ETF Sparplan vs. ETF Rentenversicherung

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Hi All

 

New to site so hello :-)

 

Just wondering if anyone has experience of setting up a Rentenversicherung in Germany ?

 

I have an ETF sparplan with Commerzbank but trying to work out the pro's and cons of shifting to a Pension Plan instead (tax advantages/ disadvantages).

 

(I have heard Alte Leipzige are a pretty decent bunch and offer a useful selection of ETF's.)

 

Many thanks for inputs.

John

 

 

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You have got much more flexibility with the ETF Sparplan. I would stick with that. ETF Rentenversicherung is often not well constructed and not well subsidised. Basically, they lock you in and the insurance companies charge a significant fee. So, I would stay away from it.

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Not applicable to you @johnnygibber, as your profile says that you're a UK/German citizen, but US citizens like me need to be VERY CAREFUL about buying ETFs or any other mutual fund that is based outside the US due to something called PFIC, no matter where your brokerage account is based. Just thought I'd post that for the next random American who hits this thread :)

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Sorry to somewhat high-jack this thread, but I was wondering if people could share there experiences with ETFs.

 

How active do you need to be to stay ahead/make money?

How closely do they track the market/commodity?

Are the fees reasonable?

What level of return are people seeing?

etc.

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@ChrisMarston - many thanks for reply. Just got an info pack from Alte leipzige... yes it looks very complicated compared to my Sparplan.

No idea what the charges are either ... hidden in the 20 page appendix somewhere :-)

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@dj-jay-smith. I just try to keep it as simple as possible with an ishares core developed world etf (75%) and an ishares core emerging markets etf (25%). Basically covers the world for around 0.2%. I'm getting ~8% return so far - better than zins in my current account. No trading - monthly direct debit set it and forget it for next 10 years or so.

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4 hours ago, dj_jay_smith said:

Sorry to somewhat high-jack this thread, but I was wondering if people could share there experiences with ETFs.

 

How active do you need to be to stay ahead/make money?

How closely do they track the market/commodity?

Are the fees reasonable?

What level of return are people seeing?

etc.

I follow an approach of passive investing advocated by John Bogle and others. Instead of being active, i.e. trading a lot, you have to make a long-term investment decision and stick to it, for example, through a ETF saving plan. This is particularly hard during a market crash where people panic and sell. So, it is helpful to acquire the right mindset to the extent that is possible. ETFs are constructed to mirror the markets that they represent. The margin of tracking error is for most ETFs very small. The fees are very low compared to traditional funds for most ETFs because mirroring the market is fairly easy. You don't have to pay the salaries of fund managers who in the majority of cases fail to beat the market. The level of return depends largely on how the markets develop. After the financial crisis the markets generally developed very well, so some people think that we are late in the market cycle and the next downturn is around the corner but who knows.

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if you want to build up capital per se, staying with a simple ETF savings plan is your best option when comparing costs and all (you might want to check out Dimensional Fund Advisors as an interesting alternative to pure ETFs, because they offer also only passive investment funds but with a (scientific) twist).

 

A pension plan makes sense if you want to lock in a certain guarantee for pension in retirement, i.e. take care of the "risk of longevity". While it sounds absurd to consider the chance to live long as a risk, it is one from a financial point of view. Because if you start using up your savings in retirement based on average life expectancy and end up living longer, you could find yourself in a situation where the money has run out when you have still a lot of life left. This is exactly what a pension plan is made - and taking care of that risk comes with a price (i.e. costs) on the insurance side. Hence in direct comparison, a pension insurance is inherently more expensive than a simple ETF savings plan.

 

There are some pension plans in Germany (you can find details about them here on our website: Company Pension - bAV ,

RIESTER pension  and RÜRUP pension ) that offer some tax incentives for setting up such pension plans. However, tax benefits always come with some rules and regulations that reduce the flexibilty of use of the invested capital. Therefore these plans only make sense if you are willing and prepared to put money away long-term for the sole purpose of having a pension in retirement paid out to you. 

 

In order to figure out, how much in savings and pension plans you need, you could play around with our Pension Calculator a bit if you like: Pension Calculator LIGHT by CR&Cie

 

Cheerio

 

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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@starshollow - great feedback, many thanks. Lots of food for thought. Alte Leipzige working on a Basis Rente model for me just now (good to compare costs with my SIPP too).

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56 minutes ago, Starshollow said:

 (you might want to check out Dimensional Fund Advisors as an interesting alternative to pure ETFs, because they offer also only passive investment funds but with a (scientific) twist).

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.

I would be cautious about any offerings with a twist – allegedly scientific or not. This is a specialist and disputed subject. Often the claim is that based on historic data there are some tweaks that allow you to outperform the market. Such offerings are usually more expensive and often do not deliver on their promises as old data cannot be simply projected into the future.

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6 hours ago, Chris Marston said:

I would be cautious about any offerings with a twist – allegedly scientific or not. This is a specialist and disputed subject. Often the claim is that based on historic data there are some tweaks that allow you to outperform the market. Such offerings are usually more expensive and often do not deliver on their promises as old data cannot be simply projected into the future.

I agree with your general comment - however, if you take a wee bit of time to look deeper into the scientific background of DFA (Dimensional Fund Advisors) based on findings of  Kenneth French and Eugen Fama (nobel laureate)  who is also part of the company.

while it is "only" a passive investment fund, i.e. not into stock picking, they do overvalue the top quartile of value stocks, small caps and also apply parameters like momentum with a higher degree than the actual index. While their costs are marginally higher than pure ETF (and we are talking about fully replicating funds here only), they are still far away from actively managed funds and their costs. Depending on the underlying index, they have been outperforming for a long past by and large at around 1-2 % p.a. in comparison to the indexes. But they are entirely relying on a buy-and-hold strategy only, which is why they only work thru accredited advisors (which we are).

 

Here are just some key-points: https://execplanning.com/10-things-you-should-know-about-dimensional-fund-advisors

 

and here some videos: https://www.evidenceinvestor.com/dimensional-week-the-appliance-of-science/

 

It is no mumbo-jumbo, no witch-craft. A basically very simple strategy at the end...

 

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Just as an update - Alte Leipzige calculated annual cost of around 1.2 %.

Although I get access to DFA funds, think I'll just stick with ETF sparplan as advised - thanks again all for inputs.

Over ~15 years that 1.2% really REALLY makes a big difference. Over the years 16% of my final capital goes to AL - ouch !! (7% growth vs. 5.8%).

Gotta love these compound interest apps :-)

Cheers

John

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