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Photo: Zacharie Scheurer / dpa-tmn
I have often written here about the advantages of investing your money in broad-based international ETFs.
Such index funds cover a large number of companies in different countries and from different industries.
This spreads your risk as an investor.
But some mean it too well: They buy shares in half a dozen different ETFs.
Sometimes they copy the MSCI World index, sometimes the FTSE All-World and others even the American Standard & Poor's 500. Unfortunately, this does not yet become a strategy - on the contrary, it sometimes even increases the investment risk and it often does the thing significantly expensive.
The basic idea of the ETFs is impressive.
Funds are there to reduce the risk of investing in stocks while preserving the opportunities.
Whoever buys a share commits himself to the well-being of a company - and can therefore also lose everything.
The more shares you combine, the smaller this risk.
And because the bottom line is that the economy is growing over the years, you still have the chance of a good return.
So-called active funds are managed by managers.
On the other hand, if you choose passive index funds or ETFs, you have a choice based on a stock index.
This also reduces the risk that your fund manager simply gambles away when selecting individual shares for subsequent purchases or sales.
The ETF, on the other hand, does not make a constant selection, it stubbornly follows the average of the respective market segment, i.e. a mix of countries and sectors.
If many stocks are better than one, are many ETFs better than one?
At least that's what many investors think.
They hope to spread the risk even further.
"Don't put all your eggs in one basket" is a classic stock market adage.
Another reason to add a new ETF is often the cost.
Banks often offer free savings plans with ETFs that become fee-based after a while.
Many investors take this as an opportunity to seek out a new ETF that is currently on sale.
This hopping to the best offer is totally fine as long as you don't overdo it.
But don't think that this necessarily improves the stock mix.
The opposite is often the case.
In fact, the most popular ETFs on different indices essentially contain the same stocks: you can find Apple, Microsoft, Tesla, Disney almost everywhere – and maybe SAP and Siemens.
Why actually?
This is due to the construction of the ETFs and the underlying stock indices.
Each includes one or many regions, one or many sectors of the economy, possibly adding sustainability criteria - and then investing in the largest publicly traded companies that meet these characteristics.
So let's imagine five »different« ETFs: The first one has all industrialized countries with all industries.
The second is a combined fund of developed and emerging markets like China.
The third focuses on the world's largest technology companies.
The fourth builds the US standard index S&P 500, and the fifth does without the biggest climate sinners.
Microsoft is (almost) everywhere
Sounds like a broad mix?
On closer inspection, the opposite is the case.
Microsoft is the largest or second-biggest stock across all five ETFs.
The explanation in itself is simple.
The software giant is based in the USA, so it is in Index No. 4. Its ecological balance sheet is comparatively good, which is why it ends up in Index 5. The addition of other countries (as in Index 3) or all other sectors (as in Index 1 or 2) doesn't knock Microsoft off the podium.
If you now buy five or more different funds of this type, your portfolio will not contain significantly more companies than if you had only bought one fund.
And the weighting is also relatively similar in many index funds.
This means your risk is not reduced either.
On the contrary, it even increases in places.
The more specific the index, the greater the weight of the “big ones” tends to be.
If Microsoft is in a general all-world index with less than four percent, the company is already around six percent in the purely American ETF, and in the group of global tech companies even over 17 percent.
My colleague Saidi has compiled even more details in his podcast.
You could solve the problem with ETFs that are sharply tailored and expressly do not or hardly overlap.
One on German stocks, one on French - or on opposing sectors.
To do this, however, you need the willingness to deal with your mix regularly, i.e. a lot of time for reading, checking and then also for the appropriate remixing.
Because unlike a good market-wide ETF, a self-made portfolio no longer adapts to developments in the global economy.
A great disadvantage.
But what changes when you mix funds are your costs.
You have to pay buying and later selling costs for each of these funds.
If you're particularly unlucky and your custodian charges a fee to hold each fund in custody, you'll pay more.
Then you should change the depot provider anyway.
And last but not least, a portfolio becomes a bit more confusing with each new position.
If you don't buy manually, but via an automatic savings plan, you get small leftovers every month - so that the smooth savings rate can always be invested perfectly.
Such fragments are a service provided by your broker and cannot be transferred if you later move the custody account to another bank.
Tax tips
However, several similar funds in the portfolio can help with one thing: tax fine-tuning if you eventually want to access the proceeds.
Of course, if you sell at a profit, you will have to pay taxes on each individual fund.
And every time a golden rule of the tax office applies: If you sell shares, the tax office always assumes that you have sold the shares of the fund that you have owned the longest, in case of doubt with the highest return.
The model is called FIFO, short for “First in, First out”.
In order to avoid the FIFO logic of the tax office, to be able to further increase the value of the portfolio and at the same time to sell shares from time to time, there is an alternative: You buy different funds with the same focus at different times, i.e. one after the other, always one at a time Time.
An example with a broad world ETF, for example on the FTSE All-World or the MSCI World: These also fluctuate in value in the short term, but over the decades it has risen by an average of a good 9 percent annually.
If you start saving on your 30th birthday and sell ETF shares for the first time at the age of 67, the tax office will be the first to delete the oldest holdings from your portfolio.
These are the ones with the greatest increase in value over the years, so according to the current tax model there is also a higher withholding tax.
If the saver had switched to another ETF at the age of 40 and 50, i.e. had made a separate position in the portfolio for each decade of life, at the age of 67 he could first sell the shares that he had only held since his 50th birthday.
Their increase in value is not that great, the tax is lower, and he has to part with fewer shares to withdraw the same amount of money.
The papers bought at 30 could remain in the depot and bring a return.
These design options could become even more exciting when the sale is made if the state separates itself from the withholding tax and taxes are due as before depending on income and earnings (which at the time was not a problem for long-term investors thanks to the speculation period - but who knows what will happen? ).
The SPD Finance Minister at the time, Peer Steinbrück, introduced the withholding tax with the argument that it made taxation easier and thus combated tax evasion: “25% of x is better than 50% of nothing”.
In the meantime, many financial flows from investors are more transparent for the authorities and the differentiated accounting and taxation of income would also be easier.
If the principle of taxation were to change, it would be important for investors to think more carefully about the tax consequences than is necessary today.
Anyone who sells a lot and successfully would quickly be in the top tax rate with the earnings and other income.
If you have several different funds with the same focus but different purchase dates, you can choose the ETF for sale that best suits your current tax plans.
With equal distribution, you can choose the tranche with the fund with which you have the lowest return and thus the lowest tax burden, while you simply leave long-term investments with high returns unscathed and only sell them when that suits you better.
If you only need a small amount of money from the depot, you can use your allowance particularly effectively.
A short warning at the end:
Such optimization options are practical, but beginners in particular should not get bogged down with these considerations.
For one thing, no one knows what the tax laws will look like when retirement starts in 20 or 40 years.
And you don't have to close your deposit when you retire, you can withdraw the savings little by little.
In addition, the same effect can currently also be achieved via a free second depot or sub-depot, in which the same ETF is saved a second time.
Then the FIFO logic is actually only applied to the respective sub-deposit, as the Treasury clarifies.
Irrespective of the tax issues: It is always good to know what is in the fund that you put in the custody account.
I wish you success!