What the Investment Industry Is Lying to You About!
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- čas přidán 8. 07. 2024
- What the Investment Industry Is Lying to You About! The power of compound interest in investing is a game-changer for building wealth over time.
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The power of compound interest in investing is a game-changer for building wealth over time. By reinvesting earned interest, your investments grow exponentially, leading to significant financial gains in the long run. This strategy leverages the time value of money, making early and consistent investments crucial for maximizing returns. However, there are a few misconceptions about compound interest that can mislead new investors. Understanding the true mechanics of compounding can empower you to make smarter financial decisions and harness the full potential of your investments. Embrace compound interest to secure a more prosperous financial future.
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I hope you enjoyed the content!
What's the capital gains tax rate in your country?
In Canada, in a cash account, 50% of the capitial gain will be added to your income and then be taxed at your personal marginal tax rate (higher total income, higher marginal rate).
In a tax-deferred retirement account (similar to 401K), the amount you withdraw from the account in a particular year will be considered your income, and then be taxed at your personal marginal tax rate.
In both cases, personal marginal tax rate can be anywhere between 20% to 45% depending on how high your yearly total income is.
@@Allen-L-Canada Thanks for sharing!
I live in Belgium and for now it is still 0% !!
@@NicoDGr 41 percent ireland on etfs
26,375% in Germany
Biggest lesson i've learnt in 2024 in the stock market is that nobody knows what is going to happen next, so practice some humility and follow a strategy with a long term edge.
Nobody knows anything; You need to create your own process, manage risk, and stick to the plan, through thick or thin, While also continuously learning from mistakes and improving.
Uncertainty... it took me 5 years to stop trying to predict what bout to happen in market based on charts studying, cause you never know. not having an advisor guide me cost me 5 years of pain I learn to go we’re the market is wanting to go and keep it simple with discipline.
Who is this person guiding you and how can i reach he/she?
Just research the name Amber Dawn Brummit . You’d find necessary details to work with a correspondence to set up an appointment.
Thanks a lot for this suggestion. I needed this myself, I looked her up, and I have sent her an email. I hope she gets back to me soon.
When I was young, I had no money. But after decade of hard work, I am no longer young.
With a good investment plan that ensures steady incomes without any doubts I am prepared for a well organized retirement. I started investing 3 years ago and so far, I am making a good yield on my dividend.
How has your journey investing been? What assets did you invest in?
It’s not rocket science. I got into the stock market and started investing in some stocks. Long story short, I blew my account and lost it all with one wrong move. Jonas Herman, a licensed fiduciary is the brain behind my success. I've gotten into a plethora of assets with $52k spread across stocks (options and futures) for the short term and Roth IRA, index funds, and ETFs, for the long term. Now with over 271k in roi, I sit back, and just reinvest at intervals while I handle my other businesses.
To me, investing is not worth it and I know that's the same mindset holding me back from taking a step forward in my finance. I guess I'm just scared since I'm green to it.
@@Pambegay How can I connect him? Just clocked 46, and I hope it's not too late for me. I just want to have a stable financial life.
Hermanw jonas that’s his gmail okay
I am ready for a well-organized retirement with a solid investment plan that guarantees consistent incomes without a doubt. I began investing three years ago, and I have made a respectable yield on my dividend.
Investors embracing the idea that abruptly cooling inflation will put interest rate hikes on ice. During recessions your dividend gains or income reduces. Speaking to a certified market strategist can help with navigating this downturn.
I agree, that's the more reason I prefer my day to day investment decisions being guided by an advisor, seeing that their entire skillset is built around going long and short at the same time both employing risk for its asymmetrical upside and laying off risk as a hedge against the inevitable downward turns, coupled with the exclusive information/analysis they have, it's near impossible to not out-perform, been using my advisor for over 2years+ and I've netted over $2.8million.
I appreciate the implementation of ideas and strategies that result to unmeasurable progress. Being heavily liquid, I'd rather not reinvent the wheel, thus the search for a reputable advisor, mind sharing info of this person guiding you please?
Annette Christine Conte is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment...
Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.
In Czechia we have 0% tax on stocks(etfs) if you hold them at least 3 years.
15% tax on dividends.
That's awesome!
You can immigrate. ;)
It is 1 year in Slovakia. I hope it stays this way. I guess, politicians make law for themselves in the first place. We don't pay VAT on gold, but on silver yes. 🤔
That 's not bad 👍
Same in Russia for 5 year investment. But you risk giving all of your stocks to government if they wish it.
