That time we almost got scammed

building

Germany is full of honest, hard working, straight forward people who would never scam you, right?

Mmmhmmm!

We ‘almost’ got scammed here big-time. Like a few hundred thousand euros worth. I say almost because we weren’t actually convinced, and pulled out at the pre-pre-pre stages of anything happening.

Before I begin with my story, this post was inspired by Insider Accountant’s experience with his sister-in-law’s boyfriend getting scammed $3K.

And so it begins…

Preying on our vulnerabilities

A few years ago, my sweet husband (then boyfriend) was going through chemotherapy. If you don’t know what it’s like to go through chemo, it’s truly awful. You have poison running through your veins and are so sick you can die. More people die from chemotherapy and other conventional cancer treatments than from cancer itself.

Needless to say, Martin was very weak and we were both emotionally distraught. We were not thinking at all about finances but Martin was on sick leave and my income dropped 80%. We also had 2 households to support as we each had our own apartments that were 70km apart. So money was tight, but not desperately so.

Suggestion from a doctor

A few months after chemo, Martin is recovering well. His doctor approaches him about switching his insurance from DAK to Knappschaft. Both are public health insurance providers, but the latter has an extra top-up scheme that covers tests that only private insurance covers. Which means the doctor is able to monitor Martin better under the new insurance. He gives us the name of an insurance broker.

I didn’t like that the doctor was pushing for a new insurance. Knowing that the insurance biz is big money, I was certain he’d receive kick backs and therefore his recommendation would be heavily biased. But as I mentioned, we were emotionally distraught and if this doctor thinks it’s important to run extra tests, let’s just do it.

Knappschaft is still a public insurance provider which means it is regulated by the government, so the risk was low. This extra top up would cost a bit more than DAK, but it was reasonable and more importantly, Martin would be getting more coverage.

Meeting the insurance broker

Martin called the insurance broker recommended by the doctor, and he helped him switch over to Knappschaft easily. While we’re not thrilled with Knappshaft’s services, overall it’s fine. The part that wasn’t fine was this shady broker.

Him and Martin got along well. After he sold Martin the insurance policy, he was suddenly like ‘hey, I don’t just do insurance, I also do real estate investing! Why don’t I come over and teach you some good ways to save for retirement using real estate?’.

He said some more convincing things and Martin decided that sure, let’s hear what he has to say. I was also excited because I didn’t know so much about how things worked here in Germany, and had been wanting us to start planning for retirement. I figured that since Martin had such a positive experience with him already, that it couldn’t hurt to learn more from him.

Trying to gain our trust and playing on our (perceived) weaknesses

When he got to my place, he was friendly enough but I got the sense that he felt uncomfortable around me.

He was trying to sell us 2 things:

  1. Units in an empty apartment building in the middle of nowhere
  2. A 0% downpayment mortgage (Fremdkapital)

The building is owned by a real estate company who is selective about who they do business with. They only want investors who have stable, steady incomes – people they can work with long term. They will reject anyone otherwise.

The shady broker also said he himself is picky about who he works with, because it was a long term project and that he isn’t only interested in selling us something and then disappearing. He also kept name dropping the doctors who had referred him – how they’ve invested in his projects too and have made a lot of money as a result. Proof of how well they’re doing financially is their beautiful office (because of course practising medicine couldn’t possibly earn much since oncology is such a poor field!).  He kept stressing how WE could be sitting at the same table with DOCTORS, making business decisions together.

Wow! Is that really a bonus?!?!! My b.s. detector started going off big time at around this point. But I also found it hilarious because both Martin and I work in professional fields and hold advance degrees ourselves, so it’s is not uncommon or thrilling for us to sit with doctors. Plus, we’re talking about investments here, not healthcare!

What I did find helpful was learning about Fremdkapital, which is a 0% down mortgage but only for investment properties. I don’t know much else about it, but while this guy was rambling on, I had already decided that we could approach banks or other brokers directly about Fremdkapital if we were interested. Mr. and Mrs. W have used Fremdkapital to purchase an investment flat in Stuttgart, and are early retirees in Germany! So maybe the shady broker wasn’t that off conceptually – but just not with his product or services.

