Author Topic: S&P500 v Vanguard index : A few beginner questions...  (Read 2209 times)

ssfitz

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S&P500 v Vanguard index : A few beginner questions...
« on: March 29, 2017, 05:05:01 AM »
Hi Guys. I am new here and have some (probable basic) questions I can’t get my head around  but here goes….

1)I have seen vanguard 500 index fund recommended and the S&P 500. I understand that they both offer a collection of shares in the largest 500 companies in the US….But what is the difference between them? or are the basically 2 options for the same thing?

2)When I put money into a index fund, am I buying shares in that fund, as a separate entity?
So how does the interest accrue yearly and is added to the principle to take advantage of compounding.... do I make money from the change in the price of the shares or are there dividends that are paid yearly that are deposited into your account and the extra money automatically goes back to buying more shares….I am confused as to the actual mechanics of it.

3)I am also based in Europe and not sure if I can open a personal investor account with Vanguard….anyone any advice on this?

As I said I am new and trying to get my head around this so any advice and clarification on my questions is welcomed and appreciated.

MustacheAndaHalf

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Re: S&P500 v Vanguard index : A few beginner questions...
« Reply #1 on: March 30, 2017, 03:42:02 AM »
Vanguard's S&P (Standard & Poors) 500 index fund tracks the S&P 500 index, on which it's based.  When two companies in the S&P 500 have a merger, that leaves only 499 companies in the S&P 500 and so Standard & Poors names the new entry on the S&P 500.  Also stocks can fall off the bottom of the S&P 500 and get replaced.

In order to thwart people who try to profit off companies being newly included in the S&P 500 index, Vanguard actually buys about 508 stocks rather than 500.  That prevents people from buying stock #501 and waiting until Vanguard's huge cash inflow starts buying shares (when #501 moves up to #500 on the S&P 500).

You asked about interest, which for stocks is called "dividends".  Different companies issue dividends at different times.  Vanguard collects 3 months of dividends at a time, and issues you a quarterly dividend.  Note they actually subtract their expense ratio from this money, before giving it to you.  That's how the 0.05% or 0.16% of annual expenses get's paid - from company stock dividends.

You actually have a choice of letting dividends become cash, or immediately having Vanguard buy more shares of the S&P 500 index ("reinvest dividends") with them.  Vanguard has some presence in UK, but not sure which individual countries in Europe.

If you don't have Vanguard in your country, you might buy ETF shares like "VOO" (Vanguard S&P 500 Index ETF).  You'll need a brokerage, and will have to pay to buy and sell shares.  But you can invest in Vanguard ETFs without having an account with Vanguard.

farfromfire

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Re: S&P500 v Vanguard index : A few beginner questions...
« Reply #2 on: March 30, 2017, 05:55:53 AM »
3) check out https://global.vanguard.com/portal/site/home. I don't know anything about it but let us know if this works out for you, I am based in Europe as well.
If you open a US-based brokerage account and buy ETF shares, you will have to pay 15% 30% tax to the IRS on the dividends (but not on the gains IIRC). This is true even if they are automatically reinvested. Depending on your country, you will not be taxed on the dividends by your country.
« Last Edit: March 30, 2017, 06:03:04 AM by farfromfire »

Lucky Penny Acres

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Re: S&P500 v Vanguard index : A few beginner questions...
« Reply #3 on: March 30, 2017, 10:14:26 AM »
As you are based in Europe, you should check out the Vanguard UCITs ETFs. There is a Vanguard UCITs ETF that tracks the S&P 500 Index.  The name is VANGUARD S&P 500 UCITS ETF (VUSD).  UCITs are basically the equivalent of mutual funds/ETFs in the United States.

https://americas.vanguard.com/institutional/mvc/detail/etf/overview?portId=9503&assetCode=EQUITY##overview

It might be easier to buy into the Vanguard UCITs funds from Europe than accessing the equivalent U.S. fund versions of Vanguard products.

Also, as you are based in Europe, you should consider whether you would want to invest in a more global or more European focused index fund than the S&P 500.