How do I buy international shares?

The Australian share market represents only a tiny proportion of shares globally and overseas investments have never been more accessible for individual investors.

Why invest in international shares?

It is impossible to know which asset classes, individual companies, or sectors will perform best in any given year, there’s also no way of knowing which country’s share market will deliver the most growth.

This is why diversification is important; it can reduce your losses in bad times and provide more opportunities to benefit in good times.

Investing in international shares can give you exposure to the performance of some of the world’s biggest companies, operating in markets far and wide.

There are some major industries, such as branded consumer goods and technology that are not well represented on the Australian share market but are much more prevalent elsewhere.

How do you invest in international shares?

As with Australian shares, there are three main ways to buy international shares:

• Directly
• Through an indexed fund
• Through a managed fund

You can buy international shares directly through some online brokers, such as CommSec.

Another way to invest is through an actively managed fund, which pools together the money of investors and uses it to buy and manage a portfolio of assets on their behalf.

A lower cost option is to invest in international shares through exchange traded funds (ETF).

There is an array of ETFs available that aim to replicate the performance of an index or group of assets in specific countries or regions around the world.

What are the risks?

There’s always the risk that any investment will not perform as well as you hoped it would. You may incur losses or even lose all that you invested if you own shares in an individual company that goes bust.

While some of the risks of investing in international shares are similar to investing in domestic shares, currency risk and political risk are other key considerations.

Any gains or losses you make would be denominated in another currency so changes in foreign exchange rates can have a significant impact on investment performance.

This could be positive if the value of the Australian dollar falls relative to other currencies between the time you buy and sell an international investment, or negative if it rises in that time.

There may also be different tax and reporting responsibilities when investing in overseas shares.