Why invest in US stocks?

Key takeaways

• By investing in the US stock market, you can share the growth of the world's biggest and most innovative companies.

• Historically, U.S. stocks have performed well. The U.S. S&P 500 is up 781% over the past 30 years (1993-2022).

• You are diversifying your portfolio by investing on businesses outside the country.

Most people would agree investing is important for building wealth over time. Nowadays, investors have plenty of choices when it comes to what they can invest in.

Even if you've decided you want to invest in stocks, another question presents itself: "Should I invest in Malaysia or US stocks?"

While there is no right and wrong answer to that question, there certainly are pros and cons that Malaysia investors should consider when considering whether to invest in US stocks.

Potential Benefits from US Stock Investment

• US markets may present better investment opportunities

The largest, most established companies in the world are usually listed on the US stock market.

Among the list of top US stocks on the S&P 500 are companies whose products and services we use almost every day, right here in Malaysia:

Investing in US stocks allows you to get access to some of the best global companies with substantial growth potential.

Actually, data as of 2020 shows that the market cap of the US stock market is over US$40 trillion, while that of the Malaysia stock market is less than US $440 billion. A more intuitive contrast is that the market cap of Berkshire Hathaway, just the 6th largest company in the US market in 2020, is roughly equivalent to all Malaysia-listed companies combined.
>Source from the global economy. Berkshire Hathaway calculation of market capitalization: 2.17B*$231.8>500B, Outstanding Shares 2.17B, 2020's Close Price $231.8.

In terms of investment returns, the US market also outperforms the Malaysian market.

For example, investing in Malaysia's benchmark index— the KLSE index—delivers a total return of 70% from 1/1/2009 to 31/12/2022— an annual return of 5% over the 14-year period. In the same period, the S&P 500 ETF delivered a return of  325% in total.
>Data from moomoo

• Global diversification for an investment portfolio

The second reason to invest in US stocks is for geographical diversification.

By investing in the US stock market, you have the opportunity to participate in global growth stories.

The companies listed on the US stock market are not only American companies but also companies from all over the world or multi-national companies with a global presence. What's more, many are big tech companies that aren't even bound by geographical boundaries.

So by investing in US stocks, you're actually investing globally.

As Malaysian residents, our homes, jobs, savings, EPF balances, and other investments are naturally exposed to the ups and downs of the Malaysian economy. Simply from a diversification perspective, it also makes sense to add some global exposure.

Geographical diversification adds stability and risk tolerance to your portfolio.

Potential Benefits from Malaysia Stock Investment

Warren Buffet advises investors to "never invest in a business you cannot understand". Starting your investing journey locally allows you to invest in the stocks of companies that you are likely to have a better understanding of. Also, when investing locally, we need not worry about risks related to currency exchange.

Fortunately, "investing globally" or "investing locally" is not an either-or situation and investors can choose both. So if your investment plan hasn't added any US stocks yet, you may consider doing some research on US stocks and grab your share of the world's biggest and most powerful corporate names.