Making your first move into investing in the global stock market can be daunting. Considering there are many risks associated with investing locally, taking that further step with a global investment can seem overwhelming.
Although it can be intimidating, there are various positives that come from diversifying your portfolio with foreign investments.
To give us some further insight into what investing in the US stock market looks like, we asked Josh Gilbert, a Market Analyst at eToro, to provide the essential tips for first-time Aussie investors before they dive into international shares.
Should Aussies expand their investment portfolio into the US market?
According to Josh, it’s integral that Aussies looking to diversify their portfolio look to the US market to do so. This is because historically, the investments listed on the S&P (a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S) showcase a greater rate of gain than the ASX.
“If we compare the ASX 200 and the S&P500’s 5-year returns, the S&P clearly stands out with over a 100% gain in 5 years, compared to the ASX 200’s gain of just 34.9%,” said Josh.
“Of course, past performance is not indicative of future results, but it’s clear from these numbers that Australian investors should consider the US market once they have done their research.”
What are the simplest ways for Aussies to get their foot into the US stock market?
One of the benefits of investing in the US stock market is that Australians are likely to have familiarity with many of the shares listed, like Apple or Zoom Technologies. Josh recommends that sticking to what you know when beginning your journey investing in a foreign market is a great place to start.
Josh also suggests starting with a ‘virtual account’ (that can be made with eToro), which will allow you to invest in US stocks for the first time without risking your own funds.
“It allows you to get used to the movements from a different stock market as well as understanding US stocks in more detail,” said Josh.
What are the key factors Aussies should consider before purchasing a US-based stock?
Much like investing in local stocks, doing your research before diving into a purchase is imperative. Josh also recommends knowing your time frame for investing, which is key to understanding your stocks’ levels of success.
“Knowing your time frame for investing is also important as markets will always fluctuate. If you have a short term outlook, you will need to be very picky over your stock choices compared to if you’re investing for 5+ years,” said Josh.
There are a plethora of easily accessible resources you can use to further your knowledge of the stock market, including Investopedia, which Josh says is a great source of information in regards to the US market.
“Other sites such as Yahoo Finance also provide great news on the US market to keep you up to date with all the latest going on’s. I would also recommend reading as many books as possible. This can help you get a better understanding of the US markets from an expert that has done it before,” he added.
What are some US stocks trending right now that Aussies should keep their eyes on?
Despite the pandemic, the US economy is growing at its fastest pace since 1986. Investors worldwide should look to invest in stocks that can fully benefit from this recovery.
According to Josh, a few key types of stocks are trending in the US right now that keen Aussie investors should keep their eye on.
“We are currently seeing a rotation back into cyclical stocks, away from the tech sector, which has been heavily in focus over the last year. These stocks include financials and retailers that perform well in economic upcycles as consumers continue to spend more money,” he said.
This data is relevant to 19/4/2021.
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