Uncategorized

Your first steps on the stock market: DEGIRO Quick User Guide for beginners

In order to help you if you are new to either the stockmarket or DEGIRO I have written a small guide to help you get started. While its meant for beginners I believe it can also contain some good tips for the more advanced user.

In January 2020 I made the decision to move from Keytrade to DEGIRO as a broker. The low fees appealed to me. I noticed that its not yet clear to everyone how you can actually trade stocks / ETFs and funds on DEGIRO, so this entry guide will allow even the absolute beginner to start on the stock market.

disclaimer “Investing involves risks of losses”

DEGIRO Sign up process

The very first thing you will need to do is create an account (if you haven’t already). You can sign up for DEGIRO here. DEGIRO allows you to sign up from multiple countries. If your country is not in the list but you live in the EU then I suggest to pick a country where you speak the language. For example I live in Belgium and I signed up on the site of “Nederland”, and that works perfectly. Remember the account is 100% free. You only need to pay a small fee when you start to trade. I found that for the trading I do, DEGIRO is the cheapest stockbroker. I will explain this part further on.

Once you click on your country you will enter the sign up screen:

Click there on “Open a free account now”.

DEGIRO has a waiting list, the crisis has drawn a lot more people to the stockmarket. Don’t worry DEGIRO is processing the waiting list, but it can take some time for you to have an active account. Remember stock trading is for the long term, so don’t panic if it takes a while to sign up.

Once you filled in your details go to your mailbox to activate your account

In the email you just got click “Complete your registration” to activate the account

You then go to a page that says Email address verified

Click Login and type there the username and password that you entered before.

At this point you will know your place in the queue. At some point 30.000 people tried to sign up, so that means that 6431 is not a bad place.

Updating your profile

Once you are accepted, one of the first things you should do is to make sure all your personal information is correct.

To check that hover over the usericon at the lower left and click “Profile” (on the screenshot its in Dutch but its on the same location everywhere).

When you click there you come on your personal information page.

The first thing you need to update there is “Personal information” (Persoonlijke informatie on the screenshot).

In that Area you will be able to update your adress.

The second area that is important is the area just bellow that, where you can set your bank account. If you set your bank account then any amount of money that you write from your bank account to DEGIRO will be automatically added to your DEGIRO account. I noticed that this is a smooth process and takes only a few hours.

What I also highly recommend to do is to check out the “Security” Area. There you have the chance to set two-factor authentication.

Using two factor authentication is highly recommended. In this case you will need to download an app called “Sophos Authenticator” on your phone. You can just download this free app from the Apple store or Play store.

DEGIRO will present you with a QR code. Once installed just select scan QR code. This menu pops up if you click the three dots in the top right screen.

Then a camera will pop up and you just point it to the QR code that DEGIRO has supplied you.

From this point on you will see a DEGIRO icon on your app. That means that every time you login you will need to write whatever number is displayed there. That also means that only if a User has both access to your phone and your password they can access your account, making it impossible to hack your account from the outside since they would also need access to your phone to get in.

DEGIRO Pricing

Before starting with investing you might want to know how much it will actually cost you to invest.

First its good to know that the tariffs are very similar across the EU, with some minor differences. In the Netherlands I noticed they are slightly cheaper but the difference is quite small.

You can compare the fees with other brokers for Ireland here for example or for the Netherlands here. You can also find a cost calculator on that page if you want to know it exactly.

Generally I found the pricing of DEGIRO to be really competitive. Bellow is an example of the pricing in Ireland for stocks and ETFs (DEGIRO is at the left, you can see a comparison with some other brokers)

Stocks Pricing

For ETFs there is even a list of ETFs you can purchase once a month for free (conditions applicable, read those here). If you only invest small amounts like 25 EUR / month then this could be an option for you. You can find a list of all free ETFs here.

However keep in mind that they will come with a higher yearly cost. So make sure you check the yearly cost. There is a few on the list where the yearly cost is reasonable. One example would be the ISHARES MSCI WOR A, with only a 0.24% cost. Its a good ETF because you are covered worldwide which will lower your risk. Its also located in Amsterdam what should be good for Taxes. If you can invest higher amounts per month there is also ETFs that are not free that will be cheaper actually. In the next chapter I will suggest one. If you decide to buy an ETF with a purchasing fee, it could also be worth it to save up two months before purchasing.

I would advise against buying funds since they usually come with very high yearly costs up to 3%! This will be a big cut in your profit. I would also stay away from more futuristic investments such as options or the futures market. The majority of the people do not make a profit there.

Your first purchase on DEGIRO

Transferring money

Transfering money is quite simple. You just need to transfer from the bank account you coupled to your DEGIRO account in the last chapter.

At the top right you normally see an icon to book money in and out.

When you click on that you should see the option to transfer money manually. This is the option you should use.

When you click on it you will get the bank details of the account you need to write to.

I suggest you first try with a small amount (1 EUR) and test that it works. Once it works you can transfer a larger amount. Remember you can only transfer money from the account you have added in DEGIRO.

On the same screen you have the option to book money back to your bank account, should you need it in the future. It can be interesting to also test this option and write the 1 EUR back to your bank account.

