How to invest in the EURO STOXX 50 Index
It’s worth considering an investment in the EURO STOXX 50 Index. There are multiple ways to invest in the EURO STOXX 50 Index, each one with different advantages. We’ll run through all of those choices, so you’ll be better prepared and more confident when making your investment.
What is the EURO STOXX 50 Index?
The EURO STOXX 50 is a blue-chip stock index made up of 50 of the top companies within the Eurozone. Introduced in 1998, the EURO STOXX 50 reviews its composition once a year, and makes changes based on how existing companies in the index are performing. The EURO STOXX 50 tracks companies from a wide range of industries. Footwear and apparel giant Adidas, beer kingpin Anheuser Busch InBev, and telecommunications giant Deutsche Telekom offer three examples of the broad-based nature of the index’s stocks.
Is it a good investment?
It’s one of the best ways to gain exposure to leading Eurozone stocks, so if that’s your goal then yes it can definitely be a good investment. The smallest market cap of any EURO STOXX 50 stock is more than 13 billion euro, meaning the index is well capitalised, offering investors stability and peace of mind as a well as the potential for growth as Europe’s economy expands.
It’s important to not get complacent, though. All stock indices tend to cause big losses during bear markets, so it’s important to make sure market conditions are favourable before investing in the EURO STOXX 50 index.
How do I invest in the EURO STOXX 50 Index?
Here are three steps to keep in mind before investing in the EURO STOXX 50 Index:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
There are many different methods you can use to invest in the EURO STOXX 50 Index, so go with whichever approach works best for you. Consider factors such as the size of transaction fees you’re willing to stomach, as well as the level of customer service you want. Here are some of the most popular ways to invest in the EURO STOXX 50 Index:
An ETF (exchange-traded fund) is an investment fund traded on a stock exchange. It trades during regular stock market hours, giving it an edge over some other investment methods. EURO STOXX 50 ETFs usually include lots of assets at once, such as stocks, bonds, commodities, or an entire index such as the EURO STOXX 50. An ETF can be a smart, low-fee way to invest in the EURO STOXX 50 Index: tapping into a diversified portfolio of 50 stocks but also allowing you the flexibility of trading your investment whenever you want.
A word of caution: While diversification helps ETFs reduce investor risk, it also means that investors are left holding both the best- and worst-performing stocks within a given index. Some more selective investors might therefore prefer the next investing approach on our list.
You can choose to invest in the EURO STOXX 50 by buying shares of all 50 stocks that the index tracks. This method allows you to evaluate each stock as you go. You can then decide which EURO STOXX 50 stocks you want to keep longer-term, and which ones you want to sell – a strategy you can’t pursue when you invest in the index as a whole with an ETF or mutual fund. The problem with buying 50 individual stocks is that you need 50 separate trades to buy each one, and then more on top of this if you decide to offload any of the stocks.
This investing method is basically a tryout of all 50 of the EURO STOXX 50 Index’s stocks, allowing you to whittle down to the top performers you want to keep. Just recognise that the transaction fees and time you’ll need to use this strategy will be substantial, so beginner investors with smaller budgets might want to try a different approach.
A EURO STOXX 50 fund is a professionally-managed investment fund that pools money from many different investors, then invests that money into different assets. A EURO STOXX 50 fund (also called an index fund) enables you to invest in all the stocks in the EURO STOXX 50 at once. Unlike ETFs, mutual funds are bought through a broker or directly from the company that administers the fund, and they can also only be bought at the end of the stock market’s trading day. Mutual funds charge higher fees than ETFs do, which is one of several reasons why ETFs have gained in popularity in recent years.
A EURO STOXX 50 fund can still be a reasonable option for investors who want to buy and hold for a longer stretch of time, but if your aim is to trade your investment in the short term, it’s generally more advisable to buy EURO STOXX 50 ETF.
2. Use our top tips to be a successful investor
Before you invest in the EURO STOXX 50 Index, it pays to look over our list of investment tips:
- Do your research. Evaluate all the pros and cons of investing in the EURO STOXX 50, especially since there are many other indices or other investment opportunities you can choose to put your money into. Once you’ve done your research, construct an investment plan; having a sound investment plan will improve your chances of success and enable you to keep your cool when market volatility hits.
- Set a budget. The budget you pick should reflect both your tolerance for risk and how much money you can afford to lose. Suffering big investing losses can hurt both your confidence and your ability to make future trades.
- Select the right platform. Deciding on the right trading platform for your investing goals could be as simple as choosing the cheapest option, or finding the most hands-on approach, even if it’s more expensive. It all depends on what you’re personally looking for.
- Grow your investments gradually. Investing is a marathon, not a sprint. As time goes on, you’ll gain experience and get better at it. With that in mind, it’s probably best to start by investing just a small amount of money; save the bigger amounts for later when you have more experience and capital.
- Think long-term. Investing in the EURO STOXX 50 can work well as a long-term strategy, if you’ve got the stomach to try and hold for big gains in a bull market. Just make sure you avoid investing during bear markets, as indices around the world struggle in these conditions.
3. Choose a platform to invest with
Here are some of the best options for investing in the EURO STOXX 50:
- Brokers & trading platforms. Online brokers enable you to invest in the EURO STOXX 50 Index quickly, easily, and inexpensively. However, what online brokers don’t usually offer is in-depth investment advice. So if you’re looking for a higher level of customer service, you’ll want to go a different route.
- Robo advisors. Robo advisors use algorithms to execute trades, meaning human beings don’t need to be involved at the moment that trades are placed (including yourself). Some robo advisors will also allow you to discuss your investment strategy with an human advisor to help you make the right decisions, which – combined with their relatively low trading fees – can make robo advisors an attractive option for investors. Just keep in mind that robo advisors are still usually a more hands-off approach to investing than you’ll get with a dedicated financial advisor.
- Financial advisors. Financial advisors offer the most help to investors. They will assess your financial goals in depth, and explain how each investment decision fits with those goals. In this case, though, those services might not be needed, since investing in the EURO STOXX 50 Index isn’t all that complicated and so shelling out for a financial advisor may be a waste of money.
- Banks. If you invest in the EURO STOXX 50 with your bank, you can gain the convenience of having all of your financial instruments (checking account, savings account, mortgage, line of credit, investments, etc.) in one place. The problem is that banks tend to charge high fees, and for these fees all you really get is added convenience – unlike the added investment advice you get with a financial advisor. Most investors are better off investing somewhere other than with their bank.
Here’s a list of our top 3 recommended brokers to invest in indices ETFs:
What should I do now?
Ready to invest? Then go to your chosen platform’s website, type in the ticker symbol of the investment asset you want to use to invest in the EURO STOXX 50, then click Buy. Congratulations, you’re now invested in the EURO STOXX 50 Index!
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