I was on the phone to friends in the US the other day and we had a long conversation about many things from the relentless spread of the coronavirus across the US to Donald Trump’s stubborn and unstatesmanlike attitude in not conceding defeat. Every subject was on the table for discussion and as my friends were in Los Angeles, a city of ‘Democrat’ angels, the talk was terrific, tantalising and turbulent.
Why turbulent?
Well, one of the parties on the line was Harriet, a gal who loves to ‘play’ the share market. Many years ago when she was here in Oz, she took a shine to Qantas when its share price was in the pits and I reminded her of that. Investing in our Flying Kangaroo when its share price was grounded by a number of events was a good call. She proceeded to rattle off the shares she’d bought during these volatile COVID times, all at good prices and all bringing hefty rewards.
Here’s part of her list, with prices at 2 December 2020
So how does someone living in the States buy shares there? Easy, via a platform like E-trade, in a similar way that we use Commsec or Nabtrade.
So why don’t Aussies trade individual US shares?
Well, you can, but there’s a number of things that need to be considered. First up, the share prices of these stocks is so high that most ‘average’ buyers wouldn’t be trading in the hundreds of thousands of dollars. And what do you buy? A few of all of the above? Then there’s the risk of being exposed to just a few stocks that have soared in their price but could also fall back to earth just as quickly.
And more importantly, there’s what’s called currency risk. Harriet has made a small fortune because she bought and could sell in US dollars. But for someone not living in the US, it’s different. If you’re an Australian and held these overseas stocks and wanted to sell them but the Aussie dollar had risen since you bought them, then you’ll get less back because of the exchange rate. The Aussie dollar can be volatile and if you don’t engage in what’s called HEDGING, then you’re open to this volatility.
For the beginner, or even for someone like myself, getting your head around hedging can appear difficult. That’s why many Aussies prefer to buy overseas shares (in this case US shares) via a fund, that’s also hedged. Next time I write in this area I’ll talk about some funds that a lot of Aussies invest in to give them exposure to overseas shares. And yes, the smart move is to buy into a fund that’s hedged.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
