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I won: The Veterans Administration and Me

by Jeffersonian Democrat Wed Mar 24th, 2010 at 07:05:54 AM EST

On February 24th, a judge at The board of veterans appeals (BVA) adjudicated in my favor.  Based off of medical evidence, she granted me service connection for PTSD as a combat veteran.  Severe Depression and Anxiety Disorder was remanded to the VA to determine if it was separate from or, as my psychological exam states, secondary to the PTSD.

I have a feeling that another exam is coming.

But this leaves me with a financial problem


I will receive, within the next three months, a back pay of between 70k and 200k euro (I might even be able to afford the next ET meet-up, YAY!, I've never been to Paris!), depending on the disability rating the VA awards me and the actual effective date which can be from 2002 or from  1998 as my attorney is trying to get.  This is after the 30% of my award is shaved off for my attorney fees.

Now I have a small problem.  I am already 60% disabled according to the VA.  My check is direct deposited into my Sparkasse account here in Germany where I live.  They will deposit my back pay into my Sparkasse account and it will automatically be converted into euro from the US Treasury.

However, I understand that only 20k euro is covered by the German equivalent of the FDIC, deposit insurance.

I don't know where to put the remaining funds for investment.

Of course I will spend a little to get out of the Gästehaus I live in and rent a small apartment, buy furniture and be a good little "Ikea boy."

But I don't know where to put the remainder.  I want to protect whatever I receive and I want to do that through investments.

Please note, I am not asking for investment advice.  Rather, I just do not know what investment vehicles are available for me in Europe.  I read a comment here not too long ago about the Sparkasse in Germany selling MBS to old grannies on a pension and them losing everything.  I want to avoid that at all costs.

So I am asking for suggestions to bring up to my financial advisor about investments in Europe.  A list of things to present with her so that I am not totally clueless, especially in the midst of a financial meltdown.

If anyone has any suggestions, I really appreciate it.  Again, I am not asking for financial advice over the internet but rather suggestions to bring up with my financial advisor when consulting with her.

Thanks in advance,

JeffDem

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However, I understand that only 20k euro is covered by the German equivalent of the FDIC,

That didn't sound right, so I checked Wikipedia which says

Germany   

EUR 50,000 (*)   

(coverage) 90%

(Valid since) July 2009   

Additional voluntary guarantee schemes run by different banking associations (private banks, cooperative banks, savings banks). An unlimited state guarantee was announced in October 2008 (and extended in July 2009), if one of those schemes failed. The legal details are nevertheless unclear.

So maybe 20.000 is covered 100% and anything above that only 90%?
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 24th, 2010 at 07:12:03 AM EST
After the 2008 failure of Lehman Brothers, the EU increased deposit insurance from €20k to €50k with member states having the option to increase their own insurance to €100k.

Northern Rock suffered a run in 2007 because the UK had an inadequate deposit insurance scheme which only covered 100% of the first £2k GBP, and 90% of the rest up to a total of £35k insured. People were, unsurprisingly, not reassured by the 90% recovery rate. See this WSJ blog post.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 07:22:28 AM EST
[ Parent ]
That's only what I've heard through hearsay, I am not yet sure if that is the case.  But 50k still leaves me with more to protect, at the very least 20k euro.  I am not sure where to park that.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"
by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 07:26:41 AM EST
[ Parent ]
Well, the first option, as I understand it is that you can split your money between accounts at two different banks. Just make sure that the two brands are not difference faces of the same bank.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 24th, 2010 at 07:30:36 AM EST
[ Parent ]
A friend of mine who has a property in France and a reasonable € deposit account in France moved most of his € balance to Norwegian Krone last year (at my suggestion),and got a better rate, plus a 10% currency gain so far.

Of course, NOK/€ could equally go the other way, but I see NOK as oe of the soundesr currencies there is for the next 10 to 20 years at least, being energy backed, and a reasonably competently managed economy.

Or alternatively there's Norway's Statoil, which pays a decent dividend on its shares, actually takes a long term view to investment, and IMHO has a floor on the share price, because the government tends to buy the shares (they are majority owners) if the price drops.

Worth  thinking about if you wish to diversify your € risk. In my view the € is not sustainable as a currency in the long term without a fiscal integration which was always going to be difficult, and which I cannot now see happening.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 24th, 2010 at 10:09:18 AM EST
[ Parent ]
See also: Bank deposit insurance in Germany (econoblog101, September 2008)
The Einlagensicherungsfonds is the German bank deposit insurance scheme maintained by the Bankenverband. The statutes are quite interesting. §6 (10) on p.12 concerns ordinary clients of failed banks in Germany, like those of Lehman Brothers in Germany:
10. Ein Rechtsanspruch auf ein Eingreifen oder auf Leistungen des Einlagensicherungsfonds besteht nicht.
This says there is no legal title on the bank deposit insurance. This has always seemed to be a minor point, since German banks have been safe and secure places in the last 50 years. But, with the US banking system failing, should we reevaluate this minor point?