Buy it while it’s HOT!

The guy wanted our financial information right away, so he could start processing us for a mortgage pre-approval. He also wanted us to buy not one but TWO flats. We said thanks but that we still had to think about it, and he made an appointment for Martin to meet him at his office at 4pm on that Monday (we met him on a Saturday).

The next day we drove 50km to the address of the building to check it out ourselves. It was completely empty with no signs of any renos going on. The guy said it’s about to be renovated and the previous tenants were moved out to a temporary apartment, but would be moved back in after the renovations are completed. He said all the previous tenants want to move back in because it’s such a great deal for them to have a newly renovated space.

Having a look around the town, we weren’t really impressed. The neighbourhood was fine but there was hardly any infrastructure and for the price he was quoting (200+K for 2 units), it definitely wasn’t worth it. (Later our RE-investor friend said he would buy at least 20 flats for 200K, not only 2 flats)

Something doesn’t sit right – a sore loser

Martin emailed him on Monday morning to cancel the mortgage pre-approval appointment, but that if he had any future projects in big cities like Düsseldorf or Cologne, to let us know. He wrote back hours later and was a complete @sshole about it. He berated Martin and asked why the sudden change of mind, but then also said he would never deal with us again. He was MAD and pretty nasty about i too.

We found the whole situation to be distressing and upsetting. Because Martin was still recovering from chemo and this guy was connected to Martin’s doctor (we think they are related), it made Martin really uncomfortable to continue with his doctor. There were other reasons too, but Martin eventually switched to another doctor, only to stop seeing doctors completely.

A year later

Out of curiousity, we decided to drive by the building to see how the renovation was progressing. It had been a year and nothing had happened. It still sat vacant. Which means had we bought in, we would have been paying mortgage on a derelict building while collecting no rent, not able to sell, and possibly dealing with a bankruptcy from the RE company that owned the rest (or maybe our own).

In conclusion

We feel like we’ve dodged a huge bullet, even though we weren’t close to buying anything anyway. And we’ve reflected on the situation enough to walk away having learnt some valuable lessons. Some people just suck, and we’re lucky we didn’t fall for it. Real estate investing is probably not for us either, as we find it too finicky for our tastes. But maybe we will look into in the future – or maybe not!

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Automatic DIY investing in Germany with Wertpapiersparplan

euroinvest

Woo hoo! I set up a Wertpapiersparplan through my comdirect Depotkonto, and have invested my last 3-months worth of pay cheques kosten handeln frei. :mrgreen:

Sorry for the Denglisch!

What I mean is that I’m investing every month now, automatically and without transaction fees!

My investment strategy changed from dividend stocks to growth stocks, because I don’t need the dividend income right now and would rather not be troubled with taxes.

I feel so relieved to have landed on a plan and to finally have it all set up. There’s not a lot of English-info out there for DIY investing in Germany, and it felt daunting to get everything up and running. But now my systems are in place it will be easier to keep at it.

This also means that I have 100% of all my euros invested in stocks. That’s my entire savings from having worked in Germany for the past 3 years. 🙂

My dear husband is not very excited about the stock market, but he looks after all of our expenses so that I can invest my entire pay. Ideally I would like him to invest in something, rather than just keeping cash. But I’m not going to pressure him (even though he thinks I’m pressuring him!), because he has to want to do it himself. I think through time, he will warm up to investing after following my journey.

It feels pretty luxurious for me to invest everything I have, and not have to care about the bills. Talk about lifestyle inflation. 😎

Back to investing

red_envelopes

Back in June, I stopped buying Vanguard’s All World Funds (VWRL) and haven’t invested in anything since.

Now I’m back to it and have signed up for an automatic savings-investing plan with comdirect. I think it’s called Wertpapierplan, and my first transaction will be September 1st!

comdirect’s Depotkonto platform is complicated (for me) to use, but has some neat features. You can create a schedule to buy ETFs at certain set times during the month, and they waive transaction fees! There’s a list of 75 ETFs that you can buy through Wertpapierplan.

