Best S&P 500 ETFs You Can Invest In - Detailed Explanation To Help You Choose

what's up you guys sasha here today i want to answer a question that i get asked a huge amount in the comments because it is genuinely a very confusing topic although it sounds super simple on the surface and that is what is the best way to go and invest in the s p 500 if you're based in the uk or for that matter anywhere in europe really and the issue is that there is a myriad of different options there's like endless different funds if you go on any of your trading platforms that you use or any website there's just endless different funds they all have this different terminology which one is the best you go and look at different websites and they all tell you this one's the best or that one's the best and how do you make the decision what should you actually be looking out for i'm gonna break it down i'm gonna explain exactly everything you need to know about all of these different etfs for the s p 500 that are available in europe and tell you exactly what the differences are and hopefully that will help you make your mind up and decide as to exactly how you want to go and invest in the s p 500 if that's the kind of thing that you want to do in the uk there are two things that are really really important number one you can't go and invest in the same etfs that are trading in the in the us that all the us trading channels talk about and all the us investors talk about because they are not available on uk trading platforms the reason they're not available is because they don't provide the key information documents that uk governments require in order for you to be able to trade them in uk so as a result you can't buy them in isis and you can't buy them in general trading accounts you can buy them if you have a trading account that allows you to trade u.s entities like etfs traded in the us but that doesn't come with the protections of having uk fscs protection or any other kind of benefits of trading on a uk regulated platform the second important point is i am not going to be talking about a lot of different funds which are hedged which are leveraged and which are synthetic i will talk very briefly at one point about synthetic funds but i am not going to be talking about that whole group of funds because if you are asking a question as to which of these funds is best and which one you should be investing in if you're a beginner if you don't know that much about these different types of etfs the likelihood is you should not be trading anything that is leveraged or hedged because there are massive massive risks involved and you have to know what you're doing and there's even disclaimers if you go and sign up to those types of things let's say that you have to be professional investor in order to use it even though they make it relatively easy for people to go and buy into those things i personally would not recommend that people go and do it this is not financial advice i don't know your personal circumstances so i can't provide any financial advice if you do need financial advice go and look for a suitably qualified professional but if you are genuinely wanting to find out which just regular way of investing your money into the s p 500 is i'm gonna tell you but first let me go through a bunch of terminology and a bunch of critical details strap in there's a lot for me to get through here so uh let's get into it first i just mentioned the word synthetic and if you're not quite sure what that is there are two general types of etfs in terms of how they go and invest your money one is called the physical way of investing and the other is called the synthetic way of investing and the reason that the two are different is that the physical way of investing is you the etf you're buying is going to be literally going and buying the stocks of all the different companies the s p 500 according to their rules and how they're going to do those investments in the proportions required and actually hold those stocks as part of the etf so it's a physic they physically go and buy those stocks a synthetic etf doesn't actually go and buy those stocks what they do do is they buy several different types of instruments from third parties things like swaps and other types of instruments as well and what this means is they never actually hold the stocks they basically make it more simple for people to potentially go and invest in a way because it doesn't require the physical trading and the cost associated with that but there are massive downsides as well and that is that etf doesn't actually hold any stock so if there is issues with the third parties if there's issues like a massive economic crash or other situations like that you will have a higher risk trading with a synthetic etf because they just physically don't actually own any stock they owe random iou papers with other random companies that you have never heard of and as a result i personally would probably steer clear of those the benefit that they do have as a result is they will offer you slightly lower fees but given the fees are already with s p 500 funds incredibly incredibly low i honestly don't think that's an advantage that is big enough anyway the next thing that is really really important is whether the fund is replicating the s p 500 in full or if it is optimized some of the funds you'll notice you use the word sampled others use optimized it really depends it's kind of the same thing so a fund that represents the sap 504 will do their best subject to it being physically possible they'll go and buy all the different stocks that they need to be buying and hold all those stocks a sampled or an optimized fund will often not buy the stocks that are say very small or stocks that are just about exiting or maybe hold less stocks of the ones that are maybe smaller companies and have a very small proportion of the total and even with some of the other companies that maybe won't hold the full 500 maybe they'll hold like a smaller