Get the right information on the ETF you are interested in

If you already have a stock or ETF in mind then I suggest to search for that stock. If you haven’t then go to the search box and enter SPDR MSCI WORLD UCITS. This is an ETF that invests in the top stocks in the top developed countries. I will show you how to get this information from the ETF itself.

When you search for this ETF you will get two results. One is in USD and the other in EUR. Lets choose the one in EUR so we do not expose ourselves to a currency risk.

Once you click on the ETF you will end up on the overview page of the ETF. If you like to see how the ETF performed in the past you can play around with the buttons bellow:

  • YTD = how it performed this year
  • 1D how it performed the last day (standard)
  • etc

First we would like to get more detailed information about this ETF. We want to know for example how much the yearly cost is, if it

For that click on the documents tab on your screen.

Once you are there you can click on the download button to go to the documents:

I noticed that there is no direct link to the document but once you are on ssga you can search for the ETF

In the top right type SPDR® MSCI World UCITS ETF and click the first one that pops up.

Now you are at the overview page of the ETF.

We can for example read the desciption of the Index:

The Index captures large and mid cap companies across Developed Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country. Securities are weighted by market capitalisation.

If we scroll down (or click on “Holdings”) we can see the Geographical weights, so you should realize that this ETF is focusing more on the developed countries.

Other things you can see is what stocks it exactly invests in currently and what sectors they are in. The thing with ETFs is that a bigger stock such as Microsoft and Apple will also carry a bigger weight. A much smaller stock that is at the bottom. Apple for example has 3.35% weight, while the smallest stock (HEICO Corporation) at position 1579 only has weight of 0.000068%.

Now scroll further down and open the document called KIID

Click on KIID

This is actually an overview of the ETF in a standard format. Apart from some general information you will be able to see the yearly cost and the risk factor.

In this case the fund has only a 0.12% yearly cost and that is why it is one of my favorite ETFs.

We can also see that the ETF is not handing out dividends. How? Because it does not have Acc (=accumulating) in the name. If you are in a country where they have taxes on dividends then you want to avoid Acc ETFs. If it does not matter for taxes then I would go for Acc ETFs since its always encouraging to slowly see your dividends go up over time. Should you receive dividends you will also be able to see in this file how often you get the dividends. Usually this is quarterly but there is some ETFs that give it yearly or monthly.

Dividends are a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).

Your first purchase on DEGIRO

Now that you are armed with more knowledge about the ETF or stock you want to purchase its time to do the actual purchase.

You can do that by going back to the ETF in DEGIRO and click the green button that says “Buy” (or “Koop” in Dutch)

In the next screen you will need to then set how many stocks you want to purchase and at what price:

I usually will set the purchase price a bit higher then the actual price. The system will still buy at the lowest possible price but then you are sure it will go trough fast.

You need to enter the max purchase price in the box next to Limit Order. Under the box limit order you need to enter the number of stocks or ETFs you want to purchase. The system will then calculate the max purchase price

For example I have entered the following and the system has calculated that it will cost me MAX 985 EUR, but most likely I will pay less.

Remember unless you chose a free ETF you will need to save 5-6 EUR for taxes and fees from the DEGIRO. Once you click on “Place Order” you will find out exactly how much the costs for DEGIRO is.

I can also see the impact on my free space, so I can actually see that I could have actually purchased 3 stocks more.

Once you are ready confirm your purchase, you will then have placed an order on the market. If you put your limit high enough, it will be purchased really fast.

Checking your current wallet

Now that you have some stocks in your wallet you can click on Portfolio to find out how your stocks are doing.

In my case I can see that I currently have an 8% loss, but we need to keep in mind that this blog was written during the corona crisis. At the height I was actually at a much higher loss in March 2020 as stocks had dropped 30%. Its good to note I have not lost one night of sleep over this drop as I know that ETFs cannot go bankrupt and if you pick one that is spread over multiple countries and sectors it will always reward in the long term. Always invest for longer periods. Five years is really the minimum but preferably you should be investing for a horizon of at 20 years. The stock market goes up average per year 6-7%. Also remember: the best time to invest was yesterday. The second best is today.

Conclussion

If you are new to investing I really hope this was a good overview for you. Please let me know in the comments if there is anything else you would like to know or if there is any place I can improve. And if you like to know more about investing then leave your email so we can stay in touch.

Financial Independence · investing

How to build the perfect ETF portfolio

Why you should stay away from funds

I started seriously investing in the stock market in 2016. My first steps was a regular transfer (500 EUR / per month), to a managed funds called Keytrade Funds. The funds promised nice returns in the longer term. I picked out 6 funds in total (mostly stocks and one bond fund), and invested 500 EUR every month. What I liked was that I removed the emotional aspect here. Sometimes a month went by and I did not look at my investments. In 2018 when the stock markets had a larger loss, I did not really care.

But looking at it longer term, I realize that not one of these funds have managed to outperform the regular stock markets in developed countries in Europe and North America. No wonder since most of them charge 1-2.5% costs, and that is a HUGE deal especially when markets are just increasing 6% per year. Thats 1/3 of your profit you donate to them. And they are not able to outrun any index. Booo!

