The Australian sharemarket makes up less than 3% of the world’s sharemarkets.  So, if you’re only invested into Aussie shares, you could be missing the opportunities of international markets such as in Asia, Europe and the US.  In addition, many industries are under-represented (or not represented) in Australia, which can limit your exposure to these areas if you’re restricted to Australian shares.  But what are the best ways to invest overseas?  This article introduces you to the basics of international investment.

International Markets and the GFC
Like Australia, international markets have had a tough few years with the Global Financial Crisis (GFC).  Over the past year though, many have shown signs of improvement.  Some markets show greater promise than others with many economic experts tipping Asia as the place to invest with medium and long term growth predicted to outperform the rest of the world economies.

How to invest overseas
There are several ways to invest overseas including both directly and via a managed fund.  Here are some examples to help you get started:

  • Online brokers:  there are several online brokers operating within Australia who provide access to international shares.  These include HSBC, CommSec, TD Waterhouse and Macquarie.  Many of these brokers offer access to exchanges in up to 32 countries including Japan, Hong Kong, Israel, Germany, the US and Spain just to name a few.  Of course the brokerage fees and charges can be costly so it pays to shop around.  As an example, CommSec charge up to $143 USD or 1.10% (whichever is greater) for some Asia-Pacific, Middle East and European market trades.  Due to these significant costs, smaller investment amounts may not be worthwhile.
  • ASX World Link:  back in 2001 the Australian Stock Exchange (ASX) introduced ASX World Link.  This provides Aussie investors with access to some companies listed on the Singapore and US exchanges.  Purchasing shares through ASX World Link is similar to purchasing shares on the ASX.  An Australian broker is used who can provide research.  Orders are placed in the same way with the securities held in CHESS and dividends received in Australian dollars.  Currently there are around 20 brokers participating in ASX World Link.
  • Managed Funds:  the research required when investing directly in international shares can be time-consuming for the average person.  For many people the answer is to use a managed fund.  The positive about using this method is that as an investor you are effectively paying for a team of professionals to conduct the necessary research on your behalf and to select a diversified portfolio based on this research.  This can make the international investment process much simpler and far less time consuming however it also poses the disadvantage of having less control over what is bought and sold in your portfolio.

International Investing – Risk and Return
International shares are considered to be a high-risk, high-return investment.  As such, they are suited to investors with long term investment time-frames (more than 7 years).  As with all forms of investing, it’s impossible to know what future returns on Australian and International shares will be, however, a diversified portfolio of both Australian and International shares is likely to have less volatility than a share portfolio of entirely Australian or entirely International shares alone.

Tax Implications of International Investments
It is important to note that international shares do not provide the same tax-effective income benefits as Australian shares.  Generally, income from international assets is in the form of capital gains rather than dividends.  Tax on international shares is a complex area and professional advice should be sought to identify the tax implications of a proposed international investment prior to investing.

Want to learn the basics of investing?
Download our free Ebook on the Basics of Investing to learn more about getting started in investing.

Need financial advice on where to invest?
The financial advisers at Financial Spectrum can provide you with professional financial advice on investing.  Contact us to book your complimentary first financial planning meeting at our Sydney CBD office.

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One Response to “How to Invest Overseas”

  1. tax tips June 4, 2011 at 3:14 pm #

    Great story with a ton of high quality content and easy to follow.