How to invest in the S&P 500 from Europe

How to buy the S&P 500 from Europe (Step-by-step guide)

1. Pick an ETF tracking the S&P 500

2. Choose a good ETF broker

And obviously, not less important are the fees, the minimum deposit, the overall number of ETFs provided, and the regulators. Our summary:

*XTB only offers ETFs in the Czech Republic, France, Germany, Italy, Poland, Portugal, Romania, Slovakia, Spain, South America, UAE and the UK.

3. Place a “Buy Order”

1 – Search for the chosen ETF (we will use “SPY5”):

2 – Click “Trade”: After clicking trade, all you need to do is choose the amount you wish to invest, and that’s it! Make sure to only use “x1” leverage. If you use more leverage, you will be investing in a derivative product (a CFD), with higher risk, fees, and not owning the underlying product.

And that’s it! You’re invested in the S&P 500!

eToro offers commission-free trading in ETFs (and stocks – other fees apply) and has a modern and easy to use platform. You can place your trade both on your PC or through eToro’s mobile app.

One thing to note is that some of the S&P 500 ETFs offered on eToro are US ETFs (not available in Europe), and for that reason they are offered as CFDs. You need to make sure that you are buying the real product (not CFD), since CFDs are different instruments, with other fees, and no asset ownership (the ETF doesn’t belong to you).

Check the example mentioned below of VOO, which you should avoid since it is offered through a CFD:

What to look for in any ETF?

Not all ETFs are created equal. Different asset managers provide different ETFs tracking the same indices (like the S&P 500). The main differences are:

1. Fees (TER)

Asset managers like BlackRock (iShares) or Vanguard do not offer ETFs for free as they incur costs as well. Throughout the year, a small fee is subtracted from the fund’s assets. A lower fee will mean lower costs for you and, consequently, higher returns on our investments. Asset managers often list the overall cost of the fund. Ongoing charge (OCF) or total expense ratio (TER) are standard terms to describe this overall management fee.

2. Replication method

It can be done in two ways:

• Physical replication ETFs means the ETF will try to buy the underlying assets laid out in the index.
• Synthetic replication ETFs means that the ETF uses financial derivatives to replicate the performance of the index.

Combinations of both also exist. The underlying companies comprising the S&P 500 are very liquid, and thus physical replication is preferred as it does not incur any additional costs or risks related to derivatives.

3. Use of Income

Apart from their product structure, the ETFs also distinguish between themselves in the following terms:

• Accumulating ETFs where the ETF reinvests the dividends it receives from the companies included in the index that decide to make that distribution. This will dictate a higher price for the ETF when compared to an identical distributing ETF, and, in some countries, it is tax advantageous because since the dividends are kept inside the ETF, you are not required to declare that amount;
• Distributing ETFs gives you on a regular basis (usually quarterly) the dividends that companies distribute. So, you will receive that amount directly in your brokerage account. Here, you will have to declare the dividends received.

Which one is better? There is no “correct” answer. It all comes down to your preferences. Do you plan to withdraw your investment in a 20-year time horizon? Maybe an accumulating ETF does a better job. Do you want to earn some regular income? Well, in that case, a distributing ETF will be the most appropriate choice.

4. Size

The overall fund size should also be taken into consideration. The size of an ETF can impact the likelihood of fund liquidation. Smaller funds generally run a higher risk of being liquidated than larger funds. In such a case, the fund will sell all its holdings, settle obligations and distribute the remainder to the fund holders.

5. Hedging

ETFs can use financial derivatives to protect against currency fluctuations. This comes at an additional cost but might protect you against large currency swings. Our top 5 ETFs are all “unhedged” since we believe that over the long-term, currency fluctuations offset each other over time.

The Bottom Line

What is the S&P500?

The S&P 500 is an index tracking the leading 500 companies in the United States. It is calculated from the included companies’ share prices. The index includes large well known companies such as Apple, Amazon, and Microsoft.

What is an Exchange Traded Fund (ETF)?

An ETF is a publicly traded fund that holds assets like stocks. When you invest in an ETF, you indirectly buy a large portfolio of assets. In the case of an S&P 500 ETF that means it will track the performance of underlying holdings used in the index. That would mean you can easily gain exposure to over 500 different companies with just a single investment!

Is it possible to invest directly in the S&P 500?

No, an index is a measure of the performance of a theoretical portfolio, meaning that it is just a representation. It thus is impossible to directly buy an index.

What are CFDs? Should I invest in S&P500 CFDs?

CFD stands for contract for difference and allows investors to bet on price movements (either up or down), oftentimes with ample leverage. It is not recommended for novice investors to trade complex financial products. More about it here.

Can Europeans invest in SPY or VOO?

No, Europeans cannot buy SPY or VOO from Europe due to PRIIPS. This article covers some alternatives available for EU investors.

Is now a good time to invest in the S&P 500 in Europe?

If anyone would know the future they would be rich. It is deemed impossible to predict short-term market movements, but history has shown that over a long time period, the stock market (or, more specifically, the S&P 500) tends to go up.

Why should I invest in the S&P 500 index from Europe?

The S&P 500 has historically performed significantly better than local indices in Europe. If an investor thinks this was to continue they should consider investing in the S&P 500 over local indices.