Money from shares: This is how investors draw cash from their securities account
Two to three net monthly salaries: That’s how much money you should have on hand for emergencies, according to a rule of thumb. Especially in recent years, when savings deposits often cost money instead of earning interest, every euro saved felt like money wasted. Many may have followed the advice to invest free funds instead of parking them interest-free. This advice does not actually extend to the nest egg. But: What to do when cash is needed – and all the savings are in a securities account? Three ways to draw liquidity from the portfolio.
1. Take profits
Some investment vehicles are used to park free funds. For example, short-term bonds or money market funds. If cash is needed, this is logically turned into money first. But what if the savings are in stocks and longer-dated bonds – or in corresponding funds or index funds (ETFs)?
One way is to look at which assets have performed best over a period of time, for example over the past three years. Despite the turbulence, many investments have performed well during this time, especially on the equity side. The MSCI World stock index has risen by more than 50 percent since March 2020. The picture for bonds and bond funds is significantly worse because of the turnaround in interest rates. Only a few sub-classes, such as inflation-linked bonds, post price gains over a three-year period.
Anyone who invests fairly widely in equities and did not start investing shortly before the start of the Ukraine war should have profits on paper. If cash is needed, these can be realized. However, even investors with cash needs should not sell their entire winning positions if possible. Instead, for example, only sell enough stocks or fund shares to restore the original weight of the position in the portfolio. Or just so many that the cash requirement is covered – if this is not too high. In short: better trim the depot winners than shave them completely.
Also read: Help, my portfolio is doing well!
Attention: When calculating the income, do not forget the taxes. 25 percent withholding tax is due on interest, dividends and income from the sale of securities, plus a 5.5 percent solidarity surcharge and, if applicable, church tax. Only fund shares that were purchased before the introduction of the withholding tax in 2009 can be sold partially tax-free. Special tax rules apply here.
For all newer investments there is at least the savings allowance. Since the beginning of 2023, it has been 1000 euros per year for singles; for couples assessed together, it totals 2,000 euros annually. Capital gains are tax-free up to this amount. The savings allowance can be divided between several accounts and custody accounts via exemption orders, for example, half can be allocated to a home savings contract and half to a securities account. Anyone who proceeds in this way and now wants to realize larger profits in the depot should adjust the corresponding exemption order and use the full savings allowance.
From Ebitda to US-GAAP: Codes that investors should know
United States Generally Accepted Accounting Principles, the accounting standard of the United States.
International Financial Reporting Standards. International accounting standard (applied in 144 countries). Mandatory in Germany since 2005 for the consolidated financial statements of all companies that have publicly listed bonds or shares.
commercial code. Still the accounting standard for the individual financial statements of all companies in Germany. The individual financial statements include fewer subsidiaries than the consolidated financial statements, but are the basis for assessing distributions such as dividends.
Goodwill is an asset item on the balance sheet that reflects the premium on the acquired assets of acquired companies
Earnings before taxes, interest, regular depreciation and special depreciation on acquired companies (goodwill). Fair-weather indicator that is not subject to any accounting standard. Calculated differently from company to company. It is also often cleaned up. Some meaningfulness in relation to debt (the lower the ratio between Ebitda and debt, the better off the company is).
Earnings before taxes, interest, regular depreciation. Also a good weather figure (see Ebitda).
Earnings before taxes and interest. Can serve as the operating result (operating result) if there are no extraordinary interest expenses or income. Here, too, companies are happy to clean up.
Earnings before taxes and after taxes result in the net profit (net income) as a key figure for the shareholder. Net income is calculated as EPS: Earnings per share by dividing the number of shares in a company by net income. The current share price divided by the EPS in turn gives the P/E (price-earnings ratio). So-called pro-forma, adjusted earnings or pro-forma, adjusted EPS are irrelevant for shareholders because they are often difficult to understand and/or motivated by profit policy.
2. Throw out losers
A stock market wisdom is: let profits run, limit losses. Alternatively, you can heed this rule if you want to draw liquidity from the depot. In other words, it’s not the winners who sell, but the losers. Are there shares or funds in the portfolio that have increased in value but are lagging behind expectations in the long term? And where no stronger performance is to be expected? Out with it. A sale not only brings cash here, but also the opportunity to optimize the portfolio.
Some investments may have underperformed so significantly that they have lost value since purchase. Anyone who needs money does not necessarily have to trim the portfolio winners, but can also sell such loss candidates. The losses are then actually realized with the purchase. But: If cash is needed, that may be of secondary importance. The main thing is that the money is in the account (and no longer in the depot).
In emergency sales, it is important to outwit the psyche. The so-called loss aversion means that the pain of a loss outweighs the joy of a win. It might help if investors realize that they can claim the loss for tax purposes and offset it against profits. And not just in the year of the loss-making sale. (Who knows if there will still be profits.) But also later.
Also read: How investors offset losses for tax purposes
If the loss on an investment exceeds the profit in an investment year, it is carried over to the following year (loss carried forward). Caution: Unlike other types of income, losses from capital investments cannot be credited to the past year (loss carry-back). In special cases (forward transactions and total losses), a maximum of EUR 20,000 per year is also offset for tax purposes; if such investments account for a higher loss, the remainder would only be offset in subsequent years. In the case of futures transactions, tax offsetting is also limited to similar deals.
A similar special rule applies to stocks. Losses from share transactions may only be offset against share profits, not against other capital gains such as interest, dividends or capital gains on fund shares. Proceedings are currently pending at the Federal Constitutional Court as to whether this is legal. However, investors can offset share losses in a securities account against share gains in securities accounts with other brokers.
3. Make a plan
It is best if investors do not have to turn part of their portfolio into cash in the short term. But if they plan to obtain additional liquidity from their investments. Ideally, they don’t even have to touch the portfolio in order to collect investment income.
A focused strategy is required for a securities account to generate significant interest or dividends – and a large investment sum. If you want to withdraw around 1,000 euros a month from your securities account without using up your capital stock, you need a starting balance of around 400,000 euros and a four percent return per year, after costs and after deduction of taxes. This is doable, but requires careful planning.
Another, somewhat simpler way of collecting liquid funds are distributing funds. Many mutual funds have dividend tranches. So-called income funds, a certain type of mixed fund, are intended to generate particularly high current income that is distributed quarterly, semi-annually or annually. However, they are more complicated than they appear at first glance and carry some risks. The following also applies to funds: the more money put into it, the higher the distribution.
Also read: Where interest rate hunters can strike now