I am 38 y old and I was living from paycheck to paycheck. So I have started investing from 0 eurs, now I am about 35k, it is going slow, but the more I have the more I want to save and invest. Some months I can contribute 1000 euros, some none. But hey that is life, it is never too late learning to invest smart. Cheers❤
Nice work, keep it up!
I learned from this video. The human lifespan is too short.
Haha. Got to adjust your lifestyle if you want to enjoy the power of compounding to the fullest.
I felt the same way when I was younger. The solution is to delay gratification and “front load” your investments, to have the max amount growing for as long as possible. I went minimalist for 3 years, cutting expenses, not going out, and worked overtime every week. This let me get to $100k in 3 years.
@@epbrown01 That is excellent planning ahead, good on you & I hope it works out well. I am not younger anymore, however now I am now in a position for the first time in my life to consider these extra strategic options. Yesterday was the best day to start, today is the next best day to start. I made that choice a few months back. I really enjoy buying nothing except essentials & that includes shares. I can't complain even though my investments are minimal in comparison to yours. I already know to not compare, it kills any joy I have from seeing my £50 up on my investment so far :)
@@epbrown01I’ve been doing the same thing. Cut social expenses greatly, selling back all of my vacation time for 5 years, and investing it all. I need to make up for time I took for granted. It’s working so far. Good luck to you.
@@epbrown01I'm glad you said 3 yrs. Life is to short to live frugally for long.
Belgium, no capital gains tax, but 30% withholding tax on dividends. Logic dictates to avoid income investing.
Yeah compounding etfs and buyback stocks
I'd take those tax rules
What a distraction of effective capital allocation from the government 😮
Less than the US charges at the high end of non qualified dividends 🤷♀️
Try tax evasion
I wish i learnt most of these principles about seven years ago. A lot of people have been trapped strongly in the matrix-- Go to school, get a job, and then slave your whole life. Many miss out on life-changing information that could have great effect on their finances. Sometimes Protecting your capital is much more important than making money. Basically because if you lose your capital, making money is much harder. ''Missing the train'' vs. ''losing your money''. There are a lot of trains, but if your money is gone, it's over.
Always focus on the downside risk first, agreed. That's what enables compounding in the first place - don't interrupt this powerful force.
In Hungary you have to "lock up" your insvestment account for 6 years (you can trade on the account but you cannot withdraw a penny), then you get 0% tax. It is a great way for long-term investment
I like the construct however I have low trust in the government they keep it up. There is a history of violatoon of terms from their side. They may change it when they need the tax.
If they do indeed keep these rules, the system is fantastic for investors!
Yeah this system is pretty much good idea, however the same government nationalized private pensions 13 years ago to the state pension. So I am somewhat sceptic, and keeping other options alive due to lack of trust.
@@Daikini0that is true indeed, and I have the same fear. Hungarian government has not been the most trustworthy in the past decades. I remember having had to fight to keep my private pension fund back then. It is a shame.
Wow that sounds truly insane. Got to diversify your private retirement savings in some way then I guess?
I am 44 years old and I currently have €3 million invested in a Vanguard global ETF. I withdraw 3% per annum (€90,000), adjusted for inflation each year. Hopefully this will last forever, but if the market crashes I have 4 years cash available.
You're doing extremely well! Congrats.
Thank you, I still worry about the future. I actually have dyslexia so it makes life a struggle
@carlyndolphin Mind if I ask what your secret is to this insane wealth?
@@moneymo6417 During my 20s and 30s I saw the money rolling in so I worked like crazy to keep my clients happy. I walked around Mayfair in London 2 weeks ago and felt poor! A decent apartment is £3 million plus. I could never afford to live there unless I expand my company. Unfortunately my health isn’t great so I’m trying to keep my stress levels under control. Stress is the biggest killer.
Vwce?
One wouldn't normally sell all of their portfolio at once when they reach retirement age, so the largest part of their portfolio would remain in the market for a longer time and taxes are only taken on the part one sells
That's 100% correct. Thanks for pointing this out - I just assumed one sells at one point in time for illustrative purposes.
Also as far as I know, you can have your capital gains taxed as if it was income instead, if that would lead to less taxes than the ~26%. Which can probably save quite some money after retirement.
Great video. People often miss those important points when calculating returns from compounding. Thanks a lot!
