Diversification across geographies is a strategic element when it comes to building a solid investment portfolio. And with the way the different global markets have performed and reacted to different macroeconomic events such as the pandemic, geopolitical issues, supply chain disruptions, etc., the need for adding international exposure has only increased.
The US stock market is a popular choice when investing in international markets. There are a few reasons behind this. Firstly, the US stock market is one of the biggest with a market capitalisation of about $48 trillion across more than 6,000 listed companies. Secondly, a lot of the global industry giants across different sectors are US-based including Big Tech. Thirdly, on a currency-adjusted basis, Indian investors can earn higher returns. And finally, the US and Indian stock markets are not perfectly correlated. So, yes, it is time to go global. But how can you invest in international markets like the US? There are four primary strategies categorised into direct and indirect. Let’s discuss them.
- Open an overseas trading account with an Indian broker
Today, several domestic brokers offer the opportunity to open an overseas trading account. This way you can route your international investments through them. If you already have a domestic trading account with a broker or platform you are happy with, you can check with them and open an overseas trading account too. Depending on the broker, there may be limitations on the kind of investments or the number of international trades you can make.
- Open an overseas trading account with an international broker
Alternatively, another way to make direct investments in international stock markets is to open an overseas trading account with an international broker. This option may give you better access to a wider range of international investment products. However, the fees may be higher in this case so remember to compare that.
- Mutual funds
You can also invest in markets like the US market indirectly through mutual funds. International funds are a type of mutual fund that invest in companies listed on exchanges outside of India. This may be a more accessible option for you as the fund manager takes all the strategic investing decisions of asset allocation and rebalancing the portfolio.
- Exchange-traded funds
Another way to indirectly invest in global markets is through Exchange-Traded Funds (ETFs). ETFs tend to usually follow a passive investing strategy where they aim to track a specific index. So, if you want to invest in the US stock market, you can consider investing in S&P 500 ETFs, Nasdaq 100 ETFs, etc. Such ETFs that track an index tend to cover the market at large and hence have better risk-adjusted returns especially in the long term.
How much to invest in international markets?
Experts recommend allocating 5% to 15% of your investment portfolio to international investments. The exact percentage would depend on your risk tolerance, financial goals, and the type of international investments you are making. Having small exposure to international markets may not really impact your portfolio. Hence, it’s essential to understand what international investments are right for your portfolio and then to allocate a sufficient amount of capital to them while regularly reviewing and rebalancing your portfolio.