ETF investing – practical considerations

1. ETF investing –practical considerations CERN Finance Club – 2019-03-05, Marton Ady

2. Your invested money • Whole US stock market • Adjusted for inflation • Dividends reinvested

3. It’s impossible to lose on the long term • Except if you attempt to time the market (panic sell / greed buy) • Except if you pick individual stocks (one company can even fail -> 100% loss)

4. Source: Mr Money Mustache, Early retirement blogger

5. It’s all about the fees! 1% fee ate 28% of your profits! 711.000$ 541.000$ I invest 100.000$ at year 1 • Typical mutual fund: 1-2.5% fees • Typical ETF: 0.03-0.4% fees

7. France: Switzerland: • First transaction of the month is always free (regardless of direction and amount) • Further transactions: min. 1000 EUR in same direction is also free

8. At least 1000EUR/transaction • One direction in one month • Subject to change For most young investors these 3 are more than enough

9. Degiro: advantages • Free / very cheap • Money available to withdraw quickly and for free • Rapid customer support Degiro: risks to consider • Execution only: no tax / investment advice • No large bank behind • Investments are protected up to 20.000 EUR • Documents (KIID, Factsheet) often missing or out of date • No PEA account Alternative: online banks 0.2% (min. 4EUR) / transaction

10. Taxes • CERN salaries are tax-free, but… • Your investments (hopefully) provide you an income • Regardless of where you invest, or where you’re from, you currently live in France/Switzerland • You have to declare & pay taxes in the country where you live

11. French taxes in general: by tranches“bareme progressif”

12. Someone earning 157.000EUR does not pay 45% tax! Most of CERN

13. Dividends • Most dividends have a 40% reduction (abattement) when calculating tax base • By default, 30% flat tax (PFU = prelevement forfataire unique) • 17.2% social contributions • 12.8% tax • You can ask for taxation by tranches (bareme progressif) • 17.2% social contributions • 0-45% based on your taxable income • (CERN salary is NOT a taxable income) • Your fund manager will often deduct taxes on his own! • US: 15% • Switzerland: 35% • Japan: 15.3% • If you owe more, you pay the difference, if not, hard to get back • Foreign brokers: you have to advance taxes (21%) to the French state! • Formulaire 2778-DIV • Except if taxable income is < 25.000 EUR

14. Capital gains • 17.2% social contributions • 0-45% based on your taxable income • Losses in the previous 10 years can cancel your gains tax amount

15. Distributing/accumulating ETFs Share / bond Dividend / coupon Share / bond Dividend / coupon Share / bond Dividend / coupon Distributing ETF Share / bond Dividend / coupon Paid out ETF value ETF income Reinvested: accumulating ETF

16. Which to choose?

17. French “tax-free” account • PEA = Plan d’Epargne d’actions • One per person, you must live in France, max 150.000 EUR* • Once open, it is OK to leave abroad (stays open) • Nearly all French banks offer it (not Degiro, “it’s coming soon”) • You can invest in European* companies (PEA eligible shares, ETFs) • You can’t transfer existing shares/ETFs (transfer money then buy)

18. Invest in the US with PEA? “PEA eligible if invests in at least 85% European companies” Fund size: 17M EUR (liquidity risk) Annual fee: 0.15% French companies Bank (Societe Generale) US market ETF Issuer (Lyxor) Swap contract Airbus S&P 500 PEA USA ETF Swap contract PSA Swap contract Veolia A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments. Most swaps involve cash flows based on a notional principal amount such as a loan or bond. Usually, the principal does not change hands. 

19. So how do I declare my taxes? • 2019: tax reform “prelevement a la source” • Tax declaration form available from April only • Info for 2018: http://culturefinanciere.com/declarer-les-gains-dun-compte-titres-ouvert-a-letranger/

20. Example from the blog: