How to buy US shares in Australia

Many Aussie investors are keen to find out how to buy US shares in Australia. If you’re one of them, here are some things you should know.

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How to Buy US Shares in Australia

Home to a seemingly endless list of globally dominant companies, it's little wonder many Aussie investors want a slice of America in their portfolios.

We dive into everything you need to know about how to buy US shares from Australia -- the basics, the timing, and what to watch out for.

Article Last Updated: 8 February 2021

The ASX is home to many companies that Australians have been investing in for generations. From 'The Big Australian' BHP Group Ltd (ASX: BHP) and the big four banks to Telstra Corporation Ltd (ASX: TLS), these are names that have become ingrained in our local investing popular culture.

But Aussie investors are no longer confined by the same geographic barriers that have historically limited our investing decisions. We are increasingly looking across the seas for exposure to the companies that dominate our daily lives. ASX shares are fantastic, of course. But most can't match the pervasiveness and scale of many American companies.

Think about it. A significant proportion of you will be reading this on an Apple Inc (NASDAQ: AAPL) iPhone, or have one sitting next to you as you read. Alternatively, you might be viewing this article on a Microsoft Corporation (NASDAQ: MSFT) Windows computer after using Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s Google to find it.

When you got up this morning, you might have used a Gillette razor and some Old Spice deodorant, both made by Procter & Gamble Co (NYSE: PG). You might have then had some cereal made by Kellogg Company (NYSE: K), then driven to work in a car made by Tesla Inc (NASDAQ: TSLA) or Ford Motor Company (NYSE: F).

You might have also checked Facebook, Whatsapp, or Instagram, all owned by Facebook Inc (NASDAQ: FB) during your day. Or maybe you had a glance at your Twitter Inc (NYSE: TWTR) account. You might have paid for your morning muffin using your Visa Inc (NYSE: V), Mastercard Inc (NYSE: MA), or American Express Company (NYSE: AXP) card.

All of these globally dominant companies are listed over in the United States and yet command a market presence in Australia most ASX companies can only dream of.

And Aussies have taken note. Many ASX investors are now seeking to fish in this far larger pond and add some international diversification to their ASX share portfolios. And today, it's easier to invest in US shares from Australia than it's ever been.

How are the US markets indexed?

Aussie investors would be familiar with our 2 major market indexes on the ASX -- the S&P/ASX 200 Index (ASX: XJO) and the All Ordinaries Index (ASX: XAO). These are very simple in nature -- the ASX 200 tracks the largest 200 companies on the ASX by market capitalisation. The All Ords does almost the same thing but tracks 500 shares rather than 200.

However, the US markets are not indexed so simply. Perhaps the US's most famous index is the Dow Jones Industrial Average (INDEXDJX: .DJI). The Dow is the oldest share market index globally, but some investors criticise the Dow for being a little outdated. It tracks 30 of the US's largest companies but does so on an antiquated share price weighting system, rather than the more popular market capitalisation weighting method most other indexes use. Even so, the Dow remains an institution of Wall Street.

As such, the S&P 500 Index (INDEXSP: .INX) has overtaken the Dow to become the most widely used (and tracked) index that represents the American share market. It functions similarly to our All Ords, tracking the largest 500 companies on the US markets by market cap.

The other index ASX investors might be familiar with is the Nasdaq Composite (INDEXNASDAQ: .IXIC), which is sometimes reduced to its top 100 holdings in the NASDAQ-100 (INDEXNASDAQ: NDX). The Nasdaq is the newer of the US's two stock exchanges (the other being the New York Stock Exchange), and many newer companies choose to list on the Nasdaq. As a result, the Nasdaq indexes tend to be dominated by tech companies like Apple, Microsoft, Alphabet, and Facebook. Thus, this index is attractive for investors looking for exposure to the tech sector.

ETFs that allow ASX investors to buy US shares

There are many exchange-traded funds (ETFs) on the ASX that offer simple and easy access to US markets. For example, the iShares S&P 500 ETF (ASX: IVV) is an ASX-listed ETF that tracks the S&P 500 Index. There is also a hedged version that mitigates the effects of currency fluctuations -- the iShares S&P 500 (AUD Hedged) ETF (ASX: IHVV). There's also an ETF that tracks the Nasdaq 100 in the BetaShares Nasdaq 100 ETF (ASX: NDQ).

If you want broad exposure to the US markets, then there is nothing wrong with these ETFs that offer just that. However, many investors want to go one step further and own individual shares of the companies they love, such as Apple.

Some basics for buying US shares in Australia

Buying US shares in Australia isn't all that different from buying ASX shares at the end of the day. You are buying individual pieces of a real company, which entitles you, as a part-owner, to a slice of the company's profits. But there are some things to keep in mind.

Firstly, you are dealing with a foreign entity rather than a home-grown investment. This can have tax implications. US shares aren't subject to our dividend imputation system, so don't expect any franking credits from your US dividends.

Speaking of dividends, the US also has different rules when it comes to the taxation of dividends. You might have to pay a 15% withholding tax to the US government when you receive your dividends. This can usually be claimed back at tax time, but make sure you speak to your accountant or tax agent about this.

Secondly, US shares are also subject to Australian capital gains tax, just like ASX shares are. If you sell your shares for a profit, you will have to declare the proceeds for tax, just like you would with an ASX share.

Finally, US shares are traded in US dollars. That means you will have to convert your Aussie dollars into greenbacks before you buy your shares. That can have consequences from a foreign exchange perspective, as the US dollar and the Aussie dollar pairing can be quite volatile. For instance, one Aussie dollar was buying around 55 US cents at one point last year. At the time of writing, it's closer to 77 US cents. Expect your US shares to move around in value just from currency fluctuations alone.

Where to start buying US shares

Well, if you've invested in ASX shares through a broker, you're already halfway there. Most Australian online share brokers now give their customers the option to purchase US shares. These include the popular brokers run by the big four banks, such as Commonwealth Bank of Australia (ASX: CBA)'s CommSec. These platforms may, however, charge you more for executing trades in US markets. This could include foreign exchange fees, as well as higher brokerage fees. Nonetheless, the facility is available to use when you're ready to start buying US shares. 

But the big four's brokers are just one option Aussie investors have at their disposal. A raft of other brokerage providers that enable buying US shares has recently come on to the market. Here is a breakdown of a few popular options (not exhaustive):

The big four banks

All four of the major ASX banks allow ASX investors to purchase US shares using their brokerage platforms.

Commonwealth Bank of Australia's CommSec is the most popular. CommSec will charge you between US$19.95 and US$29.95 in brokerage for trades up to $10,000, and 0.31% of the trade's value above that amount. It also charges a foreign exchange fee of 0.6% in US dollars on the currency conversion.

National Australia Bank's (ASX: NAB)'s NABtrade platform offers similar charges. It will bill you between $14.95 and $19.95 for trades up to $20,000, and 0.11% after that. A foreign exchange fee of between 0.5-0.8% will also be charged.

Westpac Banking Corp (ASX: WBC)'s platform is similarly priced, with trades up to US$10,000 costing between US$19.95 and US$29.95 (0.31% for amounts over US$10,000), plus a forex fee. 

Australia and New Zealand Banking Group Ltd (ASX: ANZ)'s platform stands out for brokerage costs. A trade of up to $10,000 worth of shares will set a customer back $59 in brokerage (0.59% above $10,000), plus a forex fee of up to 0.6%.

Compared to other offerings out there, the ASX banks are on the expensive side. However, many ASX investors like to keep all of their investments 'in-house' with one broker, so one of these platforms might suit some investors better than others. This would especially be true for an investor who might buy just one or two parcels of shares a year.

Stake

Stake is a Sydney-based start-up that offers free brokerage for buying US shares and access to almost every company listed in the US. Stake does charge a foreign exchange fee of 0.7% for the privilege, though, and you may have to pay more to use its premium services. However, unlike the ASX banks, the 0.7% foreign exchange fee only applies to money you convert into US dollars on the platform, not on each trade.

Users can also opt to pay US$9 a month for the premium Stake Black, which allows additional features like analyst ratings. Stake also offers fractional shares, something that most other brokers don't offer at the moment. That allows customers to buy portions of shares, rather than whole numbers only. That can come in handy for shares like Amazon.com Inc (NASDAQ: AMZN), which cost thousands of dollars each.