number of those stocks now traditionally this was a bigger issue than it is today because today even the stocks sorry the etfs that are sampled or optimized will in some cases i'm going to cover that in just a second actually hold pretty much exactly the same as the four replications do but it's still really important no because in my preference my kind of opinion it is still far better to have something that is genuinely fully invested as per the rules so that you have a full s p 500 replication in there there are some benefits that some people will tell you about having a sample or an optimized uh way of investing in in that you might actually slightly beat the s p 500 but we're getting into the realm of not actually investing in the s p 500 but investing in some kind of fund that tries to implement some kind of strategy in order to beat the s p 500 which is a whole different story as to whether that's good or not so i'm not going to go down that road the next two points are really really important now all funds are split into two broad categories they're either accumulating or distributing accumulating funds basically mean that whenever the stocks that they are invested in pay out dividends those dividends are automatically reinvested back into the portfolio so you don't have to do absolutely anything the dividends will automatically be reinvested in the same proportions into the various different stocks of the s p 500 and you won't have to do anything at all in order to go and take that money and decide what to do with it distributing etfs will go and physically pay you out those dividends typically on a quarterly basis not whenever each single company has the money to go and pay out but typically they'll go and accrue them and every quarter you'll get a dividend paid out to you as a result i'm going to cover exactly why that's important when it comes to the actual funds the difference is going to be in the fees and the utility of those but anyway we'll get to that in just a second the second thing you need to know is the etfs that you're allowed to buy in the uk are typically going to be traded either in pounds or in dollars there are some other options as well you can go and buy euro traded ones there's actually no real advantage to that it actually makes things more complicated and in some cases more expensive as well but the reason is really important is that whatever you choose to do you are then going to be subject to fluctuations on currency and if you have an etf that is traded in dollars it just means that whenever you decide to go and sell that etf the currency rate at that particular point is going to determine how much money you're going to get so if the pound is considerably weaker at that point you're going to get a lot less money than you would otherwise have been able to get the same exact thing works in reverse as well so if you're buying a pound traded etf that means that whenever things are being distributed whenever things are being bought they're immediately being converted at that point in time into pounds so you essentially get the reverse effect of if the dollar suddenly strengthens then the value of the stuff that you bought decreases because the pound itself is actually dropping now what some people like to do and it's certainly something that i do as well is i like to invest half of my money into usd etfs and half my money into pound etfs and some people say that's completely pointless because what's the point of hedging because you know things swing one way or another and the point is this it means that the investments that i have in these etfs are considerably more liquid it means that whenever i do choose to go and sell i can go and sell knowing that on average i'm going to have pretty much no loss as long as i'm balancing those two out because if one is stronger than the other that's going to counter balance with the opposite scenario and however much it plays out it is true that in the long term if you're planning to hold this for like 50 years plus etc the strategy is not quite so relevant but if you always want to have that liquidity option open and available so that if you do need to go and access that money you know that you're hedging the risk of the currency fluctuations that's in my opinion a reasonably good strategy the next important thing to note is that you can invest in etfs either through your isa account or through a non-isis so if you don't have an existing isa you are going to be saving a lot of money in taxes if you go and choose to invest in ectfs using a nice account and all the major trading platforms uh trading 212 free trade um all the other big ones that charge you slightly higher fees they will all offer you both of those options the important thing to remember is that aside from all the uk taxes the us withholding tax still applies even if you use a isa account and the reason that's important is the uk has an agreement with the us which means that the standard withholding tax of 30 is reduced to just 15 but what that does mean is that any dividends that you receive as part of that etf investment will be taxed before you actually go and get that money now although that sounds pretty bad it's actually not as bad as it could be if you're looking at your investments over the long time um typically an s p 500 fund will appreciate depending on how you look at it at something like seven to eight percent before accounting for inflation on average some years will be far higher some years will be far lower and some people call it much higher numbers those numbers are not true and that tends to be the sort of the average appreciation of these types of funds now as a proportion of that the vast majority of the growth is just through the growth and the value of the stocks not through dividend income dividend income depending on the year has been slowly decreasing over time if you look at the graph it's been coming down and coming down more and more and at the moment for the last say 20 30 years it's