Getting exposure to international markets doesn’t have to be difficult or overwhelming. There are many international ETFs which give a wide exposure so buying international shares from Australia can be easy!
International shares form a percentage of many well-designed investment portfolios, and your decision to include them will depend 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 Exchange1 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 world’s biggest international companies like Microsoft, Google, Apple, Exxon Mobile and Toyota? Read on..
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 international stock exchanges (the New York Stock Exchange, London Stock Exchange, Hong Kong stock exchange, Tokyo 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, CommSec users can link a ‘Pershing account’ and submit a W-8BEN-E2 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 fees and the tax accounting and management can get very complicated as you dive deeper into the matrix of international investing.
- Commonwealth bank: Commsec Pershing account3
- Westpac: Westpac Global Markets account4
- NAB: NABtrade International Shares account5
- ANZ: ANZ Global Shares account6
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 (Exchange Traded Funds) solve our problems of concentration risk and provide the ultimate diversification solution. The good ones have rock-bottom ultra-low management expense ratios (MER),7 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 it’s 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 headaches that are 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 I use an index approach other than its simplicity, risk mitigation (diversification) aspect and low costs, are the bloody returns I get. Repeat after me (go on, say it out loud, I dare you!)
- “I cannot pick stocks.”
- “85% of active fund managers underperform the index over 15 years.”
- “99.9% of active fund managers underperform 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 initially used SelfWealth and then switched to Pearler for international share trading, 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.
“On your Pearler brokerage account you can invest in all Australian listed stocks, as well as all US listed stocks. With the availability of global stocks through Australian and US domiciled funds such as ETFs and index funds, you can get exposure to the global stock market, as well as things like bonds, REITs and listed investment companies.”Captain Fi – Pearler review
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;
- Vanguard Total US Market (ASX:VTS) MER =.03%
- Vanguard Total world ex US (VAS:VEU) MER = .07%
(and PS for anyone wondering, I get exposure to the Australian share 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 the 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 Feb 2023 are -8.5%, 7.5% and 12.95%.
For a detailed review of 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 .07% and as of Feb 2023 its 1, 3 and 5 year returns are -9.13%, 3.33% and 5.63% respectively.
For a detailed review about why I invest in VEU, check out the dedicated article to it here.
International equities (shares) often form a good chunk of most people’s share portfolio, and international exposure helps to reduce your market / geographic risk by spreading your investments around.
“Individual economies are expected to grow at widely varying rates this year.2 Investors looking for exposure to global economic growth should consider ETFs that invest in companies from a broad range of different countries.”investopedia.com/articles/etfs-mutual-funds8
Buying individual international shares is tricky, and to be honest, it’s just as risky 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! It’s a very simple, cheap, easy, and smart way to spread your investment risk around!
If you’re interested in investing internationally, or you want to trade international shares, just make sure you do your own research, seek independent financial advice based on your personal circumstances, and make sure the ETF or the stock is right for you.
- ‘How to buy and sell shares’, MoneySmart.gov.au. Accessed online at https://moneysmart.gov.au/shares/how-to-buy-and-sell-shares on Jan 8, 2023.
- ‘How to complete the W-8BEN-E Form for Australian Companies’, Daniel Tillett, Tillett.info. Published: June 20, 2015. Accessed online at https://www.tillett.info/2015/06/20/how-to-complete-w-8ben-e-form-for-australian-companies/ on Jan 8, 2023.
- ‘Management Expense Ratio (MER)’, CFI team, Corporate Financial Institute. Published (updated) Oct 11, 2022. Accessed online at https://corporatefinanceinstitute.com/resources/wealth-management/management-expense-ratio-mer/ on Jan 8, 2023.
- ‘3 ETFs to Invest Globally’, Nathan Reiff, Investopedia. Published (updated) Oct 6, 2022. Accessed online at https://www.investopedia.com/articles/etfs-mutual-funds/071516/top-3-etfs-tracking-msci-world-index-urth-vt.asp on Jan 8, 2023.
Captain FI is a Retired Pilot who lives in Adelaide, South Australia. He is passionate about Financial Independence and writes about Personal Finance and his journey to reach FI at 29, allowing him to retire at 30.