Investments from Europe/Latvia

[reneasohm]

Good afternoon everyone!

Since my financial stability is greatly improved over the last years, I've come to conclusion, that instead of putting X amount of money in my savings account (you may call it my safety pillow) I should divide this X=Y+Z , meaning Y goes into savings account and Z into investments.

After some studying I've come to conclusion, that Index funds Is something that I'm looking forward to be investing in. The only problem is that they are available in U.S. Vanguard etc.

I do like the idea of investing in S&P 500 Index fund, but I cant find any information about brokerages in Europe from where to do it.

Also, there are some options within my bank, with around 5-6% yearly return, which ain't that bad, but the fees are too high for my taste.

Is there any opinions available for best brokers for European citizens that are offering such funds?

P.S. I would like to make monthly payment. ETFs might work as well, but then there's manual work.

 

[da13ba]

@reneasohm What does your bank offer that returns 5-6%?

There are various ETFs that would allow you to invest in the S&P 500, however that's not very diverse. Whether that's good for you depends on your risk profile and goals. You can use justETF to find one.

Personally, I invest with Interactive Brokers, my portfolio is 100% VWCE. The manual work consists of getting paid, creating a deposit notification in IB, transferring funds from my bank to IB, waiting a few hours/a day, and just buying however many shares of VWCE I can at that point. Very easy.

1) You don't have to go with IB, of course. There's also Trading 212. DeGiro doesn't allow Latvian IBANs (though I've heard people get around that by opening an account at N26). Luminor Trade and other bank services have quite high fees.

2) Whichever broker you end up going with, register your account with VID as an "Ieguldījumu konts". Then you only pay taxes on your gains when you withdraw money from it and only when you've withdrawn more than you've put in. That also makes distributing vs accumulating ETFs not as big of a deal, though I chose accumulating because it's more convenient.

 

[reneasohm]

@da13ba This is public information - https://bit.ly/3gLHpXl

All of the options ar not too old, but some of them gives nice returns. But the pricing though.

1. As per SEB, if you invest in them, you can get in "Nodokļu deklarācija" 240 eur yearly return if you invest there. But yes, that is something I will do.

More and more I hear about IB, going to check them out.

 

[reneasohm]

Damn, i forgot to mention. That I want to long term invest money.

 

[da13ba]

@reneasohm Ah, those sorts of funds.

1) Historical data is not an indicator of future returns.

2) They're still investing in various securities, same as VWCE and other ETFs.

3) All of those funds seem to be actively managed. As is often said - actively managed funds very rarely outperform passive ones.

4) If you're looking at the 1 year returns for those funds, they all look great, because the markets were hit by Covid in March and they've been recovering and growing since. VWCE has increased in value by 32%, compared to this day last year. Also, see #1.

5) Fees. VWCE has a TER of 0.22%. Some of the funds on SEB have management fees of 0.75% or more. And SEB also has a monthly admin commission, which will definitely eat away at your gains. Back when I was looking into all this, I compared putting €1k/month in a 3rd pillar pension fund vs buying an ETF on IB. It assumes the same performance of 5% per year. The 3rd pillar pension has a 0.65% commission (based on Indexo's new fund, Swedbank has 0.69%), IB - $10/month (though I'm treating it as €10/mo, which isn't accurate, and after you have $100k in your portfolio, you'll only pay trading commissions, no monthly fees). Here are the results.

6) Got a source for the tax return claim? The only products you could buy from them that would give you a tax return, as far as I know, are the 3rd pillar pension and uzkrājošā dzīvības apdrošināšana.

 

[reneasohm]

@da13ba

1. Yes, definitely
2. Thank you for clarifying.
3. Yes they are, only 2% of actively managed funds outperform market.
4. Of course, this year is all time high +Covid-19, i know that .But you can check 3 year span as well, some of them have nice returns.
5. Correct, everything you've explained is correct. Thats why I was trying to find something similar to index funds, but since i'm from Latvia, it became fairly difficult. (Them US citizens everything seems to be easier ) Why are you calculating 10$/month? As per https://bit.ly/3e0bJf3 , its 0.2% from the deal.

 

[da13ba]

@reneasohm

1. Again, let's look at a fund offered by SEB, SF1 SEB Global Fund UC. And let's compare it to IWDA (because VWCE isn't 3 years old yet). From 2018/04/09 till 2021/04/29, the SEB fund's NAV has increased by 39.41%. IWDA - by 52.11%. If you want to invest for the long term and track the world, IWDA does a much better job (TD is 0.09%), although I didn't check what exactly is the SEB fund's benchmark. And, as always, see #1.
2. IB has a $10 monthly inactivity fee for portfolios

 

[reneasohm]

1. Ahhh, minimum is 10$ fee, just because i'm from Latvia. damn, nice. So for low amount investments it's not worth it.

 

[stefanny]

@reneasohm Fellow Estonian here with the same problem. I started with SEB funds and while not bad they are bloody expensive. Looked at the broker account opportunities in local banks and their fees are pretty awful. Now opened an account with IB and bought into index ETFs. Just keep in mind you probably want accumulating ones, to avoid hassle (and taxes) with dividends. And obviously do some home reading about how the taxation works in your place. Plus for this approach is that as the portfolio grows it is going to be easy to look a bit further from index funds.