Time for change!

Avoid high risk Stocks

In the beginning of 2019 I started experimenting with stocks instead. Stocks I invested in mainly were Galapagos stocks. I saw them go up from 118 EUR to 165 EUR (when I sold them). The problem was that investing in one stock seemed incredibly risky. I watched the stock go up or down almost daily thinking if now would be the right time to sell or buy more. Eventually I sold them when the market went into a small dip in the summer. I was not able to switch off my emotions and it didn’t seem like a good alternative for funds, even if the stock I picked performed excellent (and still is btw).

What about Peer to Peer lending?

As you have seen I am experimenting with peer to peer lending as well. These experiments are not finished and peer to peer lending will still have a spot in my portfolio. The main downside is the high taxes (30% in Belgium) that you cannot avoid, and added risk caused by lack of European regulation.

The taxes would be fine if that would mean that after taxes you would still have a gain of about 7%, but that is hard to tell right now.

What I can say is that I absolutely love peer to peer, perhaps just because its new and volatile, so it will keep a place in my portfolio. If the stock market would start to drop at some point, the money in peer to peer can help me leverage the advantages of a sudden drop.

In a later blog I will be deciding on what exactly my peer to peer portfolio should look like.

So I will not go deeper into peer to peer right now as there will be room another time to discuss this component. Stay tuned for my perfect peer to peer portfolio in a later blog!

Meanwhile if you want to discover peer to peer by yourself check out my Mintos or Grupeer review to see some platforms I like!

Other investments

I am ignoring real estate you have (that should play a role in your portfolio) or money market (emergency fund) who could also be in your account. I am also ignoring a pension fund that you might not control. But here I just want to focus on assets that are right now more liquid then a pension fund or real estate, but that you still want to hold on to for a long time (I’m talking decades). You should not be touching this fund until you have reached Financial Independence so you can retire early.

So lets talk ETFs!

The next thing I had my eyes on was an ETF at first glance ETFs seemed boring. They just followed an index and there was not much action.

But by now I realize an ETF has a lot of advantages. Because it “just” follows an index there is no emotion attached. Furthermore those indexes usually contain hundreds of stocks worldwide! This gives you a HUGE diversification. If you focus on one stuck even if there is just a 0.1% chance the stock goes bankrupt, that means you will lose all your money. If you manage to spread it over hundreds of stocks you will just follow the general trend of the market. And as we all believe (or we would not be reading about FIRE), the general trend is up.

Taxes are important!

The first tracker I bought was the SP500 tracker from Vanguard. An excellent stock that has performed very well for me. The only downside is that it pays out dividends. And dividends are taxed at 30% in Belgium! Ouch!. Even tough the dividends are only at 1.81, and dividends are sexy its not very cost efficient.

One more thing that is important is that there is no or almost no bonds in the tracker. Bonds are taxed in Belgium so should be avoided. Again check the local tax rules of your country to find out if this is the case for you as well. Generally I do not like bonds anyway. For me peer to peer is the part of my portfolio in bonds, as its reasonably liquid (I can get everything out in about a year, and about 8% per month), and has a better performance then bonds.

Apart from dividends the second thing to look at is domicile of the ETF. Domicile is important because also the country where your ETFs are hosted could be charging you taxes! Countries like France or Germany are to be avoided for example. My preference is Ireland as domiciled as its completely tax free!

Building the perfect portfolio

Based on our above requirements I have selected the following portfolio that I will be working towards with these properties:

PortfolioBaseDividends?CostTax?
SPDR MSCI
World UCITS
ETF (SWRD)
IRNo0.07No
IShares Core
MSCI EM IMI
UCITS ETF (CEMU)
IRNo0.12No
IShares Core
EURO STOXX 50
UCITS ETF (CSX5)
IRNo0.1No
IShares Core
S&P500 UCITS
ETF (CSPX)
IRNo0.07No
Peer To Peer
lending
EUInterestNone30%

 And when we visualize it I have come to the following division:

[visualizer id=”1922″] 

Note that if dividends were not taxed so high I would choose a different approach, but right now I look mainly at market diversification and tax efficiency.

Lets look into a bit more detail to the ETFs I have picked.

SPDR MSCI World UCITS ETF (SWRD)

Why get this ETF?

As you can see this will take up 58.7%(!) of my Portfolio.

But wait…what about diversification? The MSCI World Index tracks hundreds of large, mid and small cap stocks over different sectors over 23 developed countries, mostly North America and Europe, but also some in the pacific like Australia and Japan.

If diversification is important to you (which it is to me!), you can’t really get more divers in the developed world then this tracker!

What about costs? Usually World trackers come with a high cost base. Until this ETF came out a similar tracker of iShares had the best cost base. You will be surprised this tracker actually only costs 0.12% per year.

What about Taxes? Since this ETF invests all dividends back into the ETF there is no dividends, and that means if you live in Belgium, no local taxes! In the current tax climate at least. As you might know tax climates turn with the wind, but I always say go with what you know now. What about taxes in the country the ETF is domiciled? Well if you have noticed all trackers I have chosen are in Luxembourg or Ireland. And they charge no local taxes! So all your profits are tax free! Check the tax laws of your country to find out if its better to have dividends or no dividends.

