Fractional shares, ETFs, REITs, ADRs. The American market offers options that go far beyond buying shares directly. Check out the main alternatives below
In the past, access to the American stock exchange was more limited to investors from outside the US, today the good news is that anyone can have access to the world’s capital market.
But to put together a good portfolio is necessary, first of all, know how – and where to invest.
Here is a summary of the main ways to invest in the US stock exchange:
- Stocks (direct purchase of shares)
- ETFs (exchange traded funds)
- Fractional shares (purchasing a slice of a share)
- REITs (real estate funds)
- ADRs (certificates of deposits from foreign companies)
Check out now, in more detail, the main ways to invest in the US stock exchanges.
When a company makes an IPO (Initial Public Offering), that is, it goes public on the stock exchange, investors can buy shares and profit from its growth.
Unfortunately, the opposite is also true; that is, when a company loses value, its shares are worth less.
Therefore, before making a decision, it is important to study the market and assess which companies make sense to have in your portfolio.
A curiosity: whoever invested US$1,000 (enough to buy 55 shares at the time) in Amazon’s 1997 IPO, would have around US$2 million today. The calculation was done by the German data company Statista. The stock, which then traded at $18, is now priced at over $3,200!
All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.
2. ETFs (Exchange Traded Funds)
Now that you know what stocks are, let’s go to ETFs. Let’s say you want to invest in tech giants like Google (GOOGL) or Amazon (AMZN).
To buy a single share of these companies, it would be necessary to pay, respectively, somewhere around US$ 2,800 and US$ 3,200.
The good news is that there is another way to access these companies. But how? Through ETFs, funds that are also traded on the stock exchange and that bring together stocks, bonds or commodities.
Each ETF has its own strategy, but in general they are based on market indices or specific sectors such as finance or ESG.
Nasdaq‘s website gives some examples: “If you have a preference for bank shares, you could invest in an ETF like Vanguard Financials (VFH). Want to avoid banks? Buy the Invesco QQQ ETF, which comes with the Nasdaq-100”, explains the American stock exchange.
This last example even gives access to big techs like Apple, Amazon, Alphabet (Google), Facebook and Microsoft, since it follows the index that brings them all together.
You should consider the investment objectives, risks, and charges and expenses of an Exchange Traded Fund (“ETF”) carefully before investing. ETFs are subject to market fluctuation and the risks of their underlying investments.
3. Fractional Shares (Slice of a Share)
Owning beloved, promising, and innovative company shares is every investor’s dream. However, as we showed a moment ago, dreaming, in some cases, is very expensive.
But not everything is lost! Instead of buying whole big tech stocks, for example, you can invest in a small piece of them through fractional stocks.
Please read our fractional shares disclosure before investing in fractional shares.
4. REITs (Real Estate Funds)
What in Brazil we call Real Estate Investment Funds (FIIs), in the United States they are known as Real Estate Investment Trust (REITs).
Simply put, they are real estate funds that invest in income-generating properties or in loans that use real estate as collateral.
As in any other fund, behind the REITs there is a manager responsible for the composition of the portfolio, as well as the distribution of resources.
It is worth noting that because of the special tax treatment they receive in the US, REITs tend to pay attractive dividends, distributing at least 90% of their taxable income each year to shareholders.
The Nasdaq website features the 7 best performing REITs in 2020.
(It is important to remember that past performance is no guarantee of future returns).
Risks of the REITs are similar to those associated with direct ownership of real estate, such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer. Since a REIT fund focuses its investments on companies involved in real estate, the fund may involve a greater degree of risk than an investment in other funds with greater diversification.
Abbreviation for American Depositary Receipts, ADRs allow foreign companies (and that have shares traded in their home countries) to trade their shares in the United States as well.
As with Brazilian Depositary Receipts (BDRs), as this product is called in Brazil, those who invest in ADR are not buying shares per se, but certificates of deposit of securities representing shares of companies headquartered abroad.
Liquidity for some ADRs may be low, which may affect bid/ask spreads. International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets.
At Passfolio, you can invest in equities, ETFs, fractional shares with Passfolio Securities or cryptocurrencies through Passfolio Financial.
In the next posts, we will talk about them (and show who are the personalities that invest in this modality).
Invest in US stocks with Passfolio
With Passfolio Securities, you can start investing in US stock with as little as US$1 – with no commission fees¹². We make investing in US assets accessible and even accept local deposit methods such as TEDs.
¹ Please see our fractional shares disclosure.
² Securities less than US$5 cost US$0.02/share. Please see our disclosures on other charges.
*All stock trades that exceed the US$1M limit will cost the largest of: 0.1% or US$0.02/share
Please read important legal disclosures that apply to your relationship with Passfolio.
Always keep in mind that all investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for their own particular situation before making any investment decision.
Passfolio does not provide tax advice. Where specific advice is necessary or appropriate, Passfolio recommends that you consult with a qualified tax advisor or investment manager.