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I'm interested in investing in the whole EU (mostly because I thought that that would be equivalent to invest in 'all the US states' (S&P 500), so to speak). After reading some information, I have realized that it might not be the case (in other words, that the EU is not excatly the 'United States of Europe' in terms of investing). Let me explain:

UE has a common currency and no import/export fees between member countries.

Does this mean that the EU countries behave like the US states in terms of investing in a broad market index that includes companies from all the countries/states?

Or are there any issues to which I need to pay attention to if I choose to invest in the whole European market? (other than the taxes of the particular country from which I'm investing)

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    You might find that tricky because there are eruoepan companies that are indexed on NYSE and not on stock exchange of their European country. Also there is no common stock exchange for whole EU as NYSE is for whole USA. Instead each country have it own "package" of their country stocks. Also UE have a common currency in SOME of it's countries.
    – SZCZERZO KŁY
    Feb 10 '20 at 16:23
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As you are not investing in a country/countries/states but in a stock (or a fund/etf), the fundamentals of the stock and where you are buying the stock are the important criteria.

When people commonly refer to investing in the S&P500, they are often talking about investing in a specific fund that tracks this specific index. This can e.g. be a mutual fund or an ETF. Or you could buy the 500 stocks that are part of the S&P500 yourself and rebalance their equivalent distribution on your own to mirror the index. In that regard, investing in an fund that tracks European stocks would be roughly equivalent to investing in a fund that tracks US stocks, with possible small caveats like slightly increased currency risks and slightly increased management fees due to a higher variety in legal paperwork and currency exchanges depending on the specific fund/index (the EU does not have a common currency). The common market (free trade area) of the European Union reduces most of those costs already, but does not fully eliminate all of them.

Both the S&P500 and any European index fund you may choose are a selection based on various criteria (e.g. Market capitalization in small-caps). This could mean that the stocks inside your European fund could comprise 60% German companies and no Greek, Polish or Lithuanian company (or vice versa).

Since the goal of investing into a broad index fund is generally a specific form of diversification, make sure your index of choice mirrors your desired diversification by looking at the details of the index and the fund that is tracking said index. And, of course, look at the other very, very important aspects in choosing an index fund in detail (performance, fees(!), dividends, liquidity, country of origin, tracking error etc.).

That being said, if your overall goal is simply a high geographic diversification, you could also broaden your scope and look at funds tracking indices of the whole of the developed world (e.g. MSCI World) or a global index (e.g. MSCI ACWI). These include most stocks both in the S&P500 and in European indices (and various others).

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  • Actually, my goal is to invest in something as similiar to the S&P 500 as possible. That's why I'm interested in investing in the 'n' bigger companies of the EU market. In that sense EURO STOXX 50 is out of the table, since it contains only 50 companies. But other indexes like FTSEurofirst Index or STOXX Europe 600 seem not very good to me.
    – Martel
    Feb 10 '20 at 16:11
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    You could take a look at the MSCI EMU or the S&P Europe 350 and check whether they are more to your liking. Any reason you want to limit yourself to just European indices? Most of the large companies in these indices are international players anyways, so with the S&P 500 you already have some European exposure and with most European Funds you have American exposure, so you are not truly geographically isolated to Europe.
    – R.K.
    Feb 10 '20 at 16:21
  • "Any reason you want to limit yourself to just European indices?" --- That I'm european, and my salary, expenses etc. is in euros. I would like to avoid currency risk as well. I have searched a bit and I have found a Vanguard ETF for the US S&P 500 in euros, but the ongoing charge is 0.07 instead of the typical 0.02. Not sure if it is a good choice. In addition, I would rather a fund than an ETF
    – Martel
    Feb 10 '20 at 16:24
  • A 0,07% TER is still pretty good, in my opinion. There are often other practical constraints that limit your choices if you want to track a specific "smaller" index, e.g. does your broker (or stock exchange of choice) offer this specific fund, do you want dividends to be paid out or accumulated, what's the overall size of the fund, how much does one share cost in relation to what you can save monthly, is the tracking error off the charts, etc. Don't fall in love too much with the perfect index only to find out that none of the available funds fit the rest of your profile.
    – R.K.
    Feb 10 '20 at 16:44
  • @Martel A fund containing the stocks of US companies is still a currency risk, even if it’s priced in euro. If the US dollar were to fall by 10% against the euro, the value of the fund in euro would also fall by 10%, because the underlying assets and income of the fund are denominated in US dollars.
    – Mike Scott
    Feb 10 '20 at 21:44

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