How to invest in ETFs in Belgium

What are ETFs?

ETFs (Exchange-Traded Funds) are investment funds that are traded on stock exchanges, similar to individual stocks. Through an ETF, you can invest in hundreds, or even thousands, of stocks, bonds or other type of investments. This diversification is one of the most attractive benefits of ETFs compared to an individual stock.

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 indexes is called index investing, also called passive investing because you typically hold your investments over the long-term. When passively investing, you choose to ignore day-to-day price changes knowing that the market will keep growing long-term. Data shows that this strategy gives the highest return in most cases.

Why ETFs are a good investment

ETFs are a sound investment decision for the following reasons:

• Best suited for the long-term: investing in ETFs compound to substantial returns over time. And it beats the active funds sold by your bank!
• 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.
• Low costs: 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

Distribution of dividends: accumulating vs distributing

Any Belgian that perceives a dividend has to pay a 30% tax on it. 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.

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. You can tell the country of domicile from the ISIN code of the ETF. The ISINs of funds domiciled in Ireland start with "IE", those from Luxembourg start with "LU".

Further below, we'll show you how you can buy your first shares of the ETF Vanguard FTSE All-World. Its ISIN code is IE00BK5BQT80, meaning that it's domiciled in Ireland (which is what we want).

Accumulating funds reinvest the dividends automatically in their country of domicile. This does not trigger a taxable event in Belgium, which is why you don't have to pay the dividend tax for accumulating ETFs.

Currency

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

Size

The size is a good indicator of a fund's popularity. As an investor, you’re looking for an investment that is viable in the long run, so you want to avoid the scenario of an ETF shutting down soon after your investment. 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. The spread between the purchase and sale price is smaller.

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. Equities (also called stocks) represent ownership in a company and offer the potential for higher returns over time, but with greater volatility and risk. Bonds, on the other hand, are essentially loans made to corporations or governments, providing more predictable income through interest payments and typically lower risk compared to stocks. 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 equities are not taxed, which is a big advantage compared to other countries. 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.

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 ETF 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%. Active funds usually also have entry fees, which ETFs don't have.

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. The tax rate varies between 0.12% and 1.32% of the transaction amount. For ETFs like the one we’ve highlighted, VWCE, the tax rate is set at 1.32%.

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

Doing your research with 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):

If you're looking to learn how to get asset allocation right, we wrote a guide on how to build your optimal portfolio of ETFs.

How to buy an ETF in Belgium

As a Belgian investor, there are two ways of buying ETFs or trackers:

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

Let's discover both options.

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. It's accumulating, domiciled in Ireland, trades in euro, and is physically replicated.

VWCE tracks the FTSE All-World index. One of its main benefits is that it's broadly diversified: it invests in 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. It has delivered an average 8.2% per year since 2005.

Buying VWCE with DEGIRO

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 tax and cost 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 for ETFs. In this example, we chose DEGIRO. It's a popular, originally from the Netherlands, but since acquired by the German flatex. Its main attractions are the low fees and their selection of free ETFs.

The first step is to open an account with DEGIRO. Unfortunately, degiro.be does not exist so you'll have to open an account with either degiro.nl (Dutch) or degiro.fr (French). This is slightly confusing!

The next step is to deposit cash on your DEGIRO account. This can take a couple of days to arrive, depending on your bank.

When the money arrives, you can buy the ETF. Search for VWCE by typing its ISIN code "IE00BK5BQT80" in the search bar. The second confusion is that you'll see several results. They all correspond to the same ETF, but on different exchanges. For instance, Vanguard trades on XETRA, Tradegate Exchange, Borsa Italiana... To pay the lowest fees, it's important with DEGIRO to buy VWCE on XETRA ("XET").

Now we can buy VWCE. Select the number of shares you wish to buy. Note that you can only buy whole units of shares. So you'll need to calculate how many shares you can buy, based on how much you want to invest and the amount you deposited on your DEGIRO account.

