So, investors are angry with Alex because of disappointing results over 2014. For the non-Dutch: this broker has aggressively advertised during the past years about their investing performances in the past. They boosted about being able to beat the market. There were impressive tv commercials about how they would sell when stocks were about to drop and buy when they were about to increase, taking time-outs based on their technical analyses. However, as predicted in any book or study you pick up about index investing….active investors might be lucky for a while, many investors hop on and there you have it…they can’t meet expectations anymore. That’s exactly what happened here. The fees are killing investor’s capital growth and the investment approach is plain guessing. Well….duh…we know!
I have stated my opinion on investing with Alex before in a reader case study and, luckily, this reader decided against investing with Alex after all.
I just don’t understand why people don’t do their own research on investing, educate themselves a bit and then make a conscious decision instead of making a decision after wathing a commercial on tv. I mean, those are your hard-earned euros! Who’s going to take the best care of them? Right, you!
Oh, Meesman scored 19.3% with their world-wide fund. Snaps for index investing!
Love,
Mrs EconoWiser
EconoWiser 
The investors would be better served by being angry with themselves for confusing listening to commercials with doing their own investment homework. 😉
Hear, hear!
Reminds me of Dexia. First, all the sheeple, even the smarter ones want to join… great results… can’t go wrong… and when the results suddenly are not that great, everybody is complaining. Do your homework. There are plenty of resources, other than the advertisements or advisors.
I really do not understand the investing-thing you are doing -and have no money to do so anyway 😉 – but if I had, i’d educate myself, or choose something I dó understand. When it goes wrong then, I have only myself to blame….
That’s because you’re a sensible woman! ❤
Hi Mrs. Econowiser,
Could you give me an update on how you are investing at the moment? Do all your new contributions go into the Meesman funds? I currently do not see the advantage of buying Ishares’ IWDA or Vanguard’s VWRL over a combination of the Meesman funds. Because we Dutchies can get the dividend tax back, the Meesman funds have a 0.4% tax-advantage at 2% dividends over the Irish ETF’s mentioned. Also automatically reinvesting dividends saves you currency exchange costs, transaction costs, bid-ask spreads.
The transaction costs are higher, but since you invest for the long term, they matter less than the difference in TER. So when including the dividend tax advantage, you would have an 0.1% advantage in costs per year (extra transaction costs would cost you about 1x this advantage, so that’s reasonable).
Long post for one question but I am still considering whether I should switch to Meesman so would very much appreciate your view!
Best regards, Mark
Hi Mark!
Right now it’s 1/5 Meesman (80% world-wide and 20% emerging) and 4/5 Vanguard VWRL on a monthly basis.
I’ll look into the matter once I’m done being ill, damn virus caught me.
I am also in doubt between Meesman (worldwide+emerging), IWDA+EMIM (worldwide+emerging with Ishares) and VWRL (includes developed+some emerging). I prefer the first two because they are not distributing dividends.
Today I looked at some historical data at bloomberg to figure out if tracking errors differ significantly. For VWRL there is no big history and I forgot to look at the return for the FTSE all-world index which is tracked by VWRL. The MSCI all-world did about 1% better p.a. over the last five years than the FTSE index, but this is just five (boom)years and I do want to be invested in emerging markets as well so do not think I should jump to conclusions here.
For 2014, gross dividends reinvested (so excluding tax leakage) and in EUR the annualized return was about 20.6% for the MSCI all-world index. Meesman world equity scored about 19.2%, IWDA scored 20.27% and VWRL incl gross dividends scored 19.57%. VWRL and IWDA do have a tax leakage estimated at around 15% of dividends, so about 0.3% advantage in terms of taxes for Meesman. VWRL does include emerging, so some of the extra return could be due to that. Also it is just one year, meaning I do not want to base any conclusions on this comparison.
Annualized over five years might be more interesting with the same conditions as the previous comparison: (01.01.2010-01.01-2015) MSCI all-world scored 14.75%, IWDA 13.71% and Meesman 13.65%.
Basing myself on the last comparison, IWDA and Meesman do not differ significantly in terms of tracking error. IWDA has a TER of 0.2%, Meesman 0.5%. IWDA does have 0.3% tax leakage deducted from the return mentioned (based on a conservative percentage of 2% in dividends) making the annual costs equal at 0.5%. Transaction costs: at Binck a transaction of 5000EUR costs me about 0.23%, at Lynx 0.12%, at DeGiro 0.07% and with Meesman it is 0.25%. Meesman does not have a bid/ask spread though, still has some room for lowering their TER when growing bigger and tax leakage is no concern anymore.
I think I will go for Meesman, but would love to hear some other opinions on my findings.
Vanguard Total Stock Market (VT) + Vanguard Total International Stock Market (VXUS) (50/50) within a custody account at dutch broker De Giro (so no securities lending possible). There is no cheaper combination.
There’s no way I’m going to do business with De Giro. They’ll lend out your stocks to third parties, but the customer is FULLY RESPONSIBLE for this!!! If the third party doesn’t pay up, it’s your loss. Ehm….? There’s no such thing as a free lunch! There’s totally no insurance with them, with Binck and Meesman there is. Sorry, I’m not going to promote De Giro here.
Hi Ms. Econowiser,
Small remark though, you are not happy with DeGiro being able to lend out stocks, but are comfortable with Vanguard doing so within many of their funds (e.g. in the emerging markets stock fund with Meesman). Could you give some clarification to this or is it mainly gut feeling?
Kind regards
Hi Micks,
Oh, that’s an easy question to answer. De Giro puts all the revenues from lending out stocks into their own pocket (that’s why most of their options are “free of charge”, however the customer is fully responsible if things go wrong!). Vanguard transfers 100% of the proceeds to the investor. I’ll take that second option any time! 😉
Plus, I trust Vanguard with my money since it’s a well established company with a clean record.
Thank you for explaining! I do indeed realise that DeGiro might be less carefully in their stock lending approach than Vanguard. Although I too have confidence in the way Vanguard is doing business and that all stock lending income flows into your own fund is really nice, it still is adding counterparty risk to your portfolio. This is why I wanted your view on the stock lending, could you add if you view the risk as a significant one?
Thanks for taking the time to reply and best wishes to you and your family’s health and happiness.
(ps. I currently do not see stock lending as a big risk with Vanguard, mainly because I believe the actual securities can be returned when the counterparty lending the security goes bankrupt)
Thanks, with Vanguard I do not consider this a huge risk. Indeed, the securities can be returned. We totally agree here! Whereas, with DeGiro I do.
Uit de voorwaarden:
13.4 Derden
DEGIRO en Beleggersgiro houden bij derden, zoals clearing members en (sub) custodians geld
en Financiële Instrumenten aan voor rekening en risico van Cliënt. DEGIRO en Beleggersgiro zijn
ten aanzien van door hen voor Cliënt bij derden gehouden geld en Financiële Instrumenten tot
niet meer gehouden dan datgene dat zij in relatie tot dat geld en die Financiële Instrumenten
daadwerkelijk van die derden ontvangen. DEGIRO maakt bij het verlenen van haar diensten
gebruik van verschillende derden, zoals brokers, beurzen, prime brokers, OTC wederpartijen
enzovoorts. DEGIRO is niet aansprakelijk voor schade die het gevolg is van tekortkomingen van
derden, tenzij en voor zover die derden door DEGIRO zelf zijn ingeschakeld en de schade te
wijten is aan de grove schuld van DEGIRO bij het onvoldoende zorgvuldig selecteren en
monitoren van deze derden. Indien DEGIRO niet aansprakelijk is voor verlies van Cliënt ten
gevolge van het handelen van een derde, dan zal DEGIRO Cliënt helpen de schade op die derde
te verhalen.
Bij Binck en Meesman is dit niet het geval. No way in hell dat ik mijn beleggingen die ik de komende dertig jaar vast wil houden ga toevertrouwen aan deze club.
Hi! First of all, congratulations for the baby and the blog!
In Spain we have a traditional lack of competitive brokers. I was eyeing DeGiro for buying
some VANGUARD FTSE All World ETF (AMS:VWRL), since I can’t buy that specific stock directly from Spain, as Vanguard still doesn’t offer it.