 

[exsoldier]

@stefanny

Just keep in mind you probably want accumulating ones, to avoid hassle (and taxes) with dividends.

I might be wrong but Afaik foreign dividends are not taxed in Latvia so it might be better to go with distributing funds and just reinvest them.

 

[reneasohm]

@stefanny Thank you for your reply.

So basically you are investing some amount of money each month and but shares for that.

Would you mind sharing ETFs that you are interested in?

 

[stefanny]

@reneasohm Specific choices depend on your circumstances and whether/how much time you're willing to spend and what risk you are ready to take. I wanted 50% of my portfolio in indexes and divide it roughly 30/20 between S&P 500 (SXR8) and STOXX600 (MEUD). UCITS and EUR base was a condition, otherwise some American funds would probably have been better. If you really don't bother, some world index might be even better.
25% of my money goes to some sector ETF with growth prospect and I have not made that choice yet. Biotech probably. Still transferring my old portfolio... Last 25% is for fun and games and currently a bit under water with some interesting stock picks

 

[reneasohm]

@stefanny Well yeah, sounds about right. I want super long term investments. like 20-30 years (thats why I was looking in index funds, just to get them compound gains)

 

[moviefan2004]

@reneasohm Please explain that 5-6% part. That doesn’t make sense.

As for the other part, start saving a part of your salary in a few broad funds until you learn more.

The Nordic markets, especially small and mid cap, perform very well. Mix that with a broad global index fund (cheap) and you have a good base.

I’d guess that SEB, Robur/Swedbank etc can offer these easily. Don’t you if you can get Nordnet or Avanza in Baltic yet.

 

[reneasohm]

@moviefan2004 This is public information from bank - https://bit.ly/3gLHpXl

As you can see, some of them have decent returns, but most of them are super new and last years doesn't say anything, cuz you know, "all time high".

 

[moviefan2004]

@reneasohm That’s just historical performance and no guarantee or expectation.

 

[paul47]

@reneasohm I am sorry to say this, but Latvian real estate is very cheap as of now.

I am Lithuanian myself, and about 2 years ago I decided to allocate 1/3 of investments into land agricultural and forest, which can be repurposed into smaller building plots. Forest land in LV is relatively cheap and is a sound long term investment, because its low maintenance. Owning physical assets is important I think.

You can also take a look at Aukcioni Ispatums in Latvia, and buy an apartment in Riga or say Jurmala if you have enough funds.

Prices in Riga ar similar to Kaunas Lt which is almost 2.5 times smaller, second city in Lithuania. I personally would look into that if I was Latvian, as there is no bubble in Latvia compared to Lithuania. You cannot expect a huge ROI but it should remain liquid.

Do you want to own stocks only or physical assets also?

 

[reneasohm]

@paul47

I am sorry to say this, but Latvian real estate is very cheap as of now.

I am Lithuanian myself, and about 2 years ago I decided to allocate 1/3 of investments into land agricultural and forest, which can be repurposed into smaller building plots. Forest land in LV is relatively cheap and is a sound long term investment, because its low maintenance. Owning physical assets is important I think.

You can also take a look at Aukcioni Ispatums in Latvia, and buy an apartment in Riga or say Jurmala if you have enough funds.

Prices in Riga ar similar to Kaunas Lt which is almost 2.5 times smaller, second city in Lithuania. I personally would look into that if I was Latvian, as there is no bubble in Latvia compared to Lithuania. You cannot expect a huge ROI but it should remain liquid.

Do you want to own stocks only or physical assets also?

Hey, thanks for your answer.

We are planning on buying our first apartment, but I dont think I can agree with you on the "bubble" part. Since everyone is feeling like the prices are off the top. 3 room apartment in new project is about 110k-140k.

But yes, apartment in Riga feels like a solid investment as well.

Hmm, stocks feels like a good option, since I was already putting fair amount of money in my savings accounts, I can just do the same for stocks.

 

[paul47]

@reneasohm You are comparing new projects, however the best ROI is from older housing which requires improvement.

In Riga it is possible to buy a decent 1-2 rooms apartment for 40 or so k. Check foreclosures.

In Vilnius and Tallinn such objects are not even available. So yes in Riga, you still have a better inventory.

Buying an apartment for 100k+ is not a great purchase in my opinion unless it's located in city centre and can be refurbished so to speak.

I myself have some ideas regarding Riga, as it is a better investment than Vilnius, which has a very bad inventory.