How to Buy ETFs in Germany – A Beginners Guide (2024)

You want to know How to Buy ETFs in Germany? But every time you begin searching online for guidance on how to get started, you’re bombarded with an overwhelming amount of information about buying stocks.

Articles mention company Revenues, earnings per share, EBITA, and news about large companies going bankrupt. This often stops you from looking further. But worry not! In this article, I will show you exactly How to buy ETFs in Germany and easily invest in the stock market as a Foreigner in Germany.

What are ETFs and How do they work?

ETFs, or Exchange-Traded Funds are investment funds that are traded on stock exchanges just like individual stocks. They are designed to track the performance of a specific index.

For example the S&P500 Index tracks the 500 largest publicly traded companies in the United States. If you invest in an ETF that tracks the S&P 500, that ETF will buy shares of those 500 companies. As the value of those companies goes up or down, the ETF’s value will also change in the same way.

What this means is that when you buy 1 share of the S&P500 ETF you are essentially buying very small portions of 500 of the largest Companies in the United States. Remember that you can Invest in companies throughout the world as Long as they are available in the Investing app or Broker you are using.

Related Guides: Best Investing App in Germany – Scalable Capital VS Trade Republic

Difference between ETFs and Index Funds

The terms “index funds” and “ETFs” are often used interchangeably, but there is a difference between them. While a fund can track an index without being exchange-traded, an ETF specifically refers to an exchange-traded fund.

This means that an index fund can be an ETF or a Mutual Fund. Mutual funds can only be obtained directly from the fund company, and its price is determined once per trading day. While ETFs are available on the Stock market and you can buy or sell them any time while the stock market is open.

Types of ETFs in Germany

When people talk about ETFs in Germany, they usually refer to stock ETFs. However, there are also other types of ETFs that serve different purposes.

For example, there are bond ETFs and money market ETFs. There are also ETFs related to raw materials or those that combine various types of securities.

In this guide, I will be using the terms “ETFs” and “index funds” interchangeably to refer to Exchange Traded Funds.

Why invest using ETFs in Germany

The goal of an ETF is to match the performance of the index it is tracking. It doesn’t try to outsmart the majority of investors by picking specific stocks. Instead, it simply aims to follow the index and achieve the same returns as the index.

By investing in an ETF, you can easily and affordably participate in the ups and downs of the market while being a Foreigner in Germany , just like the majority of investors.

The companies included in an index are reviewed several times a year. If the composition of the index changes, the ETF also adjusts its holdings accordingly. This way, the ETF stays in line with the latest developments in the market.

You can also invest in companies from the USA, China, Germany and other parts of the world as well.

Low Fees and Improved Performance

You see, instead of having a fund manager who handpicks individual stocks (which can be expensive), ETFs simply follow indexes or specific sectors. And this strategy comes with some fantastic benefits.

First, investing using ETFs in Germany is much cheaper compared to active funds. You don’t have to worry about paying hefty commissions when you buy or sell ETFs.

In fact, in most cases, the ongoing costs of ETFs can be lower than one-tenth of what you’d pay for active funds. That means more of your hard-earned money stays in your pocket from the very beginning.

So, not only do ETFs save you money, but they also allow you to keep more of the actual performance of the investments. With lower costs and fees, you have a better chance of maximizing your returns.

What are the different types of ETFs?

Index funds or ETFs have different approaches when it comes to replicating a stock index. There are two main types of ETFs, each with its own characteristics.

  1. Physical ETFs: These ETFs simply buy the stocks that are part of the index. They are popular among investors because they are transparent and easy to understand. Investors always know which securities they are investing in, although sometimes the ETF may hold an optimized selection of stocks instead of all of them.
  2. Synthetic ETFs: Instead of buying individual shares, the ETF provider can guarantee the desired performance through an agreement with a bank. In return, the bank receives a basket of well-known stocks from the ETF provider. This arrangement can be cost-effective for both parties involved.

Additionally, ETFs can be categorized based on how they handle dividends:

  1. Distributing ETFs: When a company earns profits, it distributes them as dividends to its shareholders. In the case of ETFs, these dividends are first received by the fund and then passed on to investors. This distribution reduces the value of the fund but gives investors the flexibility to use the dividends as they wish, such as taking advantage of their savings allowance.
  2. Reinvesting ETFs: Alternatively, an ETF can reinvest the dividends into the fund itself. These are known as accumulating ETFs and are suitable for long-term investors aiming to build wealth over time. The reinvested dividends, along with positive performance, can compound over time, similar to the effect of compound interest.

These different types and approaches provide investors with choices to align their investment preferences and goals with the ETF that suits them best. But

What are the BEST ETFs in Germany?

This statement is very subjective, as the best ETF can change depending on your goals. For example if you want to invest in only those companies that provide dividends then probably SCHD is the Best ETF. With its appoximately 3% dividend yield and 0.06% expense ratio.

On the other hand if you only want to invest in IT companies, then the S&P500 IT sector ETF could be the Best ETF for you.

That being said the Best ETFs in Germany in my opinion are

  1. MSCI World ETF : This ETF consists of 1500 companies from developed countries.
  2. MSCI Emerging Markets ETF : This ETF consists of 1300 companies from Emerging Markets.
  3. S&P500 ETF : This ETF tracks 500 of the Biggest Companies in the US.

Now when you search for these ETFs on your Investing app in Germany, you will come across a lot of ETFs having similar names from various providers.

Scalable Capital is my Favorite Investing App as I think it has the best options for Expats in Germany

Who is behind the ETFs?

