Find out all about our collaboration with Finanzdiva and get ready for our upcoming event in Munich: A Beginner’s Guide to Investing, on 29th November. See you there!
Single Stocks or ETFs: Which investments are good for beginners?
In this podcast, Finanzdiva talks to Tobias and Christian from Echtgeld.tv in Berlin about ETFs. Admittedly, funds managed by a computer are not particularly exciting. But here lies the key to market success: A boring portfolio makes you rich! Have a listen to find out everything you need to know about this dreary but lucrative world.
The term robo-advisor is widely used, but many people remain unsure about what exactly it is. Allow us to explain.
Basically, robo-advisors are digital asset managers, working primarily with ETFs. Their functionality is based on mathematical formulas and a wealth of historical data. And, being non-human, they make decisions without any emotion.
The result is emotion-free, mathematically sound investment recommendations and decisions. Algorithms help people find a suitable portfolio for their investments, and once the investment is made, the portfolio is managed automatically.
The goal of most robo-advisors is to make asset management accessible to people with low or average assets. They determine how much risk an investor is willing and able to take, and create and manage a portfolio that typically consists of ETFs or actively managed funds.
If an investment does not develop in line with the investor’s expectations, some robo-advisors make adjustments to realign the results. All this happens automatically, without any intervention from the investor.
Meet our favourite robo-advisor
FinMarie redefines digital wealth management with a hybrid model of digital finance and human expertise. With the platform, women can create an overview of their entire assets, as well as access experts for financial coaching. Their goal is to make the world of investment as understandable, profitable and safe as possible — and all this online with a fair and transparent price-performance ratio. FinMarie recently partnered with growney, a robo-advisory platform, to offer a full suite of cutting-edge, technology-driven investment services.
To find out more about investing with FinMarie, visit www.finmarie.com
Financial freedom is hugely motivating, and once people start along the path, their decision-making processes are often transformed. In a workplace setting, practical, inspiring learning about financial issues can lead to employee empowerment – a factor strongly linked to both happiness and productivity.
Mind the Gap offers fun, engaging and interactive workshops for companies. Available in English and/or German, sessions generally run for two to three hours and dive deep into specific topics around personal finances and money.
Employees have ongoing access to all materials, tools and recordings associated with the program.
Benefits to your company:
- Improved employee productivity and efficiency
- Quantifiable results you can share with current and future employees
- Strengthened brand identity
- Tangible commitment to gender parity
- Opportunity for media coverage
Benefits to your employees:
- Decreased stress around personal finances and money
- Increased happiness and joy
- Skills and tools of benefit for a lifetime
Our financial education workshops focus on the five key areas that we believe provide the bedrock of sound money management. These include:
- Planning: What are your goals and how will you use money to reach them? Budgeting – how to draw up a spending plan, needs vs wants and prioritising your spending
- Saving: Why it is important to save? How and where to save, and shopping for a savings account.
- Debt: Understanding that not staying on top of your money has consequences. Knowing what credit is and how to use it wisely
- Financial products: Banking, insurance, mortgages, pensions; student finance.
- Everyday money: Tax. How to be a savvy consumer & the cost of independent living. The economy and how it impacts me.
We also offer free workshops for schools.
We all want our investments to be sustainable and protect human rights, but it’s not always easy to tick every ethical and environmental box. Finanzdiva shares her top six things to consider when making ethical investments.
- Cost: Active management costs money, because eco-funds require checks by external consultants and ethics committees.
- Risk: Managed environmental funds often invest in smaller small cap companies, whose credentials are easier to review. But smaller companies run a higher risk of insolvency, and small-cap stock prices fluctuate more strongly compared to large internationals. Plus, their tradability and liquidity are lower.
- Seal of Approval: Self-proclaimed ethics committees include Triodos Bank and external auditors. The FNG Siegel is regulated by the Forum für nachhaltige Geldanlage (Sustainable Investment Forum).
- Diversification: A portfolio of purely environmental investments is not sufficiently widespread.
- Renewable energy: renewables are considered top candidates in the sustainable area, however, wind energy production is not particularly animal-friendly. The solar industry provides peace of mind for investors, but often disappoints with low returns. Investment risk in the energy sector is high.
- Marketing: Beware of greenwashing; the “eco-product” label is often used as a marketing method.
Kat€’s top tips:
- Before you invest in sustainable products, consider the returns.
- Compare the cost of the products offered (including order fees, sales charge, etc.).
- Seals like FNG indicate a sustainable product – then you don’t have to check yourself for ethical criteria.
Our friend and favourite finance maven, Finanzdiva, comes with hot tips and tricks to help you save money, time and nerves on investment income taxes.
Once upon a time, not so long ago—well, around 2008 to 9—there was a tax reform for capital investments. We were told things would get simpler. But it turned out that “simple” translated to 25 percent withholding tax. And since January 2018, there’s been yet another reform.
