Investing in equities is important to create long-term wealth. When we think of equities, we typically think of investing in the Indian stock markets. Today, thanks to technology, one can also invest in the US markets from India. Let us look at the reasons why Indian investors should consider US equities as a part of their investment portfolio.
Geographic diversification: Diversification for a lot of us means spreading our investments across various asset classes. However, most of our portfolios lack an element of geographical diversification. Diversifying geographically means all your investments are not concentrated in a single geography. Investing in US stocks helps you diversify your portfolio globally. As a result, you move away from a single country or currency risk.
Invest in the largest stock market in the world: Investing in US equities lets you invest in the largest stock market in the world. As of December 2021, the US stock market represented 54.5% of the global stock market capitalization. The New York Stock Exchange (NYSE), the largest stock exchange in the world, had a market capitalization of just over $27 trillion as of March 2022. Nasdaq, the second-largest stock exchange in the world, has a market capitalization of almost $24 trillion.
Own shares of global companies: Some of the largest brands in the world we use on a daily basis such as Apple, Microsoft, Google, Meta (Facebook), and Nike are all listed on the US markets. Apart from that, some of the most innovative companies in the world that operate in areas like artificial intelligence, cloud computing, and electric vehicles, are also listed in the US. By investing in the US markets, you can get exposure to all these sectors. As an example, let us take Tesla, the largest EV manufacturer in the world in terms of market capitalization. While it may take a few years for Indians to own a Tesla, they can invest in Tesla shares by investing in the US stock markets.
One concern for investors could be that some of the stocks listed in the US markets are very expensive. For example, a share of Amazon is priced at over $2,000 which is about ₹1.5 lakh. However, when you invest in US equities, you have the option of buying fractional shares. This means that you do not need to buy the entire share but can buy a fraction of a certain share. Let us say a share of Amazon costs $2,000. Then you can invest in 1/20th of an Amazon share for $100.
Benefit from rupee depreciation: It is important to understand how your investments in US equities are affected when the rupee depreciates against the dollar. Your investments in the Indian stock markets are in INR, while your investments in the US markets are in USD. As a result, when the rupee depreciates against the dollar, the value of your US investments goes up. The rupee has depreciated by about 50% against the dollar in the last decade. This effectively adds to you your returns when investing in US equities.
Fulfill your aspirational goals: Many of us have aspirational goals of traveling, studying, or living abroad. When you invest in the US markets, your investments are in USD. So even when the rupee depreciates, you can save for these goals without worrying about currency risk. 6. It is easy and convenient: Even a few years ago, investing in the US was a cumbersome process. Not only were the costs high, but it also took a lot of time for INR to get converted to USD and vice-versa. However, technology has made the process of US investing faster and more cost-effective. Now, investors can invest in US securities through a few simple steps from the comfort of their homes.
So now you know the various reasons why investments should form a part of your portfolio. However, it is important to do proper diligence and invest according to your risk appetite. It is recommended that you consult your financial advisor before making any investment decision.
(The author is Co-founder & CEO, Vested Finance)
Disclaimer: The views and recommendations made above are of the author and not of MintGenie.