If you've been thinking about branching out into global financial markets and adding some US stocks to your portfolio, you’re definitely not alone. Some of the world’s biggest and most exciting companies live in the US stock market – think Apple, Tesla, and Microsoft. By investing in the US, you can access a tonne of companies and industries that don’t really have an equivalent here in Australia.
But it’s not always as simple as buying Aussie shares . Investing in the US stock markets comes with its own quirks and steps to follow, and a bit of know-how goes a long way.
Why invest in the US stock markets? Here’s why some Aussies are looking overseas
For many Aussies, investing in the US stock market isn’t just about adding international shares to a portfolio. There’s a world of possibilities across the Pacific. Here are a few key reasons why people are diving in:
- Big names you know : The US is home to some of the most well-known and influential companies in the world. Think tech giants like Apple and Microsoft, or big brands like Coca-Cola.
- More choice : The US stock markets have a huge range of sectors and companies, including industries we just don’t have here in Australia.
- Potential for growth : The US economy is massive and has a lot of momentum, which could translate to growth opportunities for investors.
- Spreading risk : Adding international exposure can help balance your portfolio since US stock market trends aren’t always in sync with Australia’s.
Different ways to invest in the US stock market
Now that you know why Aussies are interested in US stocks, let’s get into the practical stuff. There are a few different ways you can go about it, depending on what fits best with your goals and comfort level.
Buy individual US shares
If there’s a specific US company you’re interested in, buying individual shares is the most direct way to invest. This option lets you pick and choose the companies you believe in. It may be a good fit if you want control over exactly where your money goes. The process typically looks a little like this:
a. Find a broker that supports US trading
You’ll need a broker that offers access to US shares. Some Aussie brokers, including Pearler, give you the option to trade US stocks along with ASX shares. Make sure the platform you choose has the features you need and an interface and/or app you like using.
b. Fill out a W-8BEN form
As an Aussie investor, you’ll need to fill out a W-8BEN form to confirm you’re not a US resident for tax purposes. This form also helps cut down the tax on any dividends you might earn from 30% to 15%. Most brokers make this easy to handle online, so it’s usually a quick step.
Learn more about the tax implications of investing in the US .
c. Pay attention to currency exchange rates
Since you’re buying in USD, currency rates come into play. Be aware of the exchange rate and any fees your broker charges for currency conversion. These can add up over time.
d. Start trading (and stay informed)
Once your account is all set up, you’re ready to start buying US shares. Just remember: individual shares are inherently riskier, plus it’s on you to keep an eye on each company’s performance and make adjustments as needed.
Invest in hedged ETFs
Exchange-traded funds (ETFs) give you a way to invest in a basket of US stocks at once without picking individual companies. A hedged ETF goes one step further and helps you avoid some of the ups and downs caused by currency fluctuations. Here’s what that means:
a. Reducing currency risk
With hedged ETFs, your investment won’t bounce around as much with AUD-USD exchange rates. If the USD drops against the AUD, a hedged ETF may help reduce currency risk and potentially keep the value of your investment steady. At the same time, your investment won't benefit from any favourable swings.
b. Look out for extra costs
Hedging comes with a cost, so these ETFs might have higher fees. It’s worth comparing these with unhedged options to see if the trade-off is worth it for your goals.
c. Exploring options
Many hedged ETFs track well-known US indices like the S&P 500 or NASDAQ-100 . Do some digging to find one that matches your interests and goals.
Hedged ETFs might be a good option if you’re focused on US stock market exposure and want to minimise currency-related swings.
Go unhedged with ETFs
Unhedged ETFs track the same US stock markets as hedged ones, but they don’t try to “protect” against currency changes. Here’s what you should consider with unhedged ETFs:
a. Currency swings could go in your favour (or work against you)
If the AUD drops against the USD, your unhedged ETF’s value may get a boost when converted back to AUD. This could add to your returns, but it also means you’re exposed to any swings in the exchange rate.
b. Lower costs
Since there’s no currency hedging, these ETFs are usually cheaper to manage. For long-term investors who aren’t too worried about currency fluctuations, an unhedged ETF can be a simple and cost-effective way to invest in the US.
c. Find the right fit
There are plenty of unhedged ETFs on the ASX that focus on the US. Research options that track indices or sectors you’re interested in and compare fees and past performance. (Remember, though, that past performance isn’t necessarily an indicator of future performance).
Unhedged ETFs could be worth exploring if you’re comfortable with a bit of extra risk from currency changes.
Other options for investing in the US stock market
While individual shares and ETFs are the most common, there are a few other ways to invest in the US. Here are a few more options to consider:
a. Managed funds with a US focus
Managed funds (or mutual funds) are diversified portfolios run by professional managers. Some managed funds specifically focus on the US stock markets. This option can give you US exposure with the added expertise of a professional, though the fees tend to be higher than ETFs.
b. Listed Investment Companies (LICs)
LICs are funds that trade on the ASX and, in some cases, focus on US investments. They’re managed by pros and can offer steady income through dividends, but they might trade at a premium or discount to the value of their holdings.
c. Exchange-Traded Mutual Funds (ETMFs)/active ETFs
ETMFs (also known as active ETFs ) mix features of ETFs and mutual funds, giving you diversified US exposure with some extra flexibility. While newer to the Aussie market, ETMFs might be worth considering if you’re interested in a more hands-off approach to US investing.
Each of these options has pros and cons, so think about what fits best with your goals, budget, risk tolerance , and investment timeline.
Do your own research and find what works for you
Investing in the US can be an exciting way to grow and diversify your portfolio . But like with any investment, it’s important to do your homework. Take the time to explore your options, understand the risks, and make sure US investments fit into your broader goals.
There’s no one-size-fits-all answer here, so go with what feels right for you and keep learning as you go. And, as always, chat with a licensed financial adviser if you need support.
Happy investing!
