Investing in Europe: EUR vs USD Portfolios

As a European investor, you face a question that Americans don't: should you invest in EUR or USD? The US stock market has historically outperformed Europe, but investing in USD introduces currency risk. Let's break down the trade-offs.

EUR vs USD — Side by Side

Neither is categorically better. The right choice depends on your goals, time horizon, and how much currency risk you're comfortable with.

Understanding Currency Risk

When you — a EUR-based investor — buy a USD-denominated ETF, your returns depend on two things:

1. How the ETF performs (e.g., S&P 500 goes up 10%)
2. How EUR/USD moves (e.g., USD weakens 5% against EUR)

In this example, your actual return in EUR is closer to 5%, not 10%. Currency fluctuations can boost or erode your returns by 5-10% in any given year.

Over 20+ years, currency effects tend to average out. Short-term, they add volatility. Long-term, the underlying asset performance dominates.

The Case for EUR-Only

If you're investing for goals denominated in EUR (retirement in Europe, buying a house in Europe), a EUR portfolio has advantages:

• No currency conversion costs when you withdraw
• Simpler tax reporting — no foreign tax credits to claim
• Predictable purchasing power — your portfolio value in EUR is your actual wealth

European ETFs to consider: Euro Stoxx 50, MSCI Europe, FTSE Developed Europe.

The Case for USD Exposure

The US market represents ~60% of global market capitalization. Excluding it means missing the world's largest, most innovative companies:

• Higher historical returns — US markets have outperformed Europe over the last 20 years
• Better diversification — different economic cycles than Europe
• Access to sectors underrepresented in Europe (big tech, biotech)

Many European-listed ETFs track US indices but are denominated in EUR (e.g., iShares Core S&P 500 UCITS ETF). These eliminate conversion hassle but still carry currency risk.

The Practical Solution: Global ETFs

The simplest approach for European investors is a global ETF — one fund that includes both US and European stocks, weighted by market cap:

• Vanguard FTSE All-World (VWCE) — 3,700+ companies, ~60% US, ~16% Europe, ~10% Asia
• iShares MSCI ACWI — similar global coverage

You get natural currency diversification without having to manage it yourself. The fund handles rebalancing across regions.

Tax Considerations for Europeans

European investors face different tax treatments depending on their country:

• Germany: 26.375% flat tax on capital gains (Abgeltungsteuer)
• France: 30% flat tax (PFU) or progressive scale
• Switzerland: No capital gains tax on private investments

For US dividends, a 15% withholding tax is typically deducted at source (under most EU-US tax treaties). This can often be credited against your domestic tax liability, but it adds complexity.

EUR-denominated funds simplify this significantly.

See It for Yourself

Model both a EUR-focused and a mixed EUR/USD portfolio in our simulator. Compare how they grow over your time horizon with different currency assumptions. Our multi-currency support lets you track each asset in its own currency while seeing the total in yours.