Q&A
I have now X DKK, what should I do with it?
Whether you've saved up a lot of money, inherited it, or come into it in some other way, it's important to handle it carefully. Take your time to adjust to your new financial situation and make decisions calmly and thoughtfully.
First, put the money in a bank account where it's safe. Then, forget about it and take time to plan your next steps. Spend enough time getting used to having the money and doing your research. Use resources like this wiki and talk to people you trust.
If you don't trust banks, remember that most home insurance policies only cover up to 25,000 DKK in cash if it's stolen. So, it's probably safer to keep it in a bank.
While you're figuring things out, don't touch the money. Avoid buying things, telling people about your money, or start investing in whatever catches your eye, thinking you are going to be the next Warren Buffett! Be patient and make well-thought-out decisions.
Where to safely store large sums of money?
As mentioned in 9. Insurances, if you have more than 100.000 EUR / 750.000 DKK, it's a good idea to split it and store it in multiple institutions to make most out of the Garantieformuen insurance. For example, you can use banks like Bank Norwegian and Lunar, which offer free accounts.
I've just seen lots of hypes about a Stock online, and it increased massively within the last 24h - if I'm not buying now, then it's too late?!
If you’re hearing about a hyped stock for the first time through online communities, like Reddit, it’s a guarantee that you are too late to ride any possible “wave”. These stocks are also commonly known as "meme stock", since they have no real tangible value or reason for their massive increase, except thousand of users blindly jumping on a train in hope of getting rich quick, or even just bots spamming. Weak hearted investors are pushed into investments out of fear of missing out the next GameStop (GME) or DogeCoin (Cryptocurrency) which have risen from mere cents to several (hundreds) dollars, yielding an increase of several thousand percent. The low prices of these stocks makes it even harder to resist buying into.
However, as time has proven over and over again, the majority of people overwhelmingly lost money on their investments. Heck, "Bed Bath & Beyond Inc." (BBBY), a once hyped stock, went bankrupt and no longer exists as a company. Do not use them as a source of financial advice.
Commonly, if you have a closer look at the hyping posts, most lack substance and just repeat hype and clichés. This is a clear sign they aren't worth taking seriously. If they had a real reason to believe these stocks were a good investment, wouldn't they say so?
Invest a Large Sum All at Once, or Over a Period of Months?
Investing a large amount of money all at one time, known as a "Lump Sum" investment, can be intimidating. What if the market drops by 5% the next day? Financial markets fluctuate, so it is often difficult to choose the best time to invest.
You might find it more comfortable to invest a set amount regularly over a period of time, no matter what the market is doing. This method, called "Dollar Cost Averaging," helps reduce the impact of short-term market changes by spreading out the cost of your investments. By buying over a period of time, you are purchasing stocks at the average price over the period, instead of one specific point at the start of that time period. This protects you from the stress of a big market drop right after you invest.
However, if the market goes up for a long time, you might miss out on some potential gains you would get with a Lump Sum investment. Despite this, Dollar Cost Averaging is a safer approach that might help you sleep easy at night. Statistically, you are more likely to get a higher return with a lump sum investment.
Why can't we buy some S&P 500 ETFs like Vanguards VOO?
As a retail investor (little fishes like you and me), we can't buy certain products, such as the Vanguard S&P 500 ETF with the ticker symbol VOO, which is a highly recommended ETF in U.S. investment communities..
The reason is that the European Union requires a Key Information Document (KID) in the local language. This document provides a summary of information to help investors understand the nature and risks of the ETF or stock. Since there is no KID for the Vanguard S&P 500 ETF (VOO), you can't trade it in the EU without hurdles.
Some banks bypass this requirement by asking you to confirm that you understand what you're doing. For instance, SAXO requires you to take a test before allowing you to trade such products.
Stock Names: A, B, C, D, ..., X, Y, Z? What do they mean?
When companies or Mutual Funds issue shares, they often create different types, called share classes, where each letter represents a different class. Each class comes with its own set of voting rights, perks for shareholders, like dividend access and for Mutual Funds different entry/exit or annual management fees.
For example, Google's share structure includes three classes of Stocks: Class A, Class B, and Class C. Class A shares typically have one vote per share and are held by regular investors. Class B shares, primarily owned by the founders, carry higher voting power with 10 votes per share. Class C shares, usually held by employees, have no voting rights. This structure allows the founders to maintain control over major business decisions.
With Stocks: there's no universal rulebook dictating what each class must offer. One company's class B shares may give different rights than a different company's.
With Mutual Funds, share classes are more standardized. Different classes might have different fees and costs associated with them, but these definitions are consistent across different mutual funds. You can find those definitions here.
