Sponsored by Syfe
The Aussie Corporate has partnered with Australian investment platform Syfe to bring y’all a 3-part primer series to educate you on some of the most exciting areas of the financial markets. This guide will focus on US shares & ETFs, and will soon be followed by a guide on crypto and ASX shares. As “fiscally responsible” and “financially mature” Aussie professionals, we’ve all wondered what the best way is to make our money work for us.
We’ve partnered up with Syfe because we know that gathering the information to start your investing journey is half the battle. This guide will hopefully help you kick off your investment journey or if you’re not ready to take the plunge, equip you with some key facts about US shares and ETFs.
US Shares and ETF Overview
So why is everyone so into the US market? You probably see US stocks plastered all over social media and wonder why people are so crazy about companies like Tesla, Amazon, Apple etc. Well, since the Great Depression, the S&P 500 index – which basically gauges how well the 500 largest public companies in the US are doing – has been one of the best performing indexes in the world. It’s outpaced the performance of its global counterparts like France’s CAC 40, Japan’s Nikkei 225 and even Australia’s very own ASX 200. Of course, “past performance is not an indicator of future performance” as the financially astute will say, but this explains why people seem to love the US market.
We think there are a number of reasons that have allowed US companies and US stock market indexes more broadly to do so well over the last few decades.
A pro-business, uber-capitalist environment, consistent economic growth, and a deep talent pool that attracts the best and brightest from around the world – have all led to many great companies of the last half-century being built in the US. The likes of Amazon, Apple, Facebook (now Meta), Google, and Netflix (aka FAANG) – all emerged in the US.
In the last decade we’ve also seen a new wave of exciting companies emerge in the US, including: Snowflake, Uber, and Roblox. Whether those companies will be as resilient or dominant as the generation that came before them, remains to be seen.
If you have a good eye, you’ll see that tech stocks dominate a huge part of the US market, which explains a bit why US stocks experience such great growth. Typically, due to the higher earning potential of tech companies (once they actually become established), investors are happier to pay more for their shares in the expectation that they might become the next Apple (for example).
The State of the US Economy
Following years of solid economic growth that allowed companies like Apple and Amazon to become the benevolent tech giants we all know and love today, the US economy is grappling with a number of challenges.
To set the scene, between 1947 to 2022 US gross domestic product (GDP) grew at an average rate of about 3.18% per year. In the next few years, GDP growth is expected to decline dramatically – forecast to rise just 2.5% in 2022 and 1.2% in 2023, according to OECD forecasts. Figures like this have led many to believe that if we’re not currently in a recession that we’re heading into one.
This comes as the US, and the world more broadly, grapples with supply chain issues, cost of living pressures, and geopolitical instability. Below we take a look at those themes and how they impact stocks.
Across the globe, the Russia-Ukraine conflict has seen energy prices push higher, it’s put upwards pressure on food prices, and it’s also caused deep uncertainty around escalating military conflict.
$10 dollar lettuces are just one consequence of high inflation. In the US, September 2022 inflation numbers came in at 8.2% – ahead of what economists were expecting. Housing, energy prices, and food prices have been some of the key drivers of inflation in the last year.
In an attempt to get inflation under control, we’ve seen central banks – like the Reserve Bank of Australia (RBA) and the US Federal Reserve (the Fed) – raise interest rates dramatically in 2022. You’ll have seen all the J Pow printer memes in 2021, but because of the interest rate rises, these aren’t really around anymore.
Anyway, the basic equation is that higher rates means higher mortgages which will cause people to spend less, and prices of goods to fall. To date, the US Federal Reserve’s rate hikes haven’t really had that effect, with inflation showing no signs of slowing down just yet.
How does this all impact stocks?
Geopolitical instability, inflation, and higher interest rates create both uncertainty and opportunity for stock and ETF investors.
According to Rob Haworth, a senior investment strategy director at U.S. Bank Wealth, when interest rates are high:
‘Stock investors become more reluctant to bid up stock prices because the value of future earnings will look less attractive versus bonds that pay more competitive yields today.’
There’s no getting around the fact that 2022 has been marked by share market volatility, with major stock indexes like the S&P 500 and Nasdaq 100 both falling significantly.
With shares across the board down in 2022, taking a longer term view when it comes to investing in US shares & ETFs, is more important than ever before.
Not only that, but considering options outside of bonds, property, or a high-interest savings account (which is actually losing value in real terms), is vital in the current high inflation environment we are all living through.
