ETF review: €164,000 invested | 7% return per year
I have been working with ETFs for over a decade. In the beginning, I made a few mistakes that cost me a lot of time and money. But I learned from these experiences, improved my strategy and now generate a return of around 7% per year.
In this article, I will show you how I was able to almost triple my initial profits after optimising my mistakes.
In brief:
- With just two ETFs, I have generated an average return of 7% over the last three years.
- Stay away from action ETFs and hype ETFs
- ETFs score points above all for their low costs and easy access.
- Your investment strategy should be broadly diversified and designed for the long term. This will allow the securities to reach their full potential.
My ETF review: Why did I start investing?
Long before I gained my first experience with ETFs, I had made a well-considered decision. I had clear goals and a vision for my financial future: not only to invest my savings profitably, but also to build up my assets in the long term in a simple and cost-effective way!
I decided to save and invest my hard-earned money for several important reasons:
- Financial freedom: I wanted to be able to fulfil my every wish at any time without having to forego holidays, a nice car, a great house, etc.
- Private pension provision: My goal was to achieve financial security and provide for my retirement.
- Inflation: I realised that my money in my savings account was losing value every day. That’s why I wanted to invest my money in a way that not only offset inflation, but also generated real growth. My experience with ETFs shows that they can build up my assets in the long term and protect them from currency devaluation.
Why ETFs, of all things?
The main reason why ETFs are so attractive to me is the combination of simplicity and flexibility they offer. This makes them interesting even for beginners with no experience! I didn’t want to spend a lot of time researching and managing individual stocks, but rather invest in a broad range of assets in a direct and uncomplicated manner.
ETFs make this possible with just one click. At the same time, the costs are extremely low compared to traditional funds, which really pays off in the long term. What convinced me:
- Transparency: I always know which securities are being invested in and can easily find out for myself.
- Security: Broad diversification reduces the risk of total loss.
- Flexibility: Whether it’s a savings plan or a one-off investment, I can adjust, buy more or even sell an ETF and withdraw money at any time if necessary.
- Low costs: Compared to other investment products, ETF costs are very low. This means that more money remains in my portfolio to work for me.
- Historical returns on ETFs: After doing some research, I found that the MSCI World Index has generated an average return of around 8% per year since 1970. This corresponds to a total asset growth of 5,900% to date.
- Compound interest: The compound interest effect ensures that, with this rate of return, the assets double approximately every 10 years.
ETF review: These are the advantages and disadvantages of index funds
During my time as an investor, I have gained a lot of experience and learned about the advantages and disadvantages of ETFs. In this section, I would like to share my personal impressions with you and show you what I have learned along the way. This will give you a realistic insight into how ETFs really work in everyday life.
Advantage 1: Representation of interests through thematic ETFs
The broad diversification and the constant registration and listing of new ETFs is one of the strengths of this asset class.
Thematic ETFs focus strongly on a niche, sector or other areas of interest.
The selection ranges from crypto ETFs to water ETFs to cannabis ETFs and more! This means that even the smallest of topics is represented by an ETF, and you can invest in it. So if you are particularly knowledgeable about a topic, you can also use your knowledge when investing.
Advantage 2: Low costs
If you already have experience with ETFs and other asset classes, you know that exchange-traded funds boast low average costs! The TER (i.e. the ongoing charges ratio) is usually only 0.05% to 0.8% of the invested assets.
A glance at my ETF savings plan comparison also shows that many brokers offer ETF savings plans completely free of charge!
Advantage 3: High returns
At the same time, you can expect high returns. The average
Advantage 4: Liquidity and independence of ETFs
You can buy and sell ETFs whenever you want (during stock market opening hours). Compared to other investments, such as ETFs vs. funds, this is a huge advantage: even the best funds can only be traded once a day (and usually at high cost!), but ETFs can be traded as often as you like!
Advantage 5: Diversification of your portfolio
One characteristic of ETFs is their broad diversification across different stocks. Instead of investing in a single stock, you invest in a basket of different securities. This allows you to automatically diversify your portfolio with minimal effort. It also minimises your own risk, as you are less dependent on the performance of individual companies.
This stability makes ETFs ideal for retirement planning, but is also very appealing for short-term investments.
Disadvantage 1: Price fluctuations are inevitable with ETFs
Price fluctuations are common on the stock market. A decline in price is a typical
- In the long term, high-quality funds almost always recover, and you will make a profit.
