I am 27 and have a retirement portfolio with three funds that are all rather long-term investments:

This portfolio is managed by an insurance company and the legal envelope is such that I pay less taxes on the interests but the company takes some money out. This system is supposed to pay off in the long run, also because one can switch funds for free and there is an automatic rebalancing built in. Currently I invest 31 EUR/month but plan to go to around 100 to 150 EUR/month once I start by PhD position.

Then I have a “normal” portfolio which is rather conservative with those four funds:

These funds are expected to give returns in the 2% to 3% range. I have invested 2000 EUR there and currently do not put any money into there regularly but aim to put in 100 to 150 EUR/month into there as well starting in October 2017.

Right now I do not have any portfolio fees, so this gives me 40 to 60 EUR/year. However, in half a year I will no longer be an university student and have to pay 36 EUR/year just to have that portfolio. Then I will effectively make 4 to 24 EUR/year. This is the point where I question that whole endeavor, the difference to having that money in my savings account for 0.001% interest is 24 EUR/year in the best case.

The options that I see are

  • putting more money into the conservative funds such that the absolute returns are significantly higher than the portfolio fee;
  • and choosing more aggressive funds such that the returns are also higher. Looking at the return rates in the “retirement funds”, it all seems very nice and way more lucrative than the conservative funds recommended to me at the time where I said that I wanted a low risk.
  • Put all the money into the retirement portfolio and take part of it out earlier. The advantages of that legal envelope will be gone then and a simple portfolio would have been a bit cheaper.

Switching to the more aggressive funds will incur a 5% buying fee such that switching back and forth will only lose money. For the four funds in the portfolio now I have paid around 3% buying fee, which I do not have back after only four months, as expected.

How aggressive should I make this non-retirement portfolio which I would probably use a down payment for a house in 3 to 15 years?


You're completely missing the most important thing you can do: minimize fees.

  • There is no reason whatsoever to pay a yearly account fee. Take your business to a broker that does not take such fees.
  • Some of those funds have ridiculously high expense ratios. Sell them and buy an ETF with a TER of less than 0.5% - and don't pay an Ausgabeaufschlag.
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  • A friend of mine works for tecis, a franchise for financial advisory. They use that broker, and that broker takes 36 EUR/year for a portfolio. The issue surcharge (Ausgabeaufschlag) also pays him for his picking of the funds. tecis claims that they can pick the funds that beat the market and therefore are better than low-cost ETFs. My understanding is that ETFs are great if one lacks knowledge, but having great managed funds might beat the market, although only 20% of them do. I can let him do the picking and pay him indirectly for it, or do it myself somewhere else but buy bad funds. – Martin Ueding Jan 20 '17 at 9:11
  • Most stuff I read online said: “If you are not sure what you are doing, just buy ETFs, keep expenses down, and not look back.” Also for a mid-term investment, I am not sure if volatile ETFs are really a good idea or whether some managed fund would be better as it would not drop as deep in a crisis if that is when I want to build my house. – Martin Ueding Jan 20 '17 at 9:16
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    @MartinUeding: Ausgabeaufschlage is a sales commission that encourages "free" advisors to sell you the funds that give them the highest commission, usually those are also the ones that take the highest fees which eat away all the better performance they might get from better stock picking (but often don't). It has been proven time and time again that pretty much nobody "beats the market" consistently, definitely fewer than 20%. And paying high fees does not ensure you get the best-performing funds. That's a lie they tell you so you'll pay them. – Michael Borgwardt Jan 20 '17 at 9:36
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    @MartinUeding: some of your funds have a 3% TER. That's 3% fees per year, a total rip-off. Pretty much nobody can consistently beat the market by 3%. "Knowing what you're doing" to the point that ETFs might not be the best deal for you doesn't start at the point where you understand what ETFs and volatility are, it starts when you're researching individual companies' finance statements in detail. As for volatility in regard to financing a house, that is a valid concern. But in reality, expensive managed funds don't really have a history of better performance in crises either. – Michael Borgwardt Jan 20 '17 at 9:44
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    @MartinUeding Except that pretty much no high-fee actively managed funds actually "performs well enough" consistently. All studies show that after fees, the vast majority of actively managed funds perform worse than the market average. Past performance is no preductor of future performance either - there's enough funds that they can always show you some that beat the market last year by pure luck. As for choosing ETFs, just look for ones with low expenses and good diversification, and if you want advice, pay for it explicitly by the hour, not via commissions. – Michael Borgwardt Jan 20 '17 at 10:42

Its important to note that aggression, or better yet volatility, does not necessarily offer higher returns. One can find funds that have a high beta (measure of volatility) and lower performance then stock funds with a lower beta.

Additionally, to Micheal's point, better performance could be undone by higher fees.

Age is unimportant when deciding the acceptable volatility. Its more important as to when the money is to be available. If there might be an immediate need, or even less than a year, then stick to a savings account. Five years, some volatility can be accepted, if 10 years or more seek to maximize rate of return.

For example assume a person is near retirement age. They are expected to have 50K per year expenses. If they have 250K wrapped up in CDs and savings, and another 250K in some conservative investments, they can, and should, be "aggressive" with any remaining money.

On the contrary a person your age that is savings for a house intends to buy one in three years. Savings for the down payment should be pretty darn conservative. Something like 75% in savings accounts, and maybe 25% in some conservative investments. As the time to buy approaches they can pull the money out of the conservative investments at a optimal time.

Also you should not be investing without an emergency fund in place. Get that done first, then look to invest.

If your friend does not understand these basic concepts there is no point in paying for his advice.

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  • I have enough emergency money to cover all my regular expenses for 6 months in a savings account (no risk, 0.001% interest). The money I have in the funds is on top of that, so I think it is okay to invest that. You are suggesting that I should stick with the conservative funds that I have and just put more into them? Or should I save up money split in savings and those funds? – Martin Ueding Jan 20 '17 at 15:50
  • You are fine to invest. I cannot answer your question until you indicate the goal of your savings. What do you intend to use it for? For retirement seek to maximize gains. For a home down payment, be more conservative. – Pete B. Jan 20 '17 at 16:04
  • 6 months are enough buffer, I take? My goals are retirement and house, though I am not sure whether that is in 3 or 13 years. For the retirement, I have a mix of ETF and managed funds. So for the house you say I should stick with conservative funds and not try to get around the portfolio fee with higher risk funds? – Martin Ueding Jan 20 '17 at 16:12

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