Historical performance

Its a new ETF so we cannot say much about the historical performance, however iShares has a similar ETF that tracks the same index.

Since the cost is lower on the SPRD World ETF we will have a slightly better performance then its nearest competitor, the iShares tracker. As you can see it gained 253% in the last 10 years!

IShares Core MSCI EM IMI UCITS ETF (CEMU)

Why get this ETF?

For diversification its important that you also have a presence in the rest of the world. MSCI EM is an index for the emerging economies.

The tracker actually has a great track record and has given very nice profits in the last 30 years.

Just like the previous tracker the cost is very low, and the tracker is tax free!

Historical Performance

The last 5 years this ETF has gained 46%. Not that huge compared to the S&P, but still there is a lot of potential to be had here.

IShares Core S&P500 UCITS ETF (CSPX)

Why get this ETF?

The S&P500 is one of my favorite index. I am already invested trough the Vanguard SP500 tracker. The only difference is that the cost is a bit lower on this tracker and there is no dividends (=no taxes).

I realize there is a certain overlap with my world tracker, but the SP500 is such a good tracker that it could not be missed in this portfolio! Still because of the overlap I decided to limit it to a mere 4%.

Historical Performance

As you can see it gained 140% in the last 6 years. Of course we have been in the largest bull run in the stock market history, so the only thing it proves is that it has performed well the last years.

IShares Core EURO STOXX 50 UCITS ETF (CSX5)

Why get this ETF?

As Im European and I love Europe, a good European tracker could not be left out either! Again there is an overlap with the World tracker but I generally think having more large European / American companies in the portfolio will have slightly better results in the long run.

Still in the interests of diversification I kept the EURO STOXX 50 at only 8.8%

Historical Performance

With a 43% gain in 5 years the performance is not as strong as its counterpart the SP500, however 2019 has shown a similar performance as the SP500, and there might be some untapped potential in this index!

What about Vanguard?

I absolutly like Vanguard trackers, most have a good cost basis and all give great dividends. But it all comes down to the taxes. If the taxes would not matter I would absolutely invest much more in Vanguard and at the very least mix my portfolio with dividend trackers. But as we know taxes matter, a 30% cut on your dividends really is a big deal. I do have Vanguard in my current portfolio and I will keep it but long term it will start to take up a lower % of my portfolio.

Automate investing!

If you find a way to automate this cost efficient then you should absolutely do it! The next crisis will come and you want to avoid that emotions will prevent you from making investments. This portfolio is not meant to have an excellent 2020 with perfect results, its made with the belief that the world economy will further improve the next 10-20 years and by this portfolio you will be able to take advantage from that. If there is a crisis or two along the way it will not matter, as you are in this for the long run.

Avoiding stocks will make your portfolio less volatile, but that doesn’t mean it will be easy watching your portfolio take a drop of 50% or worse. The best thing you can do is not to look at it and keep investing if it happens. And the easiest way to do that is by automating your investments.

Put your (my) money where your mouth is!

Or more exactly I should put my money where my mouth is. I realize my portfolio is a long way from my perfect portfolio. As a first step today I have posted a letter, cancelling all my investments in funds (apart from retirement funds as I cannot actually cancel these). When you read my monthly portfolio update you can see that these funds, also known as keyplan, take up 21K of my investments.

This 21K I will put into SPDR MSCI World together with my monthly investment (I invest 2500 EUR / month), it will bring me a bit closer to my perfect portfolio. I keep my fingers crossed that the bank will process it before I do my monthly portfolio update. But in case they can’t then it will just take one month longer before it shows.

Your oppinion matters!

This is a perfect portfolio…perfect for me, but perhaps not perfect for you. Let me know in the comment section what you would change / improve or why you would do something different and perhaps next time I suggest a portfolio your suggestions will be included!

Interested to see me work on modifying my portfolio to match my perfect vision? Follow me and join me on a roadtrip to Financial Independence!

Uncategorized

Five mistakes I made when investing in peer to peer you can avoid

A recent experience I had on Mintos with two creditors (Lutecredit and Monego) made me decide to write this blog. I would like to start with the events that lead to this blog, so read on. If you just enjoy reading about my mistakes and failures then scroll down a little bit more.

Mintos released a statement last week that Lutecredit and Monego have their licenses revoked in Kosovo. For Monego, having all their business in Kosovo this basically means they will default if they do not manage to fight this decision fast. Lutecredit is active in other countries so it has some bandwidth to honor the loans and the buyback guarantee. It is also much less exposed then Monego.

A few days later news came indeed..

Great!! Lutecredit would honor his commitments and continue to pay back the Kosovo loans. Lutecredit is a bigger creditor with a group guarantee spread over multiple countries. I only had 40 EUR outstanding principal in Lutecredit Kosovo, but still I was very happy to read some news.

The case for Monego is more complex. Monego is a relatively small creditor and based only in Kosovo. If they did not get their license back then the chance they would recover would be very slim.

For Monego we did not receive any news for a few days. Having 220 EUR outstanding principal in Monego or 4% of my Mintos Portfolio you could say I was a little worried. At my current amount this is my monthly investment in peer to peer. I was already mentally preparing to write a loss of 220 EUR in my next portfolio blog leaving Mintos with a negative income

What I did appreciate is that Mintos was very open with what was happening. I had the impression they were sharing news when they got it.
Almost one week after the original news came we saw white smoke!

It turned out to be good news! Also the Monego Kosovo loans would be repaid by Finitera that was taking over Monego! I really felt like I dodged a bullet on this one. To be honest if they did default I would not have stopped investing. 240 EUR would have been less then the income I get every month with peer to peer. But it would have been an unfortunate way to end the year!

I did realize that during the months I had been investing in peer to peer, this and other experiences have thought me a few lessons that I wanted to share with you. I really recommend to read them to avoid the mistakes I made and to make sure you have a safe journey in the peer to peer investing world.

Mistake #1: being to greedy

When I started off I basically always went for the higher interests. I told myself it was okay to go for the higher risk, and you always think defaulting will not happen to you. Do not get me wrong, I did start off well prepared. I read a multitude of blogs of bloggers writing about peer to peer. I loved the tables some bloggers showed of sites offering high interest rates. The sites I signed up with first were then also the ones giving the highest interest rates.

Within those sites I also went for the higher rates. I didn’t care of how many loans I had of one creditor as long as they gave the highest interest rate I was fine with that.

Some sites just give very high interest rates, especially those relatively new, but its important to also look at if those rates can be somewhat guaranteed. If there is a creditor behind it that is offering a guarantee and is able to meet this guarantee. Is this creditor or site making profit for example? There is a lot of peer to peer sites, although I am sure the group of profitable peer to peer sites is much smaller. I plan to dig deeper into the sites that I use, as in the creditors on this site, to find out how guaranteed the buy back they offer really is.

Mistake #2 Not thinking about diversification

Lets take one of the nine sites I invest in as an example. When you look at my portfolio on Mintos now you will see a much larger diversification. I did had to lower my interest rate to 10% in the auto-invest settings, but the more spread out risk make it worth it. I do still have a very high exposure to a few creditors, such as Capital Service. Actually 1/3 of the loans of Capital Service I own are currently late. In a way I do not mind, they will be bought back and I will be able to diversify more.

I have not selected to buy more of Capital Service for the time being. I am thinking to sell off some of the loans here also to increase the diversification.

Mistake #3 not looking at how creditors were doing

The second mistake I made was not paying any attention to what creditors were doing well. Mintos has even a few creditors with status D and C, these usually make a loss and while they give a slightly higher interest they are also a higher risk. That shows in the most recent defaults that Mintos had such as Rapido it shows that even a B- rating is no guarantee for making profit. In just one week Rapido went from B- to D rating. For Euroclear, the first creditor that went bankrupt, borrowers are still waiting to find out if they will receive any money.

Mintos auto – invest strategy

That’s why now I am very picky when it comes to creditors. On Grupeer I selected only creditors with B and A rating. On Mintos right now only creditors with B+ and A rating are selected now in my autoinvest strategy. Altough these are the ratings from the site. I noticed that in the case of Rapido the rating was more reactive then what it actually should have been. So it helps to check out other sources as well. Something I plan to dig into in a next blog.

Mistake #4 Not starting sooner!

After all the negative commotion I made here you might think I have had it and want to move out of peer to peer investing. Nothing is less true. My biggest regret is not starting to invest sooner. The only certainty I had with the money in my account was that it was dropping in value. Even with the defaults that threatened this weak for Monero and Lutecredit I never doubted to stop investing. I count my profits and I am confident it will increase further rather then decrease.

I invest 1875 EUR every month into peer to peer sites right now (with automatic transfers) and do not plan to stop any time soon. I look forward to the day when I have 100k invested in peer to peer and a nice passive income of 1000 EUR / month, a future that is not so far off, I hope to be there in just 3-4 years.

Mistake #5 Not using referral links when signing up on a peer to peer lending site

While a lot of blogs (including most links on my portfolio and review blogs) give a bonus when you get referred I was being a smartass and just signed up by googling the site and going there. Now I realized that its much better to use referral links you find on websites.

For example this month I am starting investments in a new peer to peer site: Iuvo Group (contact me for a referral link) and if I invest 1000 EUR I will get 30 EUR bonus. If I invest another 1500 EUR the first 60 days after sign up I will get another 60 EUR. This is a welcome bonus and when you calculate it, this means 3,6% extra return, that’s quite a nice extra bonus!

Referral bonuses from sites I use and recommend

Bellow are a few sites I can recommend and as you can see in my portfolio updates I also use them myself so that’s why I can recommend them:

  • If you sign up with this link on Monera you will get 5 EUR sign up bonus and 0.5% Cash back when you invest
  • If you sign up on Crowdesector using my link you will get a 1% bonus for the first 90 days
  • If you sign up on Envestio using this link you will get 5 EUR and a 2,5% bonus during the first 270 days
  • Contact me for referal links on Mintos for a 1% bonus the first 30 days

One final note: in case you are wondering, yes I still invest in Lutecredit in my autoinvest rule in Mintos. Lutecredit is profitable and quite large. On top of that they continue to pay my Kosovo loans so why would I stop investing there. Monero will cease to exist so obviously I am not investing in Monero loans right now. I can see I am alone in this way of thinking, the secondary marketplace is crawling with Lutecredit loans, as is the primary market. But I am sure as Lutecredit keeps paying confidence will grow and this problem will solve itself.

