Financial strategy check (Germany)

[maridel]

Hi,

Writing from a separate account to not link this discussions with my main one due to the amount of details I want to share.

I am struggling to figure out how to proceed with my financial planning going forward. I think I'm in a good place but feel I can always optimize further.

My family of 4 (me, wife, 2 small kids) is living in an apartment in Munich we bought ~3 years ago. The apartment is big enough for maybe 5 more years. We could stay 10 years if we have a common goal to push for (we are aligned on this mindset). Mortgage is 15 years fixed interest and after that we are done; monthly payment is 1150€. This is the only debt we have.

I'm earning ~8.000€ per month after taxes; my wife (currently in maternity leave) makes another ~2.000€ and we receive 600€ Kindergeld and Elterngeld. All in all; after maternity leave ~10.600€ after taxes.

We spend 3.500€ to 4.000€ per month during pandemic; without any travel. After pandemic; we will likely add 3 holidays a year at ~4.000€ each (i.e. +1.000€ monthly when annualized).

We invest monthly 2.000€ in Vanguard FTSE All World UCITS ETF (VGWL) and another 3.000€ into crypto currencies (that's how I've made most of my money).

We have ~25.000€ in a tech stock; ~30.000€ in crypto currencies and ~30.000€ in ETFs. We are also sitting on 123.000€ cash; this concerns me a bit.

From the cash; I'm planning to invest 50.000€ in cryptocurrencies in the next bear market cycle (if/when); 25.000€ into Vanguard ETF and keep the remaining 48.000€ in cash.

The questions I have:

- Does it make sense to sell the tech stock to convert it into Vanguard ETF?

- How much cash should I keep at hand? Any instrument to put it on where I could take it out if necessary (equivalent to bonds some years ago) but somehow compensate for inflation?

- Is there any optimization that you would do to our current setup?

- What if we want to buy a house in 7 years and need ~500.000€ extra? What would be the smartest way to go about it?

- Does it make sense to invest in real state for rental? Never been a fan of having debt; but cash in hand can be very inefficient.

Really appreciate any comment/advice you can give me.

Last but not least; I want to make clear that we appreciate the privileged position we are in and the luck (and hard work) we have gotten along the way. All we've got was made through hard work and a bit of smart investment; we didn't inherit neither were born rich.

 

[cuba973]

@maridel What job in Munich pays you 8000 euros net?? My CEO is not paid that much

 

[christineadler]

@cuba973 Yeah, that's a Silicon Valley level salary.

 

[maridel]

@christineadler Fresh out of university Silicon Valley level. Similar position in Silicon Valley would be $400k-$600k.

 

[maridel]

@cuba973 Specialized C-level leadership role in a small company. Certainly not in a company that thinks of employees as swap-able pieces that earn within a strict salary range.

A doctor; notary; or lawyer with their own business can be around the same numbers. Not saying it's the norm; but more like top ~10% of earners.

 

[bruyas]

@maridel

Not saying it's the norm; but more like top ~10% of earners.

With 10k Nettohaushaltseinkommen and 2 small children you are in the top 3% of earners in Germany.

Btw, I'm enthusiastic about crypto myself, but I got 10% of my portfolio in it with 0 children. I'd personally scale your percentage back massively if I were in your particular life circumstances.

 

[cuba973]

@maridel Kudos to you for achieving that and good luck with your finances!

 

[thebigdaddy007]

@maridel Honestly, I would consider your bets on cryptocurrency a high risk option not worth jeopardising your families financial security for. I know you might have had success and you might feel like you know that market and you might feel invincible. But those markets are still highly volatile and you can loose a lot of money through small mistakes.

If you want to buy a house, you could probably do that now. 123k should cover the taxes/notary/provision part pretty easily plus start downpayment, and you can get a very low interest mortgage right now, with interest rates fixed for 15 or 20 years. Rather then paying the rent you are paying now you would be paying more, but already downpaying owned real estate.

If the appreciation in prices of real estate in German cities continues, then no amount of saving will compensate what you will have to pay for a house in Munich in 5 years. And because of that appreciation your children's inheritance should be substantial.

That all depends if you would rather safely build family wealth (even across generations) or rather bet on being able to earn more by investing in something risky like crypto or like bootstrapping your own company.

If you really want to buy a house only later, you can use Bausparen for a small benefit - the returns on it are miserable so just put the minimum required amount in - but as part of Bausparen you could secure current low mortgage interest rates for a future mortgage.

 

[maridel]

@thebigdaddy007 Thanks for your elaborate reply. Many valid points.