probably training towards somewhere in that 1.8 to 2 percent territory in terms of yield so out of that total seven to eight percent under just under two percent is how much you're actually earning from dividends so the fact that you're being taxed 15 on that means that you're losing about 0.3 percent of your overall performance which isn't going to be you know somewhat noticeable but it's not really that big a deal it's commensurate with some of the fees that some of the bigger exchanges charge you and actually is lower than a lot of these fees so although it is something you should be aware of there's not really anything you can do about it if you do choose to go and invest in american companies and in american etfs um unfortunately they're just part of the game we're not quite done yet there's a few other important things i need to make you aware of and understand before we get into the actual funds the reason i'm talking about these is they're hugely important in you actually understanding why some of the funds are better and once some of the funds are worse next you'll notice that with some of the funds they will have a little disclaimer which will say that it is a ucits type of fund the reason that that exists is because a lot of these funds base themselves in ireland the reason they base themselves in ireland is because of taxes for the funds themselves so uh it is a tax advantageous situation if you're based in europe to be based in ireland some of them will be based in luxembourg and there's some other locations as well but the majority of them are island-based and there are the uc its is a voluntary code that these funds can go and subscribe to which governs things like the way that the funds go and buy in and out of stocks and the way that they present the information to their customers and some other rules about the way that they engage with their customers it's not really going to affect anything but it is generally a good thing if a fund subscribes to that because it shows that they generally care and they pay a bit more attention to some of these parts of the way that they deal with their customers the next important piece terminology that you need to know is the like the like is the button that you can see below this video that you need to go and smash right now for the youtube algorithm i really really appreciate it i'm gonna give you some really useful information uh further down in this video if you have enjoyed this video so far please go and smash that like button it really really helps me reach more people and grow my audience i really really appreciate it anyway let's move on to the next thing that's really really important and that is the expense ratio and this is the one that people often don't really understand as well but typically the expense ratio is the sort of total ongoing cost of this fund as a proportion of the total amount of money invested now some more uh rare funds or funds that have you know less volume traded etc will have relatively high expense ratios you'll notice that some of them will trade as much as 0.4 and 0.5 percent with s p 500 funds they're sort of the good ones the good news is that these expense ratios are really really low you're looking at 0.07 which is an incredibly low figure now the last thing to pay attention to is the spread this is actually really really important because although people are really focused on expense ratio of figure a lot of people just aren't aware of the fact that spread is in some cases as important or more important because the spread is basically the difference between how much you can buy and sell the same etf for and if that spread is reasonably high and that means that you're going to be losing quite a large proportion of money when you buy into the stock and when you then go and sell your stock at the end so if you plan to say do that say within the course of 12 months then you're going to be potentially losing out twice when you first buy it and when you then buy out and if that spread is high let's say it's not 0.3 or 0.4 percent then you're going to be losing about half of that when you're buying in and another half of that ish when you're buying out so you're potentially going to lose about 0.4 percent of your money just by virtue of doing those transactions so again you need to go and understand exactly what spread is on these funds in order to make a fully uh weighted decision as to which one's the best the last important thing to note the funds that you're investing in uk really need to be uk reporting this is a really critical thing because if a fund if an etf that you're investing in is not uk reporting the income that you receive from that etf will be treated as income and will be taxed at the uk income tax rate if you're investing in the uk reporting fund the costs are going to be considerably less you're allowed to keep it in your iso account and even if you do have to pay taxes through a regular stocks and shares account it's still going to be far less so that's really important and the truth is all the big funds that i'm going to be talking about are all uk reporting for that reason anyway let's talk about the actual funds this is where people get really really confused there's a myriad of different companies every company seems to have loads and loads of different types of funds with different abbreviations and it can be very very difficult to understand but let's keep it super simple there are generally two companies that you can go and buy funds from in the uk that offer good etfs that represent the s p 500. they are vanguard and ishares that's it there are others as well as invesco there's x trackers there's licks so there's loads of different ones but all of these suffer from one of the things that i was mentioning earlier either they're not properly fully distributed or in many cases they're going to be synthetic so they won't actually own the shares that you're investing in or they're going to have some other downsides so i'm going to not