I’ve chosen these 4 ETFs to replace my beloved VWRLs:

  • COMSTAGE S&P 500 UCITS ETF – TER 0.12%
  • ISHARES CORE MSCI WORLD UCITS ETF – TER 0.20%
  • COMSTAGE DAX TR UCITS ETF – TER 0.08%
  • COMSTAGE STOXX EUROPE 600 NR UCITS ETF – TER 0.20%

Thanks to Richard from Banks Germany who set me on this path!

I’ve been thinking a lot about whether I should continue to invest 100% of my income, or if I should keep some money liquid in case we need it for Martin’s alternative cancer therapies.

But I’ve decided to proceed with our investing and FIRE plans. It makes me feel good, and anyway we keep way too much of our networth in cash. We have a lot of problems, but money is not one of them.

So, here’s towards the future!

Why I’ve stopped buying VWRLs

Schloss

After comment-chatting with Richard from Banks Germany, I’ve decided to stop buying Vanguard’s All-World fund (aka VWRLs) for our index ETF strategy.

The big reason being that VWRLs are domiciled in Ireland, and I live in Germany. As a non-Irish resident, it would cost me too much on taxes compared to other funds domiciled in Germany.

In case you live in Germany and are thinking of buying European Vanguard products (domiciled in Ireland), consider these points first.

Capital gains taxes in Germany and Ireland:

  • In Germany, you can earn up to €801 (or €1602 for a married couple) a year in capital gains tax-free. After that your gains will be taxed at 25%+ .
  • In Ireland, there is a 10% withholding tax for non-Irish residents from first EUR.

Compare different capital gains scenarios in Germany (DE) and Ireland (IE):

If you earn €1000
DE: No tax
IE: €100

If you earn €1602
DE: No tax
IE: €160

If you earn €2000
DE: ~ €100 (i.e 25% of €398 (amount above €1602)
IE : €200

If you earn €2500
DE: ~ €230 (i.e 25% of ~€900)
IE : €250

If you earned €2650
DE : ~€262
IE: €265

Credit: Richard @ Banks Germany. 🙂

Earning more than €2650 as capital gains from VWRLs is when taxes paid to Germany will be higher than taxes paid to Ireland.  In all other cases, you actually pay higher taxes in Ireland as withholding taxes – plus you’re not using your free-tax room of €1602 per married couple.

Lessons learned:

If you and your fund do not share the same domicile, there will be tax issues! Learn what they are beforehand so you can make tax efficient decisions. I was rushing to buy VWRLs because I’ve been putting off investing for several years. Turns out, Irish VWRLs are not the best choice for German residents like me. While my intent is not to search for ‘the best fund’ (index trackers are very similar to each other), I don’t want our taxes to be so complicated either. Especially when there’s plenty of good options in Germany, the richest country in the EU.

Thanks again to Richard for saving us so much time, money, and frustration! :mrgreen:

Earning dividend income + German tax issues

Flag-Pins-Germany-Ireland

We’ve collected our first dividends from our VWRL investments!

I’m very very excited about that!!!!

Surprisingly, so is Mr. German! :mrgreen:

Yay for passive income!

As Richard from Banks Germany pointed out, investing in European Vanguard products (that are domiciled in Ireland) may not be the easiest tax-wise for German residents. Even though Ireland and Germany are in the EU, they have different dividend tax rates, and just because part of the VWRL dividends are withheld in Ireland as tax, doesn’t mean we don’t have to pay the difference in taxes to Germany (Germany has higher taxes than Ireland).

*big sigh*

But thanks Richard for pointing it out! It’s so much better to know about it now, than to figure it out during tax time next year.

German domicile

Of course, none of this would matter if we are expecting to make less than 1608 EUR in dividends over the year, which is the tax-free cut-off for married couples in Germany. However, we’re planning to continue investing 100% of my income, and will hopefully earn more than the cut-off in dividends.

