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.

What’s an ETF?

An ETF (or exchange-trade fund) 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. The majority of ETFs are designed to track a market index, which is why they're sometimes called "trackers".

The style of investing based on trackers is called passive investing, as you typically purchase and hold your investments over the long-term, choosing to ignore day to day market price changes knowing that the market will keep growing long-term. Data shows that this strategy is most likely to give you the highest return [1].

Why ETFs are a good investment

ETFs are a sound investment decision for the following reasons:

  • Best suited for the long-term: investments in ETFs compound to substantial returns over time 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 know which ETF to choose?

How to select an ETF

Considerations for a Belgian buying an ETF

Distribution of dividends: accumulating vs distributing

Any Belgian that perceives a dividend has to pay a 30% tax on it. As the name suggests, distributing funds distribute their dividends, which means they're taxable. No matter if you have a stock or bond ETF, you’ll have to declare and pay that tax.

On the other hand, accumulating funds directly reinvest the dividends into the fund before you ever receive it. This means you're not liable to pay tax on them. The dividend translates into a greater increase in the value of an accumulating fund than its distributing equivalent. Unless you have a good reason not to, we therefore suggest buying only accumulating funds because you won't be taxed on the dividend. As capital gains are not taxed in Belgium, you won't be taxed either when selling an accumulating ETF.

For example, the distribution of dividends is the reason why the VWCE ETF is preferred over the VWRL ETF for Belgians.

Domicile

Luxembourg and Ireland have special tax treaties with the US that make it attractive to set up funds there. As a Belgian investor, you can benefit from this by investing in funds that are domiciled in one of these two countries.

As mentioned earlier, the popular Vanguard FTSE All-World (VWCE) ETF is domiciled in Ireland. You can tell this from its ISIN code IE00BK5BQT80 (the "IE" stands for Ireland). The ISINs of funds domiciled in Luxembourg start with "LU".

As we highlighted above, accumulating funds reinvest the dividends automatically in Ireland before it is distributed in Belgium. This does not trigger a taxable event in Belgium.

Currency

If you buy a fund that is not traded in Euro (€), the broker will likely convert it for you. However, the broker sees this as another source of revenue so it often comes at an additional cost. For this reason, it's best to invest in funds that are trading in Euro.

Size

The fund size is a good indicator of a product’s popularity. As an investor, you’re looking for an investment that is viable in the long run, so you’d want to avoid a fund shutting down after a couple of months. As ETFs must reach a certain size to become viable, a larger fund is less likely to shut down. Also, larger funds are easier to buy and sell because there are more players in the market.

One important thing to note is that you don’t lose your money if an ETF is liquidated. In fact, the underlying assets of the ETF are still worth their market value, meaning you’ll receive the value of your ETF shares when the assets are sold.

Type of asset

When choosing your ETF, you need to select the right asset class: equities, bonds, commodities… Each has its role in an investment portfolio. For instance, it’s often recommended to invest more in bonds as you get older, because lower volatility becomes important as you approach retirement.

In Belgium, profits on stock funds are not taxed but the gains on your bond funds will be taxed due to the Reynders tax. As soon as a fund consists of at least 10% bonds, there is a 30% tax on the profits made when selling. For example, if you bought a bond fund at €100 and end up selling it later for €130, your net profit will only be €21. The other €9 will go to the Belgian state through this tax. This is a difficult one as your instinct would be to go "all-in" on stocks to not pay the Reynders tax. But stocks can go up and down drastically, and you may need an allocation to bonds in order to be able to go through downturns without panicking and making irrational decisions (such as selling all your investments). Such a mistake is more costly than paying some Reynders tax on your bonds.

Replication strategy

Some ETFs are cheaper through a technique called synthetic replication. Instead of actually buying the shares of the companies in the index, the fund provider uses financial engineering to replicate the returns of the index by making a deal with a third-party (typically a large bank). It sounds a bit dodgy, and we think so too. The main issue with synthetic replication is that it introduces an additional risk coming from the counterparty. And when investing our life savings, we want to limit the risks that are avoidable. Avoid! Instead, invest in funds that use physical replication as their strategy.

The cost of an ETF

Fund managers charge a fee for managing their funds. The total cost of a fund is indicated by the total expense ratio (TER). They automatically deduct it from the performance of the fund so when you look at a fund’s performance, it is usually presented net of fees.

The advantage of an index fund over active funds is that costs are usually very low. For instance, VWCE has a total expense ratio of 0.22%. In contrast, this active fund from BNP Paribas Fortis costs 1.95%, on top of which you need to pay entrance fees.

Taxes

As a Belgian resident, there’s a tax on the transaction ("beurstaks" or "taxe sur les opérations de bourse" or TOB) every time you buy or sell a security. If the ETF you are purchasing or selling is registered on a particular list maintained by the European Economic Area, then the tax equals 0.12% of the transaction amount. For ETFs like the one we’ve highlighted, VWCE, the transaction tax is set at 0.12% of the transaction amount. You can follow our guide to calculate the transaction tax on any ETF.

To learn more about the taxes on your investments, we suggest you explore our piece on Belgian taxes.

How to do your research: justETF

justETF.com is the best resource that we know to compare ETFs. It shows most of the information that we mentioned in this article for thousands of ETFs available to Europeans. Below is what it shows for VWCE (the red highlights are by us):

Page for VWCE on justETF.com (link)

How to invest in an ETF from Belgium

As a Belgian investor, there are two ways of investing in ETFs:

  1. Managing your own investments through a broker
  2. Using an investment app like Curvo

Option 1: Investing in ETFs through a broker

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 Zero

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 Zero. It's 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 Zero:

Searching for an ISIN code on the Bux app
We weren't able to find VWCE on BUX Zero

We did find VWRL (ISIN: IE00B3RBWM25), 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 Zero.

In BUX Zero, you can add criteria to search for funds. By using "etf-accumulating", we find a fund that matches our requirements: "All World MSCI Core ETF" provided by iShares.

Finding an accumulating ETF in the Bux app
Selecting the EUNL ETF which follows the MSCI World Index.

Known under the ticker symbol EUNL (or on some exchanges IWDA), 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 €870,000 today. This is an average yearly return of 10.8%!

Evolution of €10,000 invested in EUNL from 1979 to 2022
Evolution of €10,000 invested in EUNL from 1979 to 2022 (from Backtest)

Buying EUNL with BUX Zero

We've chosen our ETF and we're ready to buy it. The next step is to deposit cash on your BUX Zero account. Note that you can only buy whole units of shares. At the time of writing, EUNL was trading at €74.68 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 Zero

There are some considerations when trading on BUX Zero:

  • Transaction tax: the Belgian state charges a transaction tax (often abbreviated as "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 Zero 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 Zero 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 Zero 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 fees when investing in an ETF through a broker:

  • 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 Zero, 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) option 2: investing through an investment app

Choosing an ETF is not the end of the story: it's a small part of building a portfolio that will give you success over the long term. Defining the right portfolio is probably the most important and most difficult task for every investor. The composition of your portfolio is dependent on goals, your appetite for risk, your age and your income. We understand this difficulty, along with the many other subtleties investors have to deal with in order to be successful over the long term.

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.

Learn more about how Curvo works

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.

Conclusion

We’ve shown you two ways of investing in ETFs:

  1. through a broker
  2. 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.