What's index investing
Investing in index funds, also called passive investing, is a tried and tested method for growing your wealth. It’s based on the observation that, rather than picking individual stocks and trying to buy and sell at the right time, it’s usually more profitable to invest in the stock market as a whole. This is done through a type of investment called an index fund.
An index is like a bag of stocks where the rules are very clear on which stocks are included and how much you get from each company. The most famous index is the S&P 500, which has the 500 biggest American companies, weighted by market capitalization. In Belgium, the main index is the BEL 20, which consists of the 20 largest companies in the country. An index fund invests in the companies dictated by the rules of the index.
For most people, passive investing is preferred over an active investment style like picking stocks. The reason is simple: higher returns. Indeed, because of the advances in technology in recent decades, financial markets have become so efficient that it's incredibly hard to have an edge over all the other investors in the world. Even professional investors struggle: research by the European financial regulator shows that most actively managed funds offered by traditional banks and investment firms do not consistently beat a passive fund. So most likely, you'll earn a higher return in the long run through investing in index funds, such as those offered by Vanguard.
Learn more on how passive investing compares to active investing.
The appeal of Vanguard funds
John Bogle, the founder of Vanguard, launched the world’s first index fund in 1975. Since then the company has grown to become one of the largest investment firms in the world with trillions of dollars invested.
One reason for their great reputation is that the company has always remained true to its core belief in passive investing. As it has grown and started to benefit from economies of scale, it has consistently focused on lowering the price for its customers instead of pocketing higher profit. As a result, their index funds are among the cheapest on the market.
And fortunately for us, some of their funds are now also available in Belgium through their selection of ETFs!
Alright, I’m convinced. I want to buy Vanguard funds. How do I do this in Belgium?
How Belgians can invest in Vanguard funds
As a Belgian investor, you cannot go to vanguard.be directly and buy one of their funds. Instead, you must choose one of two ways:
- Doing it yourself through a broker. This is the cheapest way but also the one that involves the most work from your part.
- Using an investment app. The app will take care of all the details for you so you don't have to worry.
Option 1: doing it yourself
To make it concrete, we're going to explain step-by-step how to buy the "Vanguard FTSE All-World Accumulation" ETF. Most commonly referred to on the internet by its ticker VWCE, this is one of their best and most popular ETFs. We’re also going to use Degiro as our broker, which is one of the cheapest for Belgian investors.
What is VWCE?
VWCE is an index fund that tracks the FTSE All-World index. As its name implies, this index is global: it consists of over 4,000 companies from more than 40 countries. It contains both large and mid-size companies, from both "developed" (US, Germany, UK, Japan…) and "emerging" markets (Brazil, China, Chile…).
The returns of the fund have been very good throughout recent years. If you had invested €10,000 in VWCE in 2005, you would have had €40,000 today. This equals to an average annual return of 9%!
It became one of the most popular ETFs in Europe for several reasons:
- Great diversification in a single fund. There aren't many ETFs that are more diversified than VWCE. As a matter of fact, many people chose to invest only in VWCE as their entire portfolio.Later, we’ll explain why this does not suit every investor.
- It's Vanguard. As mentioned above, Vanguard has a great reputation for offering high-quality index funds at a low price.
- Price. ETFs are priced using their ongoing charges, also called "total expense ratio" or TER. This is a percentage of your investments that you’ll pay to Vanguard for managing the fund. VWCE's total expense ratio is 0.22%, making it one of the cheapest equity funds on the European market.
- It's part of the free selection on Degiro. You usually pay a fee when you buy an ETF through a broker. After all, the broker wants to be paid for giving you access to the stock exchange. However, the broker Degiro waives its fee for selected ETFs under certain conditions. And VWCE is in that selection.
Choosing a broker
Just like regular stocks, ETFs are traded on stock exchanges. Unfortunately, you can't just go to Euronext in Brussels to buy your shares. Instead, you must go through a middleman called a broker.
Most likely, your bank offers brokerage services. But don't use them! They're really expensive. Curvo's co-founder Yoran bought his first shares through his bank BNP Paribas Fortis, and realised only later how much of his gains he had forfeited to them. Instead, you should opt for a specialised broker.
Unless you want to have your returns eaten by fees, do not use your bank as a broker. Instead, go with a specialised broker.
In Belgium, we have access to a variety of local brokers including:
Still, foreign brokers are often cheaper. Some popular ones are Degiro and Lynx. Before he moved his portfolio to Curvo, co-founder Yoran was actually managing his investments with Lynx, but Degiro has become increasingly popular these past few years. This is likely because of their selection of free ETFs.
Are there any disadvantages to a foreign broker compared to a Belgian broker?
There are, and the most important ones are:
- Taxes. Just like any country, Belgium has its own set of taxes that you're required to pay when investing, and most foreign brokers don't bother to handle the taxes that are specific to Belgium. So if you're investing through one of those brokers, it could be that you're unknowingly evading taxes. Before being sold on a broker by its low fees, make sure you look into how they handle Belgian taxes!
- Declaration of foreign accounts. The Belgian government requires you to declare any account that you hold at a foreign bank or broker. Fortunately, you can follow our step-by-step guide on how to do this. (LINK TO FAQ)
In this article, we are going to choose Degiro as our broker because VWCE is part of their selection of free ETFs. This means that we won't have to pay any broker fees, provided that we:
- make only one transaction per month
- invest a minimum of €1,000 for that transaction
- buy VWCE on the German XETRA stock exchange
Also, Degiro is special among foreign brokers in that they withhold the Belgian transaction tax for you.
Let's start by opening a Degiro account!
Opening an account with Degiro
Oddly enough, degiro.be does not exist. To open an account, you must either go to degiro.nl (if you prefer a Dutch interface) or degiro.fr (if you prefer French). You then have an option to choose Belgium when opening an account:
Once you start, you'll see that there are quite some steps involved in opening an account. You have to tell them who you are, verify your identity through your passport or identity card, answer questions on your knowledge about investing… A bit of patience is required!
During the process, Degiro will ask you whether you wish to open a Basic or Custody account. If you're opening an account with the plan to seriously invest your savings, we highly recommend you open a Custody account. The reason is that for Basic accounts, Degiro is free to lend out your assets. This introduces additional risk that we personally prefer to avoid when investing our life savings. Be careful, you won't be able to switch to another type once you've opened the account! So make sure you select the correct one.
Since Degiro is a foreign broker, you'll be in possession of a foreign account after opening up an account with them. This means that you have to declare it to the Belgian authorities. You can do this procedure online using an eID card reader. Simply follow our step-by-step guide! (LINK TO FAQ)
Buying your shares of VWCE on Degiro
Once you’ve created your Degiro account and it's been validated, you’ll be able to buy shares of VWCE. Each ETF is identified by its unique ISIN code. VWCE's ISIN code is IE00BK5BQT80 and you should use this code to search for it.
You'll see that there are four results, all with the same ISIN code. Those are all the same fund but listed on different stock exchanges and in different currencies:
- XET: XETRA stock exchange in Germany in Euro
- LSE: London Stock Exchange in US dollars or in British Pounds
- MIL: Borsa Italiana in Milan in Euro
To avoid paying the broker fee, it's imperative that you buy the fund on XETRA. If you buy the fund on LSE or the Borsa Italiana, you'll pay €4.00 and an additional percentage of the transaction amount.
To avoid any broker fees on Degiro, it's important you buy VWCE on XETRA!
Once you've selected the right exchange and currency, you'll see the screen below from which you can buy shares of VWCE.
First, you have to calculate how many shares you can buy. Imagine we're investing €1,000. At the time that the screenshot was taken, VWCE was trading at a price of €90.96. This means that we can buy 10 shares, which is €1,000 divided by €90,96 and rounding down. We're then left with €90.40 in cash on our account, minus the transaction tax (more on that below).
Can I invest all my money?
Unfortunately no. Degiro does not offer fractional shares, meaning that you must buy whole units of a share. There are actually very few brokers in Europe that offer fractional shares.
Remember that you should invest at least €1,000 to waive the broker fee with Degiro!
