The US stock market is the largest equity market in the word.
Representing the beacon of free-market economy, the US equity markets attract investors from all around the world.
Due to its large prominence and the fact that the USD is the world's reserve currency, the US equity markets have a distinct advantage.
As a result, companies listed on the US stock markets are widely sought after.
Although there are over 19 large stock exchanges in the world, the US stock markets leads the list.
Latest statistical data shows the total market capitalization of the US stock markets is at a staggering $4.8 trillion.
This is larger than the annual GDP of some countries in the world.
Investors like to invest in the US shares for many reasons. Firstly, the regulations are very strict, and it enables for transparency.
Secondly, there is a lot of historical data and statistics available. This makes it easy for investors anywhere in the world to gain access to data.
Over the recent years, the trend has been towards low-cost brokerages. These stock brokerages operate on a business model that offers reduced commissions.
As a result, it has given rise to many new investors, both domestic and abroad.
Thus, investors, these days can open a stock trading account and invest in US shares.
There are of course multiple ways that one can gain exposure to US stocks. And each of these investment methods can differ.
As a potential investor who is interested to invest in US stocks from New Zealand, you should therefore conduct due research first.
This article is aimed towards investing in US stocks from New Zealand. Therefore, the content is also finetuned for the shares trading platform from New Zealand.
Investing in US stocks from New Zealand – What you should know!
Before you start going around signing up with a stockbroker, there are a few things to know about the US stock markets first.
One of the questions that may come to mind is why to invest in US stocks from New Zealand. The answer may be different for each investor.
For starters, a quick comparison between New Zealand and US stock markets can be revealing.
There are over 4000 stocks listed in the US stock markets. In comparison, there are just under 150 stocks listed in New Zealand. Thus, when it comes to diversification, the choice with US stocks are much higher than New Zealand’s.
Besides the stocks, there are also other types such as exchange-traded funds or ETFs which further raise the number of securities that one can trade.
Due to their popularity, there are different ways one can gain exposure to US stocks.
For example, FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) are very popular as high growth stocks.
Investors also have other types such as the Dogs of the Dow, which are made up of US stocks that offer higher dividend yields.
When one starts to look into ETFs thematic investment is even diversified, depending on an investor’s inclination.
We can categorize these into the following ways:
- Investing in US stocks via shares
- Investing in US stocks via derivatives
While both these methods allow you to trade, and invest in US stocks, the approach and obviously the cost and fees can differ.
Let’s take a closer look at each of these two types.
Investing in US stocks via shares from New Zealand
Investing in US stocks via shares has some distinct advantages.
In this method, the investor is directly investing in the shares. Therefore, speculation is not ideally suited in this method.
There are also the advantages such as being paid dividends and also being able to participate in corporate actions such as stock splits, acquisitions, rights and many more.
To be able to invest in US stocks successfully, investors in New Zealand should have a good understanding of how stock work.
This is general knowledge and if you have any experience investing in New Zealand domestic stocks, it is almost the same.
There are different ways to invest in US stocks from New Zealand.
Firstly, you can open a stock brokerage account directly from your retail bank. You will need to create a securities account.
This securities account enables you to place and hold on to the stocks that you purchase.
The cost for trading or investing in US securities from your local retail bank is a bit higher compared to dedicated US stock brokerages.
Therefore, investors need to do some research into the fees and compare them across different platforms.
Online stock brokerages such as the following offer investors a low-cost way to invest in US stocks from New Zealand.
|Rockfort Markets||Shares, ETFs||https://www.rockfortmarkets.com|
|ASB Securities||Shares, ETFs||https://www.asb.co.nz/asb-securities|
Besides the above, there are many more different stockbrokers that allow US shares trading from New Zealand.
At the end, investors in New Zealand should conduct their due diligence and especially look at the fees and other costs when choosing to sign up for one of these brokers.
Investing in US stocks via derivatives
Another popular way to invest or trade in US stocks is via derivatives.
This is done through stock CFDs or contracts for difference. It is usually a lot cheaper to invest in stocks through CFDs.
However, these derivatives are not suitable for long term investing.
The reason is because CFD trading on US stocks is leveraged. Therefore, there are overnight fees that can eat into your profits.
While on one hand, CFD stocks may be cheaper to investing via a stockbroker, the overall fees can turn out to be higher.
Besides the above, stock CFDs do not entitle you to dividends or corporate actions that one gets to see.
The biggest difference however is that you cannot use stock CFDs as collateral. On the other hand, owning shares can help you to use them as collateral when seeking a loan.
In terms of the choice of securities available for trading, stock CFDs are more limited in nature.
In many cases, a trader or investor has access to only a select number of stocks. Therefore, if you are someone looking for a diverse set of stocks, it can be difficult to find them via stock CFDs.
Due to the above reasons, stock CFDs are suitable for day traders and short term speculative trades. For long term investment strategies such as buy and hold, stock CFDs are not the right choice.
How to compare stock trading platforms in New Zealand
By now, you have a good understanding of the US stocks and also their derivatives, the stock CFD’s.
Let’s look at how one can conduct their own due diligence to find the best US stock trading platforms in New Zealand.
Costs: The cost of trading is obviously the first starting point for investors in New Zealand. The fees and costs can be charged in multiple ways. Firstly, most of the costs are focused on shares trading.
This is described as the cost per share. These will be the fees you will pay for trading in shares.
Within the cost category, you will also find other fees such as exchange rate fees. Since this is applicable for New Zealand based investors, there will be an exchange rate involved.
You will have to usually deposit money in NZD and exchange for USD to buy the US stocks. The exchange rate is set by the stockbroker.
They may also charge an exchange rate fee on top of a small mark upon the foreign exchange transaction.
It is usually advisable to exchange NZD to USD in one go rather than in parts to reduce the costs.
Choice of securities: Having the right choice of securities is also important for New Zealand investors.
As mentioned, while there are over 4000 US stocks to choose from, too much of choice can also be a bad thing. Hence, investors should carefully build a list of securities or stocks that they are interested in.
Trading platform: The trading platform offered by the New Zealand based stockbroker is also important. Investors must pay attention to the ease of use, the market data it offers as well as the ability to do some analysis.
Pros and cons of investing in US shares?
Having covered a considerable part of investing in US shares from New Zealand, the next talking point is the pros and cons.
Obviously, there are both advantages and disadvantages of investing in US stocks.
Here are some of the advantages and disadvantages of trading US stocks from New Zealand.
Pros of investing in US shares from New Zealand
The US stock markets are the largest in the world. Hence, investors are able to gain access to a variety of stocks with different characteristics.
You can choose between high growth stocks or stable stocks that offer steady dividends.
At the same time, the choice of investments also plays a big role. If you prefer to buy a fund, then investing in ETFs is a great choice.
On the other hand, if you are an active investor, then picking single stocks is a better option. No matter what kind of investing goal you may have, the large number of stocks in the US is a great investment opportunity.
Depending on the stocks you pick, you can also diversify against thematic risks. For example, export and import oriented stocks vs. service sector stocks and so on.
Due to the large demand for US stocks, the costs for investing in such stocks are much lower.
As the competition among online US stock brokerages rises, the fees and other aspects such as spreads are also lower.
This lower cost makes investing in US stocks easier to invest in the equity markets.
Last but not the least, the global economy is in a period of low-interest rate, while inflation is rising sharply.
Hence, the search for new investment opportunities is paramount to earning a respectable return on your investment.
This is where investing in US stocks can be very helpful.
Cons of investing in US shares from New Zealand
The biggest disadvantage of investing in US shares from New Zealand is of course the exchange rate fluctuation.
The NZDUSD is one of the most liquid Forex currency pairs. The value can change quite a lot. Thus, at the end of the day, an investor will need to convert their local NZD to USD.
At the same time, if one wants to withdraw their profits, they will have to convert the USD back to NZD.
If such transactions range over a one year period on average, then there can be a significant difference.
Therefore, investors need to pick US stocks wisely such that the returns are able to offset any exchange rate fluctuations.
For investors in New Zealand, you should also keep track of the fundamental development in US stocks.
Due to the time zone difference, there can be a significant lag. Thus, investors in New Zealand don’t quite have an advantage on this front.
This can be detrimental especially when timing the stock investment.
So, traders in New Zealand need to have some leeway when it comes to investing in US stocks.
Still, despite the shortcomings, there are no significant disadvantages of investing in US stocks. The pros certainly outweigh the cons when it comes to this.
If an investor is savvy enough, they can potentially overcome the shortcomings.
Investing in US stocks from New Zealand – Conclusion
To conclude, investors in New Zealand are able to invest in US stocks. The costs and fees associated with such investing are relatively low compared to a few years ago.
The advancement of technology also now gives investors access to real-time information. This can help investors in places such as New Zealand to access a wider choice of US stocks.
In a low-interest rate yielding environment, US stock markets are a great way to diversify one’s investment.
If you want to get started to invest in US stocks, then the first step is to take your time. Spend enough time to do thorough research before signing up with a New Zealand based stockbroker.
Once you are able to overcome this first hurdle, you can then easily gain access to the biggest equity market in the world.