International shares should form a percentage of any well designed investment portfolio, depending on your personal circumstances, investment goals, appetite for risk, preference of dividend or growth stocks, and timeframe.
Buying Australian listed shares on the Australian Securities Exchange is easy. You just log into your broker and type in the stock ‘ticker’ or short code, figure out how much you want and the price you are willing to offer, and then hit ‘accept’. But what about some of the worlds biggest companies like Microsoft, Google, Apple, Exxon Mobile and Toyota?
The first thing you would have noticed is that you can generally only buy individual Australian shares (shares listed on the Australian Securities Exchange) with the majority of Australian online brokers. This is because the system is relatively simple, easy and straightforward.
For internationally listed shares, such as shares listed on the New York Stock Exchange, or the London Stock Exchange, it isn’t so easy.
Whilst you can’t directly register and trade with foreign securities exchanges directly, your broker can set you up with a linked account to do so. For example, ComSec users can link a ‘Pershing account’ and submit a W-8BEN-E form to allow them to make trades on the New York Stock Exchange and buy shares like Apple, Google and Microsoft.
The big four Australian banks all have financial arms that allow you to buy international shares, just be aware you’ll likely get whopped with high brokerage fee’s and the tax accounting and management can get very complicated as you dive deeper into the matrix of international investing.
- Commonwealth bank: Comsec Pershing account
- Westpac: Westpac Global Markets account
- NAB: NABtrade International Shares account
- ANZ: ANZ Global Shares account
My personal favourite SelfWealth unfortunately doesn’t make the cut here, as you cannot currently purchase individual international share holdings through them. Whilst they are working on a solution to allow you to do this, let me explain why it doesn’t matter anyway…
I personally used to have a ComSec Pershing account to buy individual US stocks. I got sick of how complicated it all was, keeping track of everything, all of the forms, international taxation requirements and all the brokerage costs. Too much bullshit sapping away my life energy! I ended up ditching the idea of directly buying international shares from Australia, and found a much better way…
As we know, ETFs solve our problems of concentration risk and provide the ultimate diversification solution, and the good ones have rock bottom ultra low management expense ratios (MER), the annual cost of ETF management.
For example, my portfolio of diversified global investments has an average MER (between A200, VTS and VEU) of about .063%, meaning I pay $63 every year for every $100K chunk I have invested. That is incredibly bloody impressive (and its actually only higher because of the global minus US fund VEU, the American total stock fund is only .03%!)
Not only are we getting extreme diversification for practically zero cost (compared to a traditional actively managed fund), we have none of the admin headache that is associated with trying to pick individual stocks, actually buy international stocks from Australia, and then none of the administrative nightmare of keeping track of it all.
Of course, the real reason you should use an index approach other than its simplicity, risk mitigation (diversification) aspect and low costs, are the bloody returns you get. Repeat after me (go on, say it out loud, I dare you!)
- “I cannot pick stocks”
- “85% of active fund managers under perform the index over 15 years”
- “99.9% of active fund managers under perform the index over 30 years”
- “Investing in a broadly diversified, low cost total stock index ETF is the only way to guarantee my fair share of total market returns”
After careful analysis of the market, I picked ETFs that are suited to my personal circumstance and will meet my investment goals (high growth), risk appetite (very high) and time-frame (a looooooong time).
I use SelfWealth to buy two international share market ETFs because of the cheaper brokerage with them and the fact that I want to keep my costs low.
The ETFs I buy are both funds offered by Vanguard, which have really low Management Fees (ticking that box) and are extremely diversified funds (which ticks the other box). They are;
(and PS for anyone wondering I get exposure to the Australian market using the Betashares Australian top 200 index fund (ASX:A200 MER = .07%) as well as a number of Aussie Listed Investment Companies)
Vanguard US total stock market fund ETF (ASX:VTS)
Vanguard US Total Market Shares Index ETF (ASX:VTS) tracks he CRSP US total Market Index (approx 3500 stocks) with a MER of .03% it is one of (if not the) cheapest ETFs on the market, and its 1, 3 and 5 year returns as of March 2020 are 5.32%, 11.91% and 10.53%.
For a detailed review about why I invest in VTS, check out the dedicated article to it here.
Vanguard Total World ex-US stock market fund ETF (ASX:VEU)
Vanguard All-World ex-US Shares Index ETF (ASX:VEU) tracks the FTSE all world ex US index. Its MER is .08% and as of March 20 its 1, 3 and 5 year returns are -2.25%, 5.33% and 4.01% respectively.
For a detailed review about why I invest in VEU, check out the dedicated article to it here.
International equities (shares) should form a good chunk of most people’s portfolio, and they help to reduce your market / geographic risk by spreading your investments around.
Buying individual international shares is tricky, and to be honest its just as dumb as buying individual Australian shares as you open yourself up to increased concentration risk and start to make your portfolio management unwieldy.
Instead, check out some Australian Domiciled or Cross listed International broad stock market index fund ETFs! Its a very simple, cheap, easy and smart way to spread your investment risk around! Just make sure you do your own research and make sure the ETF is right for you.