This content provides a comprehensive guide for European investors on understanding and purchasing Exchange Traded Funds (ETFs), focusing on demystifying the process and highlighting common pitfalls to avoid.
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In this video, I will break apart the
most popular ETF in Europe so that you
know exactly how it works. I'll show you
where and how to buy ETFs as a European
investor, and I'll highlight the most
expensive mistakes that beginning ETF
investors make so that you can avoid
them. Over my 18 years of experience
both on Wall Street and here in Europe,
I've invested hundreds of millions of
euros in ETFs and their cousins index
funds. I know it can be confusing for
beginners because there are thousands of
ETFs available and they have long
confusing names. You can buy them on
dozens of different stock exchanges in
different currencies. It is easy to feel
lost and never get started. So, let me
clear that up for you. The best place to
find ETFs for European investors is a
portal called just Eetf.com. It's an
easily searchable database with over
3,700 ETFs you can buy pretty much
anywhere in Europe. So, if I go to this
database and I sort by size, I see that
the most popular ETF among European
investors is the EyesShares Core S&P 500
USD ETFUSD ACC. Now, in a second, I'll
explain what all of that means. But
first, let me mention that I'm not
making an investment recommendation
here, okay? This is simply the biggest
ETF in Europe. It's not necessarily the
one that is best for you. In fact,
depending on where you live and the
local tax rules and your goals in life,
this could be a bad choice. Later in the
video, I'll share a resource which
covers how you choose the best ETFs for
you. But for now, let's break apart this
ETF so that you understand how ETFs work
better. And we're going to start with
the name. So the eyeshare core S&P 500
usage ETF USD ACC. The uh most important
part to understand is of course this ETF
exchange fund. An exchangeraded fund is
an investment fund which trades on a
stock exchange. So first what's an
investment fund? Well, let's say that
you want to invest in stocks because
you've heard that it's a great way to
make your money grow. And that is true,
but the problem is there are thousands
of stocks out there. And unless you're a
professional, it's hard to choose the
best ones. So, you pull your money with
other investors and you give it to a
professional manager who will choose the
best stocks for you in exchange for a
fee. Now, that's an investment fund. But
why would you put an investment fund on
a stock exchange? Well, it's for ease of
access. Here in Europe, traditional
investment funds are usually sold by
banks, and this means that you are stuck
with whatever your local bank wants to
sell you. Often, these are expensive,
poorly performing funds. But a stock
exchange is like eBay for investments.
It's this huge online marketplace which
gives you access to thousands of
different stocks or investment funds
without being restricted to what your
bank wants to sell you. So that means
you can buy some of the best investment
funds in the world even if you live in a
small European country like Latvia or
Croatia or Luxembourg. So that covers
ETF. But let's go back to the name. So
first up we've got EyesShares. This is
simply the brand name used by BlackRock
which is the biggest fund manager in the
world. It's kind of like Audi or Skoda
in the car market. And then up next we
have core. So this is a product category
used by Eyesshares. You can basically
ignore that. And then we have S SNP500.
Now this of course refers to the most
famous stock index in the world which
includes 500 of the biggest American
companies. Why is a stock index included
in the name of an ETF? Well, it's
because the vast majority of ETFs are a
type of fund called an index fund.
Basically, index funds buy all the
stocks in a particular market index. And
as it turns out, this is a really smart
investment strategy. I've got other
videos on this topic, but basically with
an index fund, you spread your money
among hundreds of different companies,
and you pay a very low cost to do it. As
Warren Buffett said, by periodically
investing in an index fund, the no
nothing investor can actually outperform
most investment professionals. So, index
funds are pretty smart, and this ETF is
an index fund that tracks the S&P 500
index. Then up next we have USITS. USITS
refers to a European Union directive. So
it basically means that this ETF is
regulated in Europe. If you live in the
European Union, pretty much all the ETFs
that you can buy will be USITS ETFs.
Then we have USD. So this refers to the
fund currency. Now confusingly, just
because the fund currency is dollars
doesn't mean you have to buy this ETF in
dollars. As I'll show you in a second,
you can actually buy it in euros. But uh
the accounting of the fund is done in
dollars. And then finally we have ACC.
