Investing in the Netherlands as an Expat

Hello there, hope you’re doing good. Usually, I write technical content related to software engineering, programming and best practices. But this time I would like to share my personal experience with something different, something that everyone deals with every day, Money and Investments 💰. This is not the money lesson kind of thing, Am no expert in this space, just sharing my experience and findings on various investment options being in a new country.

Although the title says the Netherlands the concepts we talk about here are common and most of the platforms are available in several other countries.

Background

A little bit of background, am a software engineer and I am from India. Last year I relocated to the Netherlands due to work. I like Personal finance & money management, after all, it's our hard-earned money, then why not put in an extra effort to properly manage it. It's not the money that attracts me (well you know am lying :), let's say not just the only reason), rather the work & effort we put in, it's like a puzzle or game (a real one), and the joy of learning & finding solutions for it. As a software engineer, I find it quite similar to solving business & code challenges.

Okay, we can begin now, first, let's understand some basic concepts.

Inflation is an economic term that refers to an environment of generally rising prices of goods and services within a particular economy. As general prices rise, the purchasing power of consumers decreases. … For example, prices for many consumer goods are double that of 20 years ago.

Eg: If you had $100 in 2000 and didn’t invest it, it would only have around two-thirds of the purchasing power in 2018 i.e it will be worth $66. If you don’t invest your money, it loses value over time due to inflation.

This is why investing is important and mainly I like the idea of money working for us rather than us working for the money. And I have an amazing line to emphasize it,

“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein

Back in India, there are several risk-free investment options available like,

• Bank Savings Account will give you 3.5%–5% per annum
• Fixed deposits will be around 6%-8% per annum

So just keeping money in the bank account can yield decent returns, although India’s inflation rate is even higher around 6% (check this), that's a different topic.

The Search

In the Netherlands or mostly in the European countries, the bank savings account interest rate is mostly 0.01% (in case you missed it, there is a 1 at the end it's not 0%, and some might offer a bit higher but not more than 0.5%). And the monthly bank fee will be 1–2€, so basically, you pay to keep your money. I find it surprising and am not happy to see my hard-earned money sitting idle (get to work you crazy bits of binary).

NOTE: the average inflation rate for the Netherlands is around 3%.

So obviously the smart guy within urged me to find solutions to this problem. And to be honest it's not easy for me, because am very new to this country, even to Europe so to speak. Am not used to the culture, ideology, investing options, policies & regulations, etc. Also, there aren’t any risk-free investment options like Banks savings account.

It took me several months, a lot of searching on the internet, reading through Reddit, watching youtube videos, and obviously some trial & error to find some investment options & platforms. And when I shared it with friends over casual talks I find it was useful for them, which is why I decided to write this article hoping it will be useful for someone.

Disclaimer: I am not a financial advisor, just a random dude on the internet sharing what I learned & found. The platforms that am sharing are just for informational purpose only. Please do your own research before jumping in, dont trust me :), after all its your money.

AGAIN,

• I am a complete beginner in most of these investing options & platforms that am sharing
• I am sharing platforms that only I have personally tried (tested with €100 or so)
• I might have added referral links for some of these platforms
• Risk is involved in most or all of these platforms

The Findings

We will be talking about the various platforms in the following categories. Most of these platforms are not just limited to the Netherlands but are also available in several other European countries,

• Stock Market
• Cryptocurrencies
• P2P Lending

Let's get started!

Emergency Fund

Wait, What? Emergency Fund? this is not an investment!

Yes, this is not a new investment option. But I feel it is an important topic to talk about before proceeding with investments. Before you start investing make sure you have some emergency money saved up. Because in case of bad times like the current pandemic where job losses and business shutdowns are at a record high, you don't want to withdraw from your investments to cover your expenses (assume you need to withdraw from stock market where your investments are at record low or even in negative)

The general rule of thumb for an emergency fund is,

Keep atleast 3–6 times of your monthly expense amount in a high-interest rate savings account (but in our case interest rate is not great) which is readily available in case of emergency.