- However, investing in ETFs in the short term could be dangerous! If prices fall, you would have to sell your investment at a loss.
Disadvantage 2: No voice
Unlike with traditional share purchases, ETFs do not give you voting rights in the company. As an investor, you participate in the performance of an index, but the fund company retains the right to have a say.
The trend towards sustainable investments means that ETF providers’ right to have a say is frequently exercised. The decisions made by fund providers are also often published.
My recommendation: Open an account with Freedom24
As a beginner, you need a securities account that is simple, inexpensive and versatile. This special account is necessary so that you can invest in ETFs and other securities.
Based on my experience with ETFs, I recommend Freedom24. Your main advantages as a client of this broker are:
- Wide selection of over 1 million tradable shares, ETFs, bonds and options.
- Access to 15 international stock exchanges in Europe, America and Asia.
- No minimum deposit required for trading.
- Low fees: order costs starting at €2 plus €0.02 per share, no custody account fees.
- User-friendly and mobile-friendly trading platform.
- Direct trading possible before the market opens, during the day or on a long-term basis.
- Integrated currency exchange and various order types such as stop loss or take profit.
- Free shares for new customers
Mistakes are also part of my ETF experience!
Over the years, I have gained extensive experience with ETFs, but I have also made many mistakes! If I had known that this was about long-term, well-considered wealth accumulation and not about making a quick buck, I could have avoided costly failures.
But it was precisely these experiences that helped me find my strategy and approach the market with realistic expectations and a healthy dose of patience.
- Speculation traps: Attempting to generate substantial profits through specialised small-cap ETFs often resulted in high volatility in my portfolio. My experience with ETFs has demonstrated the importance of not only focusing on trends, but also diversifying broadly.
- Distributing ETFs: ETFs are available as distributing or accumulating (“saving”) funds. Initially, I felt motivated by the regular dividend payments. However, from a tax perspective, such ETFs are often less efficient in Germany, especially if the money is not needed immediately.
- Hype and promotional ETFs: These are often heavily advertised or made attractive through new customer promotions. It is advisable to use such ETFs only with a small, manageable portion of your portfolio, as they are often less diversified and riskier.
1. Why speculation in ETF portfolios is usually not a good choice
I had the same experience as other ETF investors in my circle. I wanted to know better and beat the market. So I invested in speculative small caps through a savings plan.
At the time, I was optimistic that this approach would generate double-digit returns. But the result was quite different. An average return of just 4.4% per year. After tax and inflation, there is hardly anything left.
Trying to beat the market through speculation has not paid off. This often happens because people are driven by emotions such as euphoria or greed rather than rational decisions. In my opinion, calmness and long-term thinking are the better strategies for ETF portfolios.
2. Accumulating ETFs make more sense in the long term
My experience with ETFs shows that distributing ETFs can be very motivating at first, as they pay you regular dividends. You can spend this money directly or simply reinvest it. However, once the annual tax allowance of €1,000 per person has been used up, distributing ETFs have tax disadvantages.
- If investors exceed the allowance, all dividends from that point onwards are fully taxable (withholding tax, solidarity surcharge, church tax if applicable).
- However, you will only receive the dividend minus taxes. The rest will be transferred directly from your broker to the tax office.
- This means that you do not have the full amount working for you, and the compound interest effect will be lower than with accumulating ETFs, where you only pay tax when you sell.
- This is disadvantageous for you during the accumulation phase, as you can build up your assets more efficiently for tax purposes with accumulating ETFs because the compound interest is higher.
3. Be wary of supposed bargains: critically examine promotional and hype ETFs
A healthy dose of scepticism is particularly important when it comes to new and heavily advertised ETFs. Favourable conditions or exciting trends alone should not be enough to sway you as an investor.
There must be more reasons for the investment decision than just the price. My experience with ETF savings plans shows that, in the long term, quality and a broadly diversified portfolio are more important than short-term opportunities.
How to achieve long-term success with the right ETF strategy
My current ETF experience is based on a clear, sustainable strategy with a small number of well-chosen ETFs.
- Diversification: An allocation of approximately 50% to developed markets and 50% to emerging markets provides broad coverage of the global economy and minimises risk.
- Prefer accumulating ETFs: These ETFs are ideal, especially during asset accumulation, as they automatically reinvest dividends, thereby boosting growth.
