In the first part, I gave an introduction to passive investing. In this post, I will describe my experiences starting investing in Belgium.
How do I buy ETFs?
You need to go through a broker to buy ETFs. The major banks (Belfius, BNP Paribas Fortis, etc…) can act as a broker but that is not recommended:
- Every time you buy a fund, there is a transaction cost involved. This is the commission for the broker. The big banks charge transaction costs that are a lot higher than specialized brokers do.
- Their trading platform is not as good as the specialized brokers’.
Instead, there are a couple of specialized brokers to choose from. I ended up going with Lynx as I had read good reviews about them. However, I don't know enough about the others to give a judgment.
Getting started with Lynx was straightforward and is all done online. You fill in a form and send it along with a piece of identification. Once this has gone through, you have to make a one-time €2,000 deposit on your new Lynx account to activate it. Then you're ready to start investing!
How do I know what to buy?
Defining the right portfolio is probably the most important and most difficult task for every investor. The topic is very big and I don't feel qualified enough to give advice here. Furthermore, the composition of your portfolio is dependent on your appetite for risk, your age and your income. Instead, I point you to the Resources section below to learn more about asset allocation.
While doing my research on what ETFs to buy, I found the site justETF very useful. It allows you to compare various ETFs in terms of TER (Total Expense Ratio), fund size, return and a few other parameters. Some indexes, such as MSCI World, are offered by multiple asset managers so it pays off to do a comparison and pick the one with the lowest TER.
Once you found an ETF that you want to buy, just copy its International Securities Identification Number (ISIN) and paste it into the Lynx Trader view.
Belgium-specific tax matters
Always pick accumulating ETFs
Almost every company pays dividends to its shareholders. When you buy an ETF, you have in fact become a shareholder in the companies in the ETF's portfolio. Therefore, you will get dividends. What happens with these dividend earnings? The distribution policy of a fund can be either accumulating or distributing.
For accumulating funds, the dividend earnings are automatically re-invested into the ETF.
In contrast, for distributing funds, the dividends are paid out to you in cash. That money becomes yours so you can do with it what you want.
I strongly recommend picking accumulating funds:
- The most important reason is that the Belgian government takes 25% of your earnings as tax. However, this does not happen if the dividend earnings are directly re-invested into the fund. So the Belgian taxman takes 0% on dividend earnings for accumulating funds.
- It requires less work. When investing in distributing funds, you have to regularly decide on what to do with your dividend earnings. This gives you a chance to re-adjust your portfolio but this also gives you a chance to mess things up.
Invest in funds domiciled in Ireland or Luxembourg
If you are not a resident from the country, Ireland and Luxembourg do not make you pay any tax withholding. Therefore, to reduce tax costs, pick funds that are domiciled in Ireland or Luxembourg. Most of the ones that you find on justETF are but just make sure before you make a purchase.
Investing is such a wide topic and I'm myself just starting my journey. Here are some resources that I found useful and that can help you get started.
When diving into a new topic, I find that I always learn best from good ol’ books. Fortunately, there's a wealth of books on investing. I maintain a list of the books about investing that I read on Goodreads.
Money: Master the Game - 7 Simple Steps to Financial Freedom by Tony Robbins
This was the first book I read on investing. Tony Robbins is a self-help guru and this book is not an exception to the characteristic that all self-help books seem to share: it is very repetitive. It counts 688 pages but you'll go through them rather quickly.
However, the content in itself is good. It covers the basics of personal money management and I found it to be a good introduction into the investor mentality. Furthermore, it describes the major types of asset classes (bonds, stocks, annuities, etc…) so you end up getting a basic grasp of these.
The Bogleheads’ Guide to Investing by Taylor Larimore
Bogleheads are the followers of the principles laid out by Jack Bogle. He's the founder of the Vanguard Group and that makes him the father of index funds and therefore passive investing. In this book, they lay out his philosophy of investing in low-cost index funds rather than trying to beat the market. This is also the approach that I try to follow in my own investments.
The content is very similar to Money by Tony Robbins. However, it goes slightly more in depth while using less words (it has less than half the pages). I consider it a foundational book and I recommend skipping Money and reading this instead. Its only downside is that it is targeted to US residents. This means that some of the chapters, namely the ones about taxation, are not relevant.
A Random Walk Down Wall Street by Burton G. Malkiel
This book is quite dense but I found it very interesting. It exposes the theoretical foundations of why passive investing works so well and why the other approach, i.e. trying to time the market, cannot work consistently over longer periods of time. I found the chapter covering the history of the financial markets very interesting too.
I recommend reading this book after the Bogleheads’ Guide to Investing.
The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
Warren Buffett is probably the most famous and most successful investor ever. If you pick up this biography of his life, be ready to spend some time on it as it's 929 pages long (and unlike Tony Robbins’ book, it doesn't repeat itself). I found it very rewarding. It won't teach you concrete tips and tricks on how to invest but it sheds a light on the philosophy of one of the best businessmen of the 20th century.
Here are some links that helped me get started.
- https://www.bogleheads.org/wiki/Investing_from_Belgium The Bogleheads Wiki contains a wealth of information about the “Bogle” philosophy of investing but this page in particular deals with the specifics for Belgium.
- https://www.bogleheads.org/wiki/EU_investing Similar but for the entire European Union.
- https://www.justetf.com A good resource to find and compare ETFs.
- https://www.reddit.com/r/investing Quite active subreddit about investing in general. It has a lot of good resource in the sidebar too.
- https://www.reddit.com/r/eupersonalfinance Not as active but targeted to EU residents.
Why did I write this?
I am not claiming to be an expert in investing. In fact, I am just starting to learn about the topic. But while figuring things out, I couldn't find introductory texts on how to get started if you live in Belgium. There's a lot of information out there but it's very scattered. So I hope that by writing about my experiences, I can help some people.
Please leave a comment down below or contact me if you have any remarks or questions about the content.