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Expanding and diversifying your portfolio can be done in numerous ways, from having cryptocurrency investments to real estate. Investing internationally could be a great option for many Australians looking to expand their investments beyond the scope of the local market.
But how does one begin to invest on an international scale? While the Australian share market is accessible for most investors, amateurs or beginners may find foreign investing a difficult challenge. This guide will take you through the ins and outs of investing internationally and how to procure rewarding investments for your financial goals.
So, why should you invest in global markets and international shares? One of the biggest benefits of international investing is that you can better diversify your portfolio. Focusing only on local market capitalisation may limit your investments and potential returns.
Additionally, giving your portfolio exposure to some of the largest companies on the world's stock market can only be achievable through global investing. There are some industries, such as the tech industry, that are not very well represented on the Australian market, so going global could be the key to advancing your successful investment strategy.
How can Australians invest in the international market?
It is a widespread rumour that Australians will need a managed fund if they wish to get involved with investing internationally, however that is not actually true. Managed funds, while helpful to many global investors, can include management fees that may be an unnecessary spend.
Australians can actually invest in the international market through a couple of different avenues, but all involve opening up an international share trading account. From there, you can explore the New York stock exchange or London stock exchange to your heart's content!
How to buy international shares
There are three main ways Australian investors can buy international shares:
- Investing in shares directly by using an online broker
- Through an index fund or exchange traded funds (EFT)
- Through a managed fund
Step-by-step, setting up your investing in international shares is quite a simple process:
1. Find the right broker or financial advisor
The first step is to find the right financial broker for you. When looking to invest in international markets, there are many additional costs you have to consider, including brokerage fees or managed fund fees if you choose that route.
When looking for a financial advisor, it is best to think about your current financial situation and your financial goals that you wish to pursue with investing in international shares.
At Australian Stock Report (ASR), we offer several different research tools and resources through our partners, for those who want to invest in international markets. HALO Global research software is a great way to make informed decisions if you are investing in international shares. Using this platform will allow your global investments to be analysed by ASR Wealth Advisers, and you will be kept up-to-date on all current market risk, share recommendations and market expectations.
2. Open an international share trading account
Opening up a share trading account and subscribing to HALO Global will give you unlimited access to all of the necessary tools required for successful investing in international markets. To open an international share trading account you will need to fit the eligibility requirements:
- Be 18 or over
- Have an Australian residential address
- Have an Australian mobile phone number
You will also need to provide personal details including photographic identification (driver's licence or passport) and your Australian business number (ABN) or tax file number (TFN). This is to ensure you meet the eligibility requirements, and that you have the necessary avenues for your investment to be taxed.
3. Research shares you want to buy
After opening your share trading account, it's time to put your tools, skills and knowledge to the test. Researching is one of the most essential components of a successful financial strategy, and investing in international markets requires extensive investigation into global markets. When using research tools and exploring potential international share purchases, make sure to consider:
- The foreign exchange fee
- Currency fluctuations that may occur
- The brokerage fee or management fees you may have to pay
- The exchange rate for your chosen foreign market
- General market volatility
The HALO Global trading platform gives you access to numerous research tools and resources for you to build up your investing skills in this area. Whether you are a beginner or have experience with global investing, having recommendations for international shares and analysis done on your portfolio can be key to a successful financial strategy. This will help you with a stable return of investment and to maintain a healthy financial situation.
4. Begin investing
After doing all your research and setting up your share trading account, you can start trading! Whether you've chosen to delve into the New York stock exchange (NYSE) or find an exchange traded fund on the London stock exchange, international markets are one of the best ways to diversify your portfolio and expand your financial reach.
Why is international investing a good idea?
International investing is a good idea for many reasons. Whether you are looking to expand your financial reach into international markets or you feel limited by the options within Australian shares, international shares provide great abundance in stable investment and capital gains.
Having an international trading account allows your portfolio to become globally diverse, meaning if there are any severe market fluctuations within any one country, your global investments can be relied upon for steady investment. Investing in global stock exchanges allow for your portfolio to remain safer against any volatility or drops in the Australian market.
Is there a difference between the Australian and international stock market?
The main difference between the Australian stock market and the international stock market is the availability and access you can get as an investor.
On a domestic level, the Australian stock exchange is only made up of businesses listed on the Australian Securities Exchange (ASX), the National Stock Exchange (NSX) and the Chi-X. Within this realm, investing can only occur between 10-4pm each week day (EST) and you can be severely limited by the investment options. This is because Australian shares only make up around 2% of global shares.
On the other hand, you can trade international shares 24 hours a day, depending on the local market hours. You have unlimited access to all the markets out there, however, without extensive research it may be more challenging to invest wisely. There can be more risk involved with investing internationally because of this.
Benefits of international investment
The pros and cons to trading international shares are as follows:
Pros of investing internationally:
- Gain global access to all overseas markets and a wider variety of investing options.
- Most of the largest companies in the world trade on foreign markets.
- Protect yourself against downturns or fluctuations in the Australian market.
- You can trade 24 hours a day rather than only within set Australian business hours.
Cons of international shares:
- Exchange rates can fluctuate and can significantly affect your return on investment (ROI).
- Foreign policy can affect your returns, as there may be local instability or changes within foreign policy that can impact the value of your investment.
- Taxation of your investments may be more complicated when trading on foreign financial markets.
- Added costs including foreign exchange fees and levies.
What are the risks of investing in the international market?
There are many risks of investing in general, especially when you have not researched or explored your options properly. With investing in international shares, there are additional risks outside of general issues like market volatility that may affect your return of investment.
These risks include:
Global stock exchanges are denominated in a currency that is not Australian dollars (AUD) and is dependent on the country you are trading in. Therefore, the value of your investment may change once currency is converted and will be affected by exchange rates. You may also have to pay a currency conversion fee as well.
Political and regulatory risk
International shares are held by an international custodian or corporation. This means that they are subject to risks or changes relating to that custodian's country, whether that be political, economic or regular.
Taxation for international shares can be different that of Australian shares, and may also vary depending on your individual financial circumstances. If you are looking to trade on the New York stock exchange (NYSE), for example, you will be asked to complete a US tax form as part of the application process. This form is valid for three years and if you qualify for Australian treaty benefits, you will be charged 15% tax on dividend proceeds. If you do not have a valid form, you will be charged 30% on sale proceeds and dividends.
Therefore, the taxation amount can be higher or lower depending on the international share you invest in. It will also depend on which country or market you are investing in as to whether you will need additional application requirements.
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All information in this article is of general nature only; it is not intended or to be construed as an offer, solicitation or recommendation for any financial product and does not take into account your financial situation, objectives or needs. Before acting on the information herein you should consider whether it is appropriate for you in light of your personal circumstances. Where applicable, you should obtain and consider a Product Disclosure Statement, Prospectus or other relevant disclosure material and seek professional investment advice prior to making any decision to acquire or dispose of a financial product. Investing in financial markets and instruments involves risks, including loss of some or all capital. The payment of income and the return of capital are not guaranteed. Past performance is not an indicator of future performance. Whilst the information presented herein is believed to be reliable and obtained from trusted sources, ASR does not make any representations as to its accuracy or completeness.