Camille Van Vyve
18 Apr 2024
How to invest in the US stock market?
Through a cognitive phenomenon known as “home bias” or national preference, investors often tend to invest in stocks from their own country. But foreign markets are not without merit. In particular the American stock market is a must-have for Belgian investors. How to take your first steps there?
Wall Street celebrates its 230th anniversary
In 1792, twenty-four brokers signed the Buttonwood agreement – English term designating a plane tree – named after the tree under which they used to meet in the south of the island of Manhattan, at the level of the current street of Wall Street. By formalizing their exchanges through this agreement, these financiers nearly 230 years ago laid the first foundations of the largest stock exchange in the world, renamed the New York Stock Exchange (NYSE) in 1863. It is also one of the major equity markets to maintain open-outcry quotations.
Global market heavyweight
The US market is the largest and most liquid in the world. It's very simple: 56% of the world's market capitalization comes from American listings. By comparison, Belgium accounts for just under 1% of the global stock market.
Several stock exchanges
Like the European market, the US market is actually made up of several exchanges. The two main ones are the New York Stock Exchange (NYSE) and the Nasdaq, on which American companies with a strong technological dimension are listed. There are also lesser-known secondary exchanges, including the American Stock Exchange (AMEX) and the Chicago Stock Exchange.
Several indices
The most well-known US indices are the Dow Jones Industrial, the S&P 500 and the Nasdaq Composite. At the end of 2021, the S&P 500, which is considered the most representative of the country’s economy, totaled a market capitalization of $40.000 billion while the Nasdaq Composite approached $20.000 billion. Note that some companies, like Apple, end up in both indexes. For comparison, the BEL 20 had a total market capitalization of nearly $300 billion at the same time.
US Market Hours
Trading on the New York stock exchanges (NYSE and Nasdaq) takes place from Monday to Friday between 9:30 a.m. and 4 p.m. local time, i.e. between 3:30 p.m. and 10 p.m. in Brussels in summer and between 2:30 p.m. and 9 p.m. in winter.
Should you invest in the United States?
“Never bet against America,” said Warren Buffet in his 2020 annual letter. In other words: USA prosperity and leadership are not about to waver, and you might be wrong to bet otherwise. In any case, given its importance, it is almost impossible for an investor to ignore the US market. If only for reasons of diversification, it therefore seems wise to expose your portfolio to US stocks.
Who can buy US securities?
All the banks and brokers active in Belgium give access to the main stock markets such as Euronext, the New York stock exchanges (NYSE and Nasdaq), London, Zurich, Frankfurt, Dublin, Milan, etc. A securities account opened in Belgium therefore allows you to investing in US stocks.
Dollar transactions
If you plan to invest in the US market, transactions will be made in dollars. In case of purchase or sale, two possible options: either your bank switches automatically from EUR to USD or vice versa at the time of the transaction, or it opens a multi-currency account and leaves it up to you to make the change at the time that seems most appropriate to you.
Risk of change
In this context, you run a currency risk. This means that even if your stocks go up in dollar value, if the dollar weakens against the euro, the profit could be reduced or wiped out. If the exchange is favorable, your profit could conversely be strengthened.
Taxation
In Belgium, investors may be liable for several types of tax: tax on stock market transactions, withholding tax, or tax on securities accounts. If you hold US stocks as a Belgian, you will be liable for a double withholding tax on dividends: one in Belgium and one in the US. The US withholding tax is 15% while the Belgian’s is 30%.
Individual stocks or ETFs?
To invest in the US market, a seasoned trader will probably prefer to buy individual stocks, while the passive investor will prefer exchange-traded funds or ETFs that include US securities. The advantage of an ETF is that it allows you to obtain a diversified portfolio at a lower cost, since a single operation will be necessary to gain exposure to a large number of listed companies.
Easyvest and the US market
This so-called "passive" strategy is the approach recommended by easyvest. Without being exclusively invested in the US market, the ETFs that make up our clients' portfolios invest in listed companies around the world - and therefore to a large extent in American companies. Our clients' exposure to US companies is thus in exact proportion to their weight in global markets and includes all types of listed companies, not just the biggest or trendiest. It is generally greater than the exposure obtained by active managers who instead focus on a few key stocks.
The right allocation, all the time
By following indices, the allocation of our portfolios is continuously and automatically readjusted according to market dynamics. The passive strategy is therefore an extremely simple and rational way of gaining fair exposure to different markets, without having to carry out frantic transactions.