Very easy to overlook indeed. It doesn't change the fact that stocks are the greatest wealth building tool in the world though.
thank you! I have been waiting for someone to precisely clarify this.
thank you for the research and example. i would be very interested to hear about taxes in europe, when you hold etf, stocks, which brokers to use, ets:)
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Another thing to consider is that 10%/year was recorded in a world where people are having families and the population is growing. We are quickly moving to a world where people aren't having kids and population is going to start collapsing. So I tend to assume a lower return rate going forward.
Nobody ever considers that.
I once did a video on where the return from stocks actually comes from - it was titled "Why the Stock Market Goes Up" if I remember correctly. You might want to watch it as population growth is only one of the drivers.
Robots……problem solved
That's just not correct.. India and other third world countries will continue to have more kids, and we get that immigration, you see that in Europe and North America.. if we don't have kids we get immigration. Just because people that lived all their lives in a first world country just have to accumulate wealth and enjoy life 100% instead of having kids. Other cultures and people that just immigrated to these countries will still have more than 1 to 2 kids per family
@@diogor8968 overall world population growth is still way lower vs post world war 2 period and it is declining. China for example will have negative population growth from 2050 onwards. So that means unit growth of production will have lesser people in the world to sell to.
@@Fear.of.the.Dark. AI alone should boost growth in every sector
In the United States the state I live in has no federal income tax and my long term capital gains are below 15%. Short-term gains are below 21%. 26% is theft!!!! Great content!
You just showed the worst case scenario for taxes. Realistically why would you liquidate all your assets at once? Not only it is a bad tax decision but you would also stop the compound effect. If you are smart and only sell a small percentage each year (4% rule rings a bell?) you can tax it as income at a much lower tax rate.
You calculated the tax part wrong. If more then 50% of the assets in a fond are shares, 30% of the gains in germany are tax free. This is the case in all " normal" etfs. So the tax number is way lower.
No capital gains tax if you invest in a UK ISA, which allows a £20000/annum investment.
Awesome!
Germany doesn't have anything like this? Ouch
@@smithers4420 Indeed ... ouch!
In Germany 1000€ of capital gains per year can be tax free. That's it. There are many voices demanding to raise this amount to at least 10k and/or reducing taxes on retirement funds.
Great video, finally someone point that out!
Thanks!
Totally agree. Still it is a fantastic way of saving compared with anything only having stomach. I already adjust the contribution as salary increases every year.
Perfect! Thanks for commenting.
For now, I pay no taxes at all, because Canada has a Tax Free Savings Account. Only taxes that would eat into returns would be withholding tax on dividends from foreign US stocks
I hope you appreciate it! Sounds amazing.
Is it true that the VUA that follows the s&p 500 does not have taxes?
In jamaica there is no capital gain tax on stocks but there is 15% dividends tax. Pensions gains are not taxed but income earned from pension is still taxable at the income tax rate
Sounds solid! I guess you are happy with the way it is?
Great thought alerting content. Thank zehr much for the vid
Hi Alban. Thanks for taking the time to comment - I appreciate it!
Hi Rene! In my country I have the luxury of not having to pay taxes on stock earnings as long as certain conditions are met: The main ones are that these earnings are not be allowed to be above 50% of your total income earning and the other one is being forced to hold stocks for at least 6 months before selling. I am new to the market and my impression is, that not being able to sell at any time could make the difference between making a lot of money (even if you play taxes) or no money at all. On the other hand I see a lot of people holding on for stocks for more than 6 months on average. So what would you rather favour: Having flexibility to sell at any time below 6 months and paying taxes for that, or picking stocks to hold longer than 6 months and to avoid taxes on sales? thx for a short feedback!
Tough to answer this question in general because it would depend on a lot of factors. Generally speaking this system sounds pretty nice - I'd take it. I very rarely sell investments after six months or less (and if I do, it's because I made a mistake and thus there will at best be minimal gains). So I wouldn't worry about it too much.
Great video! Another thing I'm pondering is that, let's say you invest from 30 to 60 years old.
When your 55, are you expected to keep an ETF like VOO which is only stocks?
Wouldn't it be better to change for something a little less volatile.
In that case, wouldn't the returns be a lot less?
Thanks
Good question! But there's too much to discuss and it's hard to answer it in a CZcams comment. Your thinking is correct overall, but there'd be a lot of factors to consider to find the appropriate asset allocation for you at age 55.
For those relatively small monthly investments we in the UK use an ISA and USA Roth IRA - no cap gains...
I am in Brazil. No taxes over dividends, but capital gains are taxed over a flat 15% rate for stocks. If you sell less than 20k Reais (approximately 4k US dollars) in stocks over a month, there are no capital gains tax, so you can cashout little by little and pay no taxes.
That's pretty decent, right? I'd take this system!
In fact, here in Italy we pay 26% on capital gains and 26% on dividends, furthermore there is a capital charge on all deposited capital of 0.2% per year. It depends on the country risk, on the public services offered, on the public debt, on the political class, etc.etc.
Compounding really works best. When you have a lot of money to compound. Starting from zero makes compounding seem inconsequential.
That's the hard part. It is not inconsequential, because you have to start at some point. Just like everyone growing a social media account at some point starts with 0 (ZERO) followers, (almost) every investor will start small too.
Very true! I do agree! I started late. But i did start in my late 30's. So you do have to start somewhere. Just in the beginning its such a daunting task. But once the snowball starts to pick up steam. It makes starting worth it!
Nice explanation. Also one more poin of "loses" in country with own currency. Taxes counts and pays in local currency. In case of devalvatio tax grows. It will be easier explain on example: bought stock and sell with same price 100 USD. But local currency lost 20% against USD. So prices in local currencu were like 300 buy and 360 sell. So earn 0 USD but should pay taxes from 60 local coins
Good point!
In the US the capital gains can be 0% but up to 23.8% (based on income level) plus state income tax that can range from 0-10%.
Thanks for sharing! How high is it for you personally?
Long term (investments held for more than a year) capital gains rate depends on your income for that year. If you are single, the brackets are as follows, based on your total income for that calendar year:
0% if your income is $0-$47,025
15% if your income is $47,026-$518,900
20% if your income is $518,901 or more.
There's also a net investment tax of 3.8% that is added to the percentages above for anyone making more than $200,000 per calendar year.
Also, there's a concept here called qualified dividends which are dividends from American companies that you have held for more than 60 days. When you receive dividends from these companies, these qualified dividends are taxed at the same rate as long term capital gains.
All of these assume you live in a U.S. state that doesn't tax income. If the state taxes income, and you happen to live in a high tax state, e.g. California, you can add on another 12.30% if you are making more than $698,271 per year.
I'm based in the UK and I own 5 unit trust global index tracking funds. I hold these inside an account known as an ISA, which is a tax free product. Therefore it is free from dividen taxation and capital gains tax. Here, we are allowed to save up to £20,000 per tax year. Those rules could change in the future.
Good point regarding current vs. future regulations. But from the comments I've been reading, the UK seems to have one of the most investor-friendly systems.
@RobCLynch I'm also based in the UK. Do you mind sharing the 5 unit trust global index tracking funds you mentioned and how well they're performing for you?
I recomend the lifestrat 100 and the global developed world ex uk accumulation fund. Both these have done well the last 10 years. @@MrHenners2908
good informative video. My view point on the different factors are different.
Factor1: 80000 fee is 30yrs is okay by me.
Factor2: taxes apply, if I redeem all, at once. Redemption should be based on a goal
Factor3: is a real risk, a sequence return risk!!
I do not disagree with you here. Thanks for commenting.
You won’t be paying capital gains on the entire account value at once. A majority will continue to be invested as you withdraw for annual expenses…or am I incorrect?
No that's a correct assessment of what your retirement situation will likely look like.
I put in 20k into various assets three years ago and flipped into over six figures and still going. I’ve always been an advocate of investing because it has been rather rewarding. I hope to attain financial freedom soon. One more thing, I always look forward to your content brother, keep up the good work.
Great video! Just one question: I didn’t really understand the inflation part tho, do I have to increase my investing money by 2% each year to keep up with inflation? Or what were you trying to say? Liebe Grüße!
In the US if you have IRA account you pay no taxes tax free account can withdraw tax free after 59 1/2. Tradition IRA you do pay taxes depending on how much taxable income you have at the time you retire.
Thanks for sharing.
I live in Hungary, capital gains tax was 15% for a long time. Since the frozen EU funds for Hungary, the government increased it to 28% and they push their bonds in media harder than ever.
We fortunately have a government-supported trading account type called Long-term Investment Contract which lasts for 5 years and your investments are tax-free. It isn't very easy, because you can only deposit money in the first year, so you run 5 accounts simultaneously and have to sell your investments and rebuy them every year, but at least it's tax-free.
Also, investing in Hungary is insanely rare. Many people hold their money in cash or just on bank accounts with 0% interest.
I liked the video, thank you! Finally a EU based English speaking finance channel I found!
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Have other source of income that could be used to put money back into the portfolio incase the matkets fall ...