So what does it all mean?
There goes your nest egg.
Though the 2018 reform was supposed to simplify things further, it’s no more than a tax increase at the expense of the middle class. And with ballooning bureaucratic and financial overheads for retirement savings, it’s making funds and ETFs less and less attractive.
The changes: What you need to know.
Until now, a distinction has been made between tax-efficient (i.e. distributing) and tax-compliant (i.e accumulating) ETFs and funds. From 2018, the withholding tax still applies to distributed earnings.
BUT if the fund or ETF does not distribute income, there is now an additional fee to pay in advance. This levy was created take into account the ongoing value gains of investments.
Distributing ETFs = Simple Taxes!
If your distributing ETF was launched in Germany, you don’t have to do anything: Dividend income tax will still be paid via withholding tax.
Accumulating ETFs = Complicated!
If you hold accumulating ETFs – in other words if the proceeds are reinvested – your tax situation is more complicated.
What remains the same:
The withholding tax on capital gains and the tax-free allowance of € 801 per person and €1,602 for married couples continue to apply. Don’t forget to apply for exemption!
NEW in 2018 for accumulating ETFs:
The state wants a bigger slice. There’s now double taxation of funds and investments. Previously, only the accumulating income was taxed. Now, in addition to current income, capital gains are also subject to tax. So you’ll pay withholding tax on the income and an upfront fee based on the value of the fund or ETF.
What you need to know about your current “old” fund shares:
Did you buy your fund shares before 1.1.2009? Lucky you!
Then all profits made until 31.12.2017 are tax-exempt. (In German, this falls under what’s called “Alt-Anteile mit Bestandsschutz”, or old shares with provision safeguard former standards).
The main winners are wealthy people who were able to save their assets in so-called “millionaire funds”.
Did you buy your fund shares between 2009 and 2017? Heads up!
Profits generated through 31.12.2017 are now liable to tax. Taxation does not take place until sale, however, under the new law (known as Alt-Anteile ohne Bestandsschutz”) you have to pay tax on any profits from 2018.
Finanzdiva’s top tips:
From 2018, there’s a tax-free allowance of €100,000 per person. (Unfortunately, it’s not valid for old stocks.)
To make things easier taxwise, opt for a fully distributed ETF or mutual fund—then you avoid the advance payment.
And last but not least: Stay away from open-ended real estate funds. There’s tax traps lurking there, too. Also, steer clear of synthetic products—which contain their own securities that are hard to understand and can quickly unravel. It’s much better to make pure index investments such as an ETF on the DAX.
For personalised advice and management of tax-efficient, low-cost and highly diversified ETFs, head to FinMarie, an innovative new finance platform created by women, for women.
“It’s all well and good learning about financial freedom, but to stay focused and on track, you need ongoing inspiration.”
-Mind the Gap co-founder Leitha Matz, during our summer workshop, Take Control of Your Money and Make it Grow.
With those wise words in mind, we’ve put together a list of our favourite resources to keep you motivated on the journey to financial freedom—whether you prefer blogs or a good old fashioned book.
Rich Dad, Poor Dad by Robert Kiyosaki
It seems like everyone is talking about this book – and for good reason. American businessman and author Robert Kiyosaki reveals some fascinating insights into the role of education in wealth accumulation. We all know by now that the school system isn’t setup to teach kids about financial security, so it’s up to parents and caregivers to share what they know. Taglined “What The Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!” Kiyosaki’s book shows the surprisingly deep impact of sound financial advice on young people’s future success with money.
Worth It: Your Life, Your Money, Your Terms by Amanda Steinberg
DailyWorth.com founder Amanda Steinberg has amassed over a million subscribers with her multifaceted financial site for women. Her book draws novel connections between self-worth and money. Like us at Mind the Gap, Steinberg sees money as a source of freedom and empowerment for women, but identifies a common situation: Lack of knowledge. She also outlines damaging cultural attitudes than can limit what women believe they deserve and can achieve. A breath of fresh air and crucial text during this transformative moment for gender equality.
Die Kunst über Geld Nachzudenken by André Kostolany
For German-speakers, this classic book by André Kostolany is a must. Initially a student of philosophy and history of art, Kostolany was sent from his native Budapest to Paris in 1924 to work as a stockbroker. Like most of his published works, “The Art of Reflecting on Money” presents a uniquely interdisciplinary understanding of the complex world of finance, offering practical advice that stands the test of time.
Produced by Lifehacker, Two Cents is an engaging and wide-ranging blog that covers articles with titles that range from “Don’t Listen to Your Parents,” to “The Beginner’s Guide to Buying a House.” Content comprises advice, news and insight with a US-focus—though enough of the topics are universally relevant to make it worth subscribing, wherever you’re based.