ETFs are usually launched by banks and special fund companies. In Europe the Largest ETFs are from iShares , which belongs to the US asset manager Blackrock. There are also ETFs by Amundi from French Crédit Agricole , Xtrackers which is majorly owned by Deutsche bank and Invesco from HSBC bank.

How to Select ETFs in Germany?

There are a few factors that you should consider when Selecting an ETF in Germany to invest in

Age of the ETF

The most important factors when you are searching for a suitable ETF in Germany is the age of the ETF. How long has this ETF been available on the Stock market? Any ETF that younger than 5 years or has less than 100 Million Euros in Investor money shouldnt be selected.

The age of the ETF helps us figure out its performance and see if the ETF has actually matched the performance of the underlying index.

A certain investment volume is also necessary in order not to risk the ETF provider taking the index fund off the market because it is not worth it.

Total Expense Ratio (TER)

Another Important Factor is the Running costs or Total Expense Ratio (TER). Even though ETFs are passively managed there are still some costs associated with them.

Ignoring these cost can definitely cut into your profits because even a 0.1% fee difference can make a huge difference in the long run.

For example the MSCI World ETF from Ishares has a TER of 0.2% while the MSCI World etf from Amundi has annual costs of 0.12%

In the end, what matters is that the ETF, after costs, comes close to the performance of the index it is tracking.

ishares sp500 Information technology etf
Blackrock IShares ETFs in Germany (source: ishares website)

Where and how can buy ETFs in Germany?

If you want to buy ETFs you don’t have to go to a bank or contact a broker. You can save yourself the fees that banks often charge for securities accounts. Instead, open a free online investment account with an online broker.

I recommend opening an account with Scalable Capital where you can buy and sell ETFs very cheaply.

The account opening process is Very easy, you can follow my tutorial to Signup with Scalable Capital by following the simple steps. Once the registration is complete you will have to verify your Identity. This process can be done completely online in most cases.

Buying ETFs made easy

Once you have registered with an Investing app and figured out which ETF you want to invest in. All you have to do is search for it. Simply go in the Find option of your investing app and Search for it. You can do so by writing the name , ISIN or the WKN.

You will get multiple ETFs with the same name so make sure to check out the ISIN number. Find the details about the Fund manager and most importantly check out the Total Expense Ratio or the Costs.

You can also verify if this eft fulfils the requirements I mentioned earlier like is this ETF accumulating or Distributing , Synthetic or Physical and Since when has this ETF been running.

If you are satisfied with the Requirements you can buy it during market open hours or set up a savings plan. I have a detailed tutorial on Scalable Capital if you want to know more about how it works.

How much Money should I put in ETFs in Germany?

When it comes to how much amount you should put while investing in ETFs, you have choices. You can either invest a larger sum all at once . You can also opt for a more gradual approach by saving smaller amounts on a monthly or quarterly basis through an ETF savings plan. This is also called as Dollar Cost Averaging.

Here’s the key: It doesn’t really matter when you start saving; what truly matters is that you stay committed to your investment in the long term. Whether you begin today or later, the important thing is to keep investing regularly and let your money grow over time.

However, things get interesting when it comes to the time of exit or Exactly

When sell ETFs in Germany?

Imagine you have a specific goal in mind, such as needing your ETF savings in ten years. It’s not wise to rely on the assumption that stock market prices will be high exactly at that time.

Instead, it’s advisable to gradually reduce your ETF assets by selling some of your ETF shares. This way, you can secure the gains you’ve made and protect your investment.

Once you’ve sold your ETF shares, you can consider parking the money in a current account or a savings account. This provides a safe place for your funds while you assess further investment options or prepare for your future financial needs.

Remember, investing is a journey that requires long-term commitment. While the timing of your exit is crucial, it’s equally important to stay consistent with your savings plan and make informed decisions based on your financial goals.

How safe is ETF Investing in Germany?

Here’s the important thing to know about funds, including ETFs. The money you invest in ETFs is considered special assets and is protected. So, no need to worry! Even if your ETF provider faces financial difficulties or goes bankrupt, your fund shares will still belong to you.

The law requires fund companies to keep their customers’ money separate from their own assets. They usually entrust this task to independent custodian banks. For example iShares use State Street Bank , while Invesco works with the Northern Trust.

This separation ensures that if the fund company goes bankrupt, your assets won’t be included in the bankruptcy estate or used to settle creditor claims. Instead, the custodian bank is responsible for managing the ETF, either permanently or until another ETF provider takes over the fund shares.

What happens if a Broker in Germany goes Bankrupt?

In the unlikely event that the custodian bank itself faces insolvency, the law mandates that the fund shares be transferred to another trustee who will serve as the new custodian. Rest assured, this situation should not put you at a disadvantage.

Similarly, if your online bank or broker where you hold your securities account encounters difficulties, there’s no need to panic. A trustee would step in to take over your portfolio and become your new point of contact.

Remember, the protection of your investments is a priority, and the law has safeguards in place to ensure the safety of your fund shares.

Now you know how to buy ETFs in Germany, you can follow my step by step guide on How to Start Investing as a Foreigner in Germany

This article contains Affiliate links. I may earn a commission if you use the link and make an account at no additional cost to you

Disclaimer: None of the content in this article is meant to be considered as investment advice. I am not a financial expert and am only sharing my experience with stock investing. The information is based on my own research and is only accurate at the time of posting this article. The information may not be accurate at the time you are reading it.

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