Yes, yes, yes. I agree 100 percent with all of your comments. When You Tuber's are using these type of graphs and charts, my "pet issue" is the use of a constant monthly investment amount over a persons entire 40-year career. As for myself, I suggest investing these amounts from a person's take-home pay as a minimum: in your 20's, save 5 percent; in your 30's, save 10 percent, in your 40's, save 15 percent; in your 50's, save 20 percent; and in your 60's, 25 percent (smile ... smile).
You have to flip that around by investing more at younger age rather than later because time will allow your earlier contributions to compound more.
In theory that's correct diydad, in practice most can contribute more the older they get :D
True. Not everyone can/will do it. However, people who tend to be frugal optimizers, try to flip the script and invest as much as you can before buying new car, house, and having kids. 15-20 years later they will be able to quit their jobs or work at their leisure.
@@diydad5067 Wait a minute... To me it looks like most "rich" young people online are working more the more they make so no can't expect them to "work at their leisure"....
@@donaldlyons17 I think it depends on the person. Hedonic adaptation or lifestyle creep is real so the more they make the more they spend because of the erroneous logic -I work hard so “I deserve it.” In my book, you can only “afford” something if your asset provides you income to buy you the stuff. Until then I would keep my lifestyle in check, work hard and stack them up.
does compounding affect inflation as well?
Not entirely sure if that's what you are asking, but inflation is usually expressed as a year-over-year change so yeah there is some compounding to it.
I live in romania, if the broker is foreign I think it's 10%, if it's domestic 3% (if you hold) < year or 1% (hold > 1year)
Australia Stocks outside of super, 1/2 of capital gains are taxed at your marginal tax rate. But in superannuation here realised gains are tax at 15% but you don’t seek your whole pack every year, but hers the kick in australia, flip it to pension when your 60 and it is a 0 rate of tax in that year and ever year after. Thanks Mr Keating not bad
Wow ... Thanks so much for the video
Romania: 1 or 3% (if you hold your investment for at least one year/ less than one year) and the broker has one headquarter in the country. In this case, you cannot subtract loses. Otherwise, you have a 10% tax on the profits of the year. Divident tax is 8%. You have to pay some additional "health" tax if your total income surpasses 6, 12 or 24 minimum wage salaries. After 24 salaries that tax does not increase. There are some rules. Still, they are not that bad if I compare them with some other countries.
Interesting. Sounds very reasonable.
Czech Republic.
15 % tax on dividends
15 % tax on capital gains; but, there is a time-test applied to shares and ETFs (only those, no other investments): if you hold them for 3+ years, then there is 0 % tax for capital gains.
I am from Portugal. The actual tax is 28% but if you hold more than 8 years can reduce to 19% with the new law implemented a few weeks ago.
In India, long term capital gain tax rate on equity is 10%, dividends are taxed at slab rate based on person's income.
Hey, do you need any help in your video editing or thumbnails, if so we are happy to help
Great video on this topic, on keeping things in mind on the investment journey!!
In India, where I am, capital gains are taxed at 15% for an asset held for
Thank you Pula. Yeah, if you read the other comments, those regulations are rather favorable. I'd take them! ;-)
S&S ISA, £25k allowance annual allowance (£20k in stocks and bonds, a bonus or £5k if you invest inti UK stocks)
All gains are tax exempt.
One lesson is to consult with a tax attorney and financial advisor. Their expertise will pay for itself 100,000 times over.
This is certainly true for the very good ones; but most certainly not for everyone. I'm sure many people here can share some of the bad advice they've received from financial advisors (be wary of the incentives some may have).
Excellent points. I’ve been a victim of that. I make sure to only use fee-only fiduciary advisors and I will never pay an advisor assets under management.
So, if they charge $500, then their advice will end up being worth $50,000,000. That's fantastic! Even better if they charge $1000!!
Bro, in your taxation example, you forgot the (german) tax free rate for capital gains (-->"Teilfreistellungsquote").
If you take the MSCI Word as an example, 30% of your gains are tax free and you end up at a "total capital gains tax" of around 18,55%
Interesting!
Liegen die Steuern auf Aktien-ETFs nicht bei ca 17,5% in Deutschland? ((100%-30%)*0,25=17,5%). Hinzu kommen noch die Quellsteuern, die bei den meisten ETFs ja nicht sehr hoch sind (Fondsdomizil Irland), oder täusche ich mich da?
@@petrodrometan3302 Nein du hast vollkommen Recht. Diesen Part habe ich übersehen. Danke für den Hinweis.