At first I was thrilled with this broker, but then I saw you don’t recommend it. How so?
The investments seem to be insured up to 20k€ per investor. Being a small private investor,
do you think it’s appropriate? Am I safe investing an amount below that 20k figure?
En de voorwaarden van een custody account zijn niet te vinden.
Daarbij: ja, leuk hoor, geen transactiekosten. Maar je bent wel voor je dividend €1 + 3% (max 10%) kwijt! Daar gaat je rendement! Nogmaals, there’s no such thing as a free lunch!
Click to access Tarievenoverzicht_CUSTODY.pdf
Bekijk ook:
An accumulating ETF such as Ishares IWDA might make sense to buy at DeGiro with a custody account. Only missing realtime data could be an issue making you pay too much because you cannot see the current bid/ask spread. Also make sure you know about FATCA when buying US-domiciled ETFs, see for instance: http://europe.etf.com/docs/presentation2011/6_ETFsAndTax.pdf.
Hi Ian,
Since econowiser is probably in some laborious days (pun intended) and I too hope she is doing okay, I think I can give you some additional information. The main reason reason why you might dislike DeGiro is that it is able to lend out your securities. You can read more on that on: https://www.degiro.es/data/pdf/Informacion_servicios_inversion.pdf.
Basically it goes something like this: DeGiro can lend out your ETF to a third party, and the third party has to give collateral of 104% of the worth of the ETF (riskfree assets that are not allowed to be invested, so for instance cash or 3month bonds could qualify as collateral). Of course the value of the ETF fluctuates and the value of the collateral should be fluctuating as well, so when the value goes up, the third party has to post extra collateral. If the third party cannot do that, DeGiro’s reserves will be used and if then even DeGiro goes bankrupt, then it is you who is liable.
So worst case scenario: A few big lenders go bankrupt at the same time, causing DeGiro to go bankrupt and then what is left to you is the difference between the posted collateral and the price of the ETF. So you would, as I read it, still not lose all your wealth.
DeGiro keeps all gains from securities lending and this extra risk (albeit small or large, who knows?) is rewarded by the lower transaction costs. I really appreciate the added competition though but am too still in doubt if I want to take the risk.
In some of the Dutch comments (sorry for that) there are some possibilities for profiting from the low tariffs. You could for instance open a custody account, without securities lending (tariffs: https://www.degiro.es/data/pdf/Relacion_de_tarifas_CUSTODY.pdf). Tariffs are somewhat different, making it for instance not attractive to buy VWRD under those conditions, Transactions are still 2 euros + 0.02%, but for the processing of dividends you pay 1 euros + 3% which is quite much with 4 distributions per year on a 20k balance.
Another option would be to open a regular account and transfer it to a safer broker after purchasing. For all your VWRD holdings that would then be 10 euros. Depends on the transaction costs of the other brokers and your total holding of course whether that is even worth the effort.
Kind regards,
Micks
(disclaimer, I am not Spanish myself, so double check tariffs etc.)
Ian,
I forgot to say something in my comment, so for the sake of completeness: if you want to buy accumulating ETFs then a custody account would be much more interesting. You could look at the offerings by iShares or DB x-trackers.
Also the 20.000EUR protection you are talking about only could pay out in the case DeGiro is not compliant and does not segregate their assets. So if DeGiro has for instance not put your ETF in a depository that could be seen as misconduct in case DeGiro defaults, and then you could receive that 20.000 maximum. So securities lendings agreements you make with DeGiro will then still hold and not be seen as misconduct.
Kind regards,
Micks
Dear @Micks,
I was thinking about purchasing this: Vanguard FTSE All-World UCITS ETF (AMS:VWRL)
https://www.google.com/finance?cid=575731658369607
It’s a very diversified ETF with acceptable TER traded in many currencies; I would be buying them in Euros ($ is too strong now and I can’t take the currency risk). And putting there as much money as I can afford.