So now I’m on a search for a Germany-domiciled broad based index ETF that gives dividends. Do all ETFs give dividends? I’m not sure. 😕

Chun Yi from Smart Kohle pointed me to the Deka DAX UCITS ETF, which is a very low cost ETF with 0.15% TER. Sounds good, and from the looks of the Deka website, all of their products appear to be domiciled in Germany. I don’t know that for sure, but their website is entirely in German except for the phrase “Made in Germany” – a tell-tale sign. 😛 When Mr. German is less occupied, I’ll ask him to grammar & spell check my draft email to Deka asking them for their domicile; or maybe I should just send my awful version, since obviously someone who doesn’t know German would ask such a question.

The only thing that ‘bothers’ me about the Deka DAX ETF is that it only tracks the DAX, and I want a broad based all world fund like my beloved VWRL. The other Deka products are also region specific. Also, I don’t know if they give dividends and when. Need to poke around their site a bit to find out.

iShares also has some ETFs domiciled in Germany. I’ve found two: iShares Core DAX UCITS ETF (0.16% TER) and iShares STOXX Europe 600 UCITS ETF (0.20% TER). But again they are region-specific and the all world funds are domiciled in Ireland (surprise surprise!).

To not lose steam, I’m planning to buy the Deka DAX UCITS ETF with my next pay cheque. I figure I can’t go too wrong with it.

In conclusion, we gotta move to Ireland! :mrgreen:

UPDATE: JustETF has a great list of all the dividend (and non-dividend) ETFs in Germany here.

UPDATE 2: Excuse my novice-ness to the investing world. I think I understand a bit more the concept of growth stocks vs dividend income. I used to think this did not exist in the index ETF world, but lo and behold, it does! There are dividend and non-dividend yielding ETFs that track an index. Non-dividend yielding stocks are growth stocks and should have higher growth rates compared to the dividend yielding group. I’m in the process of deciding whether to focus on growth or dividend as a strategy, the former being easier with taxes (at least in the short-term).

My investment journey so far

journey

My investment journey extends as far back as age 7, when my savvy Mom transferred my brother and I some of her stock options from work.

She explained to us what the stock market was, how to look up share prices in the paper, and how to buy and sell. Transactions were made through phone and cost $40 each!

Getting paid!

From then on, I received dividend cheques and annual reports in the mail.

It was my first brush with passive income, although I didn’t appreciate it. Not only because the numbers were small, but because I’m an INFJ which means I tend to care very little about money.

I didn’t contribute to my portfolio either, because I didn’t have income. I just held onto my stocks in certificate form. They were kept in a safety deposit box and far removed from me.

Once bitten, and twice shy

Ten years later at age 17, I transferred my holdings to an online broker. That’s when I could watch the activity in my account, though I rarely ever did. I did see when Nortel separated from its parent company, which I owned.

Nortel was a big Canadian tech giant and at $100+ per share, it was the most net worth I had ever had up until then. Yet watching it dwindle to $0 still barely interested me. Why? As I mentioned, the INFJ thing (how long can I use this excuse? about 15 more years!!!!). :/

In hindsight, I think Nortel going bankrupt did affect me, by making me nervous to invest in stocks thereafter.

Failing out of university – sort of

My mid-twenties rolled around and I was still a student because I switched majors after studying the first major for 3 years! While my parents had paid for my first run, they weren’t willing or able to pay for me to basically repeat university all over again. Plus they didn’t agree with my vision and thought I was being irresponsible and impulsive!

*That’s* when I started caring about money.

I had a new goal, and I needed to pay for it myself. Having barely worked at all, I was a bit nervous but also stubbornly determined.

It worked out well! I overcame my job-fear and ended up landing high paying student jobs, which enabled me to put myself through school, including paying rent in one of the most expensive cities in Canada. I was able to graduate with the average Canadian student debt, but in savings. It still surprises me how well it worked out – like, did I really do that? YES I did!

Let’s try out this investing thing

During this time, I also tried again with stock investing. I had taken out a student loan to keep as an emergency fund, assuming I wouldn’t be able to cover tuition from my income in subsequent years. I used a small part of this loan to invest into 2 companies.

One company ended up going bankrupt, and I didn’t even notice until a year later when I re-logged into my account. The other company went up 35% in the first week I bought it, so I cashed out immediately. I ended up netting a small gain, but only because I got lucky. Otherwise I didn’t learn anything valuable, nor did I develop any new investing skills.