A compounding inflation rate and the capital gains tax will result in a small return, assuming your ROI is at least 6% annualized , and hopefully no market crash or even banking crash happen.
There were many crashes and crises in the US over the last 100 year and the inflation-adjusted return was still somewhere in the range of 6-7%.
Is this including the inflation and possible reduced return rates over that long span?
also interst rates over here are lower than 1% lol.
If you invest in an ETF, let‘s say in the S&P500, isn‘t this a certain protection against inflation? Because companies increase prices etc. to deal with inflation?
Of course. Stocks are arguably THE greatest protection against inflation (only beaten by an investment in your skillset).
Thank you for this video, Regarding your last question.
I live In Saudi Arabia and we don't have income tax, but we have 15% additional tax to the products. However as a Moslem I must take 2.5% of my woth every year for poor people and we call it " Zakah " so my total return will reduce from 9.8 to 7.3 at least.
If I was investing in US stocks I will have to pay also US income tax on the dividends. In the end I will come out with 4% maybe, so that doesn't worth the stock market risks .
Greece - 0% tax on both capital gains and dividends for UCITS ETFs and domestic stocks
Greece is killing it! Nice weather and no capital gains ... what else could you wish for? ;-)
Low taxes in Greece... financed largely by Germany 😂
In the Netherlands it is 36% tax on capital gains, probably one of the worst rates worldwide
Definitely, one of the higher rates I saw among the comments I read below the video.
France : 30 % flat tax on gains
$1000 a month investment in 30 years is too small. It'll be price of a Big Mac. A Big Mac was less than a $1 30 years ago
at least they will have a bigmac. what will you have?
41% every 8 years on ETFs on unrealised gains in Ireland.
Although if you have a limited company there’s no limit on pension contributions which you can invest tax free up to 2 million. So no income tax and no capital gains tax on the growth. Best fees though are around 0.75%.
Sequence of returns risk can go both ways you can just as easily have an outcome that’s far in excess of the average anticipated value as less.
Taxes on unrealized gains are just ludicrous in my humble opinion. Seems unfair that entrepreneurs have a loophole and employees do not. What do you think?
Yeah I think it’s hugely unfair. It’s almost impossible to build wealth as an employee in Ireland.
In the US, if the investor opens a retirement account called a ROTH IRA, they pay tax on the money they initially put into the account but then all capital gains are tax free. They do pay a withdrawal fee if they want to withdraw money from the account before retirement age of 59 1/2. The other IRA pays taxes at the time of withdrawal and does tax the capital gains.
If the investor invests in their own private brokerage account and they buy stock and sell it within a 1-year period, then they will pay the highest capital gains tax. If they hold the stock for over a year though, then they pay a lesser capital gains tax which is based on their income. If they make less then 46k per year then they pay 0% tax, and if they make between 46k and 78k they pay 15% capital gains tax. and it increases the more the investor earns, but of course there are other ways to reduce the taxes and capital gains earned.
Here in the U.K you can open an account called an ISA for investing. In each tax year you can put in £20,000 and you pay 0 tax on dividends or any growth in your account. So all of the scenario's you mention will include 0 Capital gains or taxes of any kind.
There is in many countries no tax on ETFs which accumulate - until you withdraw something.
Exactly.
In Bulgaria it is 0% Capital Gains on all EU listed equities (10% otherwise) and 7.5% headline income tax 🇧🇬
Interesting. Are you only in investing in European stocks or in what way does it influence where you invest?
Interesting question! I usually demand a higher MoS if the company is not listed in the EU (also due to the limited circle of competence) and sometimes use secondary listings if they have enough liquidity / reasonable spreads. Also, some countries in Europe (especially Poland, Sweden and Finland) are usually overlooked and probably the only ones where you can find most of the quality companies at EV/EBIT 6-10 with +12% revenue growth and +6% dividend yield
Still the main advantage (and why I relocated from 🇦🇹) is that you can easily get a savings rate of 80%+ (including taxes and social contributions) even if you have a normal remote job and have a quite luxurious lifestyle
Very good video ! 🙂
The point you are making about inflation is true and overlooked a lot. Just adjust the amount you invest and slightly try to outpace inflation.
100% - thanks for commenting Marco. Where are you from?
The Netherlands
In Belgium we pay ZERO capital gains tax on stock investments. We DO pay 30% on our dividends.
In the Netherlands you have to pay capital gains each year, instead of when you sell (ie realise gains). The first €57.000 of capital is tax free. The amount above that the government assumes gains of 6% for investments and 1% for savings, which are taxed against 36%. You can also deduct certain debts. The courts have declared this system illegal. It will be changed to paying for the real gains, but this is still being worked out.
Fair points. The issue I have with your critiques is that you are hyper critical one way but not the other.
1. Yes inflation will hit your money like a truck, but it was going to do that if you invest it, save it or light it on fire (well I guess not the last one but you get what I mean). Inflation is hitting it regardless of what you do with your money so to use that as a "con" against compounding interest doesn't make sense
2. Capital gains doesn't impact all accounts the same. What if you have a company ira 401k there's no cap gains taxes or an HSA so not all of that pot of money will be hit with cap gains tax.
I don't disagree with the video, just if we are putting guardrails on things, put all of them on.
I didn't intend to come across as super critical. I think stocks are a fantastic wealth creation tool and the most attractive asset class out there!
There a few issues with this video:
1. The ETF mentioned in the video has an unreasonably high expense ratio which is NOT normal. Usually broad market ETFs have an expense ratio of 0.03-0.05%. For example for VTI (and most Vanguard ETFs) it's 0.03%
2. A lot of countries do NOT have a capital gains tax and you are free to change your residency to another country if you do not want to pay the tax
I'd say TERs of 0.03% are very rare, so I don't think assumed crazy high fees. Of course you can adjsut the numbers accordingly.
And of course capital gains taxes vary. This was just one example (Germany) and I think I made this quite clear?
I found it quite interesting to read the comments and learn more about the different tax system all around the world. I encourage you to take a look at them too.
how is 0.03% rare? It's the industry standard. In fact, many funds charge even less, Charles Schwab charges 0.02% expense ratio on their S&P 500 ETF.
Fidelity charges 0% for their S&P 500 ETF.
I think you can always workaround the tax. If you want to retire at 60 in your home country, just invest inside of your retirement account. I think most western countries have a 0% tax retirement account, from which you can only withdraw at retirement age. I know Canada and US have such accounts, but you'd need to look up if Germany has one.
If you want to retire at 30-40, then it might be better to change a residency to a low tax country with low or no capital gains.
But yeah if you want to retire early in your home country of Germany, then your investments will get a big haircut from capital the capital gains gains, no arguing here, I'm just sharing the alternatives I would look into
Great video! One famous technique to avoid the taxes and the sequence risk is "buy borrow and die". A good topic for a future video.
Never heard of it. But I will look into it!
Inheritance tax is 0?
Romania
10% on gains using foreign brokers
3% for domestic brokers for gains on holdings shorter than 1 year and 1% for more than 1 year
8% dividend tax
expecting everything to increase in the near future
Do domestic brokers give you access to international stocks?
They do, but have higher fees than international brokers... I don't really take this into account since laws will most likely change until I'll start selling.
while the returns vary year to year. stocks held long term are fairly stable with returns averaging 6.8% after inflation as per Jeremy Siegel's research.
Correct. That's all that matters: the long-term compounded annual return.
Outside of rich countries it's crazy to think you have more than a 100/month to invest
Even in the rich countries $1,000 is pretty freaking generous!
But, if you take price parity into account, SOME of these differences are cancelled out.
In portugal we are still locked with at least 28%. Sometimes with international etfs or stocks you can pay up to 45% even with treaties to avoid double taxation.
In Norway we pay under the current government 37,84% taxes on capital gains and dividends 😢 Luckily we have accounts so that we don't need to pay before we take money from the account. Only positive with this is i keep the money compounding longer 😅 A fair taxation would be 25% i think
Damn, that's high!
in US the long-term (held for over a year) capital gains and dividends are taxed at 15%
Awesome! Thanks for taking the time to comment - I appreciate it!
Brazil, after two years 15% for bonds. For stocks 15%, unless you're a day trader, then is 20%.
Do you actually have to register as a day trader or how does this work? (just selling within a day?)
No, when you sell a stock on the same day, your broker deducts 1% to flag the trade as day trade to the IRS, Receita Federal. As traders we have two accounts with the IRS. One for day trade, another for everything else. If you make a profit day trading only your losses as a day trader are deductible.
So do you not have tax free options for pensions in Germany? Or no tax free savings accounts that don’t tax capital gains? Sounds very harsh!
In the U.K. we have both and although we get taxed on pension income the government do contribute 25% extra every time a payment is made to a pension pot which makes it quite a powerful investment.
Inflation is the big issue that people don’t talk about enough in my opinion.