If I get a Custody account instead of Basic would I be safe if DeGiro flops? The Custody account has some fees when it comes to dividends, but if it means full safety, as far as the broker is regarded, up to 20k € I can live with that.
Thanks for your clarification!
Hi Ian,
I believe that securities lending is the main concern and that would indeed be solved by getting a custody account. If DeGiro flops, your ETFs indeed will be safe at the depository.
VWRD is indeed a very good diversified and simple choice for your equities. It does not matter if you buy the fund in Euro, USD or Sterling for that matter, the underlying holdings are what counts. If you buy the fund in USD and the fund is invested half in USD and half in EUR, the fund will receive your USD and use half of it to buy EUR equities. So you would still have currency risk (which is not worth hedging in my opinion). If you have your money in EUR, it makes most sense to save on forex costs by also buying the fund in EUR. If it is still a good option to buy at DeGiro using a custody account is depending on your other options. A quick calculation with the dividend processing costs at a 10.000 EUR balance (to simplify we assume the costs are 4EUR per year + 3% of the div. yield and a 2% dividend yield):
The variable portion is 0.03×0.02=6bps. The fixed portion is 4bps. So on top of the 25bps TER that VWRD has, you will have 10bps yearly costs for having a custody account. At 10.000Euro investment that is 10EUR extra. If you can find a non-lending broker without these costs you would have earned the higher transaction costs back within a few years at most. It is really small money but easily earned this way :p
Kind regards,
Micks
Hi Ian, my first comment is still awaiting moderation, probably because of the link I put in it (since Ms. Econowiser probably is not in the position to moderate now, I am being rude and trying it again). So my comment might seemed a bit illogical at first. Here is what I tried saying at 10:25 today:
Hi Ian,
Since econowiser is probably in some laborious days (pun intended) and I too hope she is doing okay, I think I can give you some additional information. The main reason reason why you might dislike DeGiro is that it is able to lend out your securities. You can read more on that on: (- link deleted, you need the Informacion_servicios_inversion document).
Basically it goes something like this: DeGiro can lend out your ETF to a third party, and the third party has to give collateral of 104% of the worth of the ETF (riskfree assets that are not allowed to be invested, so for instance cash or 3month bonds could qualify as collateral). Of course the value of the ETF fluctuates and the value of the collateral should be fluctuating as well, so when the value goes up, the third party has to post extra collateral. If the third party cannot do that, DeGiro’s reserves will be used and if then even DeGiro goes bankrupt, then it is you who is liable.
So worst case scenario: A few big lenders go bankrupt at the same time, causing DeGiro to go bankrupt and then what is left to you is the difference between the posted collateral and the price of the ETF. So you would, as I read it, still not lose all your wealth.
DeGiro keeps all gains from securities lending and this extra risk (albeit small or large, who knows?) is rewarded by the lower transaction costs. I really appreciate the added competition though but am too still in doubt if I want to take the risk.
In some of the Dutch comments (sorry for that) there are some possibilities for profiting from the low tariffs. You could for instance open a custody account, without securities lending (tariffs: https://www.degiro.es/data/pdf/Relacion_de_tarifas_CUSTODY.pdf). Tariffs are somewhat different, making it for instance not attractive to buy VWRD under those conditions, Transactions are still 2 euros + 0.02%, but for the processing of dividends you pay 1 euros + 3% which is quite much with 4 distributions per year on a 20k balance.
Another option would be to open a regular account and transfer it to a safer broker after purchasing. For all your VWRD holdings that would then be 10 euros. Depends on the transaction costs of the other brokers and your total holding of course whether that is even worth the effort.
Kind regards,
Micks
(disclaimer, I am not Spanish myself, so double check tariffs etc.)
Micks, first of all, thanks for all your input. I thought I wouldn’t get any until Ms. E would get back.
Thanks for the clarification: the Custody account seems like a must for me, all things considered. The drawback is the dividend fees. However they have an upper limit of 10%. Wouldn’t that make up for the fact that it has quarterly dividends? Also, having just one type of stock (VWRL or VTI) would help driving down the constant part of Degiro’s dividend fee, wouldn’t it? I still haven’t mentioned it, but my initial investment would be of ~8k€.
