Today, our fundie’s favourite is on one of the hottest international stocks around at the moment – China’s biggest online retailer Alibaba – and it doesn’t even hit the US share market until tomorrow.
Here at SSR headquarters, we’ve been getting a lot more queries about international exposure, and buying international stocks, and while it’s been a little while coming, we’re pleased that SMSF trustees are looking at diversifying beyond our shores.
Last week, Charlie Aitken explained [1] why he thinks we’ve all got too much exposure to Australian tax effective yield assets in Australian dollars. But at under 3%, Australia also represents just a fraction of the global stock markets so it’s good investing sense to look beyond our shores [2], particularly when economies like the US look like they’re on the verge of some decent growth.
Dow Jones (DJI)
Source: Yahoo!7 Finance, 18 September, 2014
There’s a variety of ways to get access to international shares. You can buy an exchange traded fund (ETF) on the ASX or invest via a managed fund. Earlier this year, SSR co-founder Paul Rickard went through some of the major funds you can invest in here. [3]
A number of online brokers also enable you to buy directly. Broker fees will be higher than they would be for buying locally. Fees per trade start at around $60, depending on the broker and the country you’re investing in. There may also be inactive account fees, if you don’t use your international share trading account for some time.
Because some local brokers use an external provider to help them out, like Pershing in the US, there will be a custody fee of anything between $US63 to $USD68 per annum if your account is inactive.
You also need to think about the different tax regimes. On income, like dividends, tax is usually deducted and withheld at a rate of 15% but you need to complete a W-8BEN form – a form from the US Department of Inland Revenue – which certifies you’re not a US resident.
You will generally be able to claim an offset in Australia for the tax that has been withheld.
Also as an SMSF trustee, you need to remember to update your investment strategy, explaining why you’re investing offshore if your fund has never bought international shares before.
You can read an earlier article on how to buy offshore here. [4]
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 regards to your circumstances.
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Also in the Switzer Super Report:
- Charlie Aitken: Don’t fight the Fed [6]
- Fundie’s Favourite: Alibaba – great Chinese exposure on the US market [7]
- Staff Reporter: Buy, Sell, Hold – what the brokers say [8]
- Tony Negline: Why you need to start a pension before the end of the year [9]
- Questions of the Week: Stock Specifics – Telstra, Challenger, Invocare [10]