In a future blog I plan to start listing the sites and creditors more in detail. I will be looking if sites and creditors have enough profit and if they can really guarantee and deliver what they promise.

Keep an eye on this blog and stay safe and decrease your risk when investing in peer to peer!

Uncategorized

The market is collapsing and I’m losing everything | What the 2008 crash can learn us today

October 10 2008

I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That’s fine until today. Today did it. I am just starting to be scared so that I won’t tell my wife what happened today…stocks down…bonds down…I’m down. Our retirement funds are sucking down the drain. I lost today alone a year’s worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
I am 25% capitulating tomorrow, maybe 50% to money markets….maybe all.

This is not me. I will see tomorrow.

This is exactly what was written in an old post I came across at bogleheads. It is a reminder that even if you reached Fire that does not mean that the market cannot collapse and this could have a high impact on you.

Its easy to say that these examples show that you more then ever need to hold the course, but at the same time, the people who were heavily invested in 2008 did not knew that. As far as they knew the market went down today 5%, and it would go down another 5% and then another. In total the market went down 90% over a period of just 18 months.

In comparison, in the 1929 crash the market went down a similar amount, but over a period of 3 years.

As far as they knew the entire bank system could collapse!

Fifteen things the 2008 crash can teach us

Lesson 1: Do not put all your eggs into one basket

I was just out of university and did not had much investments. I was invested mainly in three stocks, two of which were bank stocks. One fully crashed, to never recover, and one crashed 60-70% and did recover. Bank stocks were considered a safe investment at he time. We were told there is so much mechanisms put into place that a bank cannot crash. It can.

While I was very low invested at he time it really did scare me, and did not make me return to the stock market for a while. When I did return I was not eager to buy stocks anymore. I first focused on funds, believing this would be a safe spread investments. Later I added ETFs to the basket. I did learn my lesson. Investing in one stock is not for me.

Lesson 2: stay the course

People who decided to sell, and did not return to the stock market have regretted up to this day. The market had a huge rebound, such as we haven’t seen in a long time.

When the market collapses, do not throw away your habbits to regularly invest

Lesson 3: automate

My early days of investing was mainly to find something I liked, and when I did I transferred some cash, bought the stock, and following it every day, waiting for the right time to buy.

What I should have done is automating my investments. That way when the stock market collapses you actually can use the collapse as leverage to regrow your portfolio faster to its normal levels. Automate and hold the course!

Lesson 4: Ignore your investments for 2-3 years

This might seem a bit contradictory. You may want to take action, reshuffle, re-invest, get out those bad stocks.

But if you followed point 1 and 2, you know you will have your investments spread and automated.

When the entire world is on fire seeing your investments in red all the time is not fun. You might get emotional (just like the guy in the start of this blog) and do something you will regret.

What you need to do is hold the course. Your investments are automated and spread out, so its okay to take a moment and focus on other things. Why not start a blog about a different topic?

Lesson 5: Do not give financial advise to Friends

Remember I told you about the Stock that crashed I invested in? I actually told my friends that I invested 1500 EUR in this stock, and advised them to do the same. Lucky they didn’t!

I still do tell friends about my investments when they ask. But I will always add that investing is risky and its at their own risk. Especially the case when I do decide to invest in one stock (oops, yes it happened this year – but I am already back out now), and when I buy high risk investments such as Startups or Peer to peer lending.

Lesson 6: its going to get worse before it gets better. But it will get better.

Those who have stayed the course, and kept investing their monthly amount, and did not panic sell, recovered after just 2-3 years. And any year after that is pure profit.

In the latest 20 years alone there have been 13 (small) bear markets, and 3 much bigger (including the banking crisis, the debt crisis, and the dot com bubble). And yet the markets have always recovered and are higher then ever.

Lesson 7: pin down your thoughts

Blogging, vlogging, keeping data in your excel, keeping a dairy.. it is much more motivating to pin down your thoughts when your portfolio is on a 7 year strike of only going up. But when its in red all the time how can you still give any financial advise? Fire is further away then ever and that is what your blog is about?

Keep in mind that while the fun is gone, writing down your thoughts is more important then ever! It will prove vital knowledge for you and others when the nightmare is over.

Lesson 8: follow this blog

When the storm hits, I will be here to report on the front line, so follow me and face it with me!

Lesson 9: no you cannot see the storm coming

Stock prices have reached what looks like a permanently high plateau … I expect to see the stock market a good deal higher within a few months. – Irving Fisher (a few days before the 1929 market crash)

Nobody could see the 2008 collapse coming. When the storm hits you, it comes out of a black fog so you can’t see it, and it comes so fast that you can’t prepare for it.

