There's something I've seen hundreds of beginner investors do wrong, and it's a mistake that costs real money. It's so simple that you can barely believe it's true.
Most people who start investing in index funds don't know there's a difference between making a transfer and making a sale + purchase.
And that difference is taxes.
Sale + Purchase: The Expensive Way
Imagine you have €10,000 in an index fund that tracks the MSCI World. It's been there for three years and has grown to €13,000. Now you want to switch to another index fund that has better fees.
What does most people do? They sell the €13,000 and immediately buy the new fund.
Here's what happens tax-wise:
- You sold at €13,000
- You bought at €13,000
- Gain: €3,000
- The tax authority wants taxes on that gain
Depending on your region and tax bracket, that could be 19%, 21%, or more. So from that €3,000 gain, the tax authority takes between €570 and €630.
Where does the money come from? From your €13,000. So instead of having €13,000 to reinvest, you have €12,370 or €12,430.
You just lost over €600 because of a mistake that most brokers solve with a single button.
Transfer: The Smart Way
Now imagine you do the same thing but using your broker's transfer function.
- You have €13,000 in fund A
- You make a transfer to fund B
- You have €13,000 in fund B
- Tax authority: €0 in taxes
Why? Because tax-wise you haven't sold anything. You've transferred. It's an internal change, not a sale.
Your €3,000 gain remains yours. The tax authority doesn't get involved. When you finally sell (in 20 years, or whenever), then you'll pay taxes. But not now.
It's the same reason you can switch funds at the same broker without paying taxes. Because it's a transfer, not a sale.
But What If I Change Brokers?
Here's what surprises most people: you can also make transfers between different brokers.
If you invest at Broker A and want to switch to Broker B, you can make a transfer. The money moves from one broker to the other, buys the new fund, and... no taxes.
Some brokers have their own fees for this service (typically €0-50), but it's still infinitely better than paying taxes on a sale.
The only exception is if your broker doesn't allow it (some small brokers or very simplified investment apps don't offer it). But most do.
It's Really Easy
The best part: it's absurdly easy.
You log into your broker, find the "Transfer" option, choose how much you want to transfer, pick the new fund, and click a button.
That's it. The broker handles everything else.
The process typically takes 3-5 days, although some brokers do it in 24 hours.
The Only "Risk": Market Timing
There's one thing to consider when making a transfer: while it's processing, your money is out of the market.
Imagine you transfer €2,000 on Monday. The market goes up 2% during the week while your money is in transit. When the transfer finally completes on Friday, you've missed that 2%.
But here's what's important: this works both ways.
If you make a transfer and the market drops 2% while your money is out, you've avoided that drop. You benefited.
In the long term, these small timing moves don't matter. You can't predict whether the market will go up or down in the next 3 days. So this isn't a reason to avoid transfers. It's just something to keep in mind.
What The Tax Authority Won't Forgive
There's a reason the tax authority is so strict about this: tax evasion.
If people could sell funds without paying taxes, they'd constantly sell, make gains, and reinvest without paying anything. The tax authority simply won't allow that.
That's why sales are taxed. Because it's a realized gain.
But a transfer isn't a sale. It's an administrative change. You haven't realized a gain. You still have the same funds, just in a different place.
That's why transfers don't count.
The Lesson
If you start investing in index funds today, be clear about this:
When you want to switch funds or brokers, always use the transfer function. Never, ever sell and buy.
It's the difference between unnecessarily losing €600 or keeping your money intact.
And it's so easy that the only mistake you can make is not knowing it exists.
Now you know.