Investing in overseas stocks has delivered windfall gains since last year’s COVID crash, but buyers should take care right now.
Think Apple, Amazon, Netflix, Google and Tesla -- all are technology giants well-known to most Australians and are capturing the imaginations of millions of new investors.
While their shares have multiplied many times in value in recent years, and it’s easier than ever to buy a slice of these tech success stories, we still recommend a cautious approach.
US stocks recently reached a record high however there’s merit in taking a prudent approach. Think very seriously about not only the quality of the business you are buying but also its long-term prospects.
While we all wish we had bought stock in these behemoth companies back in March and April 2020 (that was when the COVID crash sent many tech stocks sinking 20 per cent or more, but they have since recovered those losses and powered ahead), analysts value shares based on projected profits and on this basis many overseas tech companies appear overvalued. And with another share market correction looming at some point, it can be a good idea to spread your share purchases over several months to reduce risk.
However, in saying that -- great businesses should still have a place in people’s portfolios.
It's never been easier to buy overseas stocks either.
You can either do this through full-service stockbrokers, online stockbrokers and a new breed of online platforms where you can buy fractions of shares. That’s helpful when one Amazon share currently costs more than $US3000 ($A3900).
Full-service brokers can be quite expensive, depending on your needs. If you know what you want and don't need advice on your trade or with what to buy, utilising an online stockbroker might be the way to go. Fees vary from $15 to $50 per trade.
Beware of some trading platforms that don’t charge trading fees may hit investors harder with foreign exchange transaction costs, so its crucial you check this before you sign up.
Whilst it used to be up to ten times more expensive to buy international shares, some online stockbrokers now charge the same fees on international trades as they do for Australian shares.
However, when it comes to investing in shares, whether it be international or domestic stocks - the key is to diversify across companies and countries rather than focus on a handful of stocks specifically.
Using Exchange Traded Funds (ETFs) for example is a well-diversified and relatively cheap way to buy into overseas and domestic shares. ETFs are baskets of assets traded like securities, so instead of buying shares of one or two of the biggest companies, you can buy shares in the top 100 or 200 companies for example -- providing true diversification and thus lowering your investment risk. So you can own a portion of Apple, Amazon, Netflix, Google and Tesla all in one single holding. They can also be bought and sold on an open exchange, just like regular stocks.