Secondly, you need to pick the right type of order. The two types you're most likely to use are:
- Market order. With a market order, the goal is to execute the order as quickly as possible by paying whatever the market is asking.
- Limit order. A limit order is slightly more advanced because you can enforce that you don't want to pay over a certain price for your shares. You will get your shares only when someone agrees to sell you their shares at that price. The advantage of a limit order is that you will never pay more than you want. The downside is that it can take a long time before your order gets executed, especially if the price of the ETF is increasing. As a matter of fact, your order will expire and be canceled if it's not fulfilled after some time.
If it's your first time buying the fund, we recommend you keep things simple and go with a market order. There you go, you’ve purchased a Vanguard ETF!
The transaction tax
If you did everything correctly, you will have avoided all broker fees. However, you cannot get around the Belgian transaction tax ("beurstaks" or "taxe sur les opérations de bourse" or TOB), which you must pay when buying or selling a financial asset.
For ETFs like VWCE, the transaction tax is set at 0.12% of the transaction amount. So when we purchased our 10 shares of VWCE at €90.96, Degiro automatically withheld an additional €1.09 for the Belgian tax man (0.12% of the transaction amount €909.60).
Most foreign brokers do not automatically withhold the Belgian transaction tax. In that respect, Degiro and Lynx are the exception. For instance, another popular broker is Interactive Brokers. But the caveat is that you'll be responsible for calculating, paying and declaring the transaction taxes that you're due.
Repeat on a monthly basis
Alright, you've made your first purchase of a Vanguard fund. Now you can turn it into a habit, and invest a portion of your income every month. It will really pay off in the long run!
Option 2: using an investment app
Alright, that was a lot to take in! Thanks for bearing with us and making it this far. There are a lot of things to take into account when buying Vanguard ETFs through a broker, and unfortunately, the details really do matter when it comes to investing.
Furthermore, buying a single fund is only part of a sound investment strategy. Some people choose to have only VWCE in their investment portfolio and call it a day, but it's very likely that a well rounded mix of funds within your portfolio better matches your long-term goals and appetite for risk.
Defining your portfolio, choosing a broker, figuring out taxes, rebalancing... they're not easy. We've been through it ourselves.
So we present an alternative way: Curvo! We created Curvo to remove the complexities from investing in index funds so that it becomes an automated task. We are doing this because we find it important that we, the next generation of Belgians, are better prepared financially for our future.
How does Curvo work?
We acknowledge that every investor is different. So as a first step, we ask you some questions to learn about you, your financial goals, and your appetite for risk. Then we build a portfolio that suits you:
- You receive a globally diversified portfolio of index funds, provided by Vanguard and iShares.
- Your portfolio will exclude companies that we deem destructive to our planet.
- We handle all the buying and selling for you.
- We keep your portfolio balanced and aligned to you.
- We handle all the taxes.
- Your investments are secure. We're regulated by the Dutch (AFM) and Belgian (FSMA) finance regulators.
- You can set up automatic monthly contributions and truly put your investments on auto-pilot.
- You pay a fixed 1% yearly fee which includes all the costs. No hidden fees.
- All this done through an easy mobile app!
Learn how it works if you're interested in how to invest in Vanguard funds with Curvo.
With Curvo, all your money is invested
In contrast with most European brokers, Curvo works with fractional shares. This means that all your money is put to work. There will never be cash sitting on your account doing nothing.
We hope you now know that there are two ways you can invest in Vanguard funds in Belgium, and thar you better understand the steps required to do so.
We hope that it became clear that there are two ways in which you can invest in Vanguard funds in Belgium:
- You can do it yourself using a broker, or
- Use an investment app like Curvo
The first way is the cheapest, but it also requires you to put in the most effort and take extra precautions in the decision-making. And that's perfectly fine. After all, we started that way!
On the other hand, you may just want to grow your savings and are not particularly interested in learning all the intricacies of investing. Maybe you simply don't have the time nor motivation to go through the learning curve that anyone who manages his own investments must go through. In that case, an easy-to-use investment app like Curvo is the best alternative to invest in Vanguard funds.