How to invest in ETFs in the Netherlands

What is an ETF?

An ETF (or exchange-traded 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 invest in thousands of companies in one go.

The majority of ETFs are designed to track a market index. This is why they're sometimes called "trackers". Many Dutch are familiar with the AEX index, which is a collection of the 25 most frequently traded stocks on Euronext Amsterdam, the Amsterdam stock exchange. Other known indexes are the S&P 500, which tracks the top 500 largest companies in the United States, or the Nasdaq-100 that covers the top 100 American technology companies.

The style of investing through indexes is called passive investing: you’re specifically looking to hold your investments over the long-term and you’re diversified in one go. It’s the opposite of active investing where you’re following specific stocks, and trying to buy low and sell high. And the data shows that if your goal is to put your money to work and secure your financial future, passive investing works.

Why ETFs are a great investment

Investing in ETFs is a lot easier than buying stocks that you have to analyse one by one. Here are a few reasons why you should consider investing in ETFs:

• Built for long-term investing. Over the last 100 years, the global stock markets have grown tremendously, especially considering all the economic crises as well as World Wars. As a consequence, globally diversified ETFs have performed very well over the long run. A global index such as MSCI World has returned an average 11% per year since 1979.
• Diversification at the core. By buying an ETF, you’re exposed to thousands of companies in one go. Diversifying is key to good investing because it reduces the risk of a bad outcome.
• Simple to get started. It's a lot easier to build a balanced and diversified portfolio with ETFs than with individual stocks. Also, you can start investing from a low amount.
• Cheap. One of the main reasons that ETFs have become so popular is that they have low fees compared to actively managed funds.

Learn more about passive investing vs stock picking.

How to choose an ETF

Deciding you want to invest in ETFs is the first step. The next step is to choose the ETFs to invest in. There are thousands of ETFs available. They all have different characteristics that make them more or less suitable. That's why we start by highlighting the criteria you must look out for when choosing your ETF.

Globally diversified

As the saying goes, it's never a good idea to put all your eggs in one basket. Diversifying allows you to reduce the risk of a bad outcome without affecting the return. As such, we aim to invest in ETFs that are as diversified as possible: across countries, sectors, and company sizes.

Cost

Fund providers charge a fee for managing their funds, called the total expense ratio (TER). They automatically deduct it from the performance of the fund. You can find the TER on the fund's website or in the “Key Investor Information Document” (KIID). Naturally the lower the better!

Accumulating vs distributing

Accumulating funds directly reinvest the dividends which increases the value of your shares. On the other hand, distributing funds pay out a monthly, quarterly or annual dividend, and the money lands in your bank account.

For Dutch investors, there's no strong argument to prefer one over the other. If you’re young though, it’s often better to invest in an accumulating fund. You're likely still in the phase of your life where you want to grow your wealth. With accumulating funds, you won't worry about reinvesting the dividends as it's done for you. You can optimally benefit from the compounding effect.

Secondly, you need to pay taxes on the dividends you receive when investing in a distributive fund. You can get that back, but you need to explicitly ask for it in your yearly tax declaration. When investing in an accumulating fund, you don't run the risk of forgetting to ask for the reimbursement of the dividend taxes.

Dividend leakage

In the Netherlands, the tax rate on dividends is 15%. This rate differs per country. It is 30% in the US for instance. If you own a US stock, mutual fund or index fund that pays a dividend, 30% tax is withheld on this dividend.

The Netherlands has tax treaties with many countries. As a result, you usually do not have to pay more than the 15% tax rate applicable in the Netherlands. Excess dividend tax withheld can usually be reclaimed through your tax return. However, if the Netherlands has no or no good tax treaty with a country, you may not be able to reclaim the withheld tax and pay more than 15%. In that case, there is dividend leakage.

Some Dutch fund providers go the extra mile and can recover all leaked dividend taxes for their customers. This can make a difference of a few tenths of a percent in yearly return.

Type of asset

ETFs exist for pretty much every type of asset: stocks, bonds, real-estate, commodities… Each has its role in a well-balanced portfolio. For instance, stocks offer a higher return in the long term, but at the cost of higher volatility. On the other hand, bonds can stabilise a portfolio but offer a lower return.

Replication

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 through 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. Instead, invest in funds that physically replicate the underlying index.

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 euros.

Fund size

The business model of fund providers is based on economies of scale. Larger funds that attract many investors are financially more profitable for the fund provider. In fact, funds are more likely to be shut down after some time if they fail to receive sufficient investments. So as a long-term investor, it's preferable to invest in larger funds and avoid having to replace a fund in our portfolio after some time.

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 for Dutch investors.

