European Stock Market: How to Invest in Them
The US stock market is not the only stock market in the world. There are other markets out there. However, it’s important to know your choices when trying to invest in international stock markets. Here are some ways you can do that.
Specialized Mutual Funds and ETFs
Investing in specialized mutual funds and ETFs is quite useful for investors with not much capital to spare.
When you invest in mutual funds or exchange-traded funds that invest only in companies that are located or headquartered within European countries, you have the chance to get the benefits of widespread diversification at a lower price than by trying to build positions in European businesses directly.
Investing in index funds or other pooled vehicles also comes with some risks, however. On the one side, you usually have huge unrealized capital gains that are in the portfolio. Meanwhile, there are some events that could force you to pay substantial taxes on someone else’s past gains.
Another risk is that since these are pooled funds, you are required to take the good stocks with the bad ones. You would also have to deal with the underlying sector and industry weightings of the fund’s portfolio.
American Depository Receipts
If investing in mutual or exchange traded funds doesn’t sound so hot for you, you can also try acquiring American Depository Receipts. An ADR depository bank, which is typically a subsidiary of a large financial institution, buys a block of foreign stocks directly.
Afterwards, it puts these foreign stocks on its books and issues securities that represent ownerships of it. These ‘representatives’ are then trading on the domestic market.
They usually trade in the over-the-counter market in order for individual investors to buy and sell their shares similarly with domestic stocks. They just have to go online, enter the ticker symbol, review trade, and then send it to the broker.
Meanwhile, ADR depository banks collect any dividends, convert them to dollars and then distribute them to the ADR owners. There might be some small ADR fees, however.
Directly Buying European Stocks
As the name suggests, this method is the most straightforward among the choices. However, this is also the least familiar one for the investors who have only owned local securities.
Let’s suppose you want to invest in a company from France. The specifics will of course be different depending on the brokerage you are using. However, in general, investing in a French company will have you calling the broker’s trading desk so that someone can walk you through the process.
They will exchange dollars to euro for settlement, charging a spread, and then the final execution price. The commission will usually include an additional commission for the local broker in France.
Local Companies with Wide International Market Exposure
Some investors tend to mistakenly associate a company with the country in which it is headquartered. This happens more often to those who are new in investing in common stocks.
A huge portion of US companies generate huge sales and profits internationally. This also means that by investing domestic blue-chip companies, you could pretty much be investing in Europe already even if you don’t realize it. Get Wibest Broker Forex Education and Wibest Forex Brokers List at their site