To explore the topic of investing in stocks in Denmark, it can be helpful to start by briefly putting stock investments in context: Which other assets besides stocks is it possible to invest in? How well does stock investments generally perform compared to other investment options in a historical context? And what factors beside the expected return should be considered when assessing a specific investment?
Thereafter this article goes on to describe stock investments in Denmark and taxation of income from stock investments in more detail. A guide to start investing in stocks in Denmark for you as an expatriate and beginner is also provided.
The available assets and options for investment
As the list below shows there are many different assets and options for investment besides stock investments. The asset types are listed with increasing risk level with cash as the most secure investment and collector items as the most risky.
- Cash investments include products that have the low risk and accessibility of cash, combined with potentially higher returns than traditional savings accounts.
- Bonds The returns for bondholders come in the form of fixed annual interest payments. But also through selling the bond at a higher market price than the buying price. But the main channel of earning is by the fixed annual interest payments as bond prices fluctuate much less than stock prices. Bonds are mainly used for financing public sector debts in countries around the world. The value or size of the global bond market as of 2024 is in fact higher than the value of the global stock market. But investments in bonds are mostly made by professional or institutional investors and not so much by private investors. Bonds have experienced a comeback in recent years due to the higher levels of interest rates.
- Mutual funds pool money from many investors and invest the money in stocks, bonds, and short-term debt. They are actively managed by the bank or financial institutions who offer the specific mutual fund. So the responsible portfolio manager actively buys and sells the underlying assets based on analysis with the aim of delivering higher returns than the general market.
- ETF’s stands for exchange-traded fund. ETFs contain groups of investments, such as stocks and bonds, often organized around a strategy, theme, or exposure. ETFs are linked to and tracked by a stock index or subindex. They have become popular in recent years and offer a low-cost way to earn a return similar to an index. They are passively managed and the costs of managing ETFs are lower than for mutual funds. As stocks are part of the portfolio in mutual funds and ETFs, these types of investment are partly and indirectly also stock investments.
- Stocks. The returns from stock investments come in 2 ways. Capital gains from selling the stock at a higher market price than the buying price. And secondly from the yearly dividend payments from the company to its shareholders. Generally capital gains accounts for the largest part of the returns but there are many variations here depending on company and market situations . In cyclical downturns where stock prices are falling, stocks with a high dividend payments can partly compensate for potential capital losses in the portfolio of the investor.
- Commodities can be metals such as gold, silver or copper, agricultural products or oil and other raw materials. These commodities are typically traded on specific global trading platforms and auctions. The possible return on such investments comes from the differences between selling price and buying price and so this type of investment is characterized as speculative.
- Property investments can take different forms such as direct investing in rental properties and real estate, stocks in property companies or crowdfunding of property investments.
- Crowdlending/Crowfunding is the practice of raising small amounts of money from a large number of people. Often with the aim of funding a worthy cause, or a time-based business project.
- Own company or partner in a company. This can be with high risks as a significant part of a person’s finances often are invested in one single project. Besides, it is possible to buy and sell whole companies in the market. Special knowledge about the company and industry is often needed to succeed.
- Crypto currency is a digital currency designed to work through a computer network with the use of encryption and blockchain technology. It is not reliant on any central authority, such as a government or bank as only the buyer and the seller are involved. The most well-known cryptocurrency is bitcoin. Cryptocurrencies have become increasingly popular and can be characterized as highly risky and speculative.
- Collector items can be collections of items such as Art, Vine, Role watches, Vintage cars, rare stamps or coins. The possible return on investment includes buying the item at a favorable price and time and maintaining them for a selected period and then selling the items for a higher price at a favorable point of time. This kind of investment requires special knowledge.
Average returns from investing in stocks are higher than returns on bonds and cash in the long run
This statement is generally accepted in the financial world. A well known study that confirms the statement is from the US based survey maker Forbes and focuses on the US markets.Study from Forbes – historical returns on stocks, bonds and cash.
The study estimates the average annual return on stocks in S&P 500 (the leading US stock index) and bonds the leading 10 year Treasury bond), cash and commodities for the period 1934-2024. The result of the study is an average return at 11,0% for stock and 5,2% for bonds. Adjusted for inflation the returns are respectively 7,2% and 1,6% per year. The comparable return from cash is 0,3% per year and -1,7 % for commodities. This pattern is generally valid throughout financial markets in the world – and also in Denmark. So in the long run stocks outperforms bonds and cash when it comes to average returns on investment.