- Adjust dividend strategies appropriately: In old age or when necessary, distributing ETFs are useful for generating regular income. However, this is usually the case after a longer savings phase with accumulating ETFs. You can then reallocate these as needed.
Why investing in industrialised and emerging countries makes sense
In my experience, ETFs on developed countries usually generate the lion’s share of returns, but emerging markets also offer attractive opportunities.
In addition, emerging markets include many well-known industrial companies, such as the world’s largest chip manufacturer in Taiwan: Taiwan Semiconductor Manufacturing Company (ISIN: ISINUS8740391003).
As a private investor with many years of experience, I believe that it makes the most sense for private individuals to invest globally, as the following chart shows.
The MSCI World could, for example, be covered by the iShares Core MSCI World UCITS ETF USD (Acc) (ISIN: IE00B4L5Y983) and the MSCI Emerging Markets by the iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc) (ISIN: IE00BKM4GZ66).
| ETF | ISIN | TER | Utilisation of earnings | Replication | Fund size | Performance over the last 5 years | Compound annual growth rate (CAGR) |
| iShares Core MSCI World UCITS ETF USD (Acc) | IE00B4L5Y983 | 0.2% per annum | Accumulative | Physical | €106.185 million | 88,32 % | 13,44 % |
| iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc) | IE00BKM4GZ66 | 0.18% per annum | Accumulative | Physical | €26,120 million | 37,75 % | 6,64 % |
The average annual growth rate (CAGR) for my 50/50 ETF portfolio is a weighted average of 10.04%. Of course, a different allocation, such as the classic 70/30 portfolio, is also possible.
Good to know:
The CAGR ratio is much more suitable as an annual performance indicator than simply dividing the total return by the number of years, because it more accurately represents the actual average annual growth over a period of time and takes the compound interest effect into account.
Let me show you my ETF portfolio: total value €164,000
Over the years, I have found that broadly diversified ETFs offer the best return opportunities. I have had the best experience with the global portfolio strategy! This approach has proven to be a strong foundation for sustainable wealth creation.
The following image gives you an insight into the development of my ETF portfolio over the last few years. You can clearly see how the value has risen steadily and how much discipline in saving and broad diversification have paid off. Today, my ETFs are worth just under €164,000.
The goal of many investors: a €1,000 ETF pension using the 4% rule
Many private investors dream of having an additional source of monthly income in retirement. For example, €1,000 as a passive ETF pension that has been saved and built up over many years.
The so-called 4% rule is one of the best-known model calculations in financial planning, especially in the private ETF community. The 4% rule is the result of a study on sustainable withdrawals from your securities account.
It states that you can withdraw approximately 4% of your saved assets each year without completely depleting your capital during an average-length retirement.
- The assumption behind this is that your ETF portfolio will grow by an average of 7% per year in the long term. Inflation and taxes will eat away at about half of this, leaving a net return of around 4%.
- If you want to withdraw €1,000 per month (€12,000 per year), you need ETF assets of around €300,000.
- The calculation formula is: €12,000 / 0.04 = €300,000
At first glance, the sum seems very high, but it is entirely achievable with a long-term strategy and disciplined ETF savings plans. This is especially true if you start early and invest regularly through a monthly ETF savings plan.
Good to know:
The 4% rule is a rule of thumb and serves primarily as a guideline. Depending on the stock market situation, taxes or standard of living, your actual withdrawal amount may sometimes be higher or lower.
Conclusion: How I invest through my ETF experience
Investing in ETFs is worthwhile in many ways. Their low costs, high returns and automatic diversification of your portfolio are particularly positive aspects.
I have many years of experience with ETFs and have made a few mistakes along the way. Today, I use a proven global portfolio:
- 50% of my investments go into a World ETF (in my case, the iShares Core MSCI World UCITS ETF USD (Acc), ISIN: IE00B4L5Y983).
- 50% is invested in emerging markets (through the iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc), ISIN: IE00BKM4GZ66
This simple ETF strategy may seem a little boring, but it has clearly proven itself for me: over the last five years, I have achieved a solid return of 7% per year! Today, my ETF portfolio is already worth €164,000. I will continue to stick to this strategy in the future.
Apart from a few minor setbacks, my experience with ETFs has been very positive so far. Exchange-traded funds are an important component of my portfolio!
Would you like to get started and gain your first experience with ETFs? Then take a look at my comprehensive ETF savings plan comparison! It shows you the best providers and helps you become a real ETF expert!
FAQ – Frequently asked questions about ETF experiences
