1. How is trading foreign stocks through Euro Pacific different?
Just about every other U.S. brokerage firm which offers access to foreign securities trades through domestic market makers on the U.S. over-the-counter (OTC) market. However, when foreign stocks are purchased though domestic market makers, the spreads (the difference between the bid and ask price) are generally much wider than those you would encounter on foreign exchanges. Therefore trading foreign stocks domestically can greatly increase your over-all transaction costs. When you invest through Euro Pacific, we execute your order directly on foreign exchanges. This has the potential of greatly reducing the cost of trading foreign stocks. See the Euro Pacific Difference
2. What are your fees for buying non-U.S. listed foreign stocks?
We charge a percentage markup on all foreign trades that varies based on the size of each individual transaction and the total size of the portfolio. These fees can vary from as much as 5% (e.g. $50 to buy $1,000 of a single foreign stock), to less than 1% for a single stock transaction in excess of $1 million. Most clients will end up paying between 2% and 3% to build a full portfolio of foreign stocks. The more diversified the portfolio, the higher our transaction costs and the more we charge for our services. It is important to discuss with your broker the fees involved prior to placing any orders, so that you understand the exact percentage that you will be charged.
3. Is there a minimum investment required?
No. However, some foreign stocks have minimum lot sizes in which they trade. Also, commissions on smaller orders may be proportionally higher. In most cases, investors can benefit from lower transaction costs by allowing Euro Pacific to group their small orders together as part of a larger block. A client would lose this advantage if he needed to buy or sell quickly and was therefore not able to wait for a block to be formed.
Yes, Euro Pacific Capital is a full-service firm, and we are happy to provide investment advice to our clients including asset allocation, market timing, buy and sell levels, and stock and bond selection.
5. Are foreign investments liquid?
Yes. The stocks and bonds we recommend are all listed securities trading on the world's major exchanges. Since securities differ with regard to average daily trading volume and float, the spreads between the bid and ask prices will be wider on some stocks than others. Alternately, if a specific limit price is sought, some securities might take longer to sell than others.
6. Can I buy domestic stocks and bonds with my Euro Pacific account? Will my broker be able to offer advice on domestic markets and securities?
Yes, you have access to domestic stocks and bonds from within your Euro Pacific account. Your broker is knowledgeable about domestic as well as foreign trends and securities. While we typically recommend diversifying away from U.S. dollar-denominated assets, we can recommend American securities we believe are more insulated from a declining dollar as well as provide general advice on any securities in which you may be interested.
7. How do I handle taxes on my Euro Pacific account?
Our clearing firm will provide a 1099 that declares interest earned, dividends received, and foreign taxes paid. No information will be provided with respect to capital gains. Investors are encouraged to retain their statements and their trade confirmations. However, if records are misplaced, Euro Pacific will provide missing data upon request.
8. Can I make these investments in an IRA?
9. How often do I get statements?
Statements will be mailed monthly for each month during which activity occurs. If there is no monthly activity, statements will be mailed quarterly. Individual confirmations are mailed separately for each transaction.
10. Can I invest in foreign securities through other brokers?
Yes, but it depends on the security, the location of the market, and the broker. Some firms might limit access to specific markets or securities, while others might provide no access at all. Most other firms that do offer access will only do so through domestic market makers. This could substantially increase your transaction costs.
11. What are American Depositary Receipts (ADRs) and do you recommend them?
American Depositary Receipts are an instrument used to allow American investors to trade foreign stocks on domestic exchanges. Most of the stocks we recommend do not have ADRs. If an ADR is available, it is often still better to buy the ordinary shares. In most cases, the ordinaries are more liquid, and by holding the ordinaries, one can receive dividends and sales proceeds in foreign currency. This provides better diversification via a more genuine foreign exposure, helps to keep transaction costs down, and allows investors to sell a foreign security while maintaining exposure to the foreign currency. However, our brokers will not hesitate to recommend an ADR when it is the more prudent option.
12. Do you recommend foreign mutual funds?
In some cases, foreign mutual funds make sense. If a mutual fund is appropriate for your investment profile, your Euro Pacific broker will be able to help you select the fund or funds best suited to meet their objectives. However, in many cases, mutual funds are unsatisfactory. Negatives include over-diversification, hedging to the dollar, poor management, and maintenance expense.
13. How do I follow current prices on my stocks?
Clients can see the closing quotes of a majority of the stocks we recommend by establishing online access to their accounts.
14. Many foreign shares trade for under $2 per share. Are these low prices indicative of high risk?
No. On many foreign exchanges, low stock prices are the norm, with the bluest of their blue chips trading below $5 per share and stock splits occurring for stocks that trade in high single-digits. Americans are simply used to higher stock prices as a matter of custom.
15. Is foreign investing risky?
Yes, all investments contain some element of risk. For developed markets the most significant difference between a domestic and foreign stock is the addition of currency risk, which can either help or hurt a portfolio. Also, as with domestic stocks, foreign stocks are also subject to political, company-specific, and market-specific risks. However, depending on the country, particularly those characterized as immerging or frontier markets, the political risk may be elevated. Also securities in such countries may be less liquid and accounting standards may not be as high as those in developed or domestic markets.
A common mistake that many Americans make is ignoring the currency risk (usually referred to as inflation risk) associated with holding only U.S. dollar-denominated assets. If the value of the dollar declines, prices for consumer goods will rise, particularly for imports. Since so much of what Americans consume is imported, holding a diversified portfolio of assets denominated in foreign currencies helps hedge against domestic inflation.