ETF investing - practical considerations - CERN Finance Club - 2019-03-05, Marton Ady - CERN Indico
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
ETF investing – practical considerations CERN Finance Club – 2019-03-05, Marton Ady
Your invested money • Whole US stock market • Adjusted for inflation • Dividends reinvested
It’s impossible to lose on the long term • Except if you attempt to time the market (panic sell / greed buy) • Except if you pick individual stocks (one company can even fail -> 100% loss)
Source: Mr Money Mustache, Early retirement blogger
It’s all about the fees!
800000
700000 711.000$ 1% fee
600000
500000 541.000$ ate
400000 28% of
300000
200000
your
I invest 100.000$
at year 1
100000 profits!
0
Year 1
Year 3
Year 5
Year 7
Year 9
Year 11
Year 13
Year 15
Year 17
Year 19
Year 21
Year 23
Year 25
Year 27
Year 29
7% no fee 7% 1% fee
• Typical mutual fund: 1-2.5% fees
• Typical ETF: 0.03-0.4% fees
France:
Switzerland:
• First transaction of the month is always free (regardless of direction and amount)
• Further transactions: min. 1000 EUR in same direction is also free
• At least 1000EUR/transaction • One direction in one month • Subject to change For most young investors these 3 are more than enough
Degiro: advantages
• Free / very cheap
• Money available to withdraw quickly and for free
• Rapid customer support
Degiro: risks to consider
• Execution only: no tax / investment advice
• No large bank behind
• Investments are protected up to 20.000 EUR
• Documents (KIID, Factsheet) often missing or out of date
• No PEA account
Alternative: online banks 0.2% (min. 4EUR) / transactionTaxes • CERN salaries are tax-free, but… • Your investments (hopefully) provide you an income • Regardless of where you invest, or where you’re from, you currently live in France/Switzerland • You have to declare & pay taxes in the country where you live
French taxes in general: by tranches
“bareme progressif”
Barème progressif 2018
Tranches Taux d'imposition à appliquer
Jusqu'à 9 964 € 0%
De 9 965 € à 27 519 € 14 %
De 27 520 € à 73 779 € 30 %
De 73 780 € à 156 244 € 41 %
Plus de 156 245 € 45 %Someone earning 157.000EUR does not pay 45% tax!
Taxable
Tax
Tranch amount in Tax rate
amount
bracket MostDividends
• Most dividends have a 40% reduction (abattement) when calculating tax base
• By default, 30% flat tax (PFU = prelevement forfataire unique)
• 17.2% social contributions
• 12.8% tax
• You can ask for taxation by tranches (bareme progressif)
• 17.2% social contributions
• 0-45% based on your taxable income
• (CERN salary is NOT a taxable income)
• Your fund manager will often deduct taxes on his own!
• US: 15%
• Switzerland: 35%
• Japan: 15.3%
• If you owe more, you pay the difference, if not, hard to get back
• Foreign brokers: you have to advance taxes (21%) to the French state!
• Formulaire 2778-DIV
• Except if taxable income is < 25.000 EURCapital gains • 17.2% social contributions • 0-45% based on your taxable income • Losses in the previous 10 years can cancel your gains tax amount
Distributing/accumulating ETFs
Dividend /
Share / bond
coupon
Dividend /
Share / bond
coupon
Dividend /
Share / bond
coupon
Distributing ETF
Share /
Dividend / coupon
bond
ETF value ETF income
Reinvested: accumulating ETFWhich to choose?
Distributing (dividends) Accumulating (capital gain)
Only European ETFs
All US-based ETFs are distributing
(you can invest into US market, though)
30% flat fee or 17.2% + your tax rate 17.2% + your tax rate
You pay tax when it’s paid out (every year) You pay when you sell
Tax often deducted based on ETF home country Dividend fully reinvested
You have to reinvest manually Automatic reinvesting
(time and broker fees) (“buy and forget”)
Fees might be smaller Fees typically higher, but not always
(even 0.03%) (ex. Invesco S&P 500 UCITS ETF Acc 0.05%)French “tax-free” account
• PEA = Plan d’Epargne d’actions
• One per person, you must live in France, max 150.000 EUR*
• Once open, it is OK to leave abroad (stays open)
• Nearly all French banks offer it (not Degiro, “it’s coming soon”)
• You can invest in European* companies (PEA eligible shares, ETFs)
• You can’t transfer existing shares/ETFs (transfer money then buy)
Money out within 2 years
PEA closed 17.2% CSG + 22.5% tax
Money out within 2-5 years
PEA closed 17.2% CSG + 19% tax
Money out within 5-8 years
PEA closed 17.2% CSG, no tax
Money out after 8 years PEA stays open 17.2% CSG, no taxInvest in the US with PEA?
“PEA eligible if invests in at least 85% European companies”
Fund size: 17M EUR (liquidity risk)
Annual fee: 0.15%
ETF Issuer (Lyxor) French companies Bank (Societe Generale) US market
Airbus Swap contract
PEA USA ETF PSA Swap contract S&P 500
Veolia Swap contract
A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different
financial instruments. Most swaps involve cash flows based on a notional principal amount such as a loan or bond.
Usually, the principal does not change hands.So how do I declare my taxes? • 2019: tax reform “prelevement a la source” • Tax declaration form available from April only • Info for 2018: http://culturefinanciere.com/declarer-les-gains-dun-compte-titres-ouvert-a-letranger/
Example from the blog:
You can also read
