Whether you’re new to investing or have been doing it for a while, you may be yet to take the plunge with investing in the US market. Here are some reasons people do.
1. Invest in cutting edge technologies
At Spaceship, we’re no stranger to Where the World is Going – it’s why we’ve built managed funds around it. The cutting edge tends to be located – or at least listed – on US stock exchanges. While the Australian stock market tends to be heavy in banking and mining stocks, the US market has more of a tech focus, including companies based around medical breakthroughs, artificial intelligence, space, and electric vehicles. So if you want to buy US stocks and ETFs with these specific themes, investing in the US stock market can help you do so.
2. Invest in companies you know and love
Love Nike? Apple fan? Wish you could invest as much in Starbucks as you drink its coffee? The US is home to some of the most globally recognised brands. You can generally only buy US stocks and ETFs from the exchanges they list in, so this means that if your favourite company is listed on the Nasdaq, that’s where you have to get it from, unless you get exposure in a different way, such as through an ETF or managed fund.
3. Access the largest stock market in the world
The US has the largest economy and stock market in the world. It’s also highly regulated. This means you can get access to literally thousands of different companies and funds, and invest your money more safely than in speculative or unregistered markets.
Have you ever been stuck with a stock you couldn’t sell? Or had to sell out at a low? When a stock has high liquidity, it means there’s lots of buyers and sellers trading it, so people can own or get rid of stocks pretty much as soon as they want to. Because the US market is so big, it tends to offer a lot of liquidity, meaning you’ll generally be able to buy and sell your US stocks and ETFs when you want to, and there may be less of a chance of getting stuck with a dud.
4. Strengthen your portfolio with geographical diversity
There are heaps of different investing strategies, and one favoured by many investors is diversification. It’s when you invest across a range of different investment types and features to lessen the total risk in your portfolio.
Investing in the US market can give you what’s called geographical diversity. The US has a different currency, interest rate, imports, and exports to other economies including our own. By making investments in its market, you can gain exposure to the benefits these can bring.
Of course, this also works in the reverse: all investing is risky, and that includes investing in the US market.
What are the risks of investing in the US market?
There are always risks when it comes to investing.
Currency risk: When you invest in US stocks and ETFs, you have to buy them with US dollars. This means that before buying US stocks and ETFs, you first need to convert your Aussie dollars to US dollars. Because the exchange rate fluctuates, the time you sell them will have an impact.
If you sell your US stocks when the US dollar is higher, you’ll get less Australian dollars for them. If you sell your US stocks when the US dollar is lower, you’ll get more Australian dollars for them. It’s just something to be aware of when it comes to US investing.
Regulatory risk: Companies listed on the US market are subject to US laws and regulations, which are different to Australian ones. If a regulation changes, it can have an impact on your investment. For example, in 2022 the US passed the CHIPS act, which was intended to help boost domestic production of semiconductors. This benefited local chip stocks, but more negatively impacted international chip stocks, which were also listed on the US market.
Geopolitical risk: US politics are arguably a lot more cooked than ours. Times of political instability spook the markets, and you can see extra volatility during election seasons. Similarly, relationships between different global powers can have an impact: when Russia invaded Ukraine in 2022, it impacted inflation and interest rates, which had negative impacts on US stocks.
So, should you buy US stocks and ETFs?
To decide whether to invest in US stocks and ETFs, think about:
