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By investing in the US stock markets, one can be a part of the global growth story. For an Indian investor, there are several reasons to invest in the US stock markets. We shared five reasons to invest in the US stock market in this video.
However, before you make investments in US stocks you need to know how to avoid the following mistakes in US stock investing. While some of these will be the same as investing mistakes to avoid in the stock market if you are a beginner, some would specifically be US investing mistakes to avoid. So, here are six mistakes that you should avoid when investing in the US markets.
1. Focusing just on picking stocks: While it is natural for one to want to invest in some of the biggest brands in the world, just focusing on picking certain stocks is one of the key mistakes to avoid in US investing. Your investment portfolio should be tailored to your risk profile and should consist of an appropriate mix of stocks and ETFs. Ideally if you are new to the US markets, you would want to start with an ETF-only portfolio. We at Vested provide different curated portfolios (called Vests) for different risk profiles which you can select depending on whether you are an aggressive, moderate or conservative investor.
2. Investing in a stock because it is trending: Do not invest in a stock just because it is in the news or because you feel that you have missed out on a stock’s rally and cannot afford to lose out more. Remember, you do not invest in a stock but in a business. Hence always do proper research before you buy US stocks from India. Similarly, do not invest based on hot stock tips or advice on social media.
3. Trying to time the market: This is one of the biggest stock investing mistakes people tend to make. Buying a stock when the price is at the lowest and selling it when it is at the highest is something everyone would like to do. However, remember, even the most successful investors are not able to time the markets. Rather than trying to time the market, it is important to invest with a longer time horizon especially when starting off in a new market like the US.
4. Ignoring tax implications: It is important to understand the tax implications of investing in US stocks. There is a capital gains tax on shares purchased in the US from India. This is the tax you pay on your investment gains. You will not be taxed in the US. The tax you need to pay depends on the holding period of your investment. When investing in stocks, if you hold them for 24 months or more, the taxation is at 20% with indexation benefit. If you hold it for less than 24 months, it is considered as short-term capital gain and is taxed as per your income slab. For ETFs, the long-term threshold is 36 months. The dividends received are taxed at a flat rate of 25% in the US, but you can take credit for the dividend tax paid when filing taxes in India.
5. Not understanding forex rates: When you are transferring Indian funds to your brokerage account in the US, the exchange rate matters. Also, banks will charge you a foreign exchange conversion fee. Hence, it is advisable to choose a platform that has tie-ups with banks to provide favourable exchange rates and a lower markup fee. For example, we at Vested have entered into a partnership with SBM bank to offer zero fee transfers with great exchange rates.
6. Ignoring LRS regulations: The Liberalised Remittance Scheme or LRS is what governs how much money an Indian resident can send internationally and for what purposes. Under the LRS, an Indian cannot take margin to invest internationally and also cannot invest in speculative instruments or trade in forex pairs.
Make sure to keep in mind the above to make the most of your US investing journey. If you want to know more about how to invest in US stocks from India read this to help you get started.
