How to Invest in International Shares from New Zealand

Investing in international shares from New Zealand is a method of diversifying your investment portfolio by purchasing stocks listed on foreign exchanges. Here's the thing: as Kiwis, we're no strangers to looking beyond our shores for opportunities, and with the NZX being our local hub, it's natural to wonder what lies beyond. Now, this is where it gets interesting - can we really tap into global markets and potentially increase our returns, all from the comfort of our own backyard?

Quick Answer: Investing in international shares from New Zealand can be a savvy move, with the global market offering a vast array of opportunities. For instance, the S&P 500 has historically provided average annual returns of around 10%, which is an attractive prospect for those looking to diversify their portfolio. Let's break this down further: if you were to invest NZ$1,000 in an international share with a 5% annual return, you'd have NZ$1,050 after one year, and NZ$1,102.50 after two years, assuming compound interest. With online brokerage platforms making it easier than ever to invest, we've seen a significant increase in Kiwis taking the plunge, with some platforms reporting a 20% rise in international share trading over the past year.

• In this guide you'll learn:
  • Discover how to navigate the risks and benefits of international investing
  • Explore the different types of international shares available to New Zealand investors
  • Understand how to set up an account with a reputable online brokerage platform
  • Analyse the tax implications of investing in international shares from New Zealand ⏱ Reading time: 15 minutes | Difficulty: Intermediate

What is International Investing and Why It Matters in New Zealand?

International investing refers to the practice of investing in assets listed on foreign exchanges, such as stocks, bonds, or commodities. This approach allows New Zealand investors to diversify their portfolios, potentially increasing returns and reducing risk. With the New Zealand market being relatively small, international investing provides access to a broader range of investment opportunities, including companies like Apple, Microsoft, or Toyota.

For example, let's consider the case of a New Zealand investor who wants to invest in the technology sector. By investing in international shares, they can gain exposure to companies like Facebook, Amazon, or Google, which are listed on the NASDAQ exchange in the United States. This can provide a higher potential for returns compared to investing in similar companies listed on the NZX.

Now, this is where it gets interesting. International investing is not just about investing in well-known companies; it's also about gaining exposure to emerging markets and industries. For instance, you can invest in companies that are leading the charge in renewable energy, electric vehicles, or healthcare technology. The possibilities are endless, and the potential for growth is substantial.

How International Investing Works — Step by Step

International investing involves several steps, including:

1. Opening a brokerage account: You'll need to open a brokerage account with a platform that offers access to global markets.
2. Funding your account: You'll need to deposit funds into your account to start investing.
3. Researching international shares: You'll need to research and select the international shares you want to invest in.
4. Placing a trade: You'll need to place a trade through your brokerage platform to purchase the international shares.

Let's break this down further. When you open a brokerage account, you'll typically need to provide identification and proof of address. Once your account is set up, you can fund it by transferring money from your bank account. Then, you can start researching international shares using various tools and resources, such as financial news websites, stock screeners, or analyst reports.

For instance, you can use the MicroStocks.in search and analysis tool to filter international shares based on criteria such as market capitalization, dividend yield, or industry. You can also use technical analysis tools to analyze charts and identify trends. The key is to find a platform that provides you with the tools and resources you need to make informed investment decisions.

International Investing vs Domestic Investing

International investing offers several benefits compared to domestic investing, including:

However, international investing also comes with higher fees and risks, such as currency risk and market risk. To mitigate these risks, it's essential to conduct thorough research and diversify your portfolio.

Let's consider an example. Suppose you invest $10,000 in a domestic share, and it returns 5% per annum. In contrast, you invest $10,000 in an international share, and it returns 10% per annum. However, the international share also comes with a higher fee of 1% per annum. In this case, the net return on the international share would be 9% per annum, which is still higher than the domestic share.

Now, let's talk about the comparison table. The table highlights the key differences between international and domestic investing. As you can see, international investing offers higher potential for diversification and returns, but also comes with higher fees and risks. Domestic investing, on the other hand, offers lower fees and risks, but also lower potential for returns.

The key takeaway here is that international investing is not a one-size-fits-all approach. It's essential to consider your investment goals, risk tolerance, and time horizon before making a decision. If you're looking for higher potential returns and diversification, international investing may be the way to go. However, if you're looking for lower fees and risks, domestic investing may be a better option.