Regarding cryptocurrencies; I've been investing in the space since 2013 and I had good returns. However, as you mention I keep reminding myself "it might have all been luck"; "don't invest more than you can loose"; etc. I try to keep the investments manageable and don't think the financial security is at risk given the other assets. It's a high risk, high reward bet.

I think there's a detail you might have misunderstood. We own the apartment where we are at now. So in case of buying a house we could sell the apartment; plus the 123k and then get a mortgage for the remainder. My concern is that it feels all the eggs would be in the same basket or at least 90% of them since house prices would be 1.5 million and above. From risk management point of view doesn't seem smart.

Do you recommend any specific company for the Bausparen?

 

[thebigdaddy007]

@maridel What I wrote is just my opinion - that much in crypto would not work for me - but everybody is different, and I mean that in a positive way, maybe you are just better at handling the potential stress of a higher risk investment then I do

Regarding the apartment, yes I misread. The risk management part - I feel it depends if you treat the purchase of real estate as an invest to be risk managed or as more of a "owning a place to live" thing.

Montreal recommendations for Bausparen, I would be looking at comparison websites or some independent tests before making a pick. I do not think they differ a lot.

 

[inkarpathos]

@maridel What is your mortgage size?

Your strategy should depend on your Net Asset Value, not only your asset and income.

 

[maridel]

@inkarpathos We have 150k left on the mortgage; we put a big down payment. Interest rate is low that's why we are not paying it out earlier/faster.

 

[inkarpathos]

@maridel What's the current market value / your equity of the apartment?

(Just trying to get an idea of your finances)

 

[maridel]

@inkarpathos Current apartment value is 700k + appreciation for the last 3 years (15%?) so around 800k probably.

 

[inkarpathos]

@maridel Cool, so conservatively your NAV consists of:

- 550k€ Apartment

- 123k€ Cash

- 25k€ Tech Stocks

- 30k€ Crypto

- 30k€ ETF

Total NAV: 758k€

To consider risks, your current life situation consists of:

- Wife

- Two kids

- You and your wife (?) are in mid 30s.

- Want to buy house in 7 years

- 1x Stable Job (?) with relatively high income considering living costs

- 15 year fixed mortgage interest rate at historically low rate.

- Joint financing (?)

- Government subsidies in form of Kinder and Elterngeld.

Observations considering NAV and risk:

- Your 30k€ in Crypto, even if it is high risk and speculative, it is only 3.96% of your NAV.

- A majority (72.6%) of your NAV is tied to your apartment. So your main asset is real estate.

- You have 16.2% of your NAV in cash which is high!

- You have less than 7.3% of your NAV in other assets such as Tech stocks and ETFs, not including high risk speculative crypto.

Considering a) you run joint financing with your wife, b) you have two kids, and c) want a house in the future, I would rebalance your assets to include more low risk blue chip ETFs/stocks. Suggest:

- 40% Real Estate

- 40% Blue Chip ETFs/stocks

- 10% Cash

- 10% fun investments (Tech stocks + crypto)

In the future, you can think about taking a reasonably small margin loan (e.g. 10%) of your ETFs/stocks as down-payments for a house to save on capital gain tax.

 

[elise82]

@maridel I think you should come up with a diversified portfolio that you are comfortable with.
House prices do not keep rising and only have done because of near zero percent interest rates since 2008.
I would definitely go for some gold/silver instead of cash. If you want quick access then have it in an ETF. You could also have property in an ETF.
Rough guide could be:
30% property (either actual or ETF)
20% crypto
25% stocks (US index, EU index, Asia ETF)
20% gold/silver (physical and/or ETF)
5% cash

That applies to a starting position, monthly investments and then maybe twice yearly rebalancing.

 

[myles1999]

@maridel Given your salary, having 100 k in cash might make sense.
About 1 year value of salary in cash is on the high side but still reasonable. Moreover having some additional cash is a good thing in case of sudden investment oportunity.
However if u are a c suit in Germany I guess you are not so young so I would have expected you had more assets given your salary level and you carrer senority.
Sharing some additional details on your age might help fixing resonable targets

 

[maridel]

@myles1999 Mid 30s.

 

[myles1999]

@maridel Ah ok, you are young. Now it makes more sense. I tought you were mid 50s.

Personally I do not hold any crypto, my assets are cash, etf/shares and my property in Luxembourg.

Regarding real estate investments for rent I am not a big fan. It is not tax efficient, tenants are a big risk, properties needs mantainance and they are linked to a specific place. Moreover, if you need cash you should sell the entire property, and not just a franction of it. All these incoveninces can be overcome by investing in shares/etf, that I prefer very much on real estate.