As we said at the start: the S&P 500 has fallen more than 20%, on 27 separate occasions since the great depression. Even so, the S&P 500 index has averaged returns of 9.66% per year – from 1930 to October 19, 2022. Some more recent examples illustrates that same point, between October 2012 to October 2022, we’ve seen:
- S&P 500 +163%
- Nasdaq +257%
- Apple +554%
- Amazon +920%
- Alphabet +497%
The point is, US stocks have not only historically always rebounded after significant periods of volatility, but even during significant sell offs, their performance has remained impressive.
At the end of the day, we don’t really have time to be day-trading or watching our portfolios every day. Most conventional (and you might argue, boring) thought is that we should all hold stocks long-term over at least a 5-10 year period so that the market can ride out the ups and downs.
With the AFR constantly talking up a recession, it’s worth looking at what a recession actually might mean for stocks. Here’s the bad news. On average, stocks decline 1% during a recession.
Here’s the good news. According to research from Darrow Wealth Management, on average stocks rose 7% 6-months after a recession, 16% 12-months after a recession, and 20% 2-years after a recession. While no one knows the exact length and depth of a potential recession, understanding how stocks have historically performed around a recession can act as a helpful guide for those looking to invest.
Things to Consider
What do you want to achieve?
Before you start investing, it’s worth understanding your personal finances. This might involve: understanding how much you’re saving, how much you’re spending, whether you have any debt, and thinking about the reasons you want to invest – do you want to save up for a house deposit, holiday, or just build long-term wealth.
We probably wouldn’t recommend investing if you are in huge debt and are living paycheck to paycheck. After all, investing comes with risk and the goal is learning how to manage this properly.
What type of investor are you?
It’s also important to get a sense of what type of investor you are. If you’re someone who likes the idea of researching companies and wants to dedicate a bit of time to investing – investing in individual US shares might be the go.
On the other hand, if you don’t have the time or simply aren’t interested in spending hours researching individual companies, taking a passive approach to investing, for example through ETFs, might be worth considering. ETFs – or exchange traded funds – lets you invest in an index of hundreds of companies all in one trade. Meaning you can quickly and easily diversify your investment portfolio.
On the topic of ETFs (which has become somewhat of a recent trend), Warren Buffett said in his 2004 letter to shareholders:
‘If you accumulate a low-cost index fund over 10 years with fairly regular sums, I think you will probably do better than 90% of the people around you that take up investing at a similar time.’
The psychology of investing
This one is all about how you handle risk, losses, wins, and everything in between.
Studies have shown that when we experience losses, the emotional response is significantly more extreme when compared to the emotional response we get from experiencing gains.
Studies like those explain why short-term dips in the market can be so distressing, while the gains we experience and the little dopamine hit we get from them, can be so short lived.
Taken a step further it’s this sense of risk aversion that stops a lot of people from even taking the plunge investing to begin with. But that is its own mistake. With inflation where it is today – getting more out of your money – is more important than ever before.
Or, as Buffett bluntly puts it: ‘If you don’t find a way to make money while you sleep, you will work until you die.’
The important thing in all of this is taking a long term view when it comes to investing. Thinking in decades, not days and ignoring the turmoil that occasionally hits the stock market is one strategy that can help you make better long term decisions and be less influenced by short term volatility.
Stay informed, quickly and easily
Being able to get a quick read on what’s going on with the markets as well as specific US stocks and ETFs – without spending hours on research – is a game changer.
Here’s some of the insights that Syfe has built straight into their investment app:
- Simplified Wall Street research – giving you access to analyst ratings, price targets and earnings forecasts – on top stocks,
- Discovery tools – to highlight new US stock and ETF opportunities
- Free access to Dow Jones Newswires – so you never miss a market move
Individual US Stocks v ETFs
As we’ve already discussed, whether you’re interested in investing in US stocks or ETFs or both – will largely depend on what type of investor you are.
Investing in specific US stocks is a great way to back the companies and products you love and understand. It also gives you a chance to outperform the market. However, as you might have gathered, investing in one or a few stocks is riskier than spreading out your investments across hundreds of companies with an ETF.
When you invest in individual stocks you have greater control over your portfolio. This might be attractive if you have high conviction that a specific company will be able to perform better than the stock market as a whole.
It might also be appealing if you want to invest in companies specifically aligned with your values (and avoid the ones that aren’t), allowing you to back companies in the renewables, healthcare, financial technology or other spaces you find meaningful.
While it might feel great to have full control over your portfolio, it’s harder to be truly diversified if your portfolio is made up of just a handful of stocks.