Now ACC stands for accumulating. That's
the distribution policy. So what does
that mean? Well, an ETF invests in
stocks. And many of those stocks are
profitable. They pay dividends to the
ETF. Now the ETF has a choice of what to
do with this money. It could pay this
money out to you or it could use this
money to buy more stocks. A distributing
ETF pays money out to investors. An
accumulating ETF keeps the money inside
the fund to buy more stocks. Now, which
is better? It depends on a number of
factors like how old are you? Are you
just saving for retirement now or are
you already retired? And also, what are
the tax rules in your country? In some
European countries like um Austria or
Switzerland or the UK, these
accumulating funds get taxed in a way
that makes them less attractive. But in
many European countries, they are
actually great because all the money
stays inside the fund, so you don't have
to pay dividend taxes. And if you decide
you want a distributing ETF instead of
an accumulating one, it's usually pretty
easy to find a different version
tracking the same index. For example,
here we have a Vanguard S&P 500 usage
ETF distributing. So it tracks the same
index, does the same thing, but it's a
distributing fund. As you can see, these
local details can get complicated
quickly. That's why I put together a
step-by-step training program for ETF
investors in Europe. In this training, I
cover questions like, "How do you pick a
good ETF given your goals and the
country where you live? Which investment
app or brokerage do you choose and how
do you handle taxes?" If that sounds
interesting, just follow the first link
in the description to find out more. But
going back to our EyesShares fund, on
the next line, we see something really
important, which is the international
securities identification number. This
is a unique combination of letters and
digits that identifies the ETF.
Sometimes it can be difficult to look up
an ETF on a brokerage website or some
other database. There can be a lot of
ETFs which have a very very similar
name. They might also be an eyesshares
ETF that invests in the S&P 500 and it's
hard to figure out which one is the
right one. In that case, you simply copy
the IS and you search using the IS. So,
for example, on Google, you can search
by is and use that to find the official
website for this fund, which can be
helpful. You might ask, why not use this
website to um do this video instead of
looking at just ETF.com. Well, the
problem is different fund managers have
different website formats and some of
them are really difficult to use. So I
prefer to use just ETF because it
centralizes information in one place and
then once you have decided that yes this
particular ETF is something that you
want to buy of course you want to go to
the official website as well and verify
all the information and then moving on
we have the TER the total expense ratio.
Jack Bogle the father of index funds had
a famous saying you get what you don't
pay for. The more you pay in fees the
more money goes out the door the less is
left in your account. One of the best
things about ETFs and index funds is
that they have low fees. The typical
investment funds sold by your bank here
in Europe, they charge you 1% per year,
even 2% per year or more. But ETFs and
index funds tend to charge 0.07%, 0.1%,
maybe 0.2% per year, which is much much
less. It leaves more money in your
account. Okay, we already covered
distribution policy, but now let's look
at replication. So for this ETF, the
replication method is physical. What
does that mean? Does that mean that
there's some kind of physical mechanism
moving gears and levers to invest your
money? Well, not quite. What it actually
means is that this ETF will go out into
the market and buy the 500 stocks
included in the S&P 500. By contrast,
there are some ETFs that are called
synthetic. For example, here is this
Invesco S&P 500 usage ETF, which is a
synthetic ETF. This ETF will not buy
those 500 stocks. Instead, it's going to
use some financial wizardry involving
what are called swaps to deliver
investors pretty much the same result.
Now, which is better? Well, it depends
what you are prioritizing. When it comes
to investing in American stocks, because
of tax reasons, these synthetic ETFs
actually tend to get better results.
Basically, you don't have to pay
dividend taxes. So, for example, when we
go down to performance here and look at
5-year performance, this synthetic fund
earned 111.8%.
But this uh physically replicated fund
earned 109.8%.
So, a couple percentage points less over
5 years. So, synthetic funds have some
tax benefits, but because they are more
complicated, they are considered a
little more risky. in really extreme
market crashes or difficult situations,
potentially you could have some problems
with these synthetic ETFs. I say
potentially because in practice, this
has never really happened to any
meaningful extent. That said, a lot of
people do prefer physically replicated
ETFs because you know what you're
getting. The fund will actually use your
money to buy the underlying shares. Next
up, we've got fund size. So, this is the
biggest in Europe. It's actually got 117
billion euros invested in it right now.
Is fund size important when choosing
investments? In some cases, if the fund
size is over, let's say, €100 million, I
don't really care about it much. But if
I see an ETF which has maybe €5 million
invested in it, I tend to be careful
because there's a big risk that the fund
manager might shut it down. Fund
managers launch ETFs to make money and
if nobody's buying it, they're not
making any money. So that means they
might shut the fund down. Now, it's not
a huge problem. The money just gets
returned to you in that case. But in
many European countries, you have to pay
taxes if you have a profit at that
point. So for that reason, I prefer
funds which do have a larger size, but
there's certainly no need to have a fund
which has billions and billions invested
in it. That is not really a significant
advantage. And then we have the
inception date which in this case is
2010. Sometimes people ask me is it a
problem if a fund was launched recently
maybe in the past year. My view is
always as long as the fund size is
already significant and as long as the
fund provider has a good reputation.
It's not some kind of new company then
I'm fine with new funds. Of course, if
you have a longer track record, you have
more data that you can look at in terms
of historical performance and how the
fund has tracked the index. We'll talk
about that in a second. But on the
whole, having a new fund is perfectly
fine most of the time. And finally, you
have the number of holdings. And this is
something that confuses a lot of people.
Why do S&P 500 ETFs have 503 holdings,
not just 500? Well, it's because a few
companies included in the index like
Alphabet, the parent company of Google,
have two share classes in the index. So,
it's basically the same company with two
different types of shares. So, that
covers the foundations. Now, let's move
on to the section overview. And here we
have a quote. So, this is the latest
price of the ETF. So, this ETF currently
is trading at around €618
per share. How important is this? If you
see one ETF that has a price of €100 and
another ETF which has a price of €600,
should you prefer the one with the
biggest price or the smallest price?
Well, that's kind of a trick question.
It really doesn't matter that much. The
price of an ETF is simply a unit of
measure. You know how you can buy sugar
that's packed in 1 kilo bags or 5 kilo
bags? Well, you can buy the S&P 500 in
100 pieces or 600 euro pieces. it
doesn't really change the performance.
That said, these large ETF prices can be
a disadvantage if you have a brokerage
which doesn't allow what are called
fractional shares. So basically, if
every time that you invest your money,
you have to buy at least one full share,
that means you have to invest at least
600 in this case. So that can make ETFs
with lower prices a little more
practical for people. Then on the right
hand side, you have the description of
the ETF. That's certainly very useful to
read to understand how it works. And
then down here you have some documents.
The most important document is certainly
the kid, the key information document.
I'm a big fan of this document because
it's a standardized document which all
fund managers have to make in the same
way. And for many complex and expensive
investment products that we get sold in
the European Union, it's basically the
only place where you can get an honest
look at the true costs, the true fees of
the investment. Now, for ETFs, it's
usually not so essential because the
fees are usually low and transparent.
But um for other investments, you always
want to open the kid and scroll to the
third page where you can see this table
of total costs and the annual cost
impact. In this case, it's 0.1% per year
because they rounded up 0.07% to 0.1%
per year. Um, there's also some other
useful information in the kid. For
example, the risk indicator where four
or five is typical for stock funds and
maybe two or three or one could be for
bond funds or money market funds which
are very low risk. And then you have all
kinds of structured or leverage products
which have an indicator of six or seven.
All right, so next up we've got a chart
of performance. So how has this ETF done
over time? Now something that is really
important to understand about ETF
performance is that these charts and
performance numbers they include
everything. They include the price going
up or down. They include dividends if
you have a distributing ETF and they
also include fees. So these are the
results after all the fees have been
subtracted. So this chart shows us that
between 2010 when the fund started and
today the increase in value for somebody
who put money into the fund would have
been 710%.