A similar study for the Danish market for the period 1922-1999 estimates the average annual real return on stocks (adjusted for inflation) to be 7,5% – and 3,4% for bonds. So the pattern is the same as in the US study. But the difference in returns between stocks and bonds are lower in the danish study. Study of average returns on stock and bonds in Denmark for the period 1922-1999.. Another study that covers the more recent period in Denmark, estimates the nominal annual return on stocks (not adjusted for inflation) for the period 1979-2022 to be 10,7%. Study about average return on stocks in Denmark for the period 1979-2022. This study only looks at stock returns and so returns on bonds is not estimated and reported.
But certain returns in the past is not a guarantee for similar returns in the future
The returns to expect going forward is of course the primary interest for a stock investor. Importantly though historical statistics about average returns cannot be used directly as predictions or forecasts about the returns to expect in the future. But historical statistics still provide valuable insights about the general long run returns from different investments. These insights can be used as an ground rule about returns from different assets in the creation of the investment strategy.
There are a lot of publicly available forecasts made by financial experts about expected future returns on stocks: With different time horizons (short term, middle term and long term) and for different subsets of stocks (individual company stocks and industries) and different stock markets (countries and regions). There is a high variety and uncertainty regarding how well these forecasts are able to predict future returns – when comparing the actual returns realized against the predicted returns. So predicting and forecasting future stock returns with high or just appropriate precision is a difficult task. This is due to the significant volatilty in market prices of stocks over time. And thereby also an illustration of the associated risks – particularly in the short run. In this article it has therefore been chosen not to mention any forecasts about expected future returns on stock investments.
Other factors that influence how attractive an investment is
Besides the average return on an investment there are some other factors that should be considered when comparing different types of investment.
Risk–
Higher average returns are often associated with higher risks. So a risk premium in the form of higher expected returns is required by investors to be willing to invest in assets with higher risks. Regarding stocks, the riskiness involved comes from the fluctuations in market prices of stocks over time. These fluctuations and thereby the associated risks can be quite significant in practice. Therefore it is generally advised to have a time horizon of 3 years or more when investing in stocks. This should help to avoid many of the losses coming from short term fluctuations in stock prices.
Diversification of the portfolio can reduce the risk level. So buying a lot of different stocks or buying mutual funds that gather a lot of different stocks reduces risks compared to buying a few specific stocks.
Requirements of special knowledge
Some investment types require that the investor has special knowledge within the relevant field. This is particularly relevant for property investments, investing in own company and collector items. Special knowledge is also needed for active stock investors, when selecting specific companies, sectors, regions etc. For mutual funds this task is carried out by the funds portfolio manager and therefore does not require special knowledge from the investor. This same applies for investing in ETFs – only the specific ETF has to be selected.
The liquidity and ease of trading the investment product
How liquid the asset or financial product is will influence how attractive it is to investment in. Bonds and must stocks are generally very liquid and frequently traded while assets such as collector items, own companies and properties are less liquid. But stocks in smaller companies are sometimes also traded with low frequencies and therefore not so easy to buy and sell. The digital platforms available for trading stocks for private investors in Denmark makes it easy to invest actively in stocks. And is a main reason why so many Danes invest in stock products in stead of the many other available investment assets. This is described further below.
The costs of managing the investment
The key figure that measures this is the total costs associated with managing the investment per year as a percentage of the invested sum. The key figure is called “ÅOP” in danish language which is an abbreviation for yearly costs in percentage. The costs include administrative costs of establishing the investment and the ongoing costs of managing the investment. In Denmark it is required by law that banks and financial institutions inform about the level of ÅOP for their investment products. The aim is to make investment options and decisions more transparent for private investors.
The figure is particularly relevant when comparing mutual funds and ETFs. Mutual funds are actively managed and have an ÅOP at an average of 1,45% ranging from 0,5% to 2,0 % depending on the fund. ETFs that are passively managed typically have a much lower ÅOP in the range of 0,1-0,7%.
This example shows how high ÅOP’s erodes the accumulated returns on investment and is quite important in practice:
Compare 2 investments at the sum of 100.000 DKK each with an annual return of 8% but investment 1 has an ÅOP of 0,43% and investment 2 has an ÅOP of 1,48%. After 10 years investment 1 has increased to 206.806 DKK in value while investment 2 has increased to 186.192 DKK. After 30 years investment 1 has an accumulated value of 884.480 DKK while investment 2 has an accumulated value of 645.479. So the higher ÅOP for investment 2 results in significantly lower overall returns compared with investment 1.
For mutual funds to be attractive for investors they therefore have to deliver significantly higher returns (before ÅOP) than ETFs.
