good enough financial advisor for your own purpose. Advisors who work at banks, usually try to sell you expensive managed funds.

You might try to find a Danish financial podcast with advise to normal people. That will probably tell you about the smart investigation in your place.

What DH and I have done is working fulltime for 25 years. And we saved into the standard pensions, existing of a government share that lasts forever and a private pension that in some cases lasts for only 10-15 years. We expect to receive this at age 67. We retired at 50. We saved up enough to cover the period between age 50 and 67. That is much less than 25 x expenses.

[dk_mmm]

@Scandium
thank you very much for your words. Exactly… Taxes is the question!! [ 0 - 50K] pays “”only”” 27%. Which means if my yearly returns are 50,000DKK I will only see 36,500DKK.

@Linea_Norway

Thank you Linea. Very thorough explanation.

I am 35 (meaning PFA will pay me in year 2,062 when I turn 74 haha) . I don’t think there are any tax advantages for people my age…


Your explanation, raised some worries:

You mention “yearly cost”, is that what it’s called ER% ?    Is it reasonable to just pick whatever index fund has the lowest yearly cost?

How can I distinguish in Nordnet between a ‘worldwide index fund’ and a ‘managed fund’?

I was following you fine, until you mentioned “valuta” 😃 …  Can one buy in Nordnet Denmark an index fund in a foreign currency?

About the financial advisor... please read the all mister money mustage blogg posts. After that, you are probably a good enough financial advisor for your own purpose. Advisors who work at banks, usually try to sell you expensive managed funds.

Thanks for this great advice!
 MMM is very US specific; I need info on which fund to buy, and how to minimize taxes in Denmark; MMM doesn’t have much about it unfortunately.

My overall rough plan is:
- I have ≈1M dkk saved. I live very frugally (yearly expenses of 30K).
- Investing 1M  today, and getting ≈ 3% return a year from now… and doing the same every year. (without touching the capital).

I know there is inflations and other issues… But I have a couple of side-gigs; if we get high inflation I will just work more and put savings into the investments… And if there is no inflation, perhaps I won’t work at all.

My goal is to invest 1M, without ever touching the capital. I don’t plan on selling... And whenever I get a surplus I would increase it (to account for inflation).

Does this seem reasonable?

Thanks again, your words have been very useful! I look forward to hearing from you.

[Scandium]

My overall rough plan is:
- I have ≈1M dkk saved. I live very frugally (yearly expenses of 30K).
- Investing 1M  today, and getting ≈ 3% return a year from now… and doing the same every year. (without touching the capital).

I think you need a more detailed breakdown of your plan, and map out all your finances. Your plan sounds mostly reasonable,  I'm just a bit unclear on the  details. How much do you have now, how much do you save per year? What's your total annual expenses (now and in the future)? How much will you take out, and what will the taxes be? 

I'm all for being conservative, but counting on 3% returns is very low, especially when central bank rates are 3-5%! My bank account yields 4.2% currently.. I think you could use 5% return. Yes look at the ER%, or annual fee. Find index funds with low ER, and with a broad diversification in both EU, US, rest of world.

Regarding "valuta" (foreign currency); There are "exchange rate protected funds", but from what I've read on this they are generally not worth it. You might have to do more research though.

Now ok, many people here are much more frugal then me here, but do you mean you live on 30,000 DKK per year?! (Do you mean 300k DKK?). Isn't that like ~2 months of rent/mortgage in most places? Or barely 500DKK per week on food alone (which I always find horribly expensive in scandiavia. Though to be fair I haven't been to DK in a while..). What about everything else? Have you tracked and summed up all your expenses, over months, and the year? Including large incidentals? And yes taxes.
If this is accurate kudos, and I'd love to see a breakdown of how you do it!!

[dk_mmm]

Hej @Scandium  thanks for the answer and help.

Sorry for the confusion with the numbers, it was a rough estimate, the details are below (all in DKK):

Now, I have 1.2M saved.
I save 290,000 per year (job is too stressful; this number will go down as I plan on working less).

Expenses (per year) 54,000, that is:
-   Rent: 36,000
-   Food, outing, etc: 18,000

I live with my gf in a small apartment which is rent controlled. We don’t spend much on food because we do volunteering where we get lots of food.

(Future: the rent is likely to stay the same, but the food, outing, etc will go up with the inflation).

How much will you take out, and what will the taxes be? 

That I don’t know yet… The only thing I know is that I don’t plan ever on taking out the capital.


My goal is the given scenario:
-   Invest 1.2M in whatever instrument gives ≈5% (I am not crazy about the returns; I just want something that requires no maintenance, like an  IF  I guess)

The returns… I will most likely reinvest it…

But my goal is, in 2,3 years… to quit my job, and then live 80% out of that and 20% out of freelancing.

I don’t plan ever on taking out the capital…

I do know there are risks and specially TAXES, but depending on the yearly return I will either work more and/or reinvest.

I am absolutely clueless as to what instrument and how to put it there…

[Scandium]

Hej @Scandium  thanks for the answer and help.

Sorry for the confusion with the numbers, it was a rough estimate, the details are below (all in DKK):

Now, I have 1.2M saved.
I save 290,000 per year (job is too stressful; this number will go down as I plan on working less).

Expenses (per year) 54,000, that is:
-   Rent: 36,000
-   Food, outing, etc: 18,000

I live with my gf in a small apartment which is rent controlled. We don’t spend much on food because we do volunteering where we get lots of food.

That seems crazy to me, but ok. Even if it's split in half with your GF.
What about everything else? Utilities, transportation, clothes, entertainment, gifts, travel, hobbies..? Track every expensive for at least a few months (preferably year+) and check. Do you only pay rent and buy food? My grad school dorm 15+ years ago cost more per month than your apartment! I'd be seriously careful with using this as a basis. What if you ever have to move? Your rent could easily go up 2x, 4x, or more.

That I don’t know yet… The only thing I know is that I don’t plan ever on taking out the capital.


My goal is the given scenario:
-   Invest 1.2M in whatever instrument gives ≈5% (I am not crazy about the returns; I just want something that requires no maintenance, like an  IF  I guess)

The returns… I will most likely reinvest it…

But my goal is, in 2,3 years… to quit my job, and then live 80% out of that and 20% out of freelancing.

I don’t plan ever on taking out the capital…

I do know there are risks and specially TAXES, but depending on the yearly return I will either work more and/or reinvest.

I am absolutely clueless as to what instrument and how to put it there…

Why do you insist on never taking out capital? Do you mean only spending yield, or also capital gains? Either way is very limiting. If the market is flat one year, do you take out nothing?

With a 42% capital gains tax in DK, to spend 80% of your 54k you have to take out 63,529 DKK per year.
edit: I found that it's "only" 25% tax up to about 55k DKK or so, and 42% above, so numbers will be slightly different
Nordnet sells the ishares world ETF, but the yield is currently only 1.6% (before inflation!) To get the 63k, you need almost 4 million DKK invested to only use yield.
If instead you use the traditional 4% of portfolio as the safe withdrawal rate you only need 1.6 mill DKK to get 63k.

Any of the ishares ETFs with Nordnet are solid choices.
https://www.nordnet.dk/dk/marked/etf/etf-inspiration/mest-populaere-etfer-indenfor-lande-og-regioner
If you only invest in the "world" one that's a pretty solid choice IMO. Or mix the other regions.

[reeshau]

I dug in a little bit into the history of the Financial Indepence Europe podcast, and I was surprised to find a mention of Denmark in the first episode!  One of the original contributors, Neils, lived there, although his specialty was P2P lending.

https://financial-independence.eu/podcast/episode-01-a-little-intro/

More recently, they interviewed a single parent in Denmark.

https://podcasts.apple.com/us/podcast/105-my-journey-to-fi-as-a-single-parent-becky/id1390576636?i=1000478092452

These are just poking on the surface; there may be more, and you may find some of their other info useful.

[Linea_Norway]

To answer one of your questions, you can distinguish between managed funds and index funds by the name. Index funds have the word index in them. Worldwide index funds have the word World in them. Other funds withour index are probably index funds. And you also see it in the yearly cost.

I agree with one of the earlier posters that you should not rely on paying such a low rent for the rest of your life. Life happens and you cannot forsee the future.

[Scandium]

To answer one of your questions, you can distinguish between managed funds and index funds by the name. Index funds have the word index in them. Worldwide index funds have the word World in them. Other funds withour index are probably index funds. And you also see it in the yearly cost.

I agree with one of the earlier posters that you should not rely on paying such a low rent for the rest of your life. Life happens and you cannot forsee the future.

I was curious; the average rental cost for a small apartment outside city is 9000 DKK per month. OP say they pay 3,000 per month
https://www.expatarrivals.com/europe/denmark/cost-living-denmark
Since OP doesn't have a car (?), perhaps in city is more likely; 12,800 DKK

So if (when..) they have to move there's a chance rent cost could quadruple! 36,000 > 153,600 DKK per year. They have kids and need a larger one? Up 6.6 times..

[dk_mmm]

Thank you for your answers; I appreciate them!

@Scandium

“If the market is flat one year, do you take out nothing?”

I thought of having a mix of investments; where at least one of it yields something… But if I get nothing, I get nothing… and I would just work…

You are correct. I am just very lucky that I live on an AAB apartment which is rent controlled, meaning we pay the same rent as in 2012 (my gf moved to the apartment on that date, and the rent is “locked”). The rent is 6,000DKK with utilities included. I do agree that if my gf decides to leave me, or AAB stops subsidizing us; my numbers would change. But as I mentioned I have several side-gigs so I do not worry; I could work more/less depending on the situations…

Also, if that happened I believe I would move to Malmo and continue working in CPH.

You are correct, I have to adjust my numbers slightly:

Transportation: I cycle everywhere, I fix my bicycle myself (yes, ok, every now and then I have to buy some parts)
Clothes: once a year (at most) I buy something in 2nd hand shops
Entertainment, hobbies: I do lots of volunteering
Gifts: I have the healthy habit of give my time as “gift”, so I end up doing a lot of errands for people 😊



@Redhotdog
You are correct too. Taxes are crazy… But I do some things here in Copenhagen, that I seriously doubt I could do elsewhere:
-   I cycle pretty much everywhere in beautiful wide bike lanes.
-   People do not judge based on clothes or cars (in other parts, like Spain, there are huge social norms about clothes and how/what to dress).
-   There are countless of bathing spots where lots of people gather to jump to the water (amazing social place too!)
-   Very little crime.
-   Lots of public green space. (really high quality!)
- Lots and lots of volunteering options. (some of them are food sharing volunteering).


Thanks for your answers, I am trying to learn here and see if I can improve.

I have just discovered there is a lower tax option: Aktiesparekonto (Share Savings Account, ASK) (Denmark) was introduced in 2019 and is taxed at a reduced rate of 17% on distributions and on capital gains...

I will go ahead soon and create my Nordnet account and start with my journey :) Any advice is appreciated!