Only a really really small percentage of people manage to time the market, and since its such a small number its probably caused more by luck then by being some wonderchild who can predict the market as if this person has a glass orb.

You can’t see it come, but one thing is certain, it will come.

Lesson 10: nobody will tell you when the market hit rock bottom

Just like you can’t time when a stock market crash is coming, you cannot time when the stocks will go back up. That’s why Lesson 2 and Lesson 3 are so important., and the rise will be just as steep as was the fall. When people talk the most about that the crisis is over that’s when its about to drop hard!

Lesson 11: have some cash reserves

If you are living on a passive income remember to keep some cash reserves that can keep you going for a few years. Like that if one of your income sources suddenly drops away then you have something to fall back to.

Some recommend an “emergency fund” of a few years, but its might be better to have really enough to use for 2-3 years in case the stock market collapses.

Lesson 12: diversify

Its similar to Lesson 1, but where lesson one is focusing on the stock market, it can be good to have alternative incomes. Think of p2p lending, real estate and side hustles. Read my portfolio to get some ideas on what you could purchase!

Lesson 13: it’s always a good time to start investing

Even at the all time high before the 2008 crash, the market then is still much lower then it is today. If you could buy in 2008 at this all time high during the crisis people would say you were crazy. If you could do this today you would buy instantly as much as you can!

So its never to late to get in. Get in now, invest, and hold the course!

Lesson 14: you probably will forget some lessons!

In theory these lessons all make sense. If you follow them you can cut out emotion and trust on what has worked for over 50 years. But that’s easier said then done when you are losing 70% of your assets in a few weeks. Remember to come back to this blog when this happens.

Keep breathing. Re – read. Automate, and take a step back. Go do some sports, and pick up a new hobby

Lesson 15: final advise from sheepdog

I would like to close with some final advise. Sheepdog who made the original post at the top did not sell his stocks in the end. He did had to sell some bonds, and many years later he has this to say for those who are open to listening

When I started that conversation on 10/9/2008, I was in a bind, as you can read in my comments, but I did learn something and perhaps other retirees or near retirees did as well. When a person must take distributions to meet expenses, and I do monthly, an adequate “cash” account should be maintained so that they don’t “have to” sell at market lows. Keep a sizeable cushion. I am doing what I said I would do…..I maintain the “cash” account from which I take distributions at a minimum of 3 years of needs. I sell stocks and bonds every few months to keep it up. When the next big downturn occurs, and it will, I will not have to sell any investments for at least 3 years. I won’t get caught again.

So it looks like Sheepdog turned out to be okay afterall. He eventually also told his wife, but many many years later.

But the main thing is…he kept the course (something he always advised on the forum he uses before 2008), and did not had to sell any stocks he had purchased. His final words here might just be the most valuable lesson of all!


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investing

Investing in real estate in Europe

Real estate still is a favorite of many to invest in to get that passive income. There is nothing like that feeling of actually being able to touch your investment. The majority of the people will invest in property in their own region. The reason is quite simple, you know the place, the housing prices, the rents. 

But what if rental yields and prospects in your country are not as appealing as abroad? What if you did look beyond your borders? What countries in Europe are appealing to invest in? First we need to agree on  a way to measure the investment climate. Not only short term but also long term.

Five factors that matter when investing in real estate

  1. The yield: based on the price you buy it. Obviously this is an important factor. After-all you do buy real estate to get a certain return.  Moldova holds the top list in EU with a 10% yield on the investment. 
  2. Political climate and stability: what is the current political climate? What is the expectation in the future? For example we see countries getting huge economic boosts when they join EU. At the same time when countries have issues with their neighbors its a rather risky investment. Cyprus is a member state of the EU, but only half of the island is. The other side of Cyprus is separated. While there has been peace for a long time, you cannot deny there is a certain risk.
  3. Pro landlord market: how long are the rental contracts? What happens if someone stops paying rent? 
  4. What are the prospects for property prices? Obviously this one is harder to predict. But there is a few indicators that can help to get you in the right direction. For example I believe an EU candidate member state has good perspectives for a rising markets, especially if the city you buy in has great potential for tourism or business.
  5. Taxes and transaction costs: these factors can lower your yield and increase the buying price. So make sure you include these in your calculations
Source: Eurostat

Five factors that matter for the property type

  1. What locations should you look at?: who hasn’t heard the phrase “location, location, location” before. Capitals tend to attract singles or young couples who are just starting their lives. They are generally more willing to do small maintenance to your home, such as adding some paint, or fixing small things that break. If you pick a touristic location it could be a more active investment if you decide to target tourists and since you are investing abroad you will need to work with a local tourist agency. Both locations have the additional plus that you could use it as a holiday destination if you are between renters.
  2. House, apartment or Studio? Obviously the advantage of the house is that you own the land. But then again when buying an apartment or studio you do own a percentage of the land you buy also.  Plus a house can leave you to sudden astronomical costs you didn’t account for such as a new roof. A new roof can cost up to 30.000 euro in some countries, and that really kills the returns on your investment. 
  3. How large should your investment be? When thinking in sqm or amount of bedrooms, my favorite is 50-70 sqm with one or two bedrooms. One additional thing I like about these sizes is that they tend to attract my target audience of renters such as singles or adults looking for something smaller after their children moved out.
  4. What maintenance costs can you expect? Everyone would like an investment where they do not have high costs that eat up your yields. For that reason I prefer apartments in small buildings. With no elevator and preferably no cleaning of the communal hallways. Balcony’s can also be expensive if they need to be renewed, plus they can up the price of the property. On the other hand they can make it also easier to find someone to rent the property. 
  5. What is the state of the building?  When investing in an apartment then do not forget to look at a few important factors. One thing is the state of the building, such as the roof. If the roof has to be renewed it can kill your yield for a year. Secondly look if there is already  a fund in place to do any repairs. Be sure to ask for the meeting notes of the last meetings (if there was any). I will always prefer to invest in a building where they do the needed investments (such as dealing with leaks) without it being excessively.