The danish stock market
The Copenhagen Stock Exchange (CSE) is the primary stock exchange in Denmark. It is part of the NASDAQ Nordic and lists approximately 150 companies. The leading index of the 25 companies with the highest market capitalization is called “C25”- index. Life science is the largest industry in the Danish stock market measured by market value. The pharmaceutical company Novo Nordisk is by far the most valuable company at a value of 484 bn USD. To put this in perspective, the second largest company DSV has a market value at around 40 bn USD and the total value of the danish stock market is around 750 bn USD at october 2024. Data about the value of the Danish stock market.
The Danish stock market reached a record low of 118 bn USD in February 2009 after the global financial crisis.
Foreign investors are increasingly important for the Danish stock market. In 2020 foreign investors owned 58% of the total value of stocks in the C25 index.. By the start of 2024 this share had risen to 68%.
The global stock market has an estimated total value of 115 tn USD by the end of 2023. So the Danish stock market only makes up around 0,65% of the global market. The stock market in the US is by far the largest in the world and constitutes 43% of the global stock market. Data about the global stock market value
Investing in stocks is very popular among Danes
So stocks are in many ways an attractive option for private investors compared to the many other available types of investments. Of the many assets and options for investment, stocks investments are by far the most common type of investment among Danes. Especially in recent years investing in stocks has become increasingly popular in Denmark – sometimes referred to as a folk sport. As of 2022, 759.000 Danes were investing in mutual funds or ETFs and 1.044.00 invested in stocks as private investors. With a total adult population of 4,8 mill citizens this amounts to a share of 37,5 % who are active private investors. In comparison only 31.000 Danes invest actively in bonds. Number of danes who actively invest
Besides actively investing in stocks, many Danes own stocks indirectly through their pension savings – a large share of these savings are invested in stocks by the pension companies. In the USA around 55% of adults are investing in stocks directly or indirectly through pension funds. For the UK the figure is 33% and for China it is 7%. Active investors in other countries
And made attractive by the digital trading platforms
The digital tools and platforms for trading and investing in stocks that banks and brokers offer their customers makes it much easier and more attractive to engage in stock investments – also for beginners. (Also described in step 4 in the guide below). And is a main reason for the big increase in Danes actively investing in stocks in recent years. Another important reason is of course that these private investors also have experienced some success when it comes to the realized returns from investments.
These digital tools and platforms provide access to stock markets and subsets of sectors and industries around the world and also research tools and stock simulators. So the active private investor is not limited to invest in the danish or nordic stock market. As the actual returns from stocks in practice can vary quite a lot between countries or regions in a given year or period, this is very important for the investor’s ability to execute on the investment strategy and get the highest possible returns. And also for being able to reduce risks through adequate diversification of the investment portfolio.
Taxation of income from investing in stocks in Denmark
Returns from investing in stocks are taxed as capital income. The tax rate is 27% up to 61.000 DKK as of 2024 and 42% for capital income above 61.000 DKK per year. The taxable capital income is calculated at a net yearly basis. This means that possible losses from one investment are deducted from the gains from other investments. The net income is then calculated and taxed by these rates.
The government has initiated a special scheme called a stock savings account. All Danish residents – and also expatriates – are offered to open such an account at favorable taxation rules in their bank. You can read more about Danish banks and how to create a bank account in these articles: Best Bank in Denmark for Foreigners / How to Open a Bank Account in Denmark?. The goal of the scheme is to get more Danes to start investing in stocks – improve the Danish stock culture – and improve companies’ financing conditions. The income from investments on this account are taxed at a favorable 17%. A maximum of 136.000 DKK can be placed on this account. The maximum amount increases to 166.000 DKK in 2025. The earnings are taxed every year by the calculated growth in value of the portfolio (called inventory taxation) and not when the stock is sold (called realization taxation), which is usually the case. The bank makes the yearly calculation and reports it to tax authorities. This means that you pay taxes on the gains before they are realized. Due to the low tax rate of 17% this scheme is favorable regarding taxes. And so more than 400.000 Danes have a stock savings account for investment purposes.
A beginners guide to start investing in stocks
The steps below should help you get started. Some tips and guidance is also provided.
Step 1: Set clear goals for investing in stocks
Begin by specifying your financial objectives. Clear goals will guide your investment decisions. Consider both short-term and long-term goals. You might have short-term goals like saving for a home or a vacation or have long-term objectives like securing a comfortable retirement or funding a child’s education.Younger investors tend to focus more on long-term wealth accumulation, while those closer to retirement typically prefer generating income and capital preservation.
Determine your investment horizon: Assess how long time you have to achieve each goal. Longer time horizons often allow for more aggressive investment strategies, while shorter ones may require more conservative approaches.
Step 2: Determine how much you can afford to invest
This step helps ensure that you are investing responsibly without endangering your financial stability.
So review your income sources. It is generally recommended to pay off high-interest debts, such as credit card balances before investing. The returns from investing in stocks are unlikely to outweigh the costs of high interest accumulating on these debts. Based on the financial assessment, decide how much money you can comfortably invest in stocks. And if you want to start with a lump sum or with smaller amounts over time. Only invest money you can afford to lose.
Step 3: Determine your risk tolerance and style of investing in stocks
Risk tolerance
Are you willing to accept higher risks for potentially greater returns? or do you prefer stability even if that means potentially less in the end? Longer horizons allow for more risk since you have time to recover from potential losses. Stocks comes with different risk levels:
Lower risk: Dividend stocks and defensive stocks that deliver earnings for the investor during economic downturns (industries as pharmaceutical, utility, and consumer goods).
Moderate risk: Middle and large stocks (by market capitalization) and ETFs.
High risk: Small-cap stocks, growth stocks, and sector-specific investments.
Investing style
The options here is:
- DIY (Do It Yourself) investing. Here you manage the trades yourself. This requires significant knowledge of the markets and products with very little guidance.
There are more and less active approaches within DIY:
Active: You use your brokerage account to access various investments, including stocks, bonds, and other assets, and trade as you wish. You choose when to buy and sell.
Passive: You use your brokerage account to buy shares in index ETFs and mutual funds. You still control which funds you purchase, but fund managers do the trading for you. - Professional guidance: This style offers a more personal approach by hiring an experienced broker or financial advisor. These financial advisors tailor their advice to your life experiences and goals and help you decide among the most promising stock choices, monitor your portfolio, and collaborate with you when things need changing. This option of course comes with higher ongoing cost for the investor than DIY.
Step 4: Choose an investment account and broker
Trade and invest by the digital platforms in your bank. The larger banks in Denmark offer digital platforms and tools for their customers to trade and invest in stocks. For many active private investors this is an attractive option and many Danes choose to carry out their stock investment activities in the platforms of the bank, they are a customer in.
Full-service brokers: These offer personal financial advice and are suitable for novice investors.
Discount brokers: These provide a digital platform for trading with lower fees and are ideal for DIY investors.
Digital platforms in Denmark like Saxo Bank, Nordnet, and DEGIRO provide user-friendly interfaces for trading stocks at competitive rates.
Robo-advisors is an other option which offers an automated solution. Advantages is that they are cheap and take little effort on your part. Disadvantages is that they tend to offer fewer trading options and lack the personal approach that many investors value. This option is also offered by many banks for their customers who engage in stock investments.
When selecting a broker, consider factors such as fees, customer service, and the availability of research tools. Most platforms offer stock simulator tools for clients, which allows you to practice trading stocks in a risk-free setup using virtual money.
Step 5: Select your stocks and manage your portfolio
This step is relevant if you have chosen a DIY approach and is quite important for succeeding as a stock investor. There are many different subgroups of stocks tailored to size, regions or countries, sectors and industries. Things such as risk and diversification of the portfolio should be considered here.
Defensive stocks and dividend stocks offer a buffer against market volatility. ETFs offer diversification and reduce the risk associated with individual stocks. Growth stocks are more risky.
Beginners should look for stocks that offer stability, a strong track record, and the potential for steady growth.
Step 6: Learn, monitor, review
Again this step is most relevant for DIY approaches.
Evaluate your actual progress against the targets you set and what corrective actions should be taken. Keep updated with financial news, investment trends etc. And stock simulators can help you to improve upon your investment strategy.
Conclusion
Investing in stocks are in many ways attractive for private investors compared to the many other assets and financial products available for investment. And so stock investments are by far the most common type of private investment among Danes. The average realized returns from investing in stocks is generally higher than the returns from bonds and cash in the long run. There are a lot of forecasts made by financial experts about expected future returns on stocks. Due to the significant uncertainty and varying capability to predict future returns correctly in these forecasts, they are not mentioned.
Besides the average return some other factor should be considered when choosing the type of investment. This includes the risk profile of the investment, requirements about special knowledge by the investor and the costs associated with managing the investment.
The digital tools and platforms for private investors provided by banks and brokers makes it attractive and easy to handle stock investments. This is a main reason why so many Danes actively invest in stocks, mutual funds or ETF products. Especially in recent years stock investments have become popular. Besides, must Danes invest indirectly in stock through their pension savings, where stocks make up a large part.
Taxation of income from investing in stocks also impacts the net return for investors. A special bank account for private stock investors with favorable tax rates has been introduced by the government in Denmark. All residents including expatriates can open such an account in their bank. At this account income from stock investments is taxed at the favorable rate of 17% – compared to the ordinary tax rates of 27% to 42%.
A guide with the steps for beginners and expatriates to get started with investing in stocks in Denmark is also provided.
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