So that's a pretty crazy amount of
profit you could have earned by
investing in this fund between 2010 and
2025. Now what is a critical mistake
that a lot of beginning investors make
is to pick ETFs based on these
historical results. For example, people
will play with this tool to add other
ETFs for comparison, maybe a popular
MSEI World ETF, which invests in global
stocks and developed world stocks, and
they will say, "Well, the S&P 500 did
much, much better, so I'm going to buy
this one instead of the more diversified
global ETF." But the problem is past
results don't guarantee the same
performance in the future. In fact,
historically, it has often been the case
that one region performs really well for
a decade or two and then it
underperforms. So, looking at historical
data is a really, really bad way to pick
funds. In fact, if you always pick the
most profitable funds based on history,
you will probably not get the best
results because that means you are
buying funds which are right now kind of
hyped up and expensive as opposed to
funds which are maybe a little less
popular where you could jump in at lower
prices. So do look at the history to
understand how the fund works, but don't
choose ETFs based on which performed the
best over the past x years. So let's
keep going down. We have a few more
basics here. Um, so we've covered most
of this data, but what is important here
is the strategy risk. So here it says
long only. That means this ETF simply
puts your money into stocks. You will
also see some ETFs which are leveraged.
So that means they borrow money to
invest in stocks or which are inverse.
So if the index goes up, the ETF goes
down. You should stay away from those
unless you really know what you're
doing. Those are really, really risky.
Then under sustainability, this says no.
There are many ETFs these days which pay
attention to issues around social
responsibility or climate or corporate
governance. Those ETFs usually have the
acronyms SRRI or ESG in the name. This
fund doesn't. This fund invests in the
whole market. Then we have the fund
currency. We already addressed that. And
then we have currency risk which says
currency unhedged. What that means is if
you are an investor based in the Euro
zone or based in the UK where the local
currency is the euro or the pound then
you will have currency risk between the
euro or the pound and the dollar because
this fund invests in dollars. It invests
in American stocks. There are some ETFs
which are hedged. So they remove this
currency risk. But that is not quite as
wonderful as it sounds. There are
significant drawbacks and costs
associated with that. Most experts don't
really recommend hedging long-term stock
investments, but if you are concerned
about currency risk, it is available. It
is possible. Next up here, we have
volatility. Volatility is a fancy word
for risk, specifically short-term risk.
How much does the fund go up and down?
19% is quite a lot. For stocks, maybe 15
to 20% is kind of a typical range. As a
stock investor, you should expect that
your profits will change dramatically
from year to year. Maybe one year you
make 9% per year, the next year maybe
you make 30% per year, the next year
maybe you lose 15%. That is completely
normal. Stock ETFs go up and down quite
a lot. And then we have one technical
piece of information which is actually
quite important is the fund doicile in
this case Ireland. So as investors based
in Europe, we cannot buy ETFs which are
legally established in America like the
big popular ones like SPY or QQQ that
American YouTubers talk about. We need
to buy ETFs which are legally
established somewhere in Europe. Most
ETFs available are based either in
Ireland or Luxembourg. Both can be fine,
but when investing in American stocks
specifically, Ireland has some tax
benefits. So, usually people go for
Ireland based ETFs when investing in
America, unless it's a synthetic ETF, in
which case it doesn't matter. And now
you see why investing from Europe can
get a bit tricky. There's all of these
little details that you don't really
realize until you get deep into the
weeds. All right. And now we get to a
really interesting section, which is
holdings. What is included inside of
this ETF? On the left hand side, we have
the individual holdings, the companies
that the ETF invests in. We see that the
biggest investment right now is Nvidia,
which is 7.7%. Then we have Microsoft at
6.9%. We have Apple at 6.3%. And
basically the top 10 holdings actually
make up 38% of the whole ETF. For a lot
of investors, this is quite stressful.
It used to be that if you buy an S&P 500
ETF, you get a lot of diversification.
Your money gets split among many
different companies, just a few percent
in each company. But uh today with these
giant US tech companies, you have a huge
amount of exposure to a couple of major
major companies. And if those companies
get into trouble, the whole portfolio
can get affected. So, this is one reason
why a lot of investors are interested in
alternative strategies instead of just
buying the S&P 500, whether it's
geographical diversification or maybe
looking also at small cap stocks which
are smaller stocks and don't have the
same problem. And we see the same kind
of concentration issue over here where
almost all the money is invested in the
US. In fact, I think there's 96% data
from just ETF is not correct. it's
pretty much going to be 100% in the case
of this ETF. And that means that all of
your money is invested in companies that
are listed on American stock exchanges.
Now, these are in many ways global
companies that have customers and income
from all over the world. That said, you
are very exposed to companies which are
based in America and a lot of investors
these days do prefer to take a more
diversified approach where maybe you
invest in developed world stocks or also
some emerging market stocks and and
we'll talk about how you can choose that
kind of strategy a bit later in the
video but okay so this covers the um
holdings. Now up next we have some
information about different savings
plans offers from different brokerages
but this is mostly marketing stuff by
just ETF. I would not pay much attention
to that. Then you have a section on
performance. So this is again like the
chart about historical performance. You
can see how the fund has done over a
period of several years. Now this is not
annualized. So this is not like 9% per
year, 11% per year. This is cumulative.
So for example, this ETF has gone up 58%
over 3 years or 710% since inception. As
I mentioned before, this can be
interesting to look at, but don't go
choosing ETFs just uh based on the
historical performance. Okay. And the
final section I wanted to bring your
attention to is the stock exchange
listings. This is a very important
practical aspect of buying ETFs.
Basically, you can buy the same ETF on
different stock exchanges, different
online marketplaces for investments.
It's kind of like you can buy the same
book on Amazon.com or other online
bookstores. You can choose where is more
convenient for you. And the same ETF can
be available in different currencies on
different stock exchanges. So for
example, I'm based in the Euro zone. I
would like to buy this ETF in euros, but
maybe you are based in the UK and you
want to buy it in pounds. So you can
find where it's available in this table.
For example, if you want it in pounds,
you would probably buy it on the London
Stock Exchange. GBX as the trade
currency means that it's listed in
pennies. So, that would make sense. You
would use this ticker, the symbol CSP1
to buy it. I want to buy it in euros.
And with euros, I have more choices.
There's Getex, there's the Stoutgart
Stock Exchange, Bors Italana, Euronext
Amsterdam, and we also have Zitra. Now,
Zitra is the biggest stock exchange for
buying ETFs in Europe. So if I have a
choice that is what I usually prefer. In
fact, let me now move on and show you
how to buy this ETF on Zitra. We cannot
directly go to the Zitra website and
click buy. So for example, if I look up
the um German stock exchange, which is
the home of Zitra. I put in the IS of
this ETF, and I look it up, I can get
all kinds of interesting information.
And there's even this beautiful button,
buy or sell. But when I click that, it's
going to tell me to use some kind of
brokerage or bank to do it. You cannot
do it directly through the stock
exchange. So the question is which
brokerage or investment app is best for
buying ETFs. This is actually quite an
important question because your
brokerage, it's not just a supermarket
that allows you to buy investments. Your
brokerage will also hold on to your
investments. So it's really important
that this needs to be a safe, reputable,
licensed company. Now some of the
biggest names in Europe that a lot of
investors use are Interactive Brokers or
Saxo or Dejiro or Trade Republic or
Trading 212. But the thing is there is
no single brokerage that is best for
everybody. A number of factors that you
need to consider are of course safety
and license. You want a company that is
financially strong and that it's
licensed in a country with a good
financial regulator. Product access.
Make sure that the brokerage offers the
ETFs that you want. This can be a
problem especially if you live in
Eastern Europe because many Western
European brokers don't offer a lot of
ETFs to Eastern European clients for
various regulatory reasons. You have to
look at costs, make sure the fees are
low and then you have to think about
taxes because in many European countries
it is better to use a local brokerage
that simplifies taxes. In particular,
this is the case in countries like
Germany and Austria and Denmark. For um
doing a quick demonstration, I will use
Trading 212. It's not my main brokerage,
but it is very simple, so I like using
it for demonstrations. Okay, so let me
open up Trading 212. Like any brokerage,
when you log in, it gives you a lot of
different information. I see information
about top winning stocks, top losing
stocks, all this other stuff. It doesn't
really matter to me. That's like noise.