The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 07:50:06 AM EST
[ Parent ]
I understand that only 20k euro is covered by the German equivalent of the FDIC, deposit insurance

Apart from the fact that the EU deposit insurance covers at least €50k, this is generally per institution. So you could split your savings among several banking institutions not part of the same bank holding corporation and each portion would be covered separately. The rules are in the Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes. Make sure you get a consolidated version which includes the changes approved at the end of 2008.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 07:29:03 AM EST
So, it may be wise to have savings accounts with Sparkasse, Deutsche Bank, and Commernzbank?  Split the sum up between between the three or four largest banks in Germany.

I'm just afraid of their exposure to eastern and southern Europe.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 07:50:58 AM EST
[ Parent ]
As long as all the banking groups don't fail together...

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 07:58:42 AM EST
[ Parent ]
I want to protect whatever I receive and I want to do that through investments.

IMHO anything that involves the secondary securities markets is speculation, not investment. If you want to invest, capitalize some entity by providing seed capital, taking part in an IPO, or buying bonds at issue. Your moral mileage may vary.


The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 07:35:26 AM EST
I want to protect whatever I receive

Against which risks do you want protection?

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 07:38:49 AM EST
Well, to protect my lump sum which will be the last lump sum in my life.  Maybe one day to have enough to buy my own apartment or house.

The thing is that I may be pretty savvy on investment vehicles in the US, but in Europe I am pretty clueless.  I was actually thinking of investing with Jerome and his new firm.

I just want to protect what I have and maybe use it to make more.  I was thinking German Bunds, since Germany is one of the last men standing in the crises.  But I don't know for sure.

That is why I would like a list of things to present and talk about with my financial advisor.  I just don't trust financial advisors to make the right choices for me in this day and age.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 07:59:15 AM EST
[ Parent ]
Well after yesterday, German financial advisors are probably advertising for bodyguards....

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Mar 24th, 2010 at 08:02:50 AM EST
[ Parent ]
.
With your financial "problem!"

In The Netherlands, the savings deposits are insured 100% up to €100k.
I have chosen the Rabobank for my account, (AAA) triple A credit rated bank

"But I will not let myself be reduced to silence."

by Oui on Wed Mar 24th, 2010 at 08:14:57 AM EST
[ Parent ]
You keep not answering the question of against what you want to protect your lump sum. You sound like you're actually chasing returns but couching it in "protection" language.
I was actually thinking of investing with Jerome and his new firm.
Now there's an idea...

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 08:24:48 AM EST
[ Parent ]
of my own financial illiteracy.

Yea, I have no clue what to do with funds that I may be  awarded with.  Therefore I am seeking suggestions to bring up with my financial advisor.

So against what I have no idea.  I just do not want to lose what I have.  Like I said, I have no clue what to do with the money but I have heard that it is bad to leave in in a savings account.  I have read "Gold Bitches" on the Zero Hedge website, but I have no place to store it.

Certainly I am using personal protectionist language, as I want to protect myself.  I will have this check for the rest of my life but if the dollar becomes worthless, I am in a world of hurt.

Jerome's new venture seems to me as a new and lucrative investment opportunity.  But I really don't know.  Maybe I will risk it as it maybe better than leaving savings in a savings account.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 08:54:04 AM EST
[ Parent ]
I have no clue what to do with the money but I have heard that it is bad to leave in in a savings account

You have heard from whom that it is bad how?

This is like how I hear all the time that renting is throwing away your money and you should own your home. If I had listened to the clamour of the Beotians and taken a mortgage on a London home in 2006 I'd be in a world of pain right now.

if the dollar becomes worthless, I am in a world of hurt

You live in Europe now, and you say the VA will put the money into a Euro account in a German bank, so what do you care what happens to the dollar once you get the money?

I am seeking suggestions to bring up with my financial advisor

My suggestion is don't talk to a financial advisor. And if you do, don't put your money into any product you cannot figure out (yeah, I mean doing the math and reading the legal small print) for yourself. I suspect if you follow the second part of the advice, meeting with the advisor is a waste of time.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 09:15:03 AM EST
[ Parent ]
You live in Europe now

He may have other sources of income: Social Security, pension, 401k etc that are impossible, or very expensive, to move to Euro accounts.

by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 24th, 2010 at 09:29:39 AM EST
[ Parent ]
We're not being told that. We're only being told about a € lump sum to be "protected" - JD broached the issue of deposit insurance to "protect" the lum sum against one clear danger. Maybe we're not getting the full picture but then again, we're not financial advisors nor are we being asked for investment advice.

