ETF — Exchange-Traded Funds

ETF (Exchange Traded Fund) is a stock market fund that allows investing in hundreds or thousands of companies with a single purchase. It's a tool for long-term capital accumulation (horizon of 10+ years), accessible in Germany through any broker with a Depot (brokerage account).

When This Is Relevant

ETF is a tool for long-term savings. Before thinking about investing:

• ✅ Have an emergency fund (4–6 months of expenses)
• ✅ No expensive debt (>5% annual)
• ✅ Basic expenses and income are clear
• ✅ Won't need the money for at least 5–10 years

Sequence Matters

Investing before building the foundation is a common mistake. A 30% market drop + job loss = forced selling at a loss. An emergency fund protects against this scenario.

What It Is and Why

ETF tracks an index — for example, MSCI World (approximately 1,500 companies from 23 developed countries) [1] or FTSE All-World (approximately 4,000 companies including emerging markets) [2].

Advantage	What It Gives You
Diversification	Risk spread across hundreds of companies
Low fees	0.1–0.3% per year vs 1–2% for active funds [3]
Liquidity	Can sell on any trading day
Simplicity	No need to analyze individual companies

Psychological Context

If you're from Russia or Ukraine, you may have experience with:

• "Guaranteed" deposits that lost value
• Pyramids disguised as investments
• Brokers who disappeared with money

This creates rational skepticism. How ETF is different:

Concern	Reality in German Context
"Broker will take my money"	ETF is your property, stored separately from broker assets (Sondervermögen) [4]
"Everything will lose value"	Global indices have recovered after all crises, but it takes time (e.g., recovery after 2008 took 5 years) [5]
"It's gambling"	Long-term index investing differs from speculation

Trust Builds Gradually

You don't have to "believe" right away. You can start with a small amount, observe, understand the mechanics. Skepticism is a normal protective reaction.

Types of ETF

By Asset Class

• Stocks (Equity) — ownership in companies, higher risk and return
• Bonds — debt securities, lower risk and return
• Mixed — combination, automatic rebalancing

By Income Distribution

Type	What Happens with Dividends	For Whom
Accumulating (Acc, Thesaurierend)	Reinvested automatically	Long-term accumulation
Distributing (Dist, Ausschüttend)	Paid to account	Need passive income

ETF Evaluation Criteria

When choosing an ETF, pay attention to:

Criterion	Target Value	Why It Matters
TER (Total Expense Ratio)	Up to 0.3% for global indices [6]	Fees reduce returns
Fund size (AUM)	From €100 million [7]	Liquidity, fund stability
Replication	Physical preferred	Fund owns real stocks, lower counterparty risk
Fund age	From 3 years	Has performance history
Tracking Difference	Close to index	Shows management quality

Sparplan — Automatic Purchases

Sparplan (savings plan) — automatic ETF purchase every month:

• Fixed amount on a specific day
• Free at many brokers
• Averages purchase price (Cost Averaging)
• Removes the need to "time the market"

Simplicity Principle

Common approach: one global ETF tracking the world market. This gives:

• Maximum diversification
• Minimum decisions
• Low fees

More complex strategies (regional ETFs, factor, sector) require more knowledge and time. Additional complexity doesn't guarantee additional returns.

What to Do

1. Make sure the foundation is built — cushion, no debt
2. Open a Depot with a broker
3. Study ETF selection criteria — understand what's important to you
4. Set up Sparplan — automate the process
5. Determine your horizon — this is money for 10+ years
6. Don't sell during drops — this is the hardest part psychologically

FAQ

What is Vorabpauschale and why was money deducted in January even though I didn't sell anything?

Vorabpauschale is not an extra tax — it is a prepayment on future capital gains tax, credited back when you eventually sell. Germany introduced it in 2018 to prevent indefinite tax deferral on accumulating funds. Your broker calculates it automatically each January: ETF value on Jan 1 × Basiszins × 0.7 (minus 30% Teilfreistellung for equity ETFs). At Basiszins 3.20% (2026), this is roughly €41 in tax per €10,000 held. If your settlement account has insufficient funds, some brokers push it negative with interest, others report the shortfall to the Finanzamt. A common practice is to reserve €50–100 per €10,000 of ETF holdings in the settlement account before January.