Moving abroad

Before I left for Germany at age 28, I sold my stocks from when I was 7, and plunked it into my savings account (it wasn’t a lot). Then I closed my brokerage account, which in hindsight, I should not have done.

Now at age 33, I have finally started paying attention to investing. This time, in a slightly more informed way. i.e. I read Jim Collins’ stock series and feel equipped and ready!

Of course, life has gotten a lot more complicated now that I’m a married expat with stuff going on in 2 high-tax countries – 3 if I include Ireland where VWRLs are domiciled.

For years I’ve felt disappointed in myself for never caring about investments, despite having the chance and the environment to get into it. I mean, I held the same stock for 20 years! Yet the journey was mostly lost on me.

But, let’s move forward and not dwell on the past.

It did take me a while to come into it, but I’m here now, and feeling great.  I’m so glad there’s such thing as an index investing strategy that matches my no low maintenance approach. :mrgreen:

Mistakes I’ve made / things I’ve overlooked when moving to Germany

Canada-Germany

While I was planning my move to Germany 4.5 years ago, I focussed more on the Germany parts rather than tying up lose ends in Canada.

Which has come to bite me in the @ss now.

That’s why when my dear friend recently asked me for advice on moving to Europe, I centred my advice almost entirely on finances. I didn’t mean to, it’s just that I overlooked so much before moving abroad and wanted to shield her from that.

Most of the advice I found online for moving to Germany for North Americans, were to: 1) leave electronics behind since the voltage is different in Europe; 2) bring peanut butter/baking soda/brown sugar/vanilla extract; 3) bring English books, and 4) LEARN GERMAN!

That list is only mildly important (asides from the Deutsch sprechen). This is the advice I wish I *had* followed before moving to Germany:

1. Set up passive income streams! Preferably from low maintenance dividend generating equities. It’s hard to earn a living in Germany as a fresh off the boat expat. Having passive income can’t hurt, and will help soothe the pressure of being unemployed abroad. Keep some cash for emergencies, but otherwise put that money to work!

2. Open RRSP and TFSA accounts with a discount online broker. For tax-sheltered, tax-free passive income, this is so important!!! Trying to organize this from abroad is so much more difficult, and possibly even illegal. So do it while you’re firmly on Canadian soil. Don’t put it off.

3. Then max out your RRSPs and TFSAs! Once you have #2 set up, max out everything. For various reasons, mainly attributed to laziness, I did not do this. I even closed my brokerage account. 😦 Now it gets tricky because I may not be considered a Canadian resident anymore. While I’m allowed to max out for the years I lived in Canada, I don’t have the accounts set up in the first place and it’s illegal to open off-shore accounts. Boo! Don’t be like me. I had to write to the CRA to ask them to help me determine my residency status, and after months, am still waiting for their response. If the CRA determines I am still a resident, I may have to return to Canada to open my accounts – or at least pretend I’m there. If they’ve decided I’m not a Canadian resident, I won’t be able to open any accounts until I move back. 😦

4. Understand the Canada-Germany tax treaty. This should probably be #1, but as I haven’t read it myself, I feel embarrassed advising other people do it first. I merely glanced at this treaty before moving abroad, and carelessly determined that I would only need to pay tax in either country, but not both. While in general this is the jist of the treaty, my interpretation is far too simplistic. The devil’s in the details!  Richard from Banks Germany has brought this treaty to my attention again, and I know it’s time to delve into it.

5. Make a list of tax-efficient or tax-free investments in both Canada and Germany. Another suggestion from Richard, and a very good one! Assume you will retire in either Canada or Germany, and go through the different scenarios from a tax/pension perspective. Mr. German and I will do this research over the next several weeks, and I’ll blog about it (don’t all rush here at once!). We need to inform our investment strategy so it isn’t overly tax-complicated.

While this list is for Canadians moving to Germany, it could be applied broadly to all expats. Moving abroad can be so stressful, and having financial problems/complications doesn’t help. It’s worth it to think about where you want to retire, to read the tax treaties if any, and to set financial structures up before you leave.

Also, use Skype to video chat with your Mom. 🙂