Charles Schwab

Schwab is another brokerage option Australian investors can consider. It also offers zero brokerage, but investors will have to bring a minimum US$25,000 account balance to the table if they want to open an account. If you can rustle up this cash, Schwab offers far more options than other brokers like Stake. In addition to having most US and Canadian shares available for trade, you can also trade US mutual funds, options, bonds, and futures, as well as shares in any other foreign market (for an additional fee). Expect some currency fees with Schwab, but they are relatively small.

eToro

eToro is a newer platform in Australia that allows free brokerage and fractional shares for ASX investors and a 0.5% currency conversion fee. One of eToro's major drawcards is that it also facilitates the trading of cryptocurrencies like bitcoin. But eToro's flagship offering is its CopyTrader feature. CopyTrader allows any investor to automatically 'copy' the market moves of other eToro users. Investors can search for other traders based on their previous market performance and direct the broker to make the same trades at that person.

SelfWealth

SelfWealth is run by the ASX-listed company of the same name, SelfWealth Ltd (ASX: SWF). This broker offers a flat US$9.50 per trade for US shares, with a currency conversion fee of 0.6%. It offers US stock as well as ETFs and mutual fund trading, but no options or futures.

CMC Markets

CMC Markets allows trading across the US, Canadian, UK, and Japanese stock markets. This broker does not charge a brokerage fee on these trades in these markets. However, the trade volume needs to be above $1,000 in value, and CMC does charge a currency conversion fee of 0.6%. Investors can also choose to upgrade to a 'Pro' version. Pro charges a monthly fee of $49 in exchange for advanced trading tools, analyst research, and increased customisation.

Saxo Markets

Saxo Markets offer access to 37 stock exchanges worldwide (including the US, of course). You can buy stocks, as well as bonds, commodity futures, options, and foreign currencies. Saxo charges brokerage of 1 US cent per share bought, but with a minimum fee of US$9.90. You will need a minimum of $1,000 to open an account here.

IG Share Trading

IG Share Trading offers shares in the US, UK, German, and Irish stock markets. Brokerage is free across all of these markets, but IG will charge a currency conversion fee of 0.7%. Something to note with this broker: IG will charge users a fee of $50 per quarter if the customer makes less than 3 trades over the period.

All these platforms offer Australian investors the ability to buy and sell US shares, so a long look into each one is probably a good idea if this is an avenue you wish to pursue.

Some things to watch out for

Remember, each broker is a business making a crust somewhere along the way, even if 'zero brokerage' is on the table. Getting on top of the costs that each one might impose is very important. Here are some things to watch out for:

  1. Brokerage – As we discussed earlier, some brokers (especially those offered by the big four banks) have not yet embraced zero brokerage for trading US shares. That means you can pay as much as $59 for each trade you make. You might find the joys of keeping everything under one roof worth these fees, but make sure you know what they are all the same.
  2. Forex fees – Foreign exchange fees are also something to keep an eye on. And be careful, as many of the platforms won't openly advertise the cut they are getting from foreign exchange fees. Since you have to buy US dollars before buying US shares, your broker will often charge you a fee for this conversion. Make sure you aren't getting ripped off here.
  3. Bells and whistles – Some brokers offer a more polished or more extensive service than others. Some might offer options trading, a mobile app, or up-to-the-minute charting features. Some might offer market and limit orders, or perhaps just market. Often (as with most things), you will have to pay more for more features, perhaps with a recurring monthly fee. So make sure you find the right product for your needs.
  4. Account Inactivity Fees – Some brokers will charge users an 'account inactivity fee' if a trade isn't made within a set time frame. This is often 12 months but can be less. Make sure you check for these hidden costs.
  5. The W8BEN Form – The W8BEN form is another thing to watch out for. This form is a requirement of the US government for investors outside the US who want to buy US shares. It is a tax form that allows foreign investors to claim a special tax status. Without this form, all foreign investors would have to pay a 30% tax on any share sale, plus a 30% withholding tax on dividends. A valid W8BEN form eliminates the US tax for selling a share and reduces the withholding tax on dividends to 15%. Most brokers offering US share trading will have a facility that helps you fill out the W8BEN form, but make sure you follow up on this if you don't want to donate extra tax to the US government.

All figures correct as at 8 February 2021. Sebastian Bowen contributed to this report and at 8 February 2021 owns shares of Alphabet (A shares), American Express, Facebook, Ford, Kellogg, Mastercard, Procter & Gamble, Telstra Limited, Tesla, and Visa. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Mastercard, Microsoft, Tesla, Twitter, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Charles Schwab. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, Facebook, and Mastercard. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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