I’m also reconsidering the ETF I chose. If I am always exposed to currency risk when investing internationally I might be better off replacing the VWRL with Vanguard Total Stock Market ETF (VTI). That way I can avoid the tax leakage from Ireland and prepare the W8-BEN for the US. I am aware that DeGiro can handle that.
Would this make more sense? I was posed to deal with the Irish, being the Dollar this high now, but if it makes no difference I might as well go for the VTI directly.
P.S: You won’t hear me complain about the Dutch comments. On the contrary, I’m grateful that most of the content in this blog is in English ; )
Hi Ian,
I would advise you to take your tax situation into account. Wikipedia tells me that both cap gains and dividends are taxed at around 21%. A quick calculation of the dividend taxes leads to this: An Irish fund like VWRD loses about 10% of dividends in foreign withholding taxes leaked according to the annual report, and your government would then tax the remaining 90% at 21%, leaving you with about 80% of dividends. The US fund VT (which is the allworld ETF, VTI is world excluding US) loses about 3% in leaked foreign withholding taxes. US government usually has a 30% rate on dividends, but I believe the US-Spain double tax treaty reduces the rate to 15%, leaving you with 0.97×0.85=82.45%. So in terms of dividends not much of a difference between the two if I am correct. If you pick an accumulating Irish ETF, you would have approximately 90% of dividends reinvested, so no taxation on personal level. This makes the income for capital gains higher, but you would not pay those taxes until selling, so you defer paying these taxes as long as you wish. Do take the above comments with a grain of salt, could be wrong on your specific Spanish taxes.
Spain does not have a estate tax treaty with the US, so if you die with more than 60.000USD in assets domiciled in the US, your ancestors could get that taxed both in the US and in Spain. You might also want the risk of having assets domiciled in the US, who is already not that friendly in terms of taxes (you could look a bit up about FATCA, but that should not be of a concern at this moment since Spain has a agreement with the US).
On the 1EUR+3% cost for processing dividends, I am not sure how that 10% upper limit works. Might be worth contacting DeGiro about it. The way I think it works is that you always pay the 1EUR and pay up to 3% of the dividends if the sum of 1EUR+3% is not higher than 10%. So the calculation I previously made would then be less bad, but it is still an added yearly cost, if you have some other non-lending options be sure to take them into account.
My opinion is that it would be best to ditch the idea of investing in US domiciled ETFs and go for an option like VWRD (which holds about 90-95% of investable equities, while VT includes small cap and holds 98%, which would probably not lead to much difference in returns). The higher TER of VWRD would be worth the avoidance of dealing with the US in my opinion. With my limited research in your tax situation I would prefer an accumulating fund like iShares’ IWDA or DB x-tracker’s MSCI world index ETF and then add an emerging markets fund if my funds grow larger. Should you be fine with VWRD distributing dividends, then I deem that to be your best option and great for simplicity.
Hope this is helpful.
Kind regards,
Micks
Micks, I don’t know how to thank you!
Certainly accumulation ETFs are a very interesting option. I think I’ll enter the market soon with the IWDA. It has very similar performance to the much-loved Vanguard VWRL and I really want to maximize the compound interest effect!
I wasn’t expecting to get a non-Vanguard option for a Blackrock one, but the TER of 0.2% seems quite acceptable.
Since I want to spread my purchases through the following months (if I drop all the cash now I’ll regret it later if the market goes down and I have no money to keep buying) I guess I’ll have the chance to ask Ms. Econowiser herself when she returns.
Thanks for all the input, Micks! Your insight has been invaluable to me : D
I think that you are missing some fees.
Irish ETF:
– Fund management fee: Depends on the fund.
– United States withholding tax (paid by the fund): 15 %
– Capital gains tax: Depends on your country of residence.
United States ETF:
– Fund management fee: Depends on the fund
– United States withholding tax (paid by you): 15 %
– Dividend tax in your home country: Depends on the country.
– Capital gains tax: Depends on your country of residence.
– Currency conversion fee: Charged by your bank for buying and selling dollars.
