Lately, we have received a couple of questions relating to how Malaysians could buy overseas stocks. This includes mainly questions on the choice of brokerages to facilitate these transactions and tax related issues. In this article, if you today are new to investing in overseas stocks, I’ll share what I believe is really needed to prepare before getting into them. They are as follow:
1. How Not to Buy Overseas Stocks?
Here is an example of how a person starts his venture into overseas stocks:
a. He saw the stock market, let’s say in the U.S., has been on the steady rise.
b. He heard of impressive returns that stock gurus achieved from these stocks.
c. His friends told him how they have attained high returns from U.S. stocks.
d. He checked the U.S. stock market and found that it is rising at a faster rate.
e. Therefore, he is into the U.S. stock market as he wants a piece of the action.
Unsurprisingly, it explains why the first question most people, when it comes to buying overseas stocks is related to brokerages and their brokerage fees. To me, the broker is not the most important factor to build an overseas stock portfolio. If the above describes you to a tee, please read on. The worst thing you could do is to buy stocks with greed or the fear of missing out (FOMO) because this is how most lose their money quickly in the stock market, be it local or overseas.
2. The First Question You Should Ask
is … what is your plan?
Here, if you are thinking about trading or speculating overseas stocks, then, you should read other materials as I believe this article may not be helpful to you.
But, if you like to build sustainable long-term wealth with a portfolio, consisting of overseas stocks, then, I can share what I did with my own and you may freely use it as a guide to build yours. Presently, >95% of my stock portfolio consists of Singapore-listed stocks. With them, I intend to achieve the following objectives:
a. Wealth Diversification:
I intend to allocate a portion of my wealth in other currencies. This includes the Singapore Dollar. But, I don’t just want to hold onto Dollars as it loses value as a result of inflation over time. Thus, I believe it is a good idea to invest into stocks listed in Singapore to keep my ‘productive’ while I continue to enjoy some form of wealth diversification from investments denominated in Singapore Dollars.
Most stocks that I own in Singapore derive income in global markets in addition to their local Singapore market. This includes China, Japan, Europe, Australia, … etc. Of course, you may opt to buy stocks that have exposure in the U.S. market but I don’t have much in the U.S. market at the moment (I’ll consider adding if I can invest in them at good prices). Anyway, the point is this – Investing in stocks listed in Singapore allows my money to participate in key growth markets of the world today. To me, that is pretty cool as compared to keeping my money local.
This is the best part of investing, which is to receive rising and regular dividends in Singapore Dollars. Currently, I tend to reinvest them into other stocks, hence, increasing further my dividend income in Singapore Dollars.
So now, you may start to craft yours.
What is your plan and objectives for investing into overseas stocks?
3. What Stocks do You Have in Your Watch List?
Or, do you have a watch list?
What is the point of asking which broker to buy stocks if you don’t have a ready built watch list of stocks?
Please, if possible, don’t buy stocks aimlessly. Let’s be purposeful about them.
The question is, ‘How do I build myself a watch list?’.
My answer is as follows:
From above, I would like to invest in stocks that are able to pay a consistent rise in dividend income year-after-year. Hence, the stocks that I would be looking for should possess the following qualities:
a. Resilient business models.
b. Track Record of Growth in sales, profits, operating cash flows and dividends.
c. Strong Balance Sheet.
d. Have a tangible plan to sustain future growth.
Armed with this list of criterias, I’ll build a watch list consisting of 30 stocks that meet the requirements. I won’t be looking at their stock prices at this stage. The stock prices shall come last and be considered only after the watch list is ready.
4. Which Stockbroker Should I Choose?
Finally … I’ll now talk about the stockbroker and his fees. Two questions:
a. Which stockbroker should I choose: Local ones or Overseas ones?
b. What are the fees involved?
Here is my take:
Presently, I use Maybank IB as my stockbroker for I’m already using Maybank as a customer and hence, is convenient. I won’t consider using a foreign broker as I don’t need to be concerned about its legitimacy and I can list my investments I’d made with Maybank IB in my will document. In regards to fees, I’ll pay two type of fees:
a. Brokerage Fee and Foreign Fees Payable
They are related to fees when you buy or sell an overseas stock.
b. Dividend Handling Fee
This is related to fees to collect dividends on behalf of you from your stocks.
So, here are three questions to ask when deciding on a brokerage house:
a. What are the overseas markets does the broker have access to?
b. What is the amount of brokerage fees chargeable?
c. What is the amount of dividend handling fees chargeable?
5. How Much is the Minimum Capital Required to Invest?
Let’s say, to invest in a Singapore-listed stock, I’ll pay S$ 32 in brokerage fee and foreign fee. So, if I like to keep my transaction costs below 1% of my investment into this stock, the minimum amount of capital I would need to invest would be as much as S$ 3,200 or approximately RM 10,000.
Of course, the amount of capital will be lower if you are fine with paying >1% in transaction costs of each of your investments into Singapore-listed stocks.
So, you will incur less in transaction costs per share if you invest a bigger sum of money into your preferred Singapore-listed stocks or any overseas stocks.
Conclusion: Your Next Step to Investing in Overseas Stocks
First, let me summarise the pointers:
1. Don’t buy stocks with FOMO.
2. Figure out what your investment plan is before investing.
3. Build a Watch List of stocks that is based on your investment plan.
4. Choose a stockbroker that is most convenient for you.
5. Keep transaction cost per share below 1% for each investment.
If you’re interested to find out how I’m building my stock portfolio, I’d arranged a free training session for you below: