The United States has one of the largest economies in the world and the specific U.S. stock market is the largest in the world with a market cap of over USD 50 trillion. The top largest companies in the world are also traded in various stock exchanges across the country like the New York Stock Exchange, Nasdaq Stock Exchange, and the NYSE Chicago Stock Exchange. It is also worth mentioning that both locals and foreigners can buy and sell stocks through various avenues. This makes the United States one of the most popular and ideal destinations for stock investing. Investing in the U.S. stock market also magnifies the advantages of stock investing and the reasons for investing in stocks. But where exactly to invest in the U.S. stock market? What are the available options for both beginners and foreigners?

Investing in the U.S. Stock Market

Options for Buying and Selling Stocks of U.S. Publicly Traded Companies

It is important to note that investing in the U.S. stock market or investing in the stocks of companies in the U.S. is not a mere question of how. There is a general three-step process for stock investing that is applicable to almost all countries or economies with established stock markets and stock exchanges. Nevertheless, beyond this process, and in consideration of the appeal of publicly-traded U.S. companies, investing in the U.S. stock market is also a question of where. Take note of the following options available to both citizens and foreigners:

1. Financial Advisors From Traditional Brokerages

Brokerages or brokerage firms and investment firms are firms that act as intermediaries between investors and the stock market. Most of them offer various securities and asset classes like stocks. There is also a handful that provides traditional brokerage services. These are called full-service brokers. Notable examples of full-service stock brokers are Edward Jones, Merrill Lynch Wealth Management, Morgan Stanley, UBS Wealth Management, and Raymond James.

The advantage of buying stocks via traditional stock brokerage firms is that they provide a more hands-on approach compared to discount brokers and online-centered brokers. This is specifically done through a personal financial advisor who helps investors decide which stocks to choose from depending on the goals and objectives and risk profile of each investor. The drawback is that they often have high account minimums, commissions, and advisory fees.

2. Online Brokerage Platforms and Discount Brokers

Take note the top brokers in the U.S. like Charles Schwab and Fidelity Investments have online platforms that allow investors to buy and select stocks, monitor the performance of their stocks, and manage their accounts. Charles Schwab is known for its user-friendly platform, research tools, and commission-free stock trades while Fidelity Investments also has a user-focused platform, a wealth of investment resources, and various investment options apart from stocks.

Furthermore, apart from the biggest online brokerage firms, another popular option for investing in the U.S. stock market is through so-called discount brokers. These online-based brokers provide a low-cost solution for buying and selling stocks and other securities and are suitable for those who are comfortable with self-directed investing. Some examples of discount brokers include Interactive Brokers, TD Ameritrade, E-Trade Financial, and Robinhood Markets.

3. Direct Purchase or Direct Stock Purchase Plans

There are companies that sell stocks or shares directly to interested investors. This scheme is called a direct stock purchase plan. Hence, in other words, it enables investors to purchase stocks directly from issuing companies, thus bypassing brokers. Not all companies provide these plans. Some that offer include Amazon, Intel Corporation, The Coca-Cola Company, and Walmart. Participating in this scheme involves approaching these companies via their in-house agents.

Some of the notable advantages of direct purchase plans include the absence of fees or potentially lower fees, fractional shares options, and dividend reinvestment. However, as mentioned not all companies in the U.S. offer this scheme. There may be minimum investment requirements. The pricing does not reflect real-time stock market prices. There are also restrictions or added requirements for foreign investors depending on company rules and applicable laws.

5. Pooled Equity Funds and Exchange-Traded Funds

Another avenue for investing in the U.S. stock market is through pooled funds. This option is available to U.S. citizens and is also the more accessible route for most foreigners. A pooled fund combines money from multiple investors into a single large portfolio. The entire portfolio has a specific investment objective and is managed by professional fund managers. A particular and single investment account represents a basket of different securities or asset classes.

Nevertheless, when it comes to choosing pooled funds, it is important to choose funds that are focused on equities. There are funds that offer a combination of equities and other securities or asset classes. Specific examples of pooled fund types include mutual funds, unit investment trusts, investment-linked insurance plans, exchange-traded funds, and hedge funds. Investing in pooled funds is more convenient and less expensive but comes at lower investment flexibility.

6. American Depositary Receipts Through Banks

A depositary receipt or DR is a type of negotiable security that represents the shares of a particular foreign public companies. Some companies in the U.S. offer them. These are called American Depositary Receipts. The general principle is that companies offer them through local banks in other countries to raise capital from foreign investors. These chosen local banks hold fractional shares or full shares of these companies and list them in their local stock exchanges.

Investing in American depositary receipts that are issued by local banks provides foreigners with another option to invest in the U.S. stock market or access several public companies operating in the U.S. Some examples of countries with local banks that issue these securities and list them in local stock exchanges include the United Kingdom, Germany, Japan, Hong Kong, and Singapore, among others. Take note that the selection of U.S. companies can be limited.

Pointers and Reminders on Investing in U.S. Stocks

Choosing Exactly Where to Invest in the U.S. Stock Market

It is important to note that the options for investing in the U.S. stock market mentioned above are available for all U.S. citizens. However, for foreigners, while online and discount brokers and pooled funds allow access to the U.S. stock market, other options like traditional brokerages or full-service stock brokers and direct stock purchase plans are not as readily available because they may require vetting and other special requirements or restrictions.

An investor should also weigh the advantages and disadvantages of each, and ensure that the value proposition of each is aligned with his or her investment goals and objectives. Take note that the discount brokerage and direct stock purchase plan options are often considered active investing, while the full-service brokerage and pooled fund options are considered passive investing. Both active investing and passive investing have their respective pros and cons.