There are over 2,000 ETFs in Europe. The right selection can make thousands of euros difference — over years. These 7 criteria separate good ETFs from bad ones.

1. Total Expense Ratio (TER)

The TER is the annual management fee. It is automatically deducted from fund assets — you pay it indirectly.

Good: Below 0.20% (e.g., iShares Core MSCI World: 0.20%)
Acceptable: 0.20-0.50%
Expensive: Above 0.50% — for a standard index there is no reason for this

Example: On 50,000 euros invested, an ETF with 0.10% TER saves exactly 200 euros per year compared to 0.50% TER. Over 20 years with compound interest: nearly 5,000 euros difference.

2. Fund Size

Larger funds are more stable and have tighter spreads. Minimum: 100 million euros fund volume. Below 50 million there is risk of ETF closure (liquidation).

3. Replication Method

Physical (full): The ETF buys all stocks in the index. Most transparent, minimal counterparty risk.
Physical (sampling): Buys a representative selection. Good for indices with thousands of titles.
Synthetic (swap-based): Uses derivatives instead of actual stocks. Counterparty risk, but sometimes tax-advantaged. For beginners: prefer physical.

4. Distributing vs. Accumulating

Distributing: Dividends are paid out to you. Good for passive income, but you must reinvest manually.
Accumulating: Dividends are automatically reinvested. Better for long-term wealth building — compound effect without effort.

5. Tracking Difference

More important than TER: How accurately does the ETF replicate the index? Tracking difference measures the deviation of ETF returns from the index.

6. Trading Volume and Spread

Higher-traded ETFs have tighter spreads. Spread costs are often higher than TER — especially for rarely traded niche ETFs.

7. Domicile and Tax Treatment

Most European ETFs are domiciled in Ireland or Luxembourg. Irish ETFs have tax advantages on US dividends (reduced withholding tax). Prefer Irish UCITS ETFs (recognizable by IE in the ISIN code).

Our Top ETF Recommendations 2026

World: iShares Core MSCI World (IE00B4L5Y983) — 0.20% TER, physical, accumulating
Emerging Markets: Xtrackers MSCI EM (IE00BTJRMP35) — 0.18% TER, physical
Europe: Vanguard FTSE Developed Europe (IE00B945VN12) — 0.10% TER
S&P 500: iShares Core S&P 500 (IE00B5BMR087) — 0.07% TER, cheapest

Bottom Line: ETF selection is a one-time decision with long-term impact. Take one hour, choose by the 7 criteria — then let the savings plan run.