How to invest in the S&P 500 (from outside the US)

Here is what the Irish-domiciled route fixes:

• The first problem is dividend tax: when US companies pay dividends to a foreign investor, the US typically withholds 30% before the money leaves the country, under the IRS rules on withholding for foreign persons. Irish-domiciled UCITS funds such as CSPX, VUAG and VUSA pay only 15% under the tax treaty between Ireland and the US, so more of every dividend stays invested and compounding.
• The second is US estate tax: under IRS estate tax rules for nonresidents, US-domiciled assets above 60,000 dollars can be taxed at rates of up to 40% when a foreign holder dies, which is a nasty surprise for heirs. Irish-domiciled funds sit entirely outside the US estate tax net.
• The third is access: brokers in the UK and EU are legally barred from selling US-domiciled funds to retail customers, because those funds do not publish the standardised disclosure document that European rules require.

Here is the whole process from empty account to owned shares:

• First, open a brokerage account, which is simply an account that lets you buy and sell investments. Interactive Brokers is a common choice because it accepts clients in most countries and offers the London and European exchanges where UCITS ETFs trade, but any regulated broker with access to those exchanges works the same way, and approval usually takes a few days.
• Second, fund the account with a bank transfer from your own bank. You can usually deposit your home currency and convert it inside the broker, which is often far cheaper than letting your bank do the conversion, and the funds in this guide trade in US dollars, pounds and euros depending on which listing you choose.
• Third, find the fund by typing its ticker, the short code that identifies a fund, into the broker's search bar: CSPX is the iShares Core S&P 500 and VUAG is Vanguard's accumulating version. The same fund often appears on several exchanges in different currencies, so check that you have selected the listing and currency you intend to trade.
• Fourth, place the order. A market order buys immediately at the current price, while a limit order buys only at or below a price you set; for large, heavily traded funds like these, either works fine for everyday amounts. Enter how many shares you want, review the estimated cost, and confirm.

The two share classes work like this:

• VUAG is accumulating, meaning the dividends are automatically reinvested inside the fund, so its price quietly grows a little faster.
• VUSA is distributing, meaning those dividends land in your broker account as cash every quarter.

Four separate costs sit between your bank account and your shares:

• The TER, or total expense ratio, is the annual fee the fund manager deducts from inside the fund; CSPX and VUAG both charge 0.07% per year, which works out to 70 cents annually on every 1,000 dollars invested. You never receive a bill, because the fee is quietly reflected in the fund's price.
• Currency conversion applies when your money starts in a different currency from the fund's trading currency. Interactive Brokers converts close to the mid-market rate for a fee of around two dollars, while many banks and some brokers add 0.5% or more, which on a large deposit can dwarf every other cost on this list.
• Trading commissions are the small fee charged on each buy or sell; on Interactive Brokers a UCITS ETF trade typically costs a few dollars or less, so a buy-and-hold investor who trades once a month barely notices it.
• The spread is the tiny gap between the buying and selling price, and for funds this large it is usually a few hundredths of a percent.

Two structural risks deserve a plain statement:

• It is a bet on a single country: all 500 companies are American, and a handful of technology giants make up a large share of the index, so it is less diversified than the 500-companies label suggests.
• Currency movements cut both ways: the fund's holdings are valued in US dollars, so if your home currency strengthens against the dollar your returns shrink when measured in your own money, and the reverse when it weakens. Over decades this tends to even out, but in any single year it can easily outweigh the market's own moves.