You also need to choose the type of order. The most common types are market orders and limit orders. A market order is an order to buy immediately at the best available current price. It prioritises execution speed over price, and it is typically filled quickly as long as there are enough sellers in the market. After all, remember that you're buying the ETF off of someone who wishes to sell his. Due to market fluctuations, the final execution price may be different from the price when the order was placed.

A limit order, on the other hand, is an order to buy at a specific price or better. You can set a predetermined price at which you want to execute the transaction, offering you more control. Unlike market orders, limit orders are not guaranteed to be executed immediately or even at all, as they depend on the share price reaching the specified price.

Once you’re ready, click “Place order”. Congrats, you just bought your first ETF!

Considerations when investing through DEGIRO

There are some considerations when trading on DEGIRO. First of all, the interface of their app is intimidating to use if you're new to investing. As you can tell, there's a lot going on on each screen. DEGIRO offers many types of securities: turbos, warrants, stocks, ETFs… And when you place an order, you also have to choose between a market order, a limit order, a stop-loss order, amongst others. All this technical terminology means that you need to know what you're doing.

Secondly, DEGIRO has had a few problems with the Dutch financial authorities (AFM) over the years, which doesn’t give much confidence.

Lastly, they're a foreign broker. This means you have to declare your DEGIRO 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.

Fortunately, there are many different brokers available in Belgium. We put together a resource that highlights the best brokers for Belgian investors if you want to learn more about the different options.

The costs of investing through a broker

There are a fees when investing in an ETF through a broker:

• Total expense ratio (TER) of the ETF. Fund providers charge this fee for managing their fund. For example, VWCE costs 0.22% per year on the total invested. 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. The website justETF.com also shows the total expense ratio of any ETF.
• ‍Broker fee. There is (usually) a fee every time you buy or sell an ETF. This is dependent on the broker. Through DEGIRO, we did not have to pay a transaction fee as VWCE is part of their free selection of ETFs as long as we buy it on the XETRA exchange. However, they do charge a yearly connectivity cost of €2.50. Learn more about the costs of investing through DEGIRO.
• ‍Transaction tax (TOB). The tax you must pay to the Belgian state 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 an ETF. For our purchase of VWCE, we had to pay 0.12% of what we invested.

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, the right mix of funds that correspond to your goals and appetite for risk is selected. The investments are managed by NNEK, a Dutch investment firm under supervision of the Dutch regulator (AFM).
• 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, your investments with NNEK, through the Curvo application, support 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're worried of making a mistake when investing
• you don't want to handle the taxes
• you don't want to spend time choosing a broker
• you don't want to spend time making the trades
• you don't want to figure out a rebalancing strategy and execute on it
• you want fractional shares
• you 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 with managing your own investments through a broker.

Summary

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 app like Curvo, which ultimately sets you up for long-term success.

Questions you may have

What are the best ETFs to invest in?

Based on our criteria for selecting an ETF, there are some ETFs that we think are a good choice for most investors:

• VWCE: tracks the FTSE All-World index
• IWDA: tracks the MSCI World index
• EMIM: tracks the MSCI Emerging Markets index
• SXR8: tracks the S&P 500 index
• DBZB: bond ETF that tracks the FTSE World Government Bond - Developed Markets (EUR Hedged) index

We suggest you check our list of best ETFs for Belgians for a more complete overview.

What's the difference between an index fund and an ETF?

An index fund and an ETF are both types of investment vehicles designed to track the performance of a specific market index. But they differ in structure and how they're traded. An index fund is a type of mutual fund, which pools investors' money to purchase a diversified basket of assets that mimic the composition of the underlying index. It is typically bought and sold at the end of the trading day at its net asset value (NAV).

An ETF, on the other hand, is traded like a stock on an exchange, allowing investors to buy and sell shares throughout the trading day at market prices. This real-time trading flexibility is a key difference between ETFs and index funds.

In Belgium, there exist very few index funds. So for most Belgian index investors, the instrument of choice is the ETF.