Below is what it shows for VWRL, a popular ETF in the Netherlands we will look to buy further down in the article. The red highlights are ours.

Where to buy ETFs

There are three ways in the Netherlands through which you can invest in ETFs that track a market index:

1. Broker
2. Index fund provider
3. An app like Curvo

We will look at each option in detail.

Option 1: buying an ETF through a broker

ETFs are traded on stock exchanges. Unfortunately, you can't directly go through a stock exchange and say you want to buy an ETF. Instead, you need to go through a middleman called a broker.

VWRL as an example

To make our story more practical, we are going to show how you can buy VWRL, a popular ETF for Dutch investors, through DEGIRO. DEGIRO is a Dutch broker that has since been acquired by Flatex, a German company. Many investors use DEGIRO because they are among the cheapest in the industry.

VWRL is an ETF that was launched by Vanguard in 2019 to track the performance of the FTSE All-World Index. The fund currently holds more than €11 billion under management.

It's composed of approximately 3,700 stocks across more than 40 countries. "Developed" countries such as the US, Germany, Japan, and the Netherlands 🇳🇱, are represented, as well as emerging nations like Brazil or China. It is one of the most diversified ETFs on the market. And because of this, investors can find in VWRL a great way to follow the market and hold a significant portion of the world's company stocks such as Apple, Tesla, Alibaba, etc… In terms of return, the FTSE All-World index has returned an average 8.6% per year since 2005.

Note that VWRL is distributing, meaning that it will pay you out a dividend every quarter. Unfortunately, Vanguard does not address the issue for dividend leakage for Dutch investors. But we chose VWRL nonetheless because there is no such diversified ETF available without the dividend leakage.

Opening an account with DEGIRO

Head to degiro.nl to open an account. Make sure you indicate the Netherlands as your country of residence. The signup process takes a couple of minutes to complete.

Buying VWRL on DEGIRO

First, search for "VWRL". You'll see that you get several results. These correspond to different stock exchanges on which the ETF is traded. To pay the lowest broker fee, choose the "EAM" stock exchange (which stands for Euronext Amsterdam).

Next, you must choose how many shares you want to buy. You can also select the order type: limit order, market order, stoploss, or stoplimit order. These are for more advanced traders and the easiest is to choose for "Market Order".

Hit that "Buy" button and congrats! You just bought your first ETF.

The costs of investing through DEGIRO

A broker like DEGIRO gives you access to stock exchanges, allowing you to buy any ETF or stock you wish. In return, they charge a fee for each purchase or sale that you make.

The good thing about DEGIRO is that they don't charge any fee for some ETFs, called the kernselectie. Fortunately for us, VWRL is in the kernselectie. So provided that you comply with their fair use policy for investing, you won't have to pay any fees to DEGIRO to buy the ETF.

Pros of a broker

Investing in ETFs through a broker has some advantages:

• Cheap way to invest in ETFs. We saw that brokers like DEGIRO are even free for a selection of ETFs!
• Choice of many ETFs. With a broker, you gain access to the main stock exchanges through which you have access to thousands of ETFs. Some focus on a particular continent, others on a country (like an ETF tracking the AEX index), and some focus on a specific industry like technology, robotics, or electric vehicles.
• Control. You're in full control of your investments. You choose what you buy or sell, and when.

Downsides of a broker

However, these advantages also have a flipside:

• You need to teach yourself about investing. We've seen that a broker gives you access to thousands of ETFs. But with that power comes a lot of responsibility too. Figuring out how to start and understanding the intricacies of investing requires research from your part.
• The allocation of your portfolio is in your hands. Everyone has a portfolio that is right for them, depending on their financial goals, their financial situation, their tolerance to risk, their capacity for taking risks… When you manage your own investments through a broker, you are responsible for finding your right portfolio and sticking with it.
• Dividend leakage. All global, highly diversified ETFs available to Dutch investors have dividend leakage.
• It takes time. Managing your own investments can be time-consuming, especially if you want to do it well. Are you fine dedicating time to your investments? Or are there other things in your life that you value more?
• Discipline. Because of the power of compounding, the largest investment profits are made when you stick with your investment strategy for many years. But this requires discipline.

Option 2: buying an index fund through a Dutch fund provider

We saw that no globally diversified ETFs take care of the dividend leakage for Dutch investors. Fortunately, there are Dutch fund providers that offer globally index funds without the dividend leakage.

One of those providers is Meesman. One of their funds, "Aandelen Wereldwijd Totaal", is similar to VWRL. It invests in more than 6,000 companies from over 40 countries. As opposed to ETFs, which are traded on a stock exchange and require a broker to access, you invest in "Aandelen Wereldwijd Totaal" directly from Meesman.

To start investing with Meesman, simply go to meesman.nl and open an account. Note that the minimum deposit is €10,000 in a lump sum, €1,200 per year or €100 per month.

The costs of investing through Meesman

It's more expensive to invest through Meesman than with a broker. The total expense ratio of the "Aandelen Wereldwijd Totaal" fund is 0.4%, whereas VWRL's is 0.22%. Furthermore, Meesman charges a 0.25% fee for each buy and sale transaction. They waive the transaction fee if you have more than €500,000 invested with them.

Pros of Meesman

• No dividend leakage. You win a couple of tenths of a percent in additional return by getting some dividend tax back.
• Dutch 🇳🇱. You may find it important to work with a local partner.

Cons of Meesman

• High minimum investment amount. The minimum amount to invest is €10,000, or €100 per month.
• More expensive than a broker. Both the total expense ratio of the fund and the transaction fee is higher than a broker's.
• The allocation of your portfolio is in your hands. Just like a broker, Meesman only gives you access to their funds. But you're responsible for composing the right portfolio of funds that will bring you success long-term.
• Discipline. It requires discipline to stay the course.

Option 3: an easier way with Curvo

Finally, there's a third option.

The difficulties of managing your own investments

Choosing a single ETF is not the entire story when investing your life savings. To bring success over the long term, you need to build a portfolio of ETFs that is suited to your goals, your appetite for risk and your capacity for taking risks. But this is not an easy task, as there are thousands of ETFs to choose from.

Furthermore, this portfolio of funds needs to be kept in balance over time, and adapt to changes in your life situation. When managing your own portfolio, this responsibility falls onto you.

We saw a lot of people around us not investing because of these difficulties. Or they tried but stopped after a while because they didn't trust themselves enough to make the right financial decisions for their future. Yet, we think passive investing is a powerful tool for young people to improve their financial well-being. That's why we built Curvo: to solve all the complexities of good investing so you don't have to worry.

Pros of Curvo

• Portfolio of funds built for you. You are asked a few questions at the start to learn about you and your goals. Based on your answers, you are match you with the best portfolio of index funds for you. No need to choose which ETFs to buy. The portfolios are managed by NNEK, an investment firm licensed by the Dutch regulator (AFM).
• Diversification. We firmly believe in the power of diversification to lower risk and seek investment returns. Each portfolio consists of over 7,500 companies, diversified across sectors and countries.
• Invest sustainably. Your investments focus on one guiding principle: don’t invest in companies that are considered destructive to the planet. This means that sectors like non-renewable energy, vice products, weapons and controversial companies are all excluded.
• Rebalancing done for you. No need to worry about keeping your portfolio in balance, this is handled for you.
• Fractional shares. All your money is invested. There’s no cash left sitting on the side.
• Automated investments. Using direct debit, you can set up a savings plan through the app and make money whilst you sit back and relax.
• Start from €50. No need for a large lump sum to get started.
• Project your savings into the future. Through Curvo you can see how much your portfolio is expected to be worth in the future. You can answer questions like “how will increasing my monthly contribution by €50, €100 or €200 affect my long-term savings?” to give a concrete idea for the “future you”.
• Withdraw anytime. There’s no long-term contract or exit fees if you wish to stop investing.

Cons of Curvo

Of course, Curvo has downsides as well.

• Cost. You are charged a fee between 0.6% and 1% per year on your total investments. Depending on how much you plan on investing and how frequently, this can be more than the fees you would pay with a broker or through Meesman.
• Little choice of funds. It's hard to create a portfolio of funds that will bring you success over the long run. That's why you are matched with the portfolio that best suits your needs and goals. This means that you can't choose which funds you invest in, like you can with a broker.

Is Curvo for you?

Curvo is for you if:

• You are worried of making a mistake when investing
• 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

Feel free to explore Curvo.

Curvo is soon launching in the Netherlands

We started in Belgium, but we are soon available in the Netherlands! Download the app and leave your email to be notified when we launch.

Summary

We've seen that ETFs are a great way to build a diversified investment portfolio, at a low cost. For most people, a passive strategy based on index investing will be a superior strategy in the long run than picking individual stocks.

We saw three ways in which Dutch investors can passively invest: buying your ETFs through a broker, investing in index funds through a fund provider like Meesman, or using an app like Curvo. Each has their pros and cons, and suits a different type of investor. We hope that we shed some light on the best approach for you.

What you should do know now

1. Figure out if you want to be responsible for the management of your investments. If you’re confident with your portfolio choices, go for it.
2. In that case, choose the broker that works best for you or else go through a party like Meesman.
3. If not, have a look at Curvo. Download the app and be the first in line for when we launch for the Dutch market.