Let’s discuss your next big idea.

Complete the form and we will get back to you as soon as possible.

Looking for a new job opportunities?

[contact-form-7 id="367" title="Contact Us Popup"]
,

Best ETFs for European Investors (2023)

Play Video

Here’s what happens when you try to buy an American ETF through your brokerage if you live in Europe.

Put in the symbol, click and… DENIED.

Okay, so you live in Europe and you want to invest in ETFs.

Maybe you’ve read that with ETFs you get better results than up to 90% of professional investors.

Or you’ve heard about the FIRE movement financial independence, retire early, where normal people working regular jobs like teachers, doctors, programmers, invest their money in ETFs and get passive income and retire at 40 or 50. 

But if you’re new to ETF investing, it’s confusing, especially in Europe.

How do you buy an ETF?

And which ETFs do you buy?

Most videos online recommend American ETFs which we can’t even buy in Europe.

And when you find ETFs that you CAN buy, you run into a lot of jargon like accumulating and distributing funds or physical and synthetic funds and more. 

So it’s really confusing, and you get stuck.

If that sounds familiar, then you’re in luck, because this is the ultimate guide to ETF investing for Europeans. 

In this article, I’ll give you a 7-step checklist that will let you pick the best ETFs for you, wherever you live in Europe.

This checklist could save you thousands of euros, prevent tax paperwork, and let you choose the best ETFs customized for you individually depending on the country where you live. 

Each step is bite-sized to make it super easy for you.

I’m also gonna share the best online resource for researching and comparing ETFs for European investors.

And I will reveal the one big mistake you definitely DON’T want to make when buying your first ETF.

So if you live in Europe – no matter if you’re a local, an expat or a digital nomad – make sure to read this before you buy any ETFs. 

Step Number 1 – Pick your ETF strategy

A lot of people assume ETF investing means buying the S&P 500. 

As if the only valid investment out there is investing in the 500 biggest American companies.

Look, I know it SEEMS like Biden and Trump and the Kardashians are the only real people in the world.

But I’ve discovered a shocking truth. 

America is NOT the whole world. 

And ETFs are not just a way to buy US companies.

To really simplify it, an ETF buys you all the stocks in a specific market. 

But there are many markets out there. 

You can invest in America, Europe, Asia, Emerging Markets. 

You can invest in sectors like Technology, Clean Energy, Real Estate.

Or you can invest in factors like Small Cap, Value or Dividend stocks.

So, as Step 1, you’ve got to pick your ETF strategy.

Let me give you a hint – for many people, just buying the S&P 500 is not the smartest choice.

Later I’ll share some ideas for how to choose the best strategy.

But for now let’s move on to

Step Number 2 – Pick ETFs based in Europe

EU regulations won’t let us buy ETFs legally based in America.

Damn you, nosy European lawmakers! 

So we can’t buy the big famous US ETFs like SPY or QQQ.

But there are thousands of ETFs legally based or “domiciled” in Europe that we can buy. 

This has nothing to do with where the ETF invests, by the way. 

There are plenty of ETFs legally based in Europe which invest in the US or Japan or other markets.

For example, here are just a few of the biggest European ETFs which invest in the S&P 500.

So we Europeans can easily build a global ETF portfolio. 

All we need to do is follow step number two and pick ETFs legally based in Europe.

Technical note:

Most European ETFs are based in Ireland, Luxembourg, or Germany.

And they’re not the same.

Choosing the right country can make a difference for your taxes. In a second I’ll share some ideas for how to do that.  

Step Number 3 – Choose Physical vs Synthetic ETFs

In America cowboys are cowboys, a burger is a burger, and an ETF is an ETF.

In Europe, ETFs come in many varieties. 

Choosing the right one can make a big difference. 

As step number three, you want to choose between physical and synthetic ETFs. 

Think of physical ETFs as real food and synthetic ETFs as meal replacement powders.

Physical ETFs actually buy the stocks in a given market.

For example, a physical S&P 500 ETF will buy the stocks in the S&P 500. 

So that’s really simple.

Synthetic ETFs will get you roughly the same financial result – the same profit or loss – as the physical ETF – without actually buying any of the same stocks. 

Whaaat?

Synthetic ETFs do this through financial wizardry.

They use something called a total return swap. 

So that sounds really transparent and risk-free, right?

Seriously, though, synthetic ETFs are quite safe and reliable.

And sometimes they can be a little more profitable because of tax reasons.

That said, call me old-fashioned, but I prefer physical ETFs for my portfolio. 

So that’s Step 3 – Choose Physical vs Synthetic.

And in a bit, I’ll share where you can find if an ETF is one or the other.

Step Number 4 – Choose Distributing vs Accumulating ETFs

Imagine you’re a teenager again.

Distributing ETFs are parents who give you an allowance every month in cash.

Accumulating ETFs are parents who say: 

Let’s put your allowance in your bank account for when you get older.

So an ETF buys the stocks of a lot of different companies.

Some of these companies will hopefully be profitable and pay dividends.

When distributing ETFs receive dividends, they turn around and pay them out to you.

By contrast, accumulating ETFs keep the dividend money and use it to buy more stocks.

So you as the investor don’t get cash from an accumulating ETF. 

Instead, the price of the ETF goes up because there’s more money left inside the ETF.

Does that make sense?

With both distributing and accumulating ETFs, you get the benefit of dividends. 

In one case you get cash in your brokerage account.

In the other case, the value of your ETF goes up.

So which is better?

Well, that depends on your goals, and on the tax laws in your country.

When it comes to distributing vs accumulating ETFs, there’s no single right answer that works for everybody in Europe.

In many countries accumulating ETFs are better because if you are not receiving dividends, you don’t have to pay tax. 

So accumulating ETFs lets you pay tax later in the future when you sell the ETF.

But in other countries accumulating ETFs get taxed aggressively so that doesn’t work.

By the way, I’ve got another post and a cool video about taxes for European investors which might be helpful. 

Step Number 5 – Go cheap

When buying chocolate, shoes, or a car, you get what you pay for.

When buying ETFs, you get what you don’t pay for.

Every euro that ends up in the pocket of the ETF manager is a euro that you can’t spend on pizza and schnapps when you retire.

So look for the absolute cheapest ETFs that fit your other criteria.

I’ll show you how to find the cheapest ETFs in a moment.

And make sure you consider not just 1, but 2 or 3 of the cheapest ETFs, because you’ve also got to do

Step Number 6 – Go Big

When it comes to ETFs, size matters. 

If the cheapest ETF you found has only 5 million euros invested in it, I would think twice about buying it. 

You may pay a bad price for it because of what’s called a wide bid-ask spread. 

Also, small ETFs are often shut down by the fund provider. 

If that happens, you get your money back, but it’s a hassle and you may need to pay taxes.

So when I pick ETFs for my portfolio, most of the time I stick to ETFs with a size of at least a few hundred million euros. 

Step number 7 – Choose the right ETF listing.

Imagine you need to buy some sugar.

Will you go to the store next door or drive across town to a big mall?

It’s the same exact sugar, the same packaging, and almost the same price.

You’ll buy where it’s convenient, right?

Well, it’s the same with ETFs.

You can buy the same ETF on many different stock exchanges and in many different currencies.

The combination of stock exchange and currency is called the ETF listing.

Let’s look at the biggest ETF in Europe – the iShares Core S&P 500 UCITS ETF Accumulating. 

If we go to the iShares website for this fund and scroll down to the section Listings, we see that this fund is available in many different listings. 

You can buy it on Borsa Italiana, XETRA, or Euronext in euros.

You can buy it on the London Stock Exchange in two different listings – pounds and dollars.

You can even buy it on the Bolsa Mexicana de Valores in pesos.

And there are other listings too.

All of these listings are of the same identical ETF.

So which do you buy?

Well, first, pick the currency.

If possible, avoid exchanging currencies, because that’s expensive, and it may complicate your tax reporting. 

For example, I live in the eurozone, so I always buy euro listings.

And second, check liquidity. 

You want to check there are enough buyers and sellers for the ETF on your chosen exchange so that you always get a good price.

So that’s Step number 7:

Pick a listing in your preferred currency with good liquidity. 

And then you’re ready to invest.

But how do you actually do these 7 steps?

Where do you find the ETFs we can buy here in Europe and how do you compare them?

I’ll show you the number one resource that I know for this, it’s pretty amazing.

But first, let me warn you.

Depending on your goals and where you live in Europe, ETF investing can be tricky. 

There are over thirty different tax systems in Europe.

In every country, the best brokerages and the best ETFs are different.

And it gets even harder if you are an expat or a digital nomad.

If you follow these steps, you have a great start, but you’re still going to run into questions like:

Is accumulating or distributing better in my country?

Should I pick Ireland or Luxembourg ETFs?

Which listing is best?

Should I use ETFs that hedge currency risk?

What brokerage should I use?

How do I set up my taxes so that I’m paying less and have less paperwork?

Plus other important questions.

And, listen, you COULD just go ahead and pick a random brokerage, choose a random ETF, and hope for the best.

But in many European countries, it pays off big time to take a little more time and do it right.

I’m talking about thousands of euros saved, and many hours of tax paperwork avoided. 

So I’ve got two solutions to this problem.

One, follow me on Youtube cause I’m all about helping Europeans invest. 

And two, come to my investing webinar

I’ve got a really cool training program called the Index Masterclass, it’s helped thousands of people all across Europe, and the webinar is the first major module of this full program. 

Plus the webinar is totally free.

So if you live in Europe, I think you’ll find it very helpful. 

The link is go.indexmasterclass.com!

So I hope to see you at the webinar.

But now, let me share the single best resource that I know for researching and comparing ETFs in Europe.

This resource is called JustETF and it’s amazing. 

So go to JustETF.com. Hit ETF Screener.

There you will have a fantastic tool that lets you basically search all the ETFs available in Europe.

You can filter them by many different factors:

  • Target market
  • Target index
  • Domicile
  • Accumulating vs distributing
  • Physical vs synthetic
  • and much more!

You can also sort ETFs by cost or size.

It’s pretty great.

Now this tool can get a little technical. 

You need to learn what all the many settings mean, and I teach that in my training programs.

But once you learn it, it’s really useful. 

Full disclosure – JustETF isn’t paying us for this recommendation, but we do collaborate with them at my company because I love this tool and recommend it to my students.

I hope this will help you start investing in ETFs!

Now go check out this article that I did on taxes for European investors!

Share

Subscribe to transform your finances!

Join a growing community of more than 70'000 readers enjoying insights on investing, growing your wealth, and other super helpful topics!

Leave a Reply

Your email address will not be published. Required fields are marked *