You can withdraw 1,000€ tax-free each year, but that's about it. It's a shame! Sounds like a way superior system you have over in the UK.
Not entirely true. You can also use the "Günstigerprüfung" to check whether your personal tax rate would be more favorable than the capital gain rate. And often it is when you retire as you dont have other income. This is a big point that you missed.
0% on capital gain and 10% on dividends. West Africa (BRVM Stock Exchange - Ivory coast). I am financially free since 33 years old, 3 years ago, investing here and making $ 100k per year on average after taxes (capital gain + dividends). There are big opportunities here because no one is interested (frontier market)
Congrats! Seems like you are doing VERY well!
In the UK we have the most complicated tax system in the world, the highest taxes in living memory, but somehow also the government are running a deficit and our state pension is unsustainable. So basically if you make any money, they'll take from you somehow.
Iceland, capital gains tax applies to dividend income too and is 22% with a 2170 USD tax free per annum.
What about a deep dive into Normal Stocks vs Dividends in terms of returns when factoring all the fees. Dividends are taxed at a much lower rate and after you finish you just collect your money which is taxed at a super low rate if you don't have a job.
Australia, dividends pay franking credits. So if you get lets say 5%, they also pay a tx credit of 30%. So its great!
I've learned more about the tax system Down Under a while ago and remember it being quite interesting ... but then again I forgot about the details. It's quite fascinating how different capital gains are taxed all around the world, isn't it?
I like your channel. First time I watched you. Our capital gains are taxed at whatever tax rate you pay. But if you own the asset for more than 12 months and then sell, the profit is halved. I have only started my investment journey recently. I'm investing $2300 a fortnight into a Vanguard ETF. I plan on reinvesting the dividends for the next 6 years and then hopefully make some good passive income and have growth too.
I wish you the best of luck on your journey.
Uk has a tax free savings sccount called an ISA. Up to £20,000 per year in a tax free wrapper.
Sounds alright!
The appropriate capital gain taxes would be 0%. The closer, the more appropriate
Haha. Governments need income sources too though. I really don't mind that there is a capital gains tax in most countries, but it should be low enough to truly incentivize long-term investing.
isn't there a 30% tax free? So it is more likely 26.365% x 0.7 tax in Germany
No, around 1,000 Euros a year can be withdrawn without paying taxes but that's about it.
For funds containing more than 50% stocks (so almost all ETFs) 30% of the gains are free, which results in roughly 18% total tax rate (Teilfreistellung).
Around 26% is the maximum. You can choose Günstigerprüfung. If you live in your own home and have a tax consultant things are not as bad.
@@fIysohigh exactly this. Couldn't remember the German name, thanks!
The problem with capital gains and dividends taxes is that those should be progressive taxes. You want to have it, because you don't want to have oligarchs, but there should be an amount that is tax free.
In Poland we have stupid situation where short term gains (no retirement) have 19%.
At the same time for real estate rental you have 8,5% - 12,5% progressive tax. Not hard to guess what people are doing with the money. Instead of investing it in stocks, ETFs or bonds, they are buying flats for rental which stressed the market prices.
Thanks for sharing Bartomiej! I'm not going to start a stock vs. real estate debate here but I get what you are saying. Ultimately, the price one pays for an asset affects expected returns.
the expected return ALREADY takes in to account the average fees charged by average ETFs.
In Bulgaria 10% capital gain taxes for stocks from US market and 5% for dividends. For stocks bought from EU stock market capital gain taxes are 0%.
That‘s amazing! What about inflation in Bulgaria?
Officially it's 2.5% but probably the real one is around 5% for 2024.
Roth 401K for the win! They're going to get you one way or another. At least I can spend the growth in a cheaper country when I retire.
A solid system! Would love to have a similar one in Germany.
GREECE: if it is a UCITS ETF then 0% both on dividents as well as capital gains. Otherwise 5% on dividents and 15% on capital gains
Sounds fair, doesn't it? I'd take it any day of the week haha.
In România can choose between:
1% tax for capital gain if you hold it for at least 1 year or 3% if you hold the instrument less than 1 year - but they won't care about loses, they only tax the profits
OR... you can choose
10% on capital tax but you can deduct your loses if you have sell any negative positions
Dividend are taxed in the country of the stock, so that depends a lot - but for Romanian stocks it is 8%
So realized losses are not recorded?
Under the first system, NO
But if you buy&hold ETFs long term there will likely be no loses
You can have better returns, if you invest more when the markets are down, but this is more easy said than done.
Of course. One of many fundamental principles.