Advantages for Irish ETF:
If the fund is accumulating, then your tax payments might be postponed (depends on the country and the tax rules), and you may then effectively have an interest-free loan from your country’s tax authority from which you get capital gains until you sell your holdings in the ETF. Dividend-paying funds therefore indirectly have an extra fee, and the size of this fee depends on how long you are planning to keep your holdings.
Since you don’t have dollars, you will have to convert your euros into dollars when buying a United States ETF. Degiro charges 0.1 % when you buy or sell units in dollars if currency is converted automatically, or ten euros plus 0.02 % if you convert your money manually. If you want to convert your dividend to euros, you will also have to pay that fee when dividend is paid. Other brokers charge other fees. For example, my broker wants 0.25 % for converting money. If you sell something in dollars and then want to buy something else in dollars, then make sure that you set up your account properly so that you don’t make a round-trip dollars-euros-dollars with a double fee. If you go for the Irish ETF, then you will not pay a currency conversion fee yourself, but the fund managers may want some money from currency conversion and may therefore set the bid and ask quotes accordingly. Buying from a third party who is selling his units is fee-free, and it should generally be cheaper for you if you don’t have to convert any money yourself.
Advantage for United States ETF:
If you opt for the Irish ETF, then the fund will have to pay United States 15 % on all dividends in withholding tax. This tax is effectively lost as the fund can’t deduct this money from anything. If you opt for the United States ETF, then you will pay the United States tax yourself. In some countries, you can deduct this tax from your domestic tax, so your total tax situation will be as if you had paid no United States tax. This is the case in my country, but I don’t know if it is the case in your country. If you can deduct the United States tax from something, then this is a big advantage for the United States ETF.
With my tax situation, the United States ETF would have been the best option if it weren’t for the currency conversion fee. Considering that fee, I will in particular have to look at this:
– Dividend yield (high yield = US-registered fund, low yield = fund quoted in local currency)
– When will I need to convert back my dollars to local currency? If I can avoid this for a long time, then choosing the dollar option may be a good idea.
– Is there any difference in the funds’ management fees? If one of them has a significantly higher management fee, then choosing the other one can be cheaper.
Je kunt toch prima twee brokers op een slimme manier combineren ? Gebruik bijvoorbeeld De Giro voor de aankooptransacties en als de portefeuille voldoende omvang heeft boek je deze naar Binck Bank (die nemen het toch gratis over). Vervolgens begin je weer opnieuw met handelen bij De Giro en laat je de portefeuille bij Binck gewoon staan zonder te handelen. Zo ondervind je zo weinig mogelijk hinder van de kosten van dividendbetaling die bij De Giro worden berekend indien wordt gekozen voor een custody account. Voor een relatief klein depot zijn deze kosten namelijk gering en ben je per saldo nog steeds veel goedkoper in vergelijking met andere brokers die iedere keer transactiekosten berekenen.
Behalve dat je bij je custody account van DeGiro wel 10 euro per regel betaalt om deze over te boeken naar een andere broker. Wanneer je een flinke initiële som te investeren hebt, kan jouw strategie inderdaad voordeliger uitpakken. Blijft wel zo dat je geen realtime koersen hebt, wat weer tot hogere spreadkosten kan leiden en inderdaad zijn die dividendkosten niet heel relaxt. Hiernaast ook 2,5 euro per jaar per beurs (behalve Amsterdam en Brussel).
Genoeg zaken om te berekenen voordat je de keuze maakt in ieder geval (ik heb het zelf niet nagerekend overigens en ben niet op de hoogte van verschillen in spreads tussen bijvoorbeeld DeGiro en Binck, verschillende brokers kunnen immers verschillen in snelheid van handelen). Zijn genoeg voor- en nadelen aan elke broker, blijft belangrijk dit objectief te kunnen bespreken 🙂
Groet, Mick
Inderdaad, goed om de opties te blijven bekijken. Ik heb bij De Giro het gevoel dat er teveel addertjes onder het gras zitten. Ik ga me niet wagen aan gekke overhevelconstructies. Maar, dat is wat ik doe met mijn geld. Als iemand anders daar wel heel blij mee is, fantastisch!