Another German offering, Madame Moneypenny is run by the inspiring Natascha Wegelin, and was born of a realisation that women urgently need to take control of their finances—or risk poverty in retirement or even beforehand. Natascha is a passionate teacher, offering online content, courses, and regular newsletters, as well as in-person events and workshops. Catch her this September at The Bridge, our summit for women and wealth.
An online magazine by our friend Katja Eckardt (aka Kat€), Finanzdiva is a German-language resource that takes a departure from the familiar financial advice aesthetic, injecting some much-needed glamour and fun into the usually dry topic. If you don’t speak German, don’t worry: Mind the Gap is about to bring you the best of Finanzdiva’s shrewd and stylish articles in English. Watch this space! Plus, Kat€ will be sharing her hot tips for investment at our upcoming summit.
Mr. Money Mustache
As you might have gathered from the name (or tagline: “Early Retirement through Badassity”), Mr. Money Mustache doesn’t take himself too seriously. But joking aside, there’s plenty of accessible inspiration about the family’s journey to a frugal life of leisure, offering an antidote a situation in which everyone was “living ridiculously expensive lifestyles while thinking they were completely normal, and then being baffled when they had no money left over to buy their own freedom.”
Get Rich Slowly
The common thread running through almost all of these recommendations is that the biggest change we can make is to our attitudes. Money may feel out of control, but how we perceive and react to life as it unfolds moment to moment, is well within our capacity. Get Rich Slowly encourages a patient and well-paced approach to financial freedom, highlighting the significance of each and every decision—even those that seem inconsequential at first.
Thinking about the distant future is not always easy or appealing, but it is really important. Whether it’s buying a house or living comfortably once you stop working, forward planning is the key to achieving your goals and avoiding difficult situations, such as retirement poverty.
How to start saving successfully
Around one in three millennials is stressed about how much (or rather how little) money they have saved. At the same time, however, the number of young people successfully saving (with more than $15,000 dollars accrued) has risen significantly in the past few years, according to a Bank of America survey. So what are they doing right, and how can you join the successful savers club?
Here at Mind the Gap, we talked to more than 200 women about their money and financial situation. Based on their input and knowledge, we gleaned some useful tips about how to optimise your savings and ensure you meet those long-term goals.
The sooner you start saving, the more you stand to gain overall
IN YOUR TWENTIES
- Pay off all your debts.
- Easier said than done, granted, but put aside as much as you can, with the aim of being debt free as soon as possible.
- Save a minimum of three to six months of your expenses in cash.
- You can also consider dividing up your savings, using some to pay off debt and some to put aside to invest.
- Make sure your lifestyle expenses don’t exceed 75 percent of your gross income.
- Don’t spend everything you earn.
- Learn negotiation skills and get paid what you are really worth.
- Men earn more than women in part because they ask for more money.
IN YOUR THIRTIES
- Aim to have saved twice your annual salary.
- It’s an ambitious goal, but the sooner you can start investing, the more you’ll reap in the end (remember: compound interest!)
- Invest in your goals: paying for college, starting a business.
- Think carefully about your goals and priorities, and align your actions to them.
- If you have children, think about saving plans for them.
- Kids are costly, so you can make a difference to your life and theirs by planning ahead.
- If you plan to return to work, keep your business skills fresh.
- Unfortunately, the world still requires this, in general. The good news is, however, there are new schemes designed to offer a helping hand.
IN YOUR FORTIES
- Aim to have saved three times your annual salary.
- Thanks to compound interest, saving actually gets easier as time goes by.
- Build your wealth and protect your assets.
- Learn how to make and maintain smart investments.
- Check all your insurance agreements and pension schemes.
- In Germany, particular import is placed on health, pension and elderly care insurance.
- Negotiate a higher salary.
- By now, you’ve accrued vast experience, which can be leveraged in negotiations.
IN YOUR FIFTIES:
- Aim to have saved five times your annual salary.
- Define what you need to save for your retirement.
- Envisioning a life of leisure is actually a lot of fun!
- Take time to plan your medical care and insurance.
- As you age, such insurances become more important, and a mistake can be hugely costly.
- Be a leader at
- Put that experience to use in showing others the way, helping them learn from your mistakes and successes. Women in particular need such role models.
- Aim to have saved eight times your annual salary.
- Plan your retirement strategy.
- How will you spend your time and what will your expenses be?
- Check your budget and adjust it against your retirements plans and goals.
- Now look at your plan: Can you afford it?
- Enjoy your freedom and free time.
- Reap the rewards of your hard work and foresight.
We keep talking about compound interest and why it’s best to start saving as early as possible. That’s because each year you earn money on the interest you earned previously, so your balance doesn’t just grow, it grows at an increasing rate. Here’s an example:
- If you put away €1 at age 20, it will be worth €21 by the time you reach 65
- If you wait until you are 30 to invest that same €1, it will be worth €10.68
- If you wait until you are 40 to invest that same €1, it will be worth €5.42
- If you wait until you are 50 to invest that same €1, you’ll get a measly €2.76