Back to investing

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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!

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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

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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).