Eg: if your monthly expenses on average are €2000 then keep at least 3 times that (€6000) in the bank account. Do not use this unless its an emergency, investing and iPhone 12 is not an emergency :)

Goals

We should also think about our goals, and what we really wanted to achieve. Are you focusing on long-term goals like saving up for retirement? Also, do you have any short-term goals, for example, if you are planning to buy a car or a house, then you probably need to save up some amount, in such don't go all into the stock market, you never know what will happen, we should try to keep it risk-free in such cases. Choose your investment strategy based on your desire.

Okay, now that we set our base clear let's look at the options,

Stock Market

Am entirely new to stock market investing, I have never done it before which is why am very much terrified to invest in it. But after several readings and research, I figured out my strategy.

Long-term investment: Treat this as your long-term investment option like 10–30 years, meaning you should only buy and hold stocks. Do not ever get into day trading, call options, timing the market, buy & sell games, it’s only going to hurt you. I dont want to bet my money on luck. Seriously read about consistent investing vs timing the market, you are better & safe with the former.

Index Fund or ETF(exchange-traded funds): Dont get excited and buy all the fancy stocks you see. Instead of buying 10–20 stocks & managing them, for starters, it's good to go for Index Funds or ETFs. By owning one share of an ETF you indirectly own a small portion of several different companies. So even if one company in the ETF goes bankrupt you got others to cover the losses.

Some of the highly recommended ETFs are,

• VWRL (Total Market, covers 3455 stocks, 0.22% expense ratio)
• VUSA (tracks S&P 500, covers 505 stocks, 0.07% expense ratio)

Even you can buy fractional shares of these ETFs so you can start investing from as low as €1 on some of the following platforms. I personally like VWRL since it covers the total market, not just the US market, plus you also receive sweet dividends every quarter.

Trading212

Link: trading212.com

This is by far my favourite platform for investing in the stock market. I didn't know about it at first, I used another one called Degiro for while it's not that user-friendly and also not available in English. Once I read about this platform, it felt too good to be true but it is. Their mobile UX is so great and very easy to use, they also got Apple Pay, Fractional Shares etc, I feel it got all the necessary features for a beginner like me. Founded in 2004.

Pros:

• €0 commission investing & €0 fees
• Fractional Shares
• Investing from as low as €1, so good for beginners
• FCA regulated and funds are protected for up to £85,000
• Excellent support & communities, also available in multiple countries
• IDEAL & Apple Pay support
• Amazing UX on mobile application

Cons:

• Not pro enough to find any concerning problems with it

You will get one free share if you signup using this link. It offers decent shares like UAA, HP, some users even got Tesla, NIKE, Disney, etc.

Degiro

Link: degiro.nl

Degiro is not attractive but still a very good investment platform. My initial investments are via this platform. I will continue to use it because I like to keep multiple platforms for diversification. Founded in 2013.

Pros:

• Decent mobile application
• Support multiple European countries
• Offer commission-free transaction if you buy an ETF from their commission-free ETF list
• Investor protection for assets (€20,000)

Cons:

• Mobile UX is not that great. Doesn’t offer in English (mijn Nederlands is niet goed), becomes hard for new expats
• Their commissions & fees are high, eg: €2 + 0.02% for transaction, checkout https://www.degiro.nl/data/pdf/prof_feeschedule.pdf
• Fees are involved if you use multiple exchanges, eg: if you buy US stocks you pay €2.5 for US exchange annually.

There are many others but this is what I have been using. If you are interested then I would recommend to checkout Trading212 at first.

Cryptocurrencies

I dont have to explain digital currencies, it's the buzzword on the internet. It is becoming more and more real in recent times, and many payment providers are considering supporting cryptocurrencies in their platforms. Many companies are backing their cash with cryptocurrencies.

Recently Paypal (one of the largest payment providers) announced that it will offer and accept cryptocurrency for all online payments, Payal will support Cryptocurrencies

So if you are interested in this space then here are some options to buy cryptos,

UPDATED: Recently, I have come across a nice platform for buying cryptocurrencies called Bitvavo, and it immediately became my preferred platform of choice, so I have edited this story to include it.

Bitvavo

Link: bitvavo.com

The Bitvavo platform was launched in 2018 and is located in Amsterdam, Netherlands. It supports multiple cryptocurrencies and has the option to transfer cryptos to and from any external system. I found this platform very recently but it became my preferred platform quickly because of its lowest trading fee of 0.25% whereas other platforms charge around 3–4%. It supports IDEAL Deposits which makes buying quick and hassle-free.

Pros:

• Lower fees when compared to other platforms (around 0.25% per transaction)
• Can transfer cryptos to and from an external system
• Great mobile/desktop application with strong security functionalities like 2FA, Anti-phishing code etc
• Earn rewards in crypto for staking crypto, the interest rate varies for each cryptocurrency, eg: for BTC it's around 1.22% (Yearly)

Cons:

• Bitvavo charges a fixed withdrawal fee, a factor to consider for frequent traders, check Bitvavo Fees

Coinbase

Link: coinbase.com

Coinbase is one of the popular choices for many to trade cryptocurrencies. They have a wide user base and offer 30+ cryptocurrencies. You can accept cryptos or transfer cryptos to other places.

Pros:

• Trusted by several million users
• Ability to exchange or transfer your crypto to other places
• Offers Earn option where you can earn some crypto by learning more about it
• Great mobile application & support team

Cons:

• Very high transaction fee (around 3% per transaction)
• There is also a deposit fee, check Pricing & Fees

Nexo

Link: nexo.io

Nexo has an interesting product offering, it's not a place where you can buy/sell crypto, instead if you have cryptos or currencies (EUR, GBP, USD) then you can earn daily interest if you keep it on their platform. It offers an attractive 8% compounding interest being paid out on a daily basis.

Pros:

• Hassle-free passive income option
• Insured by external custody BitGo
• Earn interest in FIAT currencies like EUR, GBP, USD
• Pays daily interest

Cons:

• Topup minimum amount is very high, for EUR the minimum deposit amount is €1000 (it was mentioned that it will be lowered soon)
• No IDEAL integration only bank transfer

P2P Lending

Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. This is a speculative space since your investments are not secured, borrower's credit rating requirements might be less when compared to borrowing from the banks. And also there aren’t many trusted P2P platforms.

Although the returns on the P2P Lending platform are high (10%+), it comes with an equivalent risk factor. The following two platforms seem to be good, transparent and offer some form of protection.

Mintos

Link: mintos.com

Mintos is a marketplace for investing in P2P loans. So you can choose and invest in various loans using various criteria like loan type, originators, Minto's rating etc. It also offers auto-invest strategies where you can configure your required criteria like, preferred ratings, duration, desired interest rate, diversity etc and Mintos will automatically invest into eligible loans and it will be a recurring process.

Pros:

• Well established marketplace and has several loan originators
• Auto-invest strategy is a major benefit
• 99% of the loans come with a buyback guarantee

Cons:

• Default auto-invest strategies invest in loans with long duration like 2–3 years

Bondora Go & Grow

Link: bondora.com

Bondora is also a P2P lending marketplace similar to Mintos. But I would like to talk specifically about one of their products called Go & Grow, where instead of you choosing and investing in loans, it will be managed completely by Bondora, so all you have to do is deposit some money and you will automatically get interest amount on a daily basis.

Since it is managed by Bondora, you get less interest rate of 6.75%, but still very attractive provided you don't need to do anything other than depositing money, and the returns are well defined.

Pros:

• Hassle-free passive income option
• Has a decent interest rate of 6.75%
• Pays daily interest

Cons:

• No buyback guarantees or funds protection (this is a critical factor!)
• Bondora claims, the Go & Grow product has fast liquidity but they also have Partial Payouts strategy so in some cases it might take a few days to get the full amount.

Here is the summary of options that we discussed,

• Emergency Fund
• Stock Market — Trading212 — Degiro
• Cryptocurrencies — Bitvavo — Coinbase
• P2P Lending — Mintos — Bondora Go & Grow

Conclusion

The intention of this article is to emphasise the importance of investing and some of the options that I found over time after moving into a new country. Hope this is informative to get some thought process running and provide hints to start your own research.

Remember investing isn’t a race to become a millionaire overnight but rather a Marathon to achieve financial freedom, it will be boring, and slow growth but you got to be steady, keep moving and focus on the end goal.

Happy Investing… 💰