For ETFs and Danish Investment Funds, share classes don’t really apply. They don’t offer voting rights, and the fees are the same for everyone, so there’s no need for different classes.
Further improving taxes with "Tax Harvesting"?
You can sell investments for many reasons, like getting money for a new car or because you lost interest in a Stock. But with tax harvesting, you sell investments to lower the taxes you pay on profits.
Tax harvesting means selling investments to realize either a loss or a profit, whichever reduces the most tax payments. This is especially useful in a progressive tax system like Denmark's. However, tax harvesting can only be effectively applied to Stocks, Mutual Funds, and Danish Investment Funds — investments where you can decide when to sell and realize a loss or profit, which lets you control in which year taxes will be applied. In short, Securities that are taxed following the realization principle (Dk: Relaisationsprincippet). Losses can be forwarded to the next year if there has not been enough profits to cancel it out.
If you want to keep the investment, you can buy it again shortly after selling it. This resets the value basis, which is the amount your future tax will be calculated on. This procedure is called a Wash Sale.
Wash Sale
A wash sale happens when you sell an asset (whether at a loss or profit) to reduce taxes but buy it back soon after, if you do not want to miss out on any possible future profits. In the USA, you have to wait 30 days to repurchase the asset; otherwise, you can’t claim the tax benefits. This can be risky because the asset’s value might change a lot in 30 days.
Luckily, in Denmark, the tax authority SKAT is more lenient. According to SKAT:
A share sale followed by a buyback is recognized for tax purposes as a sale and buyback if, in the intervening period, there has been a real possibility of price fluctuations.
Source: C.B.2.1.4.10 Salg og tilbagekøb
Basically, you can buy the asset back after its value changes by just a few cents, but it’s best to wait at least one day.
Sure, you will have to pay all the broker and currency exchange fees for selling and re-buying, but they're considerably lower than the additional taxes you pay otherwise.
Note: Do not confuse with "Wash Trading"
Wash trading is when someone buys and sells the same Security repeatedly to create false activity and misleading information about its price or volume. This practice is illegal because it manipulates the market, making it appear more active and valuable than it actually is. Wash sale is not to be confused with Wash Trading.
Tax-Gain Harvesting
Tax-gain harvesting means selling a part of a good-performing investment to stay under the 61.000 DKK (80.000 DKK starting in 2025) profit limit and avoid higher taxes.
For example, if an investment is up by 90.000 DKK, you can sell 60.000 DKK and buy it back immediately using the wash sale method. This year, you’ll be taxed 27% on the 60.000 DKK profit. Next year, you’ll pay 27% on the remaining 20.000 DKK, plus or minus any new gains or losses from that year.
Here’s a comparison of taxes without and with tax-gain harvesting:
Without Tax-Gain Harvesting:
| Date Sold | Realized Profits | Paid taxes at 27% ( < 61.000 DKK) | Paid taxes at 42% ( > 61.000 DKK) |
|---|---|---|---|
| December 2022 | 0 DKK | 0 DKK | 0 DKK |
| December 2023 | 90.000 DKK | 16.470 DKK | 12.180 DKK |
| Total | 90.000 | 16.470 DKK | 12.180 DKK |
Total taxes paid: 28.650 DKK
With Tax-Gain Harvesting:
| Date Sold | Realized Profits | Paid taxes at 27% ( < 61.000 DKK) | Paid taxes at 42% ( > 61.000 DKK) |
|---|---|---|---|
| December 2022 | 60.000 DKK | 16.200 DKK | 0 DKK |
| December 2023 | 30.000 DKK | 8.100 DKK | 0 DKK |
| Total | 90.000 | 24.300 DKK | 0 DKK |
Total taxes paid: 24.300 DKK (4350 DKK less!)
Tax-Loss Harvesting
If you have investments that are losing money, you can sell them to create a loss, which can offset profits this year or next year, called Tax-Loss Harvesting. If you don’t want to lose the future potential gains of the investment, you can buy it back right away using the Wash Sale method.
For example, if you sell an investment (Stock A) for a profit of 90.000 DKK but have another investment (Stock B) that’s down by 30.000 DKK, you can sell 20.000 DKK of Stock B to offset the profit from Stock A. This means you’ll only be taxed on 60.000 DKK, while still having the 90.000 DKK profit. You can then buy back Stock B, resetting those losses using the wash sale method.
By using tax-loss harvesting, you reduce your net profits, possibly keeping your investment income under the higher tax rate and saving money on taxes.
Any further resources that you can recommend?
Check out the r/dkfinance community on Reddit for helpful posts. Additionally, these websites have some good articles too: