10 Reasons why you should invest in U.S. stocks
Offering a broad range of securities to trade, investing in the U.S. is something that every investor should look into. Discover some of the main benefits of investing in the U.S. stock market.
Is it worth investing in the U.S. stock market?
Investing in the U.S. stock market can be worthwhile for Australian investors who primarily focus on the Australian Securities Exchange (ASX).
The U.S. stock market offers several potential advantages.
It provides access to a wide range of industries and diverse investment opportunities. With the U.S. market being the largest and most liquid in the world, major exchanges like the New York Stock Exchange (NYSE) and NASDAQ list many well-established and innovative companies.
By investing in U.S. stocks, you can benefit from diversification. It allows you to expand your investment portfolio beyond the ASX and gain exposure to sectors and industries that may not be well-represented in the Australian market.
U.S. stocks have historically demonstrated strong growth potential over the long term. Many of the world's leading technology, healthcare, and consumer companies are based in the United States. Investing in these sectors can offer opportunities for capital appreciation.
It's important to note that investing in any stock market carries risks, and it is advisable to conduct thorough research or seek guidance from a financial advisor before making investment decisions.
Benefits of investing in U.S. stocks
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Reasons why you should invest in U.S. stocks
1. Diversification
Gaining access to U.S. securities provides significant diversification benefits. The U.S. stock market is highly diverse, encompassing a wide range of industries, including technology, finance, healthcare, consumer goods, energy, and more. By including U.S. stocks in your portfolio, you can spread your investments across different sectors and companies, reducing the risk of overexposure to a single market or industry. This diversification can help mitigate the impact of any individual company's performance or sector-specific challenges on your overall investment returns.
2. Invest with smaller amounts using fractional shares
Fractional shares allow you to invest in U.S. stocks even if you have limited capital. Instead of buying full shares, fractional investing allows you to purchase a portion of a share. This enables you to allocate smaller amounts across multiple stocks, diversifying your portfolio more effectively.
The benefits of fractional shares are particularly clear for high-priced stocks like Netflix or Nvidia, where buying a full share may be expensive. With fractional investing, you can still participate in the growth potential of these companies without requiring a significant upfront investment.
Not every investment platform that offers a U.S. investing account allows you to trade fractional shares, but by signing up to Stake you can invest in any U.S. stock with as little as US$10.00.
🎓 Learn more: 10 Tips for long term investing→
3. Tax implications handled with W-8BEN form set up
As a foreign investor, when investing in U.S. stocks, you need to complete a W-8BEN form. This form allows you to claim a reduced tax withholding rate on dividends and capital gains.
By setting up the W-8BEN form correctly, you can simplify the tax implications of your U.S. investments. The reduced withholding rate ensures that you are not subject to excessive taxation and prevents double taxation between Australia and the United States. Many brokerage firms require investors to set this up by themselves, whereas Stake does everything automatically, making it easier for any investor trying to get a grip on the world’s largest stock market.
4. Access to the world's largest companies
The U.S. has the largest stock market in the world, home to many of the world's largest and most influential companies. By investing in U.S. shares, you gain exposure to global giants that have a significant impact on the global economy and a huge market cap.
Companies such as Apple, Microsoft, Amazon, Facebook, and Google are listed on U.S. exchanges, providing opportunities to invest in industry leaders with a global reach. The growth potential of these companies extends beyond the U.S. market, allowing you to participate in their success and benefit from their innovative products, services, and market dominance in various sectors.
🚀 See what the most traded U.S. stocks are on Stake.
5. Potential of strong returns
The U.S. market has historically demonstrated the potential to generate strong returns over the long term and is known for its vibrant entrepreneurial culture, innovation, and economic stability. Entering the American stock market allows you to tap into the growth and profitability of established companies and emerging market leaders.
However, it's important to note that past performance does not guarantee future results. Conducting thorough research and assessing individual companies' prospects is crucial to identify those with the potential for strong returns and align them with your investment objectives.
6. Convenience
It has become increasingly convenient to buy and sell U.S. listed shares, thanks to the rise of online investing platforms. These platforms offer user-friendly interfaces, streamlined account setup processes, and easy access to market data and research. You can conveniently manage your investments, monitor market performance, and execute trades from the comfort of your home or on the go through a mobile investing app.
The convenience of online platforms allows you to stay connected to the U.S. market, make informed investment decisions, and react quickly to market changes. Signing up for Stake takes less than three minutes and allows you to trade both ASX and U.S. stocks on a single platform.