It's mostly for traders. As a long-term
investor, I just want to buy my ETF. So,
I'm going to hit search and I will paste
in the ISIN. And immediately, I see
several places where I can buy this ETF.
Now because I put in the IS this unique
identifier I know that I have the right
ETF but the same ETF can be available in
different currencies right so here I
have it available in dollars in pounds
or specifically in pennies or in euros
because I'm in the euro zone I'm going
to buy it in euros so I'm going to go
here and hit buy. Now I don't actually
want to put € 600 into this ETF today.
And the good news is that trading 212
offers fractional shares. So that means
I don't have to buy one whole share. I
can buy part of a share. So I'm going to
tell trading 212 to give me.1 share
which is around €62.
And I will use what is called a market
order. Now normally when I teach my full
investment training classes, I recommend
limit orders. That is how you can make
sure you get the best possible price.
But for simplicity right now I'm going
to use a market order. So I put in 0.1.
I hit review order. I look everything
over and I hit send buy order
and pretty much instantly trading 212
So basically I invested my humble60s
something euros in 500 of the biggest
American companies with just a few
clicks in just a few seconds which is
kind of crazy when you think about it. I
mean a 100 years ago the richest person
in the world couldn't do it but today
that's possible for any of us. Okay, so
that's how you buy an ETF. But please do
remember depending on your goals and
especially your local tax situation, the
ETF that I showed you may not be a good
choice. In some cases, it could be a bad
choice. This brings me to the most
expensive mistakes that beginning ETF
investors tend to make. Mistake number
one is not customizing your portfolio
for your local tax rules. The most
famous example of course is accumulating
versus distributing funds where in many
countries accumulating funds are best
because you don't pay dividend taxes but
then you have these complications in
Switzerland or Austria or the UK. Then
you have things like Spain where there
are special tax advantages to
traditional index mutual funds that you
don't get if you invest in ETFs. Then
you have something like Denmark where
there's a really complex tax code for
different kind of ETFs like distributing
versus accumulating. You get very
different treatment. If you want the
best possible results, you really have
to adjust for the local rules in your
country. Then the mistake number two
would be not adjusting your portfolio
for your age and your goals. If you're
just 20 years old and you're starting
out, you have a long time horizon ahead
of you. You're okay with taking risk.
Well, maybe it makes sense to put 100%
of your money into stock ETFs. But you
have to be aware that if there is a
crisis, stocks can fall by half. They
can stay down for years. And that's fine
when you're young and you have a lot of
time, but it's not okay when you are
closer to retirement. So older investors
might want some lower risk investments.
For example, a mix of stock and bond
ETFs. And of course, mistake number
three is just buying the S&P 500. Now,
it's not always a mistake. If you decide
that this is the correct strategy for
you, go for it. But today with the
rather crazy politics that we're seeing
in the US and with the huge
concentration of the market in big US
tech stocks, many European investors are
asking, "Do I really want to expose all
of my portfolio to just this one country
and this one political system?" Yes,
over the past 10 or 20 years, the S&P
500 has been a fantastic investment, but
that doesn't mean that going forward
betting everything on America is
necessarily the smartest approach. You
can invest globally, including America.
You can invest in countries excluding
America. You can focus on Europe. You
can focus on emerging markets. You have
to consider your personal philosophy,
what risks you would like to avoid and
then design a diversified lowcost
portfolio that you can live with long
term. So, as we've seen, buying an ETF
is pretty easy, but choosing a smart
strategy for investing your life savings
can be a little bit tricky. Beginning
investors face a lot of questions like
which broker or investment app should
you trust with your money and when is
the right moment to start? Should you
invest all your savings at once or split
them up and invest over time? And how do
you handle taxes? Because of all this,
many new investors either never start at
all or they jump in and make expensive
mistakes. Now, on this YouTube channel,
I help European investors figure all of
this out, one video at a time. But if
you'd like a faster step-by-step
solution that takes you from A to Z and
also includes some one- on-one support
from me, you might be interested in my
training program for European investors,
the Index Masterass. So, if you'd like
to find out more, just follow the first
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