I'm leaving Germany. Will I owe exit tax on unrealized ETF gains?

Since January 1, 2025, the Jahressteuergesetz 2024 introduced Wegzugsbesteuerung (exit tax) on investment fund shares. If you lived in Germany for 7 of the last 12 years AND your total acquisition cost (what you paid, not market value) in any single fund exceeds €500,000 — Germany treats your ETF shares as fictitiously sold on the day you deregister. Tax: ~26.375% on unrealized gains minus Teilfreistellung (30% for equities) and previously paid Vorabpauschale. If you return within 7 years and still hold the shares, the tax can be reversed. Risk mitigation: one way to reduce risk is distributing investments across multiple funds so no single fund exceeds the €500,000 acquisition cost threshold.

I forgot to set up a Freistellungsauftrag — my broker withheld tax from the first euro. Can I get it back?

Yes, via your tax return (Anlage KAP). A Freistellungsauftrag instructs your broker not to withhold tax on the first €1,000 of investment gains per year (€2,000 for couples). Without it, the broker withholds 26.375% from every euro of gains or dividends. Setting it up mid-year causes the broker to refund already-withheld tax within the limit. For prior years — only through Steuererklärung. With multiple broker accounts, split the allowance between them (total cannot exceed €1,000). Setup takes 2 minutes in any broker's settings — the cost of forgetting: up to ~€264/year.

The market dropped 20%. Should I stop my Sparplan or sell?

The mechanics of a Sparplan during a downturn: the fixed monthly amount buys more shares at lower prices (cost-averaging effect). Every major crash (2000, 2008, 2020) was followed by recovery. An investor who panic-sold during COVID's -34% drop in March 2020 missed the full recovery by August 2020. Studies show individual investors underperform indices by 3–4% annually, almost entirely due to emotional selling during drops. Your ETF assets are legally protected as Sondervermögen (segregated assets) [4] — even if your broker goes bankrupt, your shares remain yours. If a 20% drop causes severe anxiety, that may indicate the equity allocation doesn't match individual risk tolerance — rebalancing is typically done during calm periods, not during a crash.

Is one ETF really enough for a complete portfolio?

A single global ETF (FTSE All-World or MSCI ACWI) holds 3,000–4,000+ stocks across 40+ countries and covers ~90% of global market capitalization. This is sufficient for most investors — confirmed by Stiftung Warentest, Finanztip, and Bogleheads. Common mistake: buying MSCI World + S&P 500, which creates massive US overlap (~72% of MSCI World is already US stocks). Another mistake: mixing index providers (FTSE + MSCI) — they classify countries differently (e.g., South Korea). If you want to control emerging market exposure, use two ETFs from the same provider: MSCI World + MSCI EM, or FTSE Developed + FTSE EM.

Sources

1. MSCI World Index Factsheet — MSCI Inc. https://www.msci.com/documents/10199/149ed7bc-316e-4b4c-8ea4-43fcb5bd6523

2. FTSE All-World Index Factsheet — FTSE Russell https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?openfile=open&issueName=AWORLDS

3. European Fund and Asset Management Association (EFAMA) — Passive fund management fees https://www.efama.org/statistics

4. § 92 KAGB (Kapitalanlagegesetzbuch) — Sondervermögen https://www.gesetze-im-internet.de/kagb/__92.html

5. S&P Dow Jones Indices — S&P 500 historical performance https://www.spglobal.com/spdji/en/indices/equity/sp-500/

6. BaFin — ETF cost information https://www.bafin.de/DE/Verbraucher/GeldanlageWertpapiere/WertpapiereFonds/wertpapiereundfonds_node.html

7. Deutsche Börse AG — ETF liquidity and sustainability criteria https://www.xetra.com/xetra-en/trading/trading-calendar-and-trading-hours/ETFs