While this can be good when things are going well and markets are up – being less diversified means you’re more exposed to market downturns and volatility.
If you’re good at picking stocks there’s a chance you might be able to outperform ETFs that track broader benchmarks like the S&P 500 or the ASX 200. The likes of Tesla, Monster Beverage, Amazon, Microsoft, and more – have all outperformed the indexes over the last decade.
You do have to be realistic though. Not only is picking winning stocks hard, but holding onto them, during periods of market volatility, is harder.
ETFs – or Exchange Traded Funds – allow investors to instantly and easily diversify their investments across a range of stocks. For example, an ETF that tracks the S&P 500 will give you ‘economic exposure’ to the 500 companies in the S&P 500, without having to buy those stocks one at a time.
ETFs are a great tool for time poor investors because they allow you to instantly invest in many great companies, all in one trade. At the end of the day, a diversified investment portfolio is a less risky portfolio, which also means you’ll be dealing with less volatility.
While there’s a chance you can beat the market by picking individual stocks, for many that’s not only unrealistic but it’s simply not worth the time. Historically US ETFs – that track benchmarks like the S&P 500 and Nasdaq 100, have offered investors solid average returns, which, compounded over time – have helped many build serious long-term wealth.
Instead of spending hundreds of dollars at Friday night drinks, here’s a quick snapshot of some of the most intriguing public US companies that you can invest in right now (with Syfe!). Even if you’re not familiar with their EBITDA margins or the go-to-market strategies of these companies, chances are you use or have heard of their products.
Get a piece of that!
Aussie coffee snobs will probably be horrified to find out that Starbucks is worth about US$100 billion. It’s not too surprising when you discover that the Seattle-founded coffee chain sells about 4 million cups of bean juice per day, on close to US$25 billion in revenue in 2021.
The market may not love the alternative dairy producer right now, with the stock down 74% to 27 October, but the hardos on Wall Street apparently can’t get enough. Analysts continue to swoon over the stock – which currently has a Buy rating on average, according to Syfe data.
One of the OGs of big tech – Microsoft invented the PC, brought slide decks to the masses, and has more recently developed creative ways to torture every axious Aussie corporate (thank you Microsoft Teams notifications).
$100+ leggings have proven to be surprisingly recession proof. Despite the economic headwinds we’re currently seeing, in the second quarter of 2022 athletics apparel company Lululemon grew its revenue 29% to US$1.9 billion.
Elon Musk – Technoking of Tesla and now Chief Twit. Need we say more?
How to invest in US shares & ETFs
At this point, if you’ve decided that you want to invest in US shares or ETFs, the next step is finding a broker who lets you invest in them. In the last few years a number of investment platforms have emerged that help investors get access to US stocks and ETFs cheaply and easily. Now for the plug… Syfe is one of those platforms.
Since launching, here are some of the things we have been told that Syfe is prioritizing:
Whether its multiple free trades every month, or low brokerage of just US$1.49 per trade, Syfe looks to lower the barriers to entry of investing. Features like fractional trading mean you can invest in your favorite stocks – in increments of just US$1 – regardless of where they are trading. For example, the days of A$500 minimums to make an investment are over.
They also have a pretty great referral program if you’re looking to get you and your besties involved in the markets.
Syfe built its investment platform from the ground up for the digital world. Slick, usable, and fast – so you can focus on what matters most to you, which we’re pretty sure isn’t spending 10 minutes trying to figure out how to place a trade or check in on how your portfolio is performing.
The team at Syfe has focused on providing its users with practical features, without the fluff.
Recurring buys let you choose a US stock or ETF to buy on a recurring basis through dollar cost averaging, allowing you to build wealth on auto pilot over the long-term and smooth out volatility.
According to research from Charles Schwab that looked at investment performance over a 20-year period, people who invested with a dollar cost average approach would be about US$90k better off than those who choose to stay in cash, between 2001 to 2020. Check out the key takeaways of that research below:
Beyond recurring buys, Wall Street insights help you understand where the US bulge brackets think certain US stocks are heading next. Plus, Syfe has recently started rolling out market moving news in app – think Instagram stories – but you know, actually useful.
If you’re looking to start building a portfolio of the world’s best US companies and top ETFs, Syfe might be a broker you consider when you make your first or next investment. Learn more about the perks of investing with Syfe here.
This guide is not financial product advice. Past performances are not necessarily indicative of future performances. References to specific products or services meant to illustrate the concepts of investment and neither intended to be construed as a recommendation nor advice. This is a paid post sponsored by Syfe.