Index investing continues to gain popularity with Belgian investors. The most famous index is the S&P 500, which has the 500 top American companies, weighted by market capitalization. We’ll walk you through why the S&P 500 is so popular and look at some of the downsides for investors. Then we’ll discuss three different ways of investing in the S&P 500 from Belgium.
What is the S&P 500?
S&P 500 stands for the Standard & Poor’s 500 index. As the name suggests, it seeks to track the performance of a composition of the 500 largest American companies. Through the S&P 500, you get exposure to a large section of the US economy as it covers 80% of the total American market capitalisation.
Its popularity continues to grow as the US economy continues to perform extremely well. It's an easy way for index investors around the globe to buy a large chunk of the US stock market in one go.
As you can tell from the graph above via Backtest, the S&P 500 has returned an average return of 10.8% per year since 1992. That’s a considerable return, especially if you began investing in the early nineties.
How to buy the S&P 500
You can't directly invest in the S&P 500 because it's an index, but you can invest in one of the many funds that use it as a benchmark and follow its composition and performance. As a Belgian investor, you can buy shares in an ETF (Exchange Traded Fund) that tracks the performance of the S&P 500.
The first step is to explore justETF.com which provides you with a complete rundown of different ETFs available to Europeans. One search for "S&P 500" brings about a number of results, which can be daunting at first:
How do we know which S&P 500 ETF to actually buy?
Different ETFs can have varying tax implications for Belgian investors. As there are many options as shown above to buy the S&P 500, we can follow a set of criteria to follow as Belgian investors in order to choose the right ETF:
- Accumulating. There is no capital gains tax for stocks in Belgium, but there is a tax on dividends. If you choose a distributive version of the ETF, you are liable to pay a 30% tax on all dividends. So it's preferable to invest in accumulating funds.
- Domiciled in Ireland. It’s important for Belgian investors to choose a fund that is domiciled in Ireland so you won’t be double-taxed.
We dig deeper into the important criteria for Belgian investors in our article on investing in ETFs in Belgium.
S&P 500 through iShares CSPX
One of the ETFs that fits our requirements is the iShares Core S&P 500 (Acc) ETF (ISIN: IE00B5BMR087). It's offered by iShares, one of the largest fund providers in the world. We’ve highlighted in red the criteria that we were after when choosing the ETF on justETF.
Buying the ETF with Bolero
ETFs are traded on stock exchanges. Individual investors have to go through a broker to buy ETFs on the exchange. Bolero is our broker of choice for this article.
To invest in the S&P 500, a search with the ISIN code (IE00B5BMR087) is the easiest way to proceed. You’ll notice that there’s only one exchange where this ETF can be purchased from: Euronext Amsterdam, which is the Amsterdam stock exchange.
You’ll have to pay the following when buying the fund through Bolero:
- Broker fee. It costs €7.50 for the transaction, whether you buy one share or several. The fee can even be higher if you buy many shares. You can compare the broker fee of the ETF for different funds with our comparison tool.
- The transaction tax. Every single time a transaction takes place, either buying or selling, you need to pay the Belgian state a fee. For this ETF, the transaction tax is 0.12% of the total price of the share. We explained in detail how to calculate the transaction tax of any ETF.
Once you’re ready, click “Buy” and you will have purchased your ETF. Congrats!
The downsides of investing in the S&P 500
The S&P 500 is a good index to invest in, but it does have some downsides:
- it's concentrated in the US stock market
- it consists of only the largest companies
- it's volatile, meaning its price fluctuates a lot
Concentrated in the US stock market
The S&P 500 represents only about 40% of the global stock market. This means that by investing in the S&P 500, you leave aside returns from many other companies around the world. For instance, countries like China or Brazil have the potential to grow significantly over the next decades.
The US stock market has performed exceptionally well during the last 50 years compared to most other countries in the world. But the past does not guarantee future returns. The American economy may continue to do well over the next 50 years, but it also may not. Betting on one single country like the US, no matter how dominant its market is at the moment, increases the likelihood of a bad outcome.
Consists of only the largest companies
The S&P 500 is made up of only the largest American companies. But good investment returns can be achieved in mid-size and smaller companies too. Just like it pays off to diversify across multiple countries, it's a good idea to spread across different company sizes as well.
Lastly, the stock market is volatile. So a sole investment in the S&P 500 index may not match your risk profile. We’ve previously written about the role of bonds in your portfolio and you ideally want a portfolio that helps you sleep easy at night. Putting all your eggs in one basket is probably not ideal, especially if the economy of that country starts to falter.
Alternatives to the S&P 500
As mentioned above, the S&P 500 index isn’t as diversified as we would like. It's possible that the next dominating country won't be the US, so an investment in the S&P 500 means you'll pass up on a great opportunity for high returns.
Some consider the Nasdaq-100 index, which consists of the 100 largest American technology companies, to be a good substitute for the S&P 500. But it is even more concentrated and less diversified, so we don't think it's a good option.
Instead, we think there are better alternatives.
1) IWDA (MSCI World index)
The MSCI World index tracks over 1,500 large-cap companies from 23 "developed" countries. This includes the US, but also Japan, Germany, Australia, etc… Compared to the S&P 500, the MSCI World is more diversified geographically and exposes you to other countries besides the US. But it does invest only in the largest companies.
2) VWCE (FTSE All-World index)
The "Vanguard FTSE All-World Accumulation" ETF, most commonly known by its ticker VWCE, is one of the most popular ETFs with Belgians and tracks the FTSE All-World index.
As its name suggests, this index is global: it consists of over 4,000 companies from more than 40 countries. Furthermore, it contains both large and mid-size companies, from both "developed" markets (US, Germany, UK, Japan…) and "emerging" markets (Brazil, China, Chile…).
VWCE offers great diversification in a single fund. There aren't many ETFs that are more diversified than VWCE. We’ve written about the options to buy VWCE as a Belgian investor if you want to learn more on the topic.
More diversification with Curvo Growth
An option for Belgian passive investors is to invest through Curvo. In particular, the Curvo Growth portfolio is a good alternative to the S&P 500 index. It's composed of two funds, both offered by Vanguard, with the combination being similar to the FTSE All-World, the index that VWCE tracks:
- FTSE Developed All Cap Choice index (ISIN: IE00B5456744)
- FTSE Emerging All Cap Choice index (ISIN: IE00BKV0W243)
Curvo Growth is more diversified than the S&P 500
First of all, the indexes in Curvo Growth are globally diversified. They include smaller companies too. As a consequence, Curvo Growth invests in over 7,500 companies spread across 40 countries, compared to the 500 companies in an S&P 500 ETF. This allows you to broaden your investments and not make a single bet on one country or company size.
Sustainable investing is challenging because everyone has different beliefs and values. The funds chosen in Curvo Growth focus on one guiding principle: they don't invest in companies that are considered destructive to the planet. This means the following sectors are excluded:
- non-renewable energy (nuclear power, fossil fuels)
- vice products (adult entertainment, alcohol, gambling, tobacco)
- weapons (civilian firearms, military weapons)
- controversial companies that do not meet the labour, human rights, environmental and anti-corruption standards defined by the United Nations Global Compact
This is in contrast to the S&P 500, which doesn’t set any sustainability standards and invests in even the "worst" companies.
No transaction tax
One bonus is that the Belgian transaction tax is not applicable to the funds in Curvo’s portfolios. This means you’re saving between 0.12% and 1.32% per transaction depending on the ETF you choose.
All your money is invested
Curvo works with fractional shares meaning that all your money is invested. When buying your own ETFs, you're required to buy whole units of shares. For instance, if you buy the S&P 500 ETF, you’ll notice that the price hovers around €400 price per share. This means that if you invest €150 per month, you won't be able to buy S&P 500 for the first two months. Instead, you'll have to wait until the third month to buy your first share. And then you'll be left with some cash on your brokerage account.
You don't encounter these issues with Curvo Growth. You can start investing from the first month, from €50, and every cent will be invested for you. You can also set up a saving plan to send contributions monthly and put your investments on autopilot.
Buying ETFs is cheaper
The price of using Curvo is usually more expensive than buying ETFs through a broker. It costs 1% “all-in” for the service, on your total investments. This provides you with peace of mind as rebalancing is taken care of and your portfolio is kept in line with your goals and financial situation.
Explore Curvo if you want to learn more.
The S&P 500 index is still a great way to invest and has historically provided significant returns to investors. The main downside is that you’re essentially betting on the US. No matter how dominant its market is at the moment, investing in a single country increases the likelihood of a bad outcome. When investing your savings for the long term, it's a better mindset to maximise diversification when putting together your portfolio. Through IWDA, VWCE and the Curvo Growth portfolio, we’ve shown three different ways to invest that are similar to the S&P 500 index, but have a global exposure.