SINGAPORE (Feb 5): Once you have gotten the hang of investing in the Singapore market and are looking to diversify your portfolio, the US stock markets, with their world-leading size and liquidity, should be on your list.
The US stock markets are where instantly recognizable names such as Facebook, Amazon, Apple, Netflix, Alphabet (parent company of Google), as well as others such as Disney, and Microsoft, are listed.
Buying US stocks isn’t that complicated, but there are certain things you will need to take note of before putting your money in.
Here goes:
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Unlike Singapore, where there is one stock exchange, there are three major players in the US – the New York Stock Exchange (NYSE), the National Association of Securities Dealers Automated Quotation System (NASDAQ), and the NYSE American (formerly known as the American Stock Exchange or AMEX).
The NYSE is the world’s largest stock exchange based on the market value of the companies’ shares listed. NASDAQ, which is the second largest, was the first stock exchange to start trading online. The NYSE American is a smaller exchange which has smaller companies that do not meet the base requirements stipulated by the first two exchanges.
2. Do your research
Take it from one of the world’s most successful investors, Warren Buffett, who believes that to buy a stock, you will need to “understand and like it such that you’d be content to own it in the absence of any market.”
It is not enough to recognise the names of the stocks you want to purchase. You will also need to know their financial health, the total value of the company’s shares on the stock market, and when is a good time to enter and exit the market.
3. Open a brokerage account
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Choosing the right brokerage is important. The fees from each trade may seem minimal, but if you are an active trader, the cumulated total fees might eat into your profits, or add to your losses.
Most major brokerages in Singapore should have access to the US market, so you don’t have to open a separate one. However, these brokerages also charge custodian fees for stocks in foreign markets on top of commission fees.
You are not limited to one brokerage – you may also go directly to US brokerages like TD Ameritrade and Interactive Brokers for more affordable rates.
Like Singapore brokerages, you are required to settle your payments once your trade is confirmed within two days.
You do not need a Central Depository Account (or CDP) for US stocks; the CDP is only for stocks listed in the SGX. The US equivalent is the Depository Trust & Clearing Corporation (DTCC); but that is not mandatory as most individual brokers will be able to serve as custodian accounts.
4. Mandatory documents
Before trading in the US stock market, you are required by the US Internal Revenue Service (IRS) to sign the W-8BEN form to prove that
- You are not a US citizen, and
- You, the account holder, are the only person to benefit from the income generated.
You can either download the form online (like this one from POEMS), or head down to your brokerage to fill it in. The application will take approximately eight to 10 working days.
5. Know your fees
Like your mandatory CDP clearing and SGX trading fees, there is a mandatory fee of 0.00174% per trade value. This will be paid to the Securities & Exchange Commission (SEC) when you release your US stocks.
Should you receive dividends, you will be taxed 30% as a non-US citizen. This means investors buy US stocks for the capital gain, and less because of the dividend. If dividends are your cup of tea, stay vested in the SGX counters, which offer one of the best dividends in the region.
6. Minimum orders
Find some stocks too expensive? The great thing about the US market is, you are not restricted to a minimum order limit.
Theoretically, you can buy just one share with each trade. In contrast, SGX stocks are traded in lot sizes of 100s.
What this means is if you are keen to own a piece of Amazon, for example, you need to pay around just US$1,870 (excluding fees) for one share of the e-commerce giant.
In contrast, DBS shares here trade at around $25, but you need to fork out at least $2,500 at the bare minimum for 100 shares that forms one lot.
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