I noticed a lot of interest in stock investing via ETFs on the blog. As a result, today I want to explore how you can find and compare the best ETFs that fit your own investment strategy as a European investor.
Here is what the post will cover:
- First, I’ll tell you my own history with ETFs and the thought process I went through, which may help you as well. I’ll of course also tell you about my favorite ETF which I ultimately settled on, which most of you probably already know by now.
- We’ll then compare accumulating and distributing ETFs, to help you figure out which version is more in line with your goals.
- I’ll show you how to find the right ETFs for your investment strategy and the tools I use to compare different funds to find the best performing ones with the lowest fees.
- Lastly, as a bonus, I’ll also give you a list of what I believe to be the best ETFs for specific strategies.
In this article I’m making the assumption that you’re a long-term investor like me, with an investment period of 10 years or more. You’re of course free to speculate on specific sections of the market as well, if that’s your thing.
If you’re new to the world of ETF investing, my favorite international brokerage accounts are with Degiro (see my review & guide) and Interactive Brokers.
That being said, if you’re from Austria or Germany, where taxes are more complicated, I recommend checking out these alternatives. Some of them have even better conditions and they take care of all taxes for you.
Defining Our ETF Investment Strategy
The first decision we need to make is how do we want to invest.
Do we only want to buy one ETF covering the entire world or split our investment into several ones?
That decision is yours to make, I will just tell you my perspective.
My ETF Investment History – 4 ETF Portfolio
When I started buying ETFs in early 2017, I started with a more complicated strategy, consisting of 4 different ETFs:
- S&P 500 – covering stocks in the US
- Stoxx Europe 600 – for stocks in Europe
- MSCI Emerging Markets – for stocks in emerging markets, eg. China, India, South Korea
- MSCI Pacific – to cover the pacific region, eg. Japan, Australia, Hong Kong
Now you’re probably asking yourself, why?
Well, I thought I could outperform a simple worldwide market ETF with this strategy, by rebalancing regularly and allocating new money to the regions that didn’t perform as well, hoping that they would outperform later on.
Cons Of a Multiple ETF-Strategy
However, I quickly realized a couple of downsides:
Depending on the broker you use, you usually have fees when buying or selling ETF shares. So the more ETFs you have and the more often you trade, the more of your money gets lost in fees instead of being invested.
Not only that, when we sell shares of an ETF that went up in value, we suddenly realized some profits and in most countries, that means we have to pay taxes on those profits in the year of the sale.
If instead, we just buy & hold our investment long-term, the amount we would have lost right away on taxes due to the sale, can still be invested and work for us until we do need to sell it, for example when we’re retired. Of course I’m making general assumptions here, please make sure to check your local tax laws.
Rebalancing and deciding which specific ETF to buy, whenever you have money to invest, is too much of a time investment in my opinion. I think you can get a much better return on your time by putting more hours into actual work.
Sticking To The Plan
We only know looking back after 10 years or more if the strategy we chose was the right decision, and we need a strategy that we’re likely to stick to, instead of jumping from one to the next – as I have also done in the past.
You know yourself best, so ask yourself this. Let’s say you’re buying 4 ETFs regularly and one or two keep under-performing the general market year after year.
Will you stick to the strategy or will you get discouraged and start doubting your decision? Would you maybe have been better off just buying one or two ETFs and saving yourself the extra time?
My ETF Investment History – 2 ETF Portfolio
Well, my wife and I switched to a two ETF strategy shortly after, to simplify our portfolio. We split our investment into two very popular ETFs you often hear mentioned in the finance space:
- 80% MSCI World, covering developed markets worldwide
- 20% MSCI Emerging Markets, covering emerging markets
While there is absolutely nothing wrong with that strategy, in the spirit of simplicity and time optimization, I realized that even that wasn’t easy enough for us in the long run.
My 1-ETF Solution
As a result, ever since the beginning of 2019, my wife and I have only been buying a single, global ETF, the Vanguard FTSE All-World.
We kept the MSCI World ETF shares we had purchased up to that point in our portfolio, as we saw no point in selling them and thus realizing taxable capital gains.
The Vanguard FTSE All-World ETF covers the entire world, investing into over 3.460 stocks from all over the world, in developed and emerging markets.
We love the simplicity of buying a single, low-cost ETF and being invested all over the world.
Why I’m Not Buying the S&P 500
In the financial independence space you often hear of US investors with a strong home country bias, leading them to only invest in the S&P 500 index, covering the 500 largest companies in the US. I also know some people from our own community who like that strategy.
Here is my issue with that: While simply investing in the US market has worked very well over the past 30 years, also due to the incredible growth American companies in the tech sector have had, nobody knows what the future looks like.