7. Low brokerage
Several investing platforms offer competitive pricing and low brokerage fees for trading U.S. stocks. This cost-effectiveness is especially beneficial for Australian investors, as lower brokerage fees can help minimise the overall costs associated with investing in U.S. stocks. Lower brokerage fees can have a positive impact on your investment returns, especially if you frequently trade or have a smaller portfolio.
By choosing an investing platform with low fees, you can optimise your investment performance and potentially generate higher net returns over time.
👉 Learn more about Stake pricingUS$3 brokerage for all trades up to US$30,000 or 0.01% for trades above US$30,000.
8. Variety of 8,000+ stocks and ETFs
Of all the stock markets in the world, the U.S. is the one with the biggest amount of investment options, with over 8,000 stocks and exchange-traded funds (ETFs) listed on major U.S. exchanges. This extensive selection provides you with ample choices to build a diversified portfolio tailored to your investment goals and risk tolerance. You can invest in various sectors, market capitalisations, and investment styles, allowing you to create a well-rounded portfolio that aligns with your preferences.
Explore over 6,000 securities from the U.S. stock market that are available to invest in with Stake.
See how to invest in the S&P 500 from Australia→
9. Over-the-counter stocks
In addition to stocks listed on major exchanges, the U.S. market provides access to over-the-counter (OTC) stocks. OTC stocks are traded directly between parties without being listed on formal exchanges. These stocks can include smaller companies or early-stage startups that have not yet met the requirements for listing on major exchanges, as well as stocks from other countries and regions, allowing retail investors to make foreign investments. Investing in OTC stocks offers the potential to identify emerging opportunities and participate in the growth of promising companies before they become widely recognised.
Some of the more recognised brands that are traded through OTC stocks include Adidas ($ADDYY), Grayscale Bitcoin Trust ($GBTC) and Heineken ($HEINY).
10. Liquidity
The U.S. stock market is highly liquid, meaning there is a high volume of trading activity and a large number of buyers and sellers. This liquidity allows you to buy or sell U.S. stocks relatively quickly at competitive prices. The ability to enter or exit positions without significant market impact provides flexibility in managing your investments and reacting to market developments. Liquidity is particularly important for active traders or investors who value the ability to execute transactions efficiently.
Start investing in U.S. shares today
Gain unrivalled access to 6,000+ U.S. stocks and ETFs when you sign up to Stake.
What are some risks of investing in the U.S. stock market?
Like any investment, buying and selling in U.S. securities has risks, but the major ones are:
Currency exchange risk: Investing in the U.S. stock market exposes Australian investors to currency exchange risk. Fluctuations in the exchange rate between the Australian dollar (AUD) and the U.S. dollar (USD) can impact the returns on your U.S. investments. If the Australian dollar strengthens against the U.S. dollar, it can reduce the value of your investments when converted back to AUD. This currency risk adds an element of uncertainty to your investment returns.
Time difference and market access: The time zone difference between Australia and the United States can make it challenging for some Australian investors to access the U.S. market effectively. U.S. stock exchanges operate on Eastern Standard Time (EST), which may not align with regular Australian trading hours. This time difference can create difficulties in monitoring real-time market movements, participating in live events or earnings calls, and executing trades at desired prices. It may require adjusting one's schedule or relying on delayed information, potentially impacting investment decisions. Extended trading hours can help with the time zone difference.
Country risk: By investing in the U.S. market, you’re exposed to the country’s own idiosyncratic risks, like macroeconomic, political and fiscal policy risks. Of course, many American stocks are global companies, but usually, most of their revenue still comes from the U.S. itself. Another important thing to consider is that both Australia and the U.S. are developed countries, and therefore their expected growth is lower than that of other international markets like emerging countries.
What is the best investing platform to buy U.S. shares from Australia?
While everyone will have an opinion on this, Stake is one of the most popular investing platforms in Australia. Stake is specifically designed for Australian investors seeking access to U.S. and Australian markets. It offers a user-friendly interface, competitive pricing, and a range of features that make investing in American and ASX listed shares convenient and accessible.
Stake provides an easy-to-use platform with a straightforward account setup process, allowing Australian investors to quickly start buying and selling shares. The platform offers fractional investing, which enables investors to purchase smaller portions of expensive U.S. stocks, making it accessible for those with limited capital.
Our simple and transparent brokerage fees help to keep investing costs low. With just $3 brokerage for trades up to $30,000, or 0.01% on trades above $30,000 (in AUD for Stake AUS and USD for Stake Wall St).
This does not constitute financial product advice nor a recommendation to invest, it is for informational purposes only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice from a licensed adviser before investing.
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.
