Investing: Choice Between Two Options

Today I made a phone call to BinckBank and it seems all the things I found out during my research are correct. Conclusion: a broker specialized in index investments, like Meesman in The Netherlands, is ideal for people who want to invest smaller amounts of money on a monthly basis. However, you need a “normal broker” (and the cheapest one at that! in The Netherlands this is BinckBank) if you have bigger amounts of money to spend.

We now have a lot of cash on top of our emergency fund just sitting in a savings account against less than 2% interest, it’s getting ridiculous. We have narrowed our investment options down to two.

Option 1: increase our monthly investments

In order to spread our investments we could go from investing €600 a month to €1300. The husband thought €700 extra from the endowment is a nice number. Transaction fee is 0.5% so this would cost us €6.50 a month. It will take years and years for the endowment to finally be invested in the stock market this way. Also, each month we have at least €1.000+ of our income that we didn’t spend…so I guess we’re hardly going to touch the endowment anyway. I don’t know whether this statement will hold true when the kid arrives ;-).
On top of the transaction fees there are ongoing fees of 0.5% on average a year. Fortunately, Meesman managed to solve the tax dividend leak for the Dutch…so this might come down to almost nothing for the world-wide funds. However, we also have emerging markets and bonds.
Another great advantage of this option is that dividends are reinvested in the fund automatically. That’s great, so we don’t have to worry about anything.

Option 2: don’t fret and just dump bigger amounts into the stock market in one go!

This is the scariest version….(sorry jlcollinsnh, it does scare the hell out of us, guess that’s what makes us human? 😉 We know it’s about time in the market, not timing the market…but the stocks are at an all time goddamn high!) If we were to invest €10.000 in one go (there’s more to invest than that, but you know I am hesitant with stating the actual numbers) that would cost €16.50 in transaction fees. The ongoing fees for the Vanguard all market fund are only 0.25%. However, since the fund is based in Ireland there’s no tax advantage for the Dutch here.
The disadvantage here is that dividends are not reinvested automatically, but paid out every quarter. If we would receive €100 in dividends it would cost €10 in transaction fees to reinvest that in the same fund and thus only investing €90. Yikes! We could always transfer that amount to Meesman and invest that amount against €0.50 transaction fees and invest €99.50. I guess it would take a long time for the lower ongoing fees at BinckBank to make up for that loss?

The tipping point for option number 2 is roughly around €2000. Investing that amount would cost the BinckBank minimum of €10 in transaction fees (€6.50+0.10%). Investing €2000 with Meesman will also cost €10 in transaction fees (0.5%). For example, investing €3000 with Binck would also cost €10. But that same amount with Meesman would cost €15.

What would you do? A bear market would come in quite handy right now…

Love,

Mrs EconoWiser

Disclaimer: I am not a professional investor, nor do I claim to be an investment advisor. You are solely responsible for your own investment choices.

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6 thoughts on “Investing: Choice Between Two Options

  1. Anoth

    Just found your blog. Very good read 🙂
    I share the same dilemma as presented in this post: Binck or Meesman?
    Probably I’ll be aiming for one transaction of 3500 every quarter if I go with Binck. But the dividend distribution and the dividend taxes are still there. In the long run, Meesman fees might add up quite substantially, especially for the non-US-stocks funds (bonds and emerging economies), since they don’t suffer from one or both of the dividend problems.
    What is missing to make a calculated decision?

    Reply
    1. econowiser Post author

      Either option will probably provide a financially independend future…at least chances are much better compared to managed funds which charge 2%-3%, so we already beat that.
      I’ll have the hubby take another look at it, he’s much better with numbers and an expert with algorithms!

      Reply
  2. Cleo

    Interesting material! Did you incorporate the transactioncostcredit of 200 euro’s with Binck in the numbers? I chose for Binck (at this moment) because of it.

    Reply
  3. rationaldutch

    What about this:
    (1) drop your account at Meesman, this directly saves you 25 euros a year.
    (2) use the free 200 transaction-cost-credit at Bink to buy ETFs for your current investments
    (3) don’t invest every month, but, instead, wait until you have at least 2000 to invest. Thus, if you plan to invest 12000 / year, you invest 2000 every two months. This gives you transactions-costs of at most 0.5%. Please remember: dollar-cost-averaging also works when you invest every x-months.
    4) do not invests dividends separately, but combine them with your standard investment cycle.
    5) if you want invest in several ETFs (for instance stocks and bonds), alternate between them in your investment-cycles in a desired ratio. For instance, if you want 1/3 bonds and 2/3 stocks, buy bonds every third time.
    6) don’t forget to rebalance every year or so!

    Reply

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