Who knows if companies like Apple and Microsoft will still be as relevant as they are today in a decade or if they’ll be replaced by other, more profitable companies, for example from China, India or one can hope, maybe Europe.
I’m just not willing to bet my savings on the thought that the US will continue leading the market over the next few decades as well. It could happen, but maybe more and more successful companies we interact with daily will be based in other countries and continents.
Since I don’t know the future, I love the idea of having all my bases covered, so that I can profit from the growth of the worldwide economy as a whole, no matter which country does best going forward. And if the US stock market keeps doing well then great, I’ll still profit from it, as it currently makes up 56% of the Vanguard FTSE All-World index.
Ok, now that you understand my way of thinking, you need to ask yourself another question – do you want an accumulating or a distributing ETF?
Accumulating vs. Distributing ETFs
In short, distributing ETFs pay out the dividends they receive from the companies in the index to you via distributions, while accumulating ETFs reinvest the dividends they receive, by buying more shares of the companies in the index.
|Distributing ETFs 💸||Accumulating ETFs 💰|
|✓ Receiving dividends can be motivating||✓ More tax-efficient, capital stays invested longer|
|✓ Regular cashflow without selling||✓ No work needed to reinvest dividends|
|⨉ Taxes on dividends||⨉ If the market is down, are you more likely to sell?|
|⨉ Work needed to reinvest dividends||⨉ No cashflow, unless you sell shares (eg. retirement)|
I hope that clarified some things for you, of course when it comes to taxes I can only generalize, so check your local tax laws to make sure.
Ok, now let’s get to the part you’ve been waiting for. Finding the best ETFs.
How To Find The Best ETFs in 2021
For this part, I like to use the website JustETF.
It’s a great free tool to find ETFs, compare their past performance and to get all the information we need to buy them using a low-cost broker like Degiro.
This is actually a lot easier to explain on video, so here is my screen recording with a detailed how-to guide (starts at 06:22 minutes):
Alright, let’s get to the last part.
My Favorite ETFs
After a bit of research, comparing factors like costs, performance and size, here are my favorite ETFs covering four well-known stock market indexes. I also added the ISIN numbers, so you can find them more easily.
|Index (Companies)||Distributing 💸||Accumulating 💰|
|FTSE All-World (3.960)||Vanguard FTSE All-World*|
|Vanguard FTSE All-World*|
|MSCI World (1.585)||Xtrackers MSCI World 1D|
HSBC MSCI World*
|Xtrackers MSCI World 1C|
iShares MSCI World*
|MSCI Emerging Markets (1.397)||UBS MSCI Emerging Markets|
|Xtrackers MSCI Emerging Markets|
|S&P 500 (505)||Vanguard S&P 500*|
|Vanguard S&P 500|
The ETFs that I marked with (*) can currently be purchased commission-free on Degiro (full list and conditions here).
Still, if you’re investing long-term, I don’t think that whether or not you can purchase an ETF commission-free should be the deciding factor for which ETFs you choose.
These are simply my favorites based on criteria like costs, performance and size, there is nothing wrong with you going with other ETFs instead.
Last but not least, if you already own existing ETFs that fit your strategy, you should probably hold on to them, even if they have slightly higher fees. We’re usually talking about very small differences anyway.
Ok that’s it, I hope this video helped you get some more clarity on your ETF investment journey!
What are your favorite ETFs? I would love to know in the comments!
The Best ETFs in 2021 – The Video
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Disclaimer: Investing involves risks of losses. You should always do your own research before investing into anything. Also, some of the links are affiliate links, which help support me, the website & YouTube channel. I only link to services I use myself, none of them are sponsored.
Great post and video about ETFs. I was curious to know what’s your opinion about ETFs dedicated to SRI investing.
From what I understand, you’re “all in” for the Vanguard FTSE All-World (Acc). If that one didn’t exist, would you find iShares MSCI World SRI (Acc) interesting?
Thank you Samuel! I’m not a fan of SRI funds, as I feel like the categorization is too subjective. One ESG/SRI ETF counts a company as “good”, while it may be excluded from another one. Also, it reduces diversification quite a bit.
Yes, I like to keep it as simple as possible, while covering the entire world (developed & emerging markets).
Remember that the MSCI World only invests into companies in developed countries, so you’re excluding potentially important “emerging markets” like China, India, South Korea etc. The MSCI World SRI is even more restricted, it only invests into 357/1.583 companies in the MSCI World index.
You could get an MSCI ACWI or a combination of the MSCI World & MSCI Emerging Markets if you wanted to achieve something similar to the Vanguard FTSE All-World.
Just my personal opinion of course 🙂