Just when you thought it was safe to jump back into the share market, the front page of the AFR hits us with the following headline…
"ASX stocks tipped to lag the world"
The world is a big place, made up of many different stock markets. Australia, worst market in the world?
Almost certainly not. But the article, quoting top fund managers including Platinum Asset Management Limited (ASX: PTM) chief Kerr Neilson, has a point.
The ASX is dominated by the big four banks, two big miners, and Telstra Corporation Ltd (ASX: TLS).
It's no secret the banks are facing significant headwinds — a slowing economy, regulatory challenges, property prices at record highs — not to mention their sky high valuations. Thank goodness for their fully franked dividends, although future dividend growth is likely to be more subdued than shareholders have recently been used to.
The big miners have their own challenges — the low iron ore price, and in the case of BHP Billiton Limited (ASX: BHP), the plunging oil price. Their day will come again, but no guarantee that will be in 2015.
Which leaves already high-flying Telstra to power the ASX higher. It has a shot, especially if it does hit Charlie Aitken's $7 price target, but without too many larger friends to help it, the S&P/ASX 200 Index may indeed struggle to post significant gains in 2015.
So what's an investor to do?
According to the top fund managers quoted in the AFR, go global — invest in international shares.
Here at The Motley Fool, we've long encouraged investors to invest in US-quoted stocks.
Heck, from the very first day we launched Motley Fool Share Advisor, our subscription-only stock picking service, we've featured a guide on investing in international shares, and backed up the talk by actually tipping US-quoted shares to our members, with great success too.
(Although we've picked some wonderful ASX winners for our Motley Fool Share Advisor members, including two stocks that are up more than 340%, our biggest single winner has been one of our US-quoted stock picks, up almost 450%… and that's in US dollars. Add in the currency gain, and members who bought the stock will be in seventh heaven.)
Self managed superannuation funds (SMSF) have under 1% invested in international shares and funds compared with 30% in Australian shares. They are missing a massive trick.
Now obviously the "top fund managers" quoted in the AFR would be keen for you to get international exposure through their funds.
As for me and my SMSF, the reason I set it up in the first place is so I could manage the fund myself, including picking the individual stocks myself. The clue is in the name — it's a self managed super fund.
2014 was good for my SMSF, gaining around 24%. Very good. Outstanding when compared to the mere 1% gain in the S&P/ASX 200 Index.
The three secrets to my SMSF's success in 2014?
1) Investing in "under the radar" ASX growth stocks, including two of our Motley Fool Share Advisor high fliers.
2) Investing in US-quoted stocks, including Google and Warren Buffett's Berkshire Hathaway, the latter being my largest holding. In 2014, Berkshire Hathaway gained 30% in US-dollar terms.
3) "FX translation" — the currency gain made when converting my US-quoted shares back into Aussie dollars.
Still, I'm not here to blow my own trumpet. I'm here to show you a) it IS possible to beat the index, and by a substantial margin, b) investing in US-quoted shares is easy, possibly, and most importantly, potentially hugely profitable and c) you don't need to fear the currency exposure.
Why more people DON'T invest in US shares has me beat. I can only put it down to a reluctance to change, the lack of fully franked dividends, and currency concerns.
But maybe the worm is turning, especially given…
- The subdued outlook for the ASX, particularly amongst the blue chip stocks, including banks and miners.
- The fast-growing US economy, now powering global growth.
- Predictions of the Aussie dollar falling further, potentially as low as US70 cents. If this does come to pass, I'll be looking forward to "FX translation" making another significant contribution to my SMSF in 2015.
We all like to get one over on the taxman, and for investors like you and I, that usually involves buying ASX-quoted stocks paying fully franked dividends.
I get it. I'm loaded up with such fully franked dividend-paying stocks myself.
But here's another way you can beat the taxman…
Stop paying tax on the income generated by your term deposits, and start generating capital gains by investing in US-quoted stocks.
Of course, nothing is guaranteed. Term deposits are safe. Equities are liquid, but volatile. Invest in the stock market only with money you definitely won't need for at least three years, preferably five or more.
My guess is you've got a chunk of money sitting in term deposits, slowly but surely earning less and less in interest.
Why not take a chunk of it, open a US brokerage account with someone like OptionsXpress (the Motley Fool has no affiliation with them) and give it a try?
Based in Sydney, OptionsXpress are owned by Charles Schwab, one of the largest brokerage and banking companies in the world.
OptionsXpress can provide the brokerage, at a much cheaper rate than the likes of Commsec and nabtrade. Motley Fool Share Advisor can provide the stock recommendations. Bob's your uncle.
With an uncanny sense of timing, tomorrow (Thursday) afternoon, Scott Phillips and I will be revealing our brand new top US-quoted stock pick, exclusively to Motley Fool Share Advisor subscribers.
I can reveal now the company in question is a global brand (you'll almost certainly recognise the name) that's growing faster — a LOT faster — than you could have possibly imagined, including in the lucrative Greater China region.
All will be revealed Thursday afternoon. I might just grab some shares myself, when The Motley Fool's strict internal trading rules allow.
Scott and myself both already own a fair few of our US-quoted recommended stocks. As for me, as well as giving me a great source of new stock ideas, I often use the US stock picks to generate income for my SMSF, courtesy of a simple but very effective put-writing strategy.
I wrote about that little-known income generating "trick" a few months ago, using CarMax (NYSE: KMX) as an example.
With CarMax shares currently trading above $64, well above my strike price of $48, the story will have a very happy ending come this Friday night. The options will almost certainly expire worthless (a good thing, as I was a seller of the options), allowing me to pocket a full $US720 profit.
That will pay for a few flat white coffees. Or a two year subscription to Motley Fool Share Advisor, with plenty of cash left over.
As well as Thursday's new US-quoted stock pick, I'm itching to reveal my next put-writing trade to Motley Fool Share Advisor members. In this low interest rate environment, where income is increasingly harder to come by, it's a winner for me, and hopefully for you too.
