Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
The American Advantage: Why UK Investors Should Consider US Assets
Ruby Layram
20th Dec 2024
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As a British investor, you might be inclined to keep your investments close to home by investing in the UK stock market. After all, we can all do our bit for the economy!
However, while investing British is certainly a good shout, spreading your investments overseas might be worthwhile. In particular, investing in US assets can be quite advantageous for us Brits!
US shares come with diversification, strong liquidity, low-currency risk and even tax benefits for investors based in the UK. Here, I will take a closer look at why you might want to consider adding US shares to your portfolio as a UK investor. I will also share my favourite platform for investing in the US market.
Good Ol’ Diversification
Let’s start with the most obvious benefit of investing in assets from the US (or any global economy for that matter!).
Diversification is the process of spreading your investments across different markets and industries to take advantage of unique benefits and reduce the effects of potential risks.
The idea behind this strategy is that if one investment loses value, your losses could be ‘balanced out’ by gains else where.
While it can be tempting to keep your investments in familiar UK companies, diversifying into US assets can give your portfolio a nice spread across industries and global economies.
Why is that a good thing? Because if one market takes a dip, you won’t feel the impact as heavily. The US market gives you access to industries that aren’t as prominent in the UK, like big tech and healthcare giants.
Think of companies like Apple, Microsoft, and Tesla. The UK simply doesn’t have equivalents on that scale!
By investing in the US, you’re not just diversifying across companies, you’re diversifying across sectors that may be thriving even if UK industries are struggling.
Diversification also allows you to benefit from different market cycles. The UK and US economies don’t always move in sync. While one economy is slowing down, the other could be booming.
This means that by investing in both, you can smooth out some of the volatility in your returns. You’ll have a bit of a buffer if one market faces a downturn while the other performs well. And let’s face it, in times of uncertainty, that peace of mind is worth its weight in gold.
Tax Benefits
If you’re a UK resident, investing in US stocks can come with some nice tax perks. There’s something called a “tax treaty” between the US and the UK, which means you could be eligible for a reduction of up to 30% on US tax charged on dividends from the US shares you buy.
This is great news for dividend investors!
To get this tax reduction, you’ll need to fill out a W-8BEN form, which is as simple as ticking a few boxes. This form lets the US government know you’re a UK resident, and under the treaty, you’re eligible for a reduced tax rate on dividends—typically just 15% instead of the usual 30%.
So, if you’re investing in US companies that pay regular dividends, this tax-saving opportunity allows you to keep more of your returns.
Learn more about tax-efficient investing to reduce the tax that you pay on your returns,
Low Currency Risk
One of the reasons that a lot of people might be sceptical about investing outside of the UK is that investing internationally often comes with currency risk – which is the chance that currency fluctuations could eat into your profits.
However, the US dollar is considered one of the world’s strongest and most stable currencies, making it a safer bet than others.
The US dollar often performs well during times of global uncertainty. This is because investors view it as a “safe haven” currency.
So, when other economies are experiencing a bump in the road, the dollar can remain strong, which actually reduces your currency risk when investing in US assets.
This is particularly great for long-term investors who plan on holding assets for some time. The more stable the economy that you invest in, the less likely you are to be hit with a currency loss.
Strong Liquidity
Liquidity is a fancy term that describes the ability to buy or sell an asset quickly without affecting its price.
And guess what? The US stock market is one of the most liquid in the world. It means you can get in and out of investments without a struggle, which is especially handy if you need quick access to your cash.
If you’ve ever tried to sell shares on smaller, less popular exchanges, you might have found it a bit tricky to find buyers quickly. However, the US stock market has buyers and sellers trading around the clock, so you’re less likely to face delays when buying or selling.
This liquidity is a huge advantage for those who want flexibility – which is appealing for investors who are planning to hold their positions short term.
In case of an emergency, you want to be sure that you can sell your shares without a hassle, and the US market is more likely to offer these conditions.
0% Commission on US Stocks
You might be pleased to know that many reputable US stock brokerages offer 0% commission on US stocks. This is great for investors who are looking to keep costs low as it stops fees from eating into your returns.
For example, popular online brokerage IG offers 0% commissions on all US stocks for all clients. This means that you can buy and sell US stocks through the platform without having to worry about fees.
If you’ve been trading UK stocks on other platforms, you’ll know how quickly commission fees can add up. So offers like these are a real bonus!
The brokerage also offers 0% commissions on AU and EU shares as well as a competitive 3 GBP commission for UK shares.
Say you’re investing £500 in a US stock. On some platforms, you’d pay a commission fee of £5 to £10, which doesn’t sound like much, but those fees add up over time, especially if you place trades regularly.
By opting for a platform like IG, you’re ensuring that every penny you make stays in your account, not theirs.
Investing in US stocks might feel a bit daunting, especially if you’re used to sticking with what you know in the UK. But with benefits like diversification, tax perks, lower currency risks, strong liquidity, and the potential for 0% commission, it’s definitely worth considering!
Remember, all stock markets come with risk and it is important to conduct thorough research before you make any final decisions. A great place to start is to explore IG’s selection of free educational resources that could help you to better understand the process of investing in US stocks.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA, a SIPP or an IG Smart Portfolio can fall as well as rise, which could mean getting back less than you originally put in.
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