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!
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.
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