Practical Strategy: How to Use MicroStocks.in Search Tool to Screen International Shares

The MicroStocks.in search tool provides a comprehensive database of NZX-listed stocks, allowing you to screen for international shares-related stocks. Here's how to use it:

1. Access the search tool: Click on the MicroStocks.in search tool link.
2. Select your criteria: Select the criteria you want to use to screen for international shares, such as market capitalization, dividend yield, or industry.
3. Run the screen: Run the screen to generate a list of international shares that meet your criteria.
4. Analyze the results: Analyze the results to identify potential investment opportunities.

For example, let's say you want to screen for international shares with a market capitalization of over $10 billion and a dividend yield of over 4%. You can use the MicroStocks.in search and analysis tool to generate a list of stocks that meet these criteria, and then analyze the results to identify potential investment opportunities.

Case Study: International Investing in Action

Let's consider a case study of a New Zealand investor who wants to invest in the technology sector. They decide to invest in a fund that tracks the NASDAQ-100 index, which includes companies like Apple, Microsoft, and Google. Over a 5-year period, the fund returns 15% per annum, outperforming the NZX-50 index.

However, the investor also faces currency risk, as the New Zealand dollar appreciates against the US dollar, reducing the value of their investment. To mitigate this risk, they decide to hedge their currency exposure by investing in a currency-hedged fund.

Here's a step-by-step breakdown of the case study:

1. Initial investment: The investor invests $10,000 in the fund.
2. 5-year return: The fund returns 15% per annum over a 5-year period, resulting in a total return of $19,000.
3. Currency risk: The New Zealand dollar appreciates against the US dollar, reducing the value of the investment by 5%.
4. Hedging strategy: The investor decides to hedge their currency exposure by investing in a currency-hedged fund, which reduces the impact of currency fluctuations.

The result is that the investor's investment returns 14% per annum over the 5-year period, which is still higher than the NZX-50 index. This case study highlights the importance of considering currency risk and hedging strategies when investing in international shares.

Common Mistakes New Zealand Investors Make with International Investing

New Zealand investors often make several mistakes when it comes to international investing, including:

1. Lack of research: Failing to conduct thorough research on international shares before investing.
2. Insufficient diversification: Failing to diversify their portfolio, leading to higher risk.
3. Ignoring currency risk: Failing to consider currency risk and its impact on their investment.
4. Not monitoring their portfolio: Failing to regularly monitor their portfolio and adjust their strategy as needed.
5. Not seeking professional advice: Failing to seek professional advice from a financial advisor.

To avoid these mistakes, it's essential to conduct thorough research, diversify your portfolio, and seek professional advice from a financial advisor. You should also regularly monitor your portfolio and adjust your strategy as needed.

International Investing in Different Market Conditions

International investing can be affected by various market conditions, including:

1. Bull market: A rising market, where international shares tend to perform well.
2. Bear market: A falling market, where international shares tend to perform poorly.
3. Sideways market: A stable market, where international shares tend to trade within a narrow range.

To navigate these market conditions, it's essential to have a well-diversified portfolio and a long-term investment strategy. You should also consider hedging strategies to mitigate risk.

For instance, during a bull market, you may want to invest in international shares that are likely to benefit from the rising market. During a bear market, you may want to invest in international shares that are less correlated with the market, such as bonds or commodities. During a sideways market, you may want to invest in international shares that offer a stable dividend yield.

Advanced Portfolio Construction Tips

When constructing a portfolio, it's essential to consider several factors, including:

1. Asset allocation: The allocation of assets across different classes, such as stocks, bonds, and commodities.
2. Diversification: The spread of investments across different geographic regions, industries, and companies.
3. Risk management: The use of hedging strategies to mitigate risk.
4. Tax efficiency: The consideration of tax implications when constructing a portfolio.

By considering these factors, you can create a well-diversified portfolio that meets your investment objectives and minimizes risk.

For example, you may want to allocate 60% of your portfolio to stocks, 30% to bonds, and 10% to commodities. You may also want to diversify your portfolio across different geographic regions, such as the US, Europe, and Asia. You may also want to consider hedging strategies, such as currency hedging or stop-loss orders, to mitigate risk.

Key Takeaways

• International investing offers diversification and potential for higher returns
• It's essential to conduct thorough research and diversify your portfolio
• Currency risk and market risk can impact the value of your investments
• A well-diversified portfolio and a long-term investment strategy can help navigate market conditions
• Seeking professional advice from a financial advisor is crucial

Disclaimer

This content is for educational and informational purposes only and does not constitute investment advice from a registered financial advisor. Stock trading involves substantial risk of loss. Always conduct your own research and consult a qualified financial advisor before making investment decisions.