Investing in foreign stocks
Are there any downsides to investing in foreign stocks? Wanted to hear about personal experiences before I do more research on this.
Some stock markets cap same day price movement at 10% and things like T+1 policy meaning you canβt buy/sell during the same day, so generally less risky and less opportunities to hedge.
Does anyone have IRA strategies? Also what brokerages do you use for trading?
I buy vanguard funds with foreign assets. If you want to buy the stock directly look into Interactive Brokers.
I signed up or Interactive Brokers in order to buy Tencent's (biggest tech company in China) stock, which is listed in the hong kong stock exchange. The UI/login process for the desktop app is pretty painful. I'm still not able to log into the desktop app... my credentials for the website don't work for the desktop app. Then I thought screw it, I'll just buy the representation of that stock (ticker symbol TCEHY) with my E*Trade account.
Are you talking about buying a US fund that invests in foreign stocks or buying the stocks directly? There will be taxes withheld by foreign government on dividends either way so you would want to hold them in a taxable account where you can claim the foreign tax credit. This is assuming you are maxing out your IRA anyway and that something will be taxable, in which case there is a slight efficiency in letting the foreign assets be taxed vs US assets. Otherwise there's no legal or tax problem Pros: increased diversification Cons: exposed to FX rate risk, foreign assets historically underperform the US generally. If you buy the stock directly a big con is much higher trading costs. Personally I'm not planning to retire in the US so I see the FX rate diversification as a pro. A standard risk profile might put 20% in foreign and 80% in the US. A retiring outside the US might put 50% foreign and 50% US. That's what I do actually, with a big chunk being in my home country.
Thanks, that helps. I was thinking of directly buying foreign stocks, mainly to increase diversification as you mentioned. What trading platform do you use? Is trading cost significantly higher on foreign stock transactions as compared to US stocks?
I don't buy foreign stocks directly I just buy vanguard funds and other ETF the contain foreign says. If I did want to do that I would likely use interactive brokers. I am thinking about signing up with them because I own real estate in my home country and have rental income there, I'd like to be able to deposit the rental income in a trading account and buy stocks using that currency without exchanging it to USD and then back again. I think I will be able to do that. But if it wasn't for having non US cash I need to invest I would stick with vanguard ETFs like VXUS, VWO, and VSS.
Individual stocks might be a different story, but international mutual funds have consistently underperformed domestic funds in my 401kβs offerings.
Because most of the funds are dominated by developed countries. Japan didn't have a good year for a long time. The Euro crises. Then the BRIC was struck by slumping commodity prices etc etc. But if you stick to "buy low sell high", it appears that this is a good time for international. The US has had many good years. And they say the luck will run out soon. But then what's the chance of a crashing US market while the rest prosper? I think it's slim. But they also said the chance Donald Trump won the election is slim. Hindsight is 20/20
That being said, what blend of intβl funds do you have in your portfolio?