Buy S&P 500 in Euro or Dollar?

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Nielsva
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Buy S&P 500 in Euro or Dollar?

Post by Nielsva » Sat Jan 17, 2015 8:40 am

I want to invest in the S&P 500. I am an European investor with Euro on my bank account. Presume I buy 50% of the S&P500 on the American stock exchange in Dollar and 50% on the European exchange in Euro (Assume that both ETFs are identical).

What will happen if the Dollar appreciates 10% in value compared to the Euro? Are the stocks bought in Dollar now worth 10% more compared to the ones bought in Euro?

The Planner
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Re: Buy S&P 500 in Euro or Dollar?

Post by The Planner » Sat Jan 17, 2015 8:56 am

First of all, do not buy from a US exchange or you put yourself at risk of estate taxes. You can buy both euro and USD-denominated S&P 500 ETFs from Vanguard Europe via the Amsterdam and London stock exchanges (VUSD for dollar and VUSA for euro).

In addition to the fortunes of underlying businesses, if you buy VUSA, there is an added volatility: VUSA's share price will rise if the euro weakens against the dollar. And if the euro strengthens against the dollar, the share price will fall proportionately.
But at all times, if you take the share price of VUSA and convert it to USD, you would get the exact amount of the current share price of VUSD.

Nielsva
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Re: Buy S&P 500 in Euro or Dollar?

Post by Nielsva » Sat Jan 17, 2015 9:59 am

Great thanks a lot! I am just wondering why my adviser want me to buy on the American exchange in Dollars. Does not make sense et al...

yahh
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Re: Buy S&P 500 in Euro or Dollar?

Post by yahh » Sat Jan 17, 2015 11:53 am

You might want to check the Euro denominated Ishares SP500 ucits etf which is available with a 0.07% expense ratio and is accumulating (ie, dividends are automatically reinvested). If you have to pay any tax on dividends, this may be more advantageous.

Nevertheless, the currency in which you buy is more or less irrelevant. The SP500's base currency will always be the USD (as in, the measured NAV corresponds to X US Dollars).
If you buy it in an euro-denominated fund, then the NAV will always adjust itself automatically to any change in the FX rates.

The real return will be the same if measured in the same currency. The actual % performance will change and differ in a Euro-denominated fund, but the real return does not change based on the currency in which the fund is denominated.

Micks
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Re: Buy S&P 500 in Euro or Dollar?

Post by Micks » Sat Jan 17, 2015 2:13 pm

Hi Nielsva, yahh provides some solid advice on your currency question.

As an addition to the previous posts: I believe I read in another topic that you are a Dutch investor. If that is correct you do not have to worry about estate tax since the US and The Netherlands have a estate tax treaty. Buying a US etf of the S&P500 does save you 15% tax leakage since we Dutch can get our dividend taxes back. Do make sure you know about FATCA, you will find some good reasons on this forum not to invest in US funds due to this issue.

The iShares s&p etf domiciled in Ireland is a good and cheap alternative. Tax leakage for the Irish s&p ETFs are the same. Still I would prefer an accumulating one mostly because of the simplicity. Also when buying a distributing version it probably pays out dividends in USD which might cost you in exchange fees.
Kind regards, Mick

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grabiner
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Re: Buy S&P 500 in Euro or Dollar?

Post by grabiner » Sat Jan 17, 2015 4:52 pm

Nielsva wrote:What will happen if the Dollar appreciates 10% in value compared to the Euro? Are the stocks bought in Dollar now worth 10% more compared to the ones bought in Euro?


It doesn't matter. If I buy stocks for USD 143 and you buy stocks for EUR 110, and the market doesn't change in dollars but the dollar goes from 1.3 to 1.43 euros, then I will hold stocks worth USD 143 and you will hold stocks worth EUR 100. But if I sell my stocks to spend the money in euros, I will have EUR 100, so I lost the same 9% as you did.

Thus what matters is the cost of holding the stocks, and the way the funds are treated by different countries for tax purposes.
David Grabiner

Vistas2011
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Re: Buy S&P 500 in Euro or Dollar?

Post by Vistas2011 » Thu Apr 16, 2015 12:02 pm

I have dollars and do not want to exchange them. I want to buy VUSD and VDNR but neither Saxo nor ETrade show these. They only show the Stterling versions VUSA and VNRT. What brokers deal with the dollar listed ETFs that are on the London Stock exchange? Same problem exists with Ishares. Saxo lists CSP1 which is in Sterling but not the dollar listing CSPX. I could go on. Saxo lists no dollar listed ETF which are on the London exchange

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