I saw a thread from one of the facebook groups with similar question on how can we possibly invest in stocks of the business empires like Apple, Google, Facebook, and Microsoft. However, big question is, is it even possible to do so? I tried to search it in google but there are no straight forward answers, so I decided to write this blog for those who have this question in mind.
I was working for a U.S. brokerage firm for many years where we were handling operations for individual and corporate accounts, trust funds, mutual funds, and retirement funds; as well as foreign accounts for new account opening and money movement. And good thing is, it is very possible for Filipinos to take advantage on investing in the world’s best economy and the biggest stock market.
Why invest in U.S. Stocks?
Though our economy is booming and our market became one of the best emerging markets in Asia, many Filipinos still want to diversify their portfolio by putting some portions of their assets in bigger markets like the New York’s Stocks exchange (NYSE) or NASDAQ.
There are three main reasons why we need to consider investing in U.S. stocks, First, U.S. markets are better capitalize. U.S. stock market is the biggest market in the world in terms of market capitalization, no other financial market comes close to its combined markets.
Second, U.S. markets are more liquid. Just looking at the New York Stocks Exchange (NYSE) alone, the value of share trading for the whole year of 2011 was 6 times that of London, 4.5 times that of Tokyo, and 13 times that of Hong Kong. U.S. markets are still the biggest in terms of turnover as well as value. That means there’s a very high chance of finding a buyer or seller of any particular stock at any given time.
Lastly, U.S. stock markets offer greater diversification. U.S. markets offer access to a huge variety of U.S. companies seeking to raise capital. With more than 5,000 companies to select from, you can invest in major companies and brands from all over the world who list their shares on U.S. financial markets. In addition, The U.S. is also home to hundreds of innovative startups that could potentially make their founders — and investors (like you) — rich.
What to expect?
Stocks exchanges are also highly-regulated and brokerage/clearing firms are closely-monitored. So even if you are investing offshore, you are assured that your assets are well-taken cared of.
Terms to familiarize:
- Dow Jones Industrial– it is the United States Stock Market Index. It was named after Charles Dow and his co-journalist, a pioneer in finance and the founder of The Wall Street Journal. The main Stock exchanges are; New York Stock Exchange, NASDAQ, and S&P 500. American Stock Exchange (AMEX) focuses more on exchange traded fund (ETF).
- Wall Street– It is a street in New York City, the main financial district where biggest exchanges, large banks, financial institutions and brokerage firms are located.
- Investment Banks– it is typically a private company that provides various financial-related and other services to individuals, corporations, and governments such as raising financial capital by underwriting or acting as the client’s agent in the issuance of securities. Major firms are; Goldman Sachs, Merill Lynch,Deutsche Bank, and Morgan Stanley.
- FINRA– The Financial Industry Regulatory Authority is the largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect investors by making sure the United States securities industry operates fairly and honestly.
- Short-sell– it is a trading strategy that seeks to capitalize on an anticipated decline in the price of a security. Essentially, a short seller is trying to sell high and buy low. The opposite of what we do in the Philippines.
- Options– it is another type of security and are contracts that grant the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date.
- IRA– stands for Individual Retirement Account, and it’s basically a savings account with big tax breaks, making it an ideal way to sock away cash for your retirement. Similar version is, Personnel Economic Relief Allowance (PERA) that was currently approved and that everyone can take advantage.
- Estate– All the money and property owned by a particular person, especially at death.
- Margin– allows investors to borrow money to buy securities. An investor might put down 50% of the value of a purchase and borrow the rest from the broker.
- Trust– A trust fund contains cash, stocks, bonds, property or other types of financial products. The recipient of a trust fund must typically wait until a certain age, or until a specified event occurs, to receive a yearly income from the fund.
How to Start?
1. Study the U.S. Markets.
If you have already experienced investing in the Philippines, then researching for this new venture is not a question. It should be your own due diligence. Since our market and U.S. market are correlated with each other, information are easy to find and credible resources are always available. There are lot of tools you can find for monitoring U.S. stocks than the existing tools we have to monitor local stocks.
2. Check for legit brokerage firms.
I would suggest to stick to popular brokerage firms that are safe and credible. As a matter of fact, there are lot of online brokers today that are sprouting and are offering huge discounts that I find uncomfortable and hazy.
Here are my top 4 picks:
For competitive edge and comparisons in the light of the choices above, you can also click here.
3. Check all the required documents.
To open an account with US brokers is not difficult, can be done online. You have to submit signed form and a copy of your identification such as passport. Most of the time they accept the scan copy of the documents, and you can send it via e-mail too.
Moreover, here are the summary on how to get started;
- Visit website or your prefered U.S. based online brokers.
- Find “Open Account” link and start fill up the form.
- Depending on brokers, print all applicable forms, sign and make a scan copy. The most important form for foreigner is W8-BEN form. W8-BEN form and passport copy are required as an evidence of non-residence status.
- Send all signed documents together with copy of identification by e-mail.
- Wait for account opening confirmation e-mail.
- When cash deposit cleared, you can start to invest or trade.
For further questions, put a comment below…
You haven’t started investing in the Philippine Market? No problem! Click this blog: Getting Started in the Stock Market.
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