The US stock market has been the leading equity market in the world. Thrilled investors are at their opportunities to grow wealth by investing money in profitable, established companies through American stock exchanges. With this being said, it is also not surprising that there are hundreds of thousands of Americans working abroad for international businesses and corporations.
Investing in stocks is a great way to make money, but it can also be an intimidating process for those who haven’t done it before. If you’re entirely new to investing your money in the stock market, here are four options that are great places to start.
The “Traditional” method of Investing – US Brokerage Account
The oldest method for investing in US stocks is through a traditional brokerage account at a brick-and-mortar firm like Charles Schwab & Co., Fidelity Investments, TD Ameritrade, E*TRADE Financial Corp., etc.
These brokerage firms offer a wide variety of investment options, and their sites are full of guides to help explain the ins and outs of investing in stocks. This process is complicated for ex-pats because most US-based brokerage companies require an individual to have one or more W-9 tax forms on file at all times.
To get a W-9 tax form, you need a Social Security number (SSN) issued from the United States by the Social Security Administration. This requirement rules out opening a traditional brokerage account even if you have a mailing address within America.
A “Hybrid” approach – A US-based IRA with an international custodian
As with the traditional brokerage accounts, ex-pats have a hard time opening an IRA that will enable them to invest in US stocks because they cannot obtain a W-9 form from the Social Security Administration.
However, if you are married to someone employed by a US corporation or have some other kind of income tax bill owed to the United States, you can sponsor them through an employer’s 401(k) plan or another type of pension fund they work. Then you would be able to sponsor their retirement account and use it as an IRA for investing money in US stocks.
An exchange-traded fund, or ETF, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. An ETF trades like a regular stock on a stock exchange and typically does not involve fees as mutual funds. In short, they are small bundles of stocks that you can buy and sell during the trading day, with the price fluctuations throughout the day just like any other publicly-traded company’s stock would.
The “Risk Arbitrage” method – Platinum accounts for TD Ameritrade
With the advent of online discount brokerage, firms like E*TRADE and TD AMERITRADE came with the explosion of electronic marketplace trading. Investors could buy and sell securities almost immediately at any hour of the day or night. It led to many new investment vehicles being created by these brokers, where each one attempts to offer something unique or advantageous compared with other competing products.
One type of innovative financial product was the opportunity for an investor to open a “platinum” brokerage account.
While this does not allow for ex-pats like yourself to purchase individual stocks like Apple or General Electric that you can easily pick up over the counter at any brokerage firm (or even traditional bank) in their country of origin; what you can do is use these accounts to trade US stocks on margin with some excellent tax advantages.
US stocks provide a wide variety of investment options specific to international investors who continually seek to diversify their portfolios with opportunities outside their country of origin. While it is possible to purchase US-listed securities through a traditional brokerage account, that option is only available to US citizens and legal residents required to file US tax forms annually.