The financial advisor will do the following: they will ask about current income, age, assets and desired post-retirement income and will advise on a pension plan made of an initial lump sum plus periodic contributions out of income. If any money is left over they will advise on how to increase the capital. They will do a standard "so much percent into government securities, so much percent into corporate debt, so much percent into equities" and so forth with a "low/medium/high" risk-profile adjusted for age and proximity of retirement and will offer a collection of managed funds with various advertised risk/asset profiles.

In other words, a load of hogwash.

Since we haven't heard anything specific to protect against other than insolvency of the custodians of JD's assets, and suitable discussion of deposit insurance has been had...

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 09:40:29 AM EST
[ Parent ]
I am currently rated 60%, which is

Veteran Alone    $974

With this new rating I am looking at lifetime payments (as long as the US Treasury is solvent) of:

                                   70%        80%           90%        100$%
Veteran Alone    $1,228    $1,427    $1,604    $2,673

Lifetime monthly payments


"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 02:37:27 PM EST
[ Parent ]
No 401k.  Social Security Disability is being determined with the courts and my attorney at the moment.  That is another, at least 40lk since my claim is from 2005.  But I am not including that in my award at this time.  The VA decision certainly helps with the SSA With the VA decision, SSDI is looking more promising.

There is also the possibility, because of the tax treaties, that once I receive my Niederlassung, permanent residence permit here in Germany, that my years of contributing to SSA will count for German retirement insurance.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 09:54:08 AM EST
[ Parent ]
My understanding of the latter point is that the tax treaties mean that time spent working in either country contributes to the minimum amount of time you need to qualify, but that you actually get paid from both countries in a way that is related to how much you paid in each (and, I'm afraid, in the appropriate currencies as well).
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Mar 24th, 2010 at 10:17:22 AM EST
[ Parent ]
I understand that the inflation does not keep up with the savings rate of a savings account.  Therefore savings accounts are bad.

Your advice not to listen to any financial adivsor is sound.  I can understand Goethe and Schiller and poetry.  But when it comes to bureauratic and legal German, it's all Greek to me.  It is hard to understand.

So I am like a child, I am like a pensioner with money to take - a fool with their money is soon parted!

I just do not wish to be a fool

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Wed Mar 24th, 2010 at 09:40:50 AM EST
[ Parent ]
I understand that the inflation does not keep up with the savings rate of a savings account.  Therefore savings accounts are bad.

It is possible that this is not the case right now. Banks are still starved of cash, if you can believe it, to beef up their "core capital". So it is possible that certain deposit or money market accounts (even some checking accounts) pay high interest rates. In addition, right now we're experiencing deflation.

I am like a child, I am like a pensioner with money to take

Widows and orphans have no place in the financial casino. So we regulate mutual funds in order to make them "safe" for widows and orphans. But in making them "safe" we make them slow and vulnerable to nimbler market players so they are just like the proverbial widows and orphans. So the widows and orphans lose their money in the casino anyway. So, the moral of the story is: if you're not safe by yourself in the casino, don't give your money to someone else to play in the casino for you.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Wed Mar 24th, 2010 at 09:49:24 AM EST
[ Parent ]
Re: Gold

Uh ... don't.

There are way too many players in that commodity market with a bee in their bonnet (Gold Bugs) and way too many sharks, with or without laser beams on their heads.  

 

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Mar 24th, 2010 at 01:44:28 PM EST
[ Parent ]
Just remember that in Germany, custodianship of securities is customary, rather than delivering the actual certificates to the holders. Banks charge a fee for this "service". However...

I was thinking German Bunds,

The government offers custodianship free of charge for its papers (something the banks won't mention) if you decide to go that root.

Info

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Wed Mar 24th, 2010 at 05:30:31 PM EST
[ Parent ]
Mig has asked you against what risks do you wish to protect. Perhaps you need to consider the various categories of risk. I am no expert, but several that are relevant to you spring to mind. There is institution risk--the danger that the institutions with which you place your money will fail; there is currency risk--the risk that the currency in which your income is denominated will drop in value and the risk that the currency in which you pay your bills will rise in value; and there is asset risk which would affect you were you to put some of your money into property or buy a business or stocks. Companies can go bankrupt and small businesses can fail for reasons beyond the control of the owner. If you want to buy to rent out, there is the risk that renters will trash your property. If you purchase a home you can live in you will have that use value at least, and in the event of inflation or a real estate bubble in the economy in which you reside you are protected and/or can take advantage of the run up by selling and moving some place cheap, as I did when selling in LA in 2005 and moving to Arkansas.

A standard way of hedging risks is to diversify. If you buy government bonds and hold them to maturity you face the risk of inflation in the currency in which they are denominated and the risk of sovereign default. The returns on Bunds are not very appetizing just now but that might change. They would have the advantage of being denominated in a currency in which you have expenses. I liked Chris's suggestion about Norwegian investments. You might check out one of his fairly recent diaries to see why. Norway is an oil and gas producing country with a sovereign wealth fund. And it would diversify your currency risk.

The world economy seems very unstable now and I am mostly in cash. I agree with Mig that the general situation is deflationary, but I fear that attempts to stave off deflation could result in bungling into inflation. It is hard to protect against both at the same time.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 24th, 2010 at 09:36:34 PM EST
And congratulations on winning your case. I am sure you would prefer not to have had the damage, but given that you did, it is good that you are being compensated. I was not previously aware of your situation in this regard.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 24th, 2010 at 09:41:11 PM EST
[ Parent ]
Perhaps you need to consider the various categories of risk. I am no expert, but several that are relevant to you spring to mind.

See my diary on Risk risk.

I'm reading Fabozzi's Bond Markets, Analysis, and Strategies. In it, there's the following list of sources of risk for bond holders:
Bonds may expose an investor to one or more of the following risks: (1) interest-rate risk, (2) reinvestment risk, (3) call risk, (4) credit risk, (5) inflation risk, (6) exchange-rate risk, (7) liquidity risk, (8) volatility risk, and (9) risk risk.
Risk risk? WTF is that? A typo?

A standard way of hedging risks is to diversify.

But systemic risk is not diversifiable.

The question is, what does JD want to do with his money? It appears that one answer might be to turn it into an annuity, and protect that annuity against inflation. But he also wants to buy a house or find other profitable uses for the money to make it "grow". But if you don't know what you want the money for, why do you want to make it "grow"? To have a bigger pot you don't know what to do for?

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu Mar 25th, 2010 at 05:25:38 AM EST
[ Parent ]
Something which is very important to consider is the timeframe. When do you actually need the money? For how long can you leave it untouched?

Given your situation I'd put the vast majority of the money in a bank account or a really cheap money market fund, a certain fraction in blue chip corporate bonds, and an even smaller fraction in shares of stable conservative "boring" companies with a pretty predictable income stream. Like a shipping company with all its ships on multi-year fixed price contracts and the customers having a low counterpary risk, or a utility in a regulated environment, a mining company with fixed price deliveries, and so on.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Mar 25th, 2010 at 08:58:38 AM EST
[ Parent ]
Throw in a basket of sovereign debt for good measure.

But basically, to follow your advice means to stay clear of financial advisors and managed funds and to manage your own portfolio.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu Mar 25th, 2010 at 10:40:20 AM EST
[ Parent ]
In 99 % of all cases, financial advisors are salesmen. They work for a bank or a fund and sell their own products to naive trusting customers who believe the bank is some kind of nice utility, doing what's best for the customer. It's like asking Harry at Honest Harry's Used Cars for "advice" on which used car to buy.

Actually, I've visited one of these 1 % of independent investment advisors, who taught me a lot of good basic stuff. I spent maybe 10 hours with him, and in the end he decided to waive my fee if I promised to keep him up to date on peak oil and stuff.

Still, I wouldn't diss all mutual funds. I have some money in one fund, which actually manages to beat its index (MSCI World) year after year after year. Further, the basic fee is not horrendous; 1 %, and it can rise to as much as 2 % if and only if the manager beats his index by a considerable amount.

I tend not to give out investment advice, especially not online, do your own due diligence, etc etc, but if someone for any reason want to put money in a fund, this is one of the best.

Still, I want to elaborate that in a portfolio as conservative as what I suppose JD wants, shares and share funds should only be a small fraction of the total capital.

Anyway, here it is.

https:/www.skagenfunds.com/Funds-and-prices/SKAGEN-Global

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Mar 25th, 2010 at 04:04:58 PM EST
[ Parent ]
Skagen know their business.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Mar 25th, 2010 at 07:49:55 PM EST
[ Parent ]
Thanks Starvid.  Thanks everyone for the input, infact.

Yes, I'm am not particularly looking for investment advice per se, but rather a list of things that I can bring with me to a meeting with an advisor and ask "what about these vehicles for investment, what's your take?" instead of being at the mercy of a salesman who wants me to invest in American mortgage backed securities.

But I thank every one for their input and think I've gained some ideas to bring to the table as well.

Thanks all

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Sat Mar 27th, 2010 at 08:41:29 AM EST
[ Parent ]
Congratulations, JeffDem. This has been a long slog, as I remember reading early comments from you several years ago. So I'm very happy for you.
by Mnemosyne on Thu Mar 25th, 2010 at 09:13:56 PM EST


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