You may have seen the term "ETF" shared online and in the press. Investing in ETFs is getting increasingly popular. And with good reasons. At Curvo, we strongly believe that passive investing, or investing in ETFS and index funds, is the best way for most people to save for their future. But how do we actually invest in ETFs from Belgium? That's the question we're answering here.
Why ETFs make sense
An ETF is a collection of tens, hundreds, or sometimes thousands of stocks or bonds. This spreading is one of the most attractive aspects of owning an ETF compared to individual stocks and bonds. By investing in a single ETF, you become invested in thousands of companies in one go.
ETFs are a sound investment decision for the following reasons:
- Best suited for the long-term: investments in ETFs compound to substantial returns over many years and consistently beats active investing.
- Diversification: you’re exposed to thousands of companies in one go through a single fund. And diversification is key to good investing.
- Simplicity: once you’ve selected the right funds to invest in, you can sit back and watch your investments grow. There's no need to waste time analysing individual stocks.
- Cost-effective: partly due to the economies of scale and lack of active management costs, ETFs are a cheap way of investing.
Great. But how do you invest in ETFs from Belgium?
How to invest in an ETF from Belgium
As a Belgian investor, there are two ways of investing in ETFs:
- Managing your own investments through a broker
- Using an investment app like Curvo
Investing in ETFs through a broker
Considering there are thousands of ETFs to choose from, how do you know which you should buy? Belgian taxes and regulations impact which are advantageous, and which you should avoid if possible. In short, you should pay attention to:
- Distribution of dividends: accumulating funds are preferred over distributing funds, for tax reasons.
- Domicile: Luxembourg and Ireland have special tax treaties with other countries that reduce the taxes the funds themselves have to pay for the stocks they hold.
- Size: a larger fund is less likely to shut down.
- Replication: synthetic funds can be cheaper, but come with additional risk.
- Cost: a lower total expense ratio (TER) is better!
To dive deeper into these criteria, read our considerations to take into account when investing in ETFs as a Belgian investor. Here is also a recap:
VWCE as the example
To show you how to buy an ETF, we are going to assume that we wish to buy the VWCE ETF. VWCE is the ticker symbol for "Vanguard FTSE All-World Accumulation" (ISIN: IE00BK5BQT80), one of the most popular ETFs for Belgians and that satisfies all the criteria above.
VWCE is a fund that tracks the FTSE All-World index. One of its main benefits is that it's broadly diversified: it consists of over 4,000 companies from more than 40 countries. It contains both large and mid-size companies, from "developed" markets (US, Germany, UK, Japan…) as well as "emerging" markets (Brazil, China, Chile…). An investment in VWCE means an investment in a big chunk of the world economy.
Attempting to buy VWCE with Bux
ETFs are traded on stock exchanges. Famous stock exchanges are the New York Stock Exchange (NYSE), Nasdaq, or the London Stock Exchange (LSE). But for legal and tax reasons, Belgians should invest through a European stock exchange. Examples are Euronext or the Deutsche Börse.
To access a stock exchange, you have to go through an intermediate called a "broker". There are several brokers Belgians can choose from, each with their pros and cons. We compare the most popular ones in our article on the best broker in Belgium to buy VWCE.
In this example, we chose Bux. Bux is a relatively new broker, originally from the Netherlands, but popular among Belgians. Its main attractions are the low fees and the slick mobile app.
The first hiccup we encounter is that VWCE isn't actually available on Bux:
We did find VWRL (ISIN: IE00B3RBWM25), which is the distributing variant of VWCE.
In Belgium, accumulating funds are vastly preferred over distributing funds when investing in stocks. The main issue of distributing funds is that you have to pay a 30% tax on the dividends that the fund pays out. Accumulating funds directly reinvest the dividends into the funds, so you don't have to pay the tax. Find out more about taxes when investing in Belgium.
If we invest in VWRL, we will have to pay a 30% tax on dividends. So we want to find an accumulating fund that is similar to VWCE and available on Bux.
In Bux, you can add criteria to search for funds. By using "etf-accumulating", we find a fund that matches our requirements: MSCI Core ETF from iShares.
Known under the ticker symbol EUNL, this ETF tracks the MSCI World index. The fund invests in over 1,500 companies from 23 different countries. So it's not quite as diversified as VWCE, and most noticeably excludes companies from emerging markets (China, Taiwan, Brasil…). But it's a great fund to get exposure to the largest economies in the world.
It has performed great in the past. If you had invested €10,000 in the MSCI World in 1979, you would have had €880,000 today. This is an average yearly return of 10.9%!
Buying EUNL with Bux
We've chosen our ETF and we're ready to buy it. The next step is to deposit cash on your Bux account. Note that you can only buy whole units of shares. At the time of writing, EUNL was trading at €77.31 per share. The price moves constantly so check what the price is as you read this. Then deposit enough money to buy at least 1 share.
Once you’re ready, click “Buy”. Congrats, you’ve just bought your first share!
Considerations when trading on Bux
There are some considerations when trading on Bux:
- Transaction tax (TOB): the Belgian state charges a transaction tax (TOB) for every trade you make, whether it's to buy or sell. For EUNL, the tax amounts to 0.12% of the total amount. Most Belgian brokers pay and declare this tax for you, but Bux doesn't. They explain how to declare the TOB on their website. We highly recommend you follow the steps to avoid any problems with the Belgian tax man.
- Dividend tax: in case you were to buy a distributing fund or an individual stock, you'll have to pay a 30% tax on perceived dividends. Bux does not withhold this amount for you, so you’ll have to declare and pay it to the tax authorities yourself.
- They’re a foreign broker: this means you have to declare your foreign Bux account to the Belgian National Bank as well as on your yearly tax form. We put together a guide to help you declare your account.
There are alternative brokers which offer more accumulative funds and do a better job helping with taxes. We put together a resource that highlights your brokerage options as a Belgian investor if you want to dig deeper.
The costs of investing through a broker
There are a few different fees when investing in an ETF:
- TER (total expense ratio) of the funds: fund providers charge this fee for managing their funds. They automatically deduct it from the performance of the fund. You can find the TER by searching through the “Key Investor Information Document” (KIID) as many brokers do not openly list the fee. For example, EUNL costs 0.20% per year whilst it's 0.22% per year for VWCE.
- Transaction fee: there is (usually) a fee for every time you buy and sell an ETF. This is dependent on the broker. Through Bux, we did not have to pay a transaction fee. But remember, if something is free, you pay for it somewhere else.
- Transaction tax (TOB): the tax you must pay when buying or selling a financial asset. The calculation of the tax rate is complex, and depends on different characteristics of the particular ETF. We put together a guide to calculate the TOB of any ETF.
The easier way: investing through an investment app
As we've seen, investing in ETFs through a broker is not straightforward. We understand that this can be daunting, especially for someone who's just starting to invest. Curvo was built to take away all the complexities of investing in index funds. No need to search through thousands of ETFs or scour wikis in order to understand how to select a fund. Through Curvo:
- Invest in a portfolio tailored to you: based on a questionnaire, we select the right mix of funds that correspond to your goals and appetite for risk.
- Set up a savings plan: put your savings on autopilot. Choose an amount and it will automatically be invested every single month.
- All your money is invested: in contrast with the majority of 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.
- No entry or exit fees: there are no transaction fees, entry or withdrawal fees.
How Curvo compares to investing through a broker
You can follow the steps above and invest in your ETF through a broker. However, if you:
- are worried of making a mistake when investing
- don't want to handle the taxes
- don't want to spend time choosing a broker
- don't want to spend time making the trades
- don't want to figure out a rebalancing strategy and execute on it
- want fractional shares
- want peace of mind that your investments are taken care of
...then you're welcome to use Curvo! You can learn more on the differences between doing investments yourself through a broker and investing with Curvo.
We’ve shown you two ways of investing in ETFs through Curvo:
- through a broker
- through an app like Curvo
The major downside of investing in ETFs yourself through a broker is about making the right choices. As we’ve shown, there are tons of ETFs available. It's challenging to choose the ones that match your goals. You must also be careful to not pick the wrong ones, where you could end up paying high fees and taxes. You can avoid making these mistakes through an investment app like Curvo, which ultimately sets you up for long-term success.