Monthly Archives: February 2014

Reader Case Study: To Invest Or Not To Invest?

OpnieuwBegonnen is a Dutch lady who has done really well for herself. She has lived frugally and paid off her home in full. She’s now 61 years old and has recently been made redundant. She was awarded severance pay (38 months worth of pre-tax salary) which she has put into a clever legal construction. Her plan is to live off this money for the next 29 years. (In The Netherlands our pensions are taken care of, so I assume she has a pension. On top of that I assume she’ll also receive social security when she’s 65. The severance pay will complement her pension and social security.) She’s had disastrous experiences with investing. However, she’s very disappointed with the current interest on savings accounts. Should she invest? (I don’t have the actual numbers)

Alex
She has looked at different options. One option is to invest with Alex. Her accountant and a friend of a friend invest with this company and are happy with the results. Ok, let’s have a look at this option.
Costs
I would immediately dismiss doing business with this broker when I look at the costs they charge. They charge a whopping 1% in expenses on your total invested capital with them. On top of that they dare to charge a ridiculous 10% performance fee on your capital growth! Wow! These fund managers sure know how to make themselves rich!
Performance
Now let’s look at their performance. Ah, that’s very very difficult. I can’t find what they’re exactly investing in. If I compare their five year results with that of Meesman, Meesman easily beats Alex at this game. Obviously, this is no surprise. With Meesman, you buy and hold and there aren’t any ridiculous costs involved.
Philosophy
Alex boasts with the philosophy that they’ll sell when they think the market is underperforming and buy when prospects are better. I get that this makes ignorant customers feel safe…the only thing is that these fund managers have no freakin’ clue on when to buy or sell. It’s been proven over and over again and even Warren Buffet advises people to buy and hold. You can’t time the market, it’s all about time in the market.

Oh, and Warren Buffet advises 99.9% of us regular investors to throw everything in an index fund, like Vanguard’s S&P500, in his annual letter. Buy and hold that shit. It’s what he wants his trustee to do WITH HIS OWN MONEY after his death. Why on earth would we want to pay fund managers to “manage” our portfolio?

My advice here is: don’t do business with Alex! Steer clear of those costs and fund managers. They’ll cost you thousands and thousands in the end.

Oh, the accountant and the friend of a friend is going to say this is all bullshit. They invested money themselves with this company, and they sure don’t want to be proven wrong. Yeah, they made money over the past years (how could you not, we’re in a bull market, you’d have to be the world biggest idiot fund manager if you haven’t made a profit for your clients from 2008 onwards…duh)…but they could have made more if they had invested in passive index funds.

Triodos Sustainable Equity Fund
Another option which this lady considers. I can be very very short on this one. Costs are 1.49% annually!!! Click it away, NOW! Investing at these costs is not an option. It will shatter your profits. Costs matter hugely.

Actually, all these type of actively managed funds are too expensive and mostly underperform.

What should OpnieuwBegonnen do? 

Well, if she’s still interested in investing she should educate herself about index investing. She could start by reading jlcollinsnh’s stock series. Or by reading De Schitterende Eenvoud van Indexbeleggen. And throw in a book like The Elements Of Investing as well.

If she then feels much less hesitant and a bit more confident to start investing, index investing that is, she could open an account with Meesman and start throwing €100 a month into their global stock fund at 0.25% transaction fee and 0.5% TER (which is lower in reality due to the solution to the dividend leakage). The only downside is their annual €25 flat fee.

If she builds up confidence over a couple of months she could start to invest a bit more. If she’s really confident, she can contact me again.

What if she doesn’t feel confident about investing?

If, and only if, OpnieuwBegonnen has educated herself about index investing, understands the risks and trusts herself enough not to panic and sell during the next bear market she could start to invest. If this isn’t the case, she should stick to the plan she has now.

Conclusion

I think OpnieuwBegonnen should be really proud of herself. She’s done an excellent job at living frugally and is now completely free to do whatever she wants to do. If not investing gives her a piece of mind, then that’s just what she should do. And not be bothered with the current low interest rates. There’s always going to be risks involved if she’s after a higher profit and she’s made it rather clear she is very risk averse.

OpnieuwBegonnen: well done you!

Love,

Mrs EconoWiser

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It’s The Economy, Stupid!

Hence Bill Clinton’s successful campaign.

https://thepoliticalcarnival.net/2012/04/25/james-carville-slams-mitt-romney-for-stealing-his-line/

There’s even an It’s the economy, stupid! game you can play online. (I haven’t played it, though…)

Municipal elections are coming up here in The Netherlands. Our national government is about to shift many responsibilities towards municipalities. That’s what will make these elections even more important. However, less than 50% of my fellow Dutchmen intend to show up for these elections. Uh oh…

Right now, we’re hearing mostly positive news about the economy.

According to the media we are spending more (especially on vehicles and other luxury items) and home sales are up again. I can concur the latter statement with my brother’s situation. His apartment has been up for sale for almost three years now. Last week there were two viewings (the first in a long time!) and next week he’ll have two more viewings. I also see many “sold” signs on houses in my neighbourhood. The Dutch also anticipate house prices to rise again. Confidence in our economy has risen. It seems our economy has grown indeed.

D’you think it has something to do with the upcoming elections? 😉

On the other hand, there’s also some negative news. Interest rates on savings accounts keep declining. Youngsters don’t feel responsible for their own pension. And our unemployment rate has risen to 8.6%.

Does any of the positive or negative news affect Mrs EconoWiser’s family? Nah, don’t think so. We don’t intend to sell our house, switch jobs or at risk of losing a job. We also don’t intend to spend more that we feel we need to. However, it’s good to hear other people being positive about the future again. We’ve never stopped being positive about our own future, and we never will!

How about you? What’s the general outlook on your country’s economy and how does it affect you, if at all?

Love,

Mrs EconoWiser

Pregger Belly

We had pregger belly photos taken at 33 weeks and here’s part of a nice picture. Totally unnecessary expense…I know. However, we don’t regret the expense!

33wpreggerbelly

As you might have noticed my mind has been occupied with baby stuff lately. This has resulted in writing less posts. Doesn’t mean I totally dropped the EconoWiser lifestyle, though!

I’m 35.5 weeks now. The weather is lovely here in The Netherlands, it feels like spring already! What a great time to have a baby. We’ll go outside a lot for walks ‘n stuff.

In the meantime I have made my own wall art for the baby’s room. A nice and frugal piece of decoration. Furthermore, I sewed a couple of pieces that were still required. And now we have e.v.e.r.y.t.h.i.n.g. the baby could possibly need. We’re ready! (Mentally as well, not scared of the whole labour thing anymore, yay!)

I’m over a week into my maternity leave and I am taking things easy and slowly.

Love,

Mrs EconoWiser

Commissions ‘n Stuff

The amount of investment funds offered in The Netherlands has sky rocketed to 1624 in total. Wow! How on earth can one choose the right fund from all of those?

Easy, since you have a good pair of brains you read a bit about index investing and you decide to go for an execution only broker. This means that you won’t get any “advice” and will have to do things on your own. Well, that “advice” will be rubbish anyway and it comes at a huge price tag. It could cost 1%-2% annually and will only make the adviser rich, not you.

Then it’s a matter of finding an investment fund which offers great diversification, the lowest TERs and transaction fees possible. You want to check out other fees and you want to know under which custodian your stocks will be kept. Tahdah, it’s super duper easy.

In The Netherlands we have a commission prohibition on most financial services now. It wasn’t until recently your financial adviser would “advise” you on your “best” options to invest in. Not surprisingly, most advisers told their clients to invest in the funds which would give them the most commission. The clients were never told how much their financial adviser made on these sales and transactions. Due to new laws, this has become more transparent. The clients now have to pay for this “great advice” separately. All of a sudden people wake up and smell the coffee. Index investing has become more and more popular in The Netherlands these last couple of months. Unfortunately, more and more new “index funds” are being designed. These funds claim to be index funds where in reality they’re not the kind of index funds we’re interested in. They’re actively managed (and thus more expensive) and they might not track the index of your choice completely. Some are also not diversified enough (like investing in the top 50 companies in your country…).

I’ll just stick to what I know.

How about you? What are laws like in your country concerning commission?

Love,

Mrs EconoWiser

If Something Sounds Too Good To Be True…

It probably is too good to be true!

So, yesterday I stumbled across this ridiculously cheap Dutch broker (De Giro) and I immediately opened an account in order to check things out.

I am so going to close my account again.

Why? Well, reading their general terms and conditions made me rather furious. You have to sign an agreement which states that they are allowed to lend your stocks to third parties. Okay, there are other brokers who also do this. However, with this particular broker ALL RISKS are the investor’s responsibility!!! There is no insurance, your cash money isn’t safe and if the third party who borrowed your stocks won’t pay up it’s your loss!

NO FREAKIN’ WAY I am investing with these guys!

I am very content with my beloved Meesman ❤ and BinckBank is okay for our larger Vanguard transactions in euros. I’m thinking about Lynx for our dollar investments with Vanguard. These three are so much safer for buy and hold investors like ourselves.

A thorough research into finding your ideal broker is well worth your time as this case demonstrates again.

Love,

Mrs EconoWiser

A New (Ridiculously Cheap!) Broker In Town

While surfin’ the internet I came across some tool in order to compare brokers. I filled in a couple of things and my number one was DEGIRO. Never heard of them before. Apparently, a couple of former BinckBank employees established this broker platform in 2008 for corporate investors. Because they were convinced costs could easily be lowered.

In september 2013 they launched a website for individual investors. They seem to be the cheapest broker out there. Their fees are up to 80% cheaper compared to my current broker. They don’t charge any fees other than transaction fees which are ridiculously cheap. Also, there’s no minimum.

It seems rather easy to open an account here. Within five minutes you can start trading.

Sounds rather tempting, doesn’t it? It seems they started this price war between online brokers.

What do you guys think?

Love,

Mrs EconoWiser

Addendum:

I have just openend an account with them. That was easy! I also phoned them. The scariest thing here is that they will lend your stocks to third parties. Is this also the case with BinckBank? Also, they don’t have a bank license…

When investing in dollars it is important to note that they don’t hold dollar accounts yet. So all dollar purchases are immediately converted into euros. They won’t help you with the W-8BEN form.