Key Considerations When Investing from Europe

This post lays out the main considerations and differences when investing from Europe, compared to investing from the US
Pere Manresa  By 
March 27, 2021 · ☕️ 5 min read
  • You know about investing, but I don’t know which index funds are suitable for investors in Europe.
  • As an European, you are unsure how to start investing because most of the available online information is only focused on American investors.
  • You don’t know the key differences between investing from the US and investing from Europe.
  • There is a plethora of information out there on how to start investing. But few resources are focused on explaining the actual nitty-gritty details that are equally important to know.
  • Can an European invest in US stocks and index funds? What are the main considerations when doing so?
  • What are the taxes one needs to know when investing in US stocks and US index funds?
  • 401k, Roth IRA, Vanguard, Robinhood, S&P 500. What are their European equivalents?
  • Taxes, regulations, brokers and available funds make investing while living in Europe different than investing while living in the United States. The principles of investing are the same regardless of where you are. But the practical details differ.

Topics to cover that are worth having a section:

  • Regulations
    • EU’s Packaged Retail Investment and Insurance Products (PRIIPs) guideline
    • UCITS
  • Insurances
    • Investor Compensation Schemes
    • Deposit Insurance
  • Fund Domicile
  • Suitable Index Funds for Europeans

Fund Domicile

For starters, the fund domicile is the country where the fund is incorporated. The first two characters of the ISIN are dedicated for the fund’s domicile country code.

For instance, the fund with ISIN IE00B4L5Y983 is domiciled in Ireland because it has the ”IE” country code.

As I’ll explain later, US domiciled funds are not available to most European residents.

Packaged Retail Investment and Insurance Products guideline

On January 1st 2018, the European Parliament and the Council introduced a new regulation for European packaged retail and insurance-based investment products, also known as PRIIPs.

Wait, what the heck are PRIIPs? Basically, the new regulation requires all ETFs — including those ETFs based in the United States — to produce a specific document called Key Investor Information Document (KID). In other words, if an ETF does not provide such document, it cannot be listed for purchase in Europe.

How can you verify which ETFs are based in the US or in the EU? The first two letters of the ISIN code of the fund specify the country in which the fund is based. For example, the ISIN US00214Q1040 contains ‘US’ in the beginning of the code. This means the fund is domiciled in the US. Similarly, the ISIN code of a fund domiciled in Europe would contain the code of the European country, e.g. ‘IE’ for Ireland.

PRIIPs and KIDs are part of the comprehensive regulatory reform known as Markets in Financial Instruments Directive (MiFID), which is applied to any investor that lives in the EU.

So, what are the main consequences you should be aware of?

First of all, this regulation mostly impacts ETFs that are based in the US. For example, imagine you are interested in buying ARK Innovation ETFs. Since it is a fund that is domiciled in the United States, it will most likely not produce KID. Therefore, the European brokers won’t list it since it does not comply with PRIIPs.

It is important to clarify one thing: While you can’t buy US-based ETFs, you can still buy funds that track a US Index.

It is very common to find funds that track a US index — e.g. the S&P 500 — that are based both in the US and in Europe. Since the funds are tracking an index, nothing is stopping them to be listed in Europe and still track a US index.

For example, the SPY is a US-based ETF that tracks the S&P500. The CSPX is its European equivalent ETF.

Some of the largest asset management firms such as State Street, BlackRock (iShares) and Vanguard produce KIDs to their funds, thus making them available for Europeans.

On the other hand, non-index US-based ETFs did not bother to comply as their focus is solely the US. Producing KIDs wasn’t and still isn’t a priority for them.

The bottom line is: As a European, you may still invest in ETFs that track a US index, but can’t invest in US domiciled ETFs.

Deposit and Investor Insurances

You may have heard of the FDIC, or the deposit insurance scheme from the US. This insurance essentially protects your deposits in the bank account up to a certain amount. The good news is that European banks also provide a similar insurance scheme. As of now, it covers up to 100.000€.

In other words, if your European bank offers the insurance and happens to go bust, you will be compensated up to 100.000€ based on your deposits in the bank.

Note that the investor compensation scheme should not be confused with the deposit compensation scheme. The investor compensation scheme concerns investments while the depositor compensation scheme concerns deposits in a bank account.

The details of the investor compensation scheme vary according to the country of the financial institution. Within the European Union, the minimum compensation per investor is €20,000. Some European countries have higher compensation limits.

Here are some examples of how the compensation scheme works:

  • if your broker is unable to return your shares worth €40,000, you will get €20,000 from the compensation scheme;
  • if your broker is unable to return your shares worth €1,000, you will get €1,000 from the compensation scheme.

To explain what happens to your investments when your broker goes bust isn’t in the scope of this article. However, if you are dying to know, here’s a great post that covers all you need to know.


Have you ever noticed the word “UCITS” in some ETF names and wondered what it actually means? Vanguard’s FTSE All-World UCITS ETF, for example.

Well, there are very good reasons you should be more inclined to invest in those ETFs. And I will shortly explain why.

You should understand UCITS as a premium quality and safety badge. It certifies that the ETF complies with the EU regulations designed to protect the retail investor from bad investment vehicles.

Because they are seen as very safe and well-regulated, UCITS funds are very popular investments. According to the European Commission, they account for around 75% of all collective investments by small investors in Europe. Many mutual fund providers use an expression such as “UCITS-compliant” as part of their marketing strategy.

While the funds are regulated in Europe, buyers from all over the world can invest in UCITS funds.

By the way, if you ever wondered what it means, it stands for Undertakings for the Collective Investment of Transferable Securities.

Interested in knowing more about the requirements for a fund to be awarded with the UCITS badge? This article from justETF is an excellent read.

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Written by Pere Manresa

I'm a Data Scientist at BCG Digital Ventures. We invent, build and invest in startups with the world's most influential companies. I build high-performance products and teams.

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