Tips and strategies for international investors while investing in the US stock market

International investors may feel challenged by the prospect of placing their investments into the US stock market.

US Stock Market, international investing, buying shares, diversifying, portfolio
US stock market is one of the most desirable investment possibilities and a phenomenal way to diversify holdings.

By Abhishek Banerjee

Today’s investment prospects can be encountered in any part of the world. One could wish to diversify their portfolio by placing assets into markets and economies that are just beginning to emerge, or that have embraced recent and rapid growth.

Buying equities from other countries is a popular way for investors to diversify their securities and gain exposure to the expansion of foreign economies. Foreign stocks are recommended by many financial experts as a means of structuring a portfolio.

International investors may feel challenged by the prospect of placing their investments into the US stock market. This is because it can get tough to navigate the way around the numerous regulations, the wide variety of investment opportunities, and the one-of-a-kind peculiarities of the market.

But, for those willing to put in the effort and research, the US stock market is one of the most desirable investment possibilities and a phenomenal way to diversify holdings and acquire access to some of the world’s most prosperous corporations.

The country boasts access to some of the world’s most advanced technologies and other enterprises that generate income, providing excellent investment opportunities.

Let’s proceed to discover learning how to navigate the US market and make smart investing choices, regardless of your level of experience as an investor.

TDS and Tax Offset

One of the first things international investors should be aware of when investing in the US is the upfront TDS (tax deducted at source) of 20%. This withholding tax is applied to dividend and interest payments made to foreign investors. The TDS can reduce an investor’s appetite for US investments, but those who invest before March 31 can use the TDS to offset taxes liable in terms of advance tax payments.

Index Composition

Another factor that international investors should consider when investing in the US stock market is the index composition. For example, the Russell 2000 index, which is a small-cap index, is very different from the Indian small-cap index NSE Smallcap 50.

In the US, the index is made up of 2000 stocks, while in India, the NSE Smallcap 50 is made up of only 50 stocks. This means that it is much harder to beat the US index, and stock selection becomes crucial.

International investors should also be aware that they get a much broader basket of businesses when investing in the US, often with varied performances.

Debt Ceiling and Government Shutdowns

The US government has a debt ceiling, which is the maximum amount of money that the government can borrow. The US government is currently approaching the debt ceiling, and without congressional approval, there is an impending government shutdown.

However, in all the 20-odd shutdowns in the past, the markets have always emerged ahead. International investors should be aware of these events as they can cause market volatility and uncertainty.

Tech Company Scrutiny

Tech companies in the US are currently facing increased scrutiny of their monopolistic positions. Additionally, content moderation is not mandated by law under rule 201 of the US Constitution.

However, if this were to change, we could see the cost of compliance shoot up, which would have a significant impact on tech companies’ bottom lines. International investors should consider this when investing in the US stock market and pay attention to any regulatory changes that may affect the industry.

US Equity Strategy

One of the most effective ways for international investors to navigate the US stock market is to use data collected to identify dominant bets by training ML models to learn from trades disclosed by large institutions worldwide.

This approach is based on the premise that institutional investors are usually better informed than individual investors and that their trades can provide valuable insights into market trends and sentiment.

International investors should also consider working with a local advisor who has experience in the US market and can provide valuable guidance on investment opportunities and risks.

The Bottom Line – All in all, international investors aiming to broaden their portfolios and obtain exposure to some of the world’s largest and most successful companies can benefit from investing in the US stock market.

Yet, it is essential to comprehend the distinctive features of the US market, such as the upfront TDS, index composition, government shutdowns, tech company inspection, and US equity strategy.

By keeping these considerations in mind, international investors will be able to make informed investment selections and attain their financial objectives. It is also crucial to keep in mind that investing always entails a degree of risk, and that expert guidance is always advised.

The urge of exponential fortune has always drawn investors to the markets. It takes not only a lot of patience and discipline, but also a lot of research and a good understanding of the market, among other things. If you want to become a fantastic investor, you must be on the cutting edge of things. There is no better location to refine your talents, learn quickly, and continually adjust than in the unpredictable, fast-paced realm of the smallest of investments.

So, get started right away!

(Author is Founder & CEO, Lotusdew)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 24-03-2023 at 06:48 IST