really talk about those for the purpose of this video because i actually think that if you're just getting into this game i wouldn't go and trade those types of funds personally that's just my opinion within both vanguard and i shares there are only four different funds that you really need to be looking at they're gonna have a lot more funds listed but some of these are going to be trading in euros and that exposes you to lots of currency fluctuation which is not really going to help you in any way whatsoever and they also have a lot of sub funds which only invest in parts of the s p 500 they'll you know invest in only the tech firms or pharmaceuticals or bank you if you're wanting to invest in the s p 500 as a whole you need to go and ignore those as well now the reason that they both have four funds is they basically have a two by two grid and you basically have pounds and dollars uh on one axis and you have distributing versus accumulating on the other axis that's it so you can have a pound accumulating account or a pound distributing account we can have a dollar accumulating account or a dollar distributing account and each of those two companies has each of those combinations available now let's talk about the costs the costs are really really similar they both actually cost 0.07 in ongoing charges so in terms of that they are pretty much identical the size of the funds is commensurate they're both very very large and they both have very very good trading amounts so that means that you basically can choose whichever one you prefer if you're training vanguard the four funds are for the pound accumulating it is vuag v-u-a-g if it is the pound distributing account it is the vusa account which is very popular v-u-s-a if it's the dollar accumulating account it is v-u-a-a and if it's the dollar distributing account it is the vusd the same exact ones exist for i shares so the pound accumulating is the csp one the dollar accumulating is the csp x if you then go for the distributing accounts the pound one is called the iusa and the dollar distributing account is the idus now in terms of the currency there isn't that much difference you can go and pick whether you want to be invested in dollars or in pounds or in a mix of the two it's kind of up to you but the big difference comes between investing in distributing accounts and accumulating accounts and the difference is this the spread on the accounts is really really different if you're investing in vusa or vusd so the two distributing accounts your spread is going to be as low as 0.03 so that means whenever you're buying in and out of those distributed ats you're going to have a really really low cost you're basically going to be losing no money at all whereas if you're going to go and invest in the accumulating ones that spread goes as high as 0.2 percent which is considerably higher the downside is that with a distributing account it is not as passive if you're wanting to go and have a hands-off just go and put your money into it and not touch it for several years and then come back and look at it later you will want to go and invest in the accumulating account and to be fair if you are doing that then the spread isn't really as important because you're not frequently trading so you're not going to be frequently losing out on any fluctuations because you're not going to be actually buying in or out of the portfolio but if you do want to maximize the value and you are happy to go and every now and then go and look in your account then the distributing account is probably going to be slightly better value in the end they're going to pay the dividends every quarter so all you have to do is every single quarter go and log in and take those dividends and reinvest them in the same stock if you choose to do so or do something else with them and that will save you that small fraction of a percentage but in the grand scheme of things it's not a huge deal if you're interested in having even lower fees you can go and look at say the investor portfolio which has accumulating accounts in both pounds and dollars they are the sp xp or the sbxs the fees are lower they're just 0.05 so a bit lower than the 0.07 that i shares and vanguard charge but those are based on swaps they're not based on real ownership of shares and as a result i personally don't have my money in that so for me personally there isn't really much difference between the ishares or the vanguard it's kind of up to you as to which one you prefer i quite like having my mix of the vusa and the vusd because that manages my difference in currencies and allows me to keep a balanced portfolio going forward that is probably fully invested in shares if you have a different opinion about anything that i said make sure you go and leave a comment below i'd love to hear it if you found this useful and you haven't done it already please please go and hit that like button for youtube algorithm it will really really help me i really really appreciate it if you're interested in more videos about personal finance about investing about making more of the money that you have make sure you go and subscribe to this channel hit the bell to get notifications every single time one of my videos comes out thank you so much for getting this far if you managed to get this far i hope you found this useful thank you thank you so much for watching and i'll see you guys later you

Channel: Sasha Yanshin

Views: 36,061

Keywords: s&p 500 index fund, s&p 500 index fund uk, s&p 500 ucits etf (vusa), vusa, vuaa, vuag, vusd, csp1, cspx, iusa, idus, spxp, spxs, s&p 500 etf, s&p 500 vanguard uk, which s&p 500 index fund to buy, best s&p 500 index fund, best s&p 500 etf, best etf to invest in 2020, best etf to invest in 2020 uk, best etf on trading 212, best etf 2020, best etf to invest, best etf 2020 uk, best etf portfolio 2020, s&p 500 etf voo, s&p 500 etf explained, s&p 500 etf best, vanguard s&p 500 etf

Id: jOB5TpTjYU8

Length: 20min 52sec (1252 seconds)

Published: Wed Nov 11 2020