When it comes to investing, there are a lot of choices to make.
“Should I invest domestically or internationally?” is one of them.
Many rookie stock investors outside of the US think that it’s best to stick to local exchanges like the Australian Stock Exchange (ASX) before venturing off into an overseas market.
Personally, however, I think everyone new to the stock market should start with the US first and foremost. I’ll explain why I think that in this post, and along the way, we’ll explore the differences between investing in stocks listed on the US exchange and those listed on local exchanges.
Let’s get started, shall we?
Why All Newbie Stock Investors and Traders Should Start With the US Market
The US Market is the Largest and Most Liquid
The first reason why you should consider investing in stocks listed on the US exchange is because of the sheer size and liquidity of the market.
With a market capitalization (i.e. total value) of over $30 trillion, it’s safe to say that the US stock market is the largest in the world. And with an average daily trading volume (i.e. number of trades that are bought and sold) of $169 billion, it’s also the most liquid (i.e. easy to buy/sell).
This is important because it means that there are always buyers and sellers willing to trade at any given time. So whether you’re looking to buy or sell a stock, you’ll be able to do so with ease.
Local exchanges simply can’t match the size and liquidity of the US market. And as a result, they can be more volatile and prone to price manipulation.
The US Market Often Dictates What Happens In The Rest of the World
There’s a saying that gets passed around in stock investing and trading circles, and that’s
“When America sneezes, the rest of the world catches a cold.”
Now, before your mind starts thinking of silly COVID-related jokes, let me explain what this saying means.
Essentially, it’s referring to the fact that the US economy is the largest and most influential in the world, and that what happens in the US stock market often dictates what happens in the rest of the world.
As an example, during the Global Financial Crisis (GFC) of 2008, the US housing market collapsed, causing the eventual collapse of Lehman Brothers, a large US investment bank at the time. This event sent shockwaves throughout the global financial system and eventually led to stock markets all around the world crashing – one of which was the Australian Stock Exchange.
So if you’re looking to get a good pulse on global economic conditions, the US market is a great place to start.
The Biggest Global Companies are Listed on the US Stock Exchange
All the biggest companies that cater to the global population are listed on the US stock exchange.
Think of companies like Pfizer, John & Johnson, Microsoft, Google, Netflix etc. These are household names that everyone knows – and they’re all listed on the US stock exchange.
In contrast, local exchanges are usually populated by smaller companies that only serve a specific geographical region. As an example, Australia only has a handful of companies that service the global market – like CSL (a biotech company), Cochlear (hearing devices), and Macquarie Bank (an investment bank).
What this means is that if you’re looking to invest in the biggest and best companies in the world, then you need to look no further than the US stock exchange.
The US Market Offers Plenty of Opportunities to Diversify your Portfolio
Adding on to the previous point, investing in stocks listed on the US exchange also offers greater diversification opportunities.
Because the US market is so large and liquid, it’s home to a vast array of companies from different industries and sectors. This provides investors with the ability to build a well-diversified portfolio that’s less susceptible to market volatility.
In contrast, local exchanges are often much smaller and only offer a limited number of stocks to choose from. This can make it difficult to properly diversify your portfolio and protect yourself from market fluctuations.
Brokerage is Generally Cheaper When Trading US Stocks
Investing in US stocks usually comes with lower brokerage fees than investing in local stocks. This is because of the sheer volume of trades that take place, which allows online brokerages to offer reduced rates.
In contrast, domestic exchanges like the ASX charge very high transaction fees which the brokers then have to pass to you (Australia is notoriously expensive). For example, in the US, a brokerage fee might be a dollar, but in Australia, it ranges anywhere from $6 and upwards.
So if you’re low on starting capital and looking to save on brokerage fees, investing in US stocks is a great way to do it.
A Lot Of Information is Widely Available and Free with US Stocks
When it comes to stock investing and trading, information is power. The more you know about a company and its financials, the better informed your investment decisions will be.
Fortunately, when it comes to US stocks, there’s an abundance of information available – and much of it is free. For example, sites like Yahoo Finance offer comprehensive coverage on most publicly-listed companies.
This level of transparency is not always available with local stocks though, which can make it difficult to make well-informed investment decisions.
Investing in stocks listed on the US exchange offers several benefits that are simply not available when investing in domestic stocks.
From greater diversification opportunities to lower transaction fees, there are many reasons why all newbie stock investors and traders should start with the US market.
So, if you’re new to the world of stock investing and trading, consider starting with the US market. It could make a world of difference in your journey.