So in conclusion my personal favorite would be a 60-70 sqm apartment in a small building without an elevator in a touristic area or a capital city with good flight connections.

Five European countries to invest in

Based on the above factors, I want to share my personal favorite to invest in. I do not want to claim I am an expert, but I have done the research and these are countries I personally would consider to invest in to gain passive income.

We will for this occasion assume we are investing in a 50-70 sqm apartment as we suggested in the previous chapter.

Montenegro

Montenegro is politically quite stable, a potential member state of the EU, and has great potential for tourism, with a steady rise in the last years. Additionally, and not unimportant, the yields are fantastic with a 7% yield on the type of property we are interested in. I would check out the coastal areas here for these reasons. 

One downside is that the housing prices are a little bit unpredictable, some years the housing prices did go down, even if it was not a crisis, but generally I would say there is a steady trend up. But again, location is crucial here!

The climate is quite good for foreign investors. While you are not allowed to buy land, you are allowed to buy properties without any restrictions.

Montenegro
Gross yield7,5%
LocationCoastal
Investment climatePro landlord
Easy for foreign investors
Price per sqm1400 euro
Income tax5,4%
ProspectsEU candidate member state
Rising tourism

Moldova

While not being an EU member state or even candidate the country is political stable and has no issues with any neighbors. Tourism is not exactly booming here, however one cannot look past at the high yields that Moldova brings to foreign investors. With a 10% yield on investments Moldova is at the top of our list for top yields in Europe. Visa arrangements to go there are quite easy for most countries, plus Moldova is clearly open to foreign investors as they are willing to provide you with citizenship if you invest at least 250.000 euro in real estate.

The housing prices are not really rising much, but have at least proven to be stable for the last years.

Moldova
Gross yield10%
LocationCapital
Investment climatePro foreigners
Pro landlord
Price per sqm965 euro
Income tax10%
ProspectsStable housing prices

Romania

Romania is a EU member state with a good economical growth and a stable political climate. As a EU member state for EU members it makes it one of the most appealing countries in Europe to invest in as for EU members there is no restrictions on buying property or land. 

Property prices have dropped in the 2009/2013 economic crisis, but in recent years especially in the bigger cities they have been soaring gaining 10-15% in price showing the property market is currently booming. The question is of course for how long can the prices still rise at the current rate? Considering the economic growth I do see the prices rising for a little bit longer.

Romania
Gross yield6,07%
LocationLarge cities such as Bucharest or Cluj
Investment climatePro landlord
Price per sqm1591 euro
Income tax9,6%
ProspectsHousing prices are rising rapidly in recent years
Rental prices rose 8%-9% per year in the last 2 years

Poland

The rise of the housing market in Poland has not gone unnoticed. With Gdansk, a coastal city having a 17% increase in 2017 and continue to rise in 2018. Krakow which is known as a hotspot for tourism rose 13% in 2017. The capital also performed well with  a 6% rise in Warsaw. Not as impressive as Gdansk but still well above the average rise of prices in Europe. If anything these numbers show is that there is still opportunity out there, and it also shows promise for countries joining the EU, as Poland has been a member now for about 10 years. 

Poland
Gross yield5,5%
LocationCoastal region, touristic cities
Investment climateGood economy, neutral to landlords
Price per sqm2793 euro
Income tax13,5%
ProspectsHousing prices are rising rapidly in recent years

Croatia

With yields for rentals are a bit smaller here with just 5,43% Croatia is has the lowest yield, but the country has so much potential for popular areas.

In 2018 the prices risen so far about 4%, but some top locations such as Zagreb and the coastline have risen 7-10%, making it a good investment even not considering rent yield. 

Anyone from the EU is free to buy property in Croatia, if you are from outside the EU it depends of bilateral agreements between Croatia and your country. 

Croatia
Gross yield5,43%
LocationCoastal region, Zagreb
Investment climateNeutral to landlords, rising economy
Price per sqm1978 euro
Income tax8,4%
ProspectsHousing prices are rising rapidly in recent years

Sources

https://ec.europa.eu/eurostat
http://stat.gov.pl/en/
http://www.insse.ro/cms/en
http://www.statistica.md/index.php?l=en
https://www.monstat.org/eng/
https://www.statista.com/
https://www.dzs.hr/default_e.htm
https://www.globalpropertyguide.com