There are more than 40,000 companies that are listed and traded in the different stock markets around the globe. Deciding which markets you should invest in can be hard. I have gone through this decision fatigue too. Studies show that having too many options can affect our decision making. I have decided on the markets anyway, and in this post, I’m going through my thought process on how I decided.
My choice of primary market is in the United States. Now that I revealed my choice, let me explain my choice as well.
My Favourite Sector To Invest
Before I go into the details of the market of my choice, let me mention that I like the technology industry. This is because technology is in my circle of competence. As I have working experience in technology, I like how technology is helping us in our everyday lives. The technology industry is ever-evolving and helps humans to be more productive. Technology also eases up some of our everyday tasks.
Where Are My Favourite Companies Listed?
As I mentioned above, my favourite sector is in the Information Technology space. Even before I started investing, I was familiar with Information Technology related companies. There are many tech products we use for personal use and professional.
This helped me to understand that if I want to be part owner of these companies, I need to buy them from the US. If I need to buy stocks from the US, I need a broker with which I can assess the US stock market.
Stock Market Timings
Since I live in Singapore, we are not in the same timezone as the US, this can be good and bad at the same time. Singapore is ahead of the US by 12-13 hours depending on the daylight savings.
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The Good
The good thing about this is that the US stock market is open after my normal workday end. Premarket trading starts around 4 PM to 5 PM Singapore time and the actual exchange is open from 9:30 – 10:30 PM. With this, I can focus on my work during work hours and have time to read up on some news before the actual trading starts.
Given that I’m a long term investor, I may not need to be updated on the market moves, it helps to spot opportunities.
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The Bad
If for some reason, I decided to watch the stock moves, I need to do this at my sleep time. This may decrease my no of sleep hours. Given that we have a “Limit order” available on the brokerage platform, I can always place a trade at the time I want.
Stock Market Popularity
NASDAQ and NYSE are the largest stock markets in the world. By market capitalization, the companies listed here combined are worth multi-trillion Dollars. As the world’s most popular companies listed here, the exchanges become popular too. NYSE was founded in 1792, which makes it one of the oldest. NASDAQ began trading in 1971. These 2 stock markets are very popular among the US and global investors. It is also worth noting that 55% of Americans take part in the stock market, compared to 13% in China and 3% in India.
Does The Exchange Allow Purchasing Single Shares?
As a newbie investor with limited money to pour into stocks, it’s important to note the smallest quantity requirements. For buying stocks from these exchanges, they allow purchasing single stocks. The smallest trading unit for HK stocks is “1 lot”, which may equal 100 shares, 500 shares, 1,000 shares, 2,000 shares, etc., depending on the stock price. These may vary from exchange to exchange and stock markets. For the exchanges of my choices, it allows single shares, which is very convenient for me.
Ease Of Access To Company Data
Once you start to invest in companies or start to analyze stocks, you will need quality data. Data about the company financials, key investors etc… As investors, we need to see whether the interests of the shareholders and company are still aligned.
For the companies listed in the US, I can access the relevant documents from the SEC website. Other providers like google finance and yahoo finance also provide details on companies. This is what I meant by easy access to data, you can find the information by looking up the ticker symbols on Google.
Most of the brokerages provide this information in their apps.
Exchange Fees Involved
You need to pay closer attention to the fees involved in investing in the market. An example of a fee can be currency conversion fees. As I’m working and living in Singapore, my cash is always in SGD. Before I can buy stock in the US, I need to convert it to USD.
Ensure that you don’t have to pay currency conversion. If there are no options not to pay a currency conversion, ensure that you choose the least viable option.
Do check out and see if there are any trading fees levied by the exchanges. There can be GST, clearing fees etc.. charged by different exchanges. As these are charged on your trades, you may pay lesser, if you are investing for the long term.
Trading Fees
Apart from the fees charged by the exchanges, there are commissions charged by brokers. These can be different for different brokerages. In the past, commissions used to be huge. Thanks to the introduction of many low-cost brokerages. Companies offer competitive pricing now.
Trading fees used to be a barrier of entry for small scale investors. Market participation has increased with low-cost brokerages. Do check out and compare the trading fees offered, before you pick your broker.
Taxes On Dividends
The US will charge a dividend withholding tax on any Dividend you received from US Companies. This is applicable regardless of your tax residency. Thus, if you are investing for the dividends as a cash flow, remember to consider the tax.
For me, the companies I’m investing in are not paying any dividends. So, I won’t be charged with the tax. By the time the companies start to pay a dividend, I may choose to rotate my money into other quality stocks.
Other Fees (ADR fees)
ADR fees are applicable for foreign companies that are listed in the US via ADR. ADR stands for American Depository Receipts. An ADR is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADR fees compensate for the cost of registration, compliance and recordkeeping.
Chinese companies listed in the US Stock exchanges are an example. Company stocks like Alibaba (Ticker: BABA) will have these fees and they will be charged based on the no of shares you own.
Check If Demat/Central Deposit Account Is Mandatory
I have covered the difference between Demat/Central Depositary accounts and custodian accounts. Some countries have it as a mandate, meaning they don’t allow holding your stocks in a custodian account. I do not need a central depository/Demat account for trading/investing in the US stock market. I’m using the custody services provided by my broker.
Good Brokerage Account/Platform
Some of the points discussed above contained the importance of picking a good broker. In the past, communication with the broker was done via calls and emails/mails. In this Information Era, this can be achieved through the website or apps of the broker.
As your transactions are made using the broker’s platform, ensure that the platform is reliable. Check the reviews of the platforms and how long they have been in service.
I will be writing a separate post on my thought process of picking up a broker. There are many points to consider when choosing a broker. I’ll also provide a link later once I publish that post.
Conclusion
The above listed are the different points I had to consider before choosing to invest in the US stock market. As a retail investor with very little capital, I have to make sure that I pay as little as possible. The more you pay I trading costs, the lesser will be your return. As I always mention, we all come from different backgrounds and expertise.
Things that work for me may not work for you and it is always good to have a better understanding before investing. Do not invest In any stock market sectors/companies that you cannot understand.
Feel free to ask in the comments sections, if you have any on the content here. Do enlighten me if you have a different perspective or more steps to consider on this topic.