Overseas stock markets are no longer used only by the rich, but has become a way to easily make investments for anyone. Thanks to securities companies that have a trading system dedicated to overseas markets, individuals can now make investments even with their smartphones. However, one should not blindly go along with the crowd even if there is an ongoing investment boom in the United States. Investments always entail risks, but more things should be checked before making an investment particularly in overseas stock markets.
First, there are exchange rate risks as overseas stocks are traded in the currency of a trading country. So far, the strong value of the U.S. dollar has meant the weak Korean won. Now that the strong dollar is expected to be continued for the time being due to the reversal of the two countries’ interest rates, investors may be able to anticipate foreign-exchange profits by making investments in the United States. Yet, they should always keep in mind that the volatility of exchange rates is unpredictable.
Taxes are another thing to be checked. As for domestic stocks, taxes are not levied on investment returns. On the contrary, investors should pay the transfer income tax for profits and losses from purchasing overseas stocks. After annual gains and losses are tallied, the transfer income tax (22 percent) is separately levied on the profits exceeding 2.5 million won. It is convenient to use the services of securities firms through which they instead report customers’ profits and losses.
Charges for exchanging currency and transaction fees should be also weighed. Investments in domestic stocks entail near-zero transaction fees, but overseas transactions charge around 0.25 to 0.5 percent. Thus, one should compare the transaction fees of each securities company before making an investment.