Flipping through financial news and seeing Apple (AAPL) and NVIDIA (NVDA) stock prices hitting new highs, do you feel that itch to jump in? The U.S. stock market, the world’s largest capital playground, is indeed full of tempting opportunities. But hey, friend, don’t rush to go all-in with your life savings. As a seasoned veteran who has been navigating the stock market for years, Cashbackisland is here to remind you that the brighter the spotlight on the stage, the deeper the shadows behind it. Many people only see the glamour of investing in U.S. stocks but overlook the disadvantages of investing in U.S. stocks that could cause them to stumble. This article doesn’t preach, it tells the truth, breaking down the traps and real risks behind U.S. stock investing one by one.
Before we dive into the disadvantages, it’s only fair to talk about why U.S. stocks are so attractive. After all, knowing yourself and your enemy is the key to victory!
The phone you use every day, the websites you browse, the coffee you drink—they are likely all from U.S. listed companies. From tech giants like Google and Amazon to consumer staples like Starbucks and McDonald’s, investing in U.S. stocks means you’re letting these world-class money-making machines work for you. Who can resist that appeal?
Compared to some other markets, the regulation by the U.S. Securities and Exchange Commission (SEC) is relatively strict, with standardized procedures for financial reporting and information disclosure. Coupled with its enormous trading volume, you can buy or sell almost anytime you want, without worrying about your stocks becoming worthless paper you can’t get rid of.
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Now that we’ve covered the pros, here comes the main event. Newcomers often pay a hefty price for not understanding these disadvantages of investing in US stocks. Let’s unveil them one by one!
The other side of opportunity is risk. If you’re not aware of the following points, you might end up “winning on the index but losing on the exchange rate,” or even working for nothing.
For those of us in Taiwan or Malaysia, investing in U.S. stocks requires converting our local currency (e.g., New Taiwan Dollar TWD, Malaysian Ringgit MYR) into U.S. Dollars (USD). This means your total return depends not only on stock price movements but also on exchange rate fluctuations. Imagine you’ve made a 10% profit in the stock market, but the USD depreciates by 5% against the TWD. Your actual profit is slashed. This is the so-called “exchange loss,” an unavoidable built-in risk when investing in U.S. stocks.
The trading hours of the U.S. stock market are not very friendly to Asian investors. The market is open from 9:30 AM to 4:00 PM Eastern Time, which translates to around 9:30 PM to 4:00 or 5:00 AM the next day in Taiwan/Hong Kong/Malaysia. Want to watch the market and place orders? You’ll have to stay up all night, sacrificing sleep. In the long run, this not only affects your health but may also lead to poor investment decisions due to fatigue. This is another often-overlooked disadvantage of investing in U.S. stocks.
This is a huge one! As a foreign investor, the dividends you receive from U.S. companies are subject to a 30% withholding tax by the U.S. government. For example, if a company you hold issues a $100 dividend, you’ll only receive $70. This is a major blow to investors who aim for long-term buy-and-hold strategies and rely on dividends for cash flow.
Wiring money to an overseas brokerage involves international wire transfer fees, buying and selling stocks incur trading commissions, and bringing the money back is another expense. These seemingly small costs can add up and eat into your profits. This is especially true for small retail investors, where the costs of frequent trading can be alarmingly high.
Now that we know the risks, let’s look at the channels available to enter this market. There are three main ways, each with its own pros and cons, suitable for different types of investors.
This is like hiring a local guide. You place orders through a broker in Taiwan or Malaysia, and they place the order in the U.S. for you. The advantages are a full Chinese interface, your funds remain domestic, and there’s someone to contact if issues arise, providing a sense of security. However, the disadvantages of sub-brokerage are also clear: fees are typically higher, and there are minimum commission charges, making it very uneconomical for small-scale investors.
This is like flying directly to the U.S. to open an account with brokers like Charles Schwab or Interactive Brokers (IBKR). The advantages are extremely low fees (many are even commission-free) and a wide range of tradable products. But the disadvantages of international brokers include having to handle international wire transfers yourself, English-only account opening and customer service, and your funds being held overseas. If problems occur, you’ll have to deal with them across borders, which can be a high psychological barrier for beginners.
A CFD is a derivative financial instrument that allows you to speculate on the rise and fall of stock prices without actually owning the stock. The advantage is that you can go long or short (bet on prices rising or falling) and use leverage to control a large position with a small amount of money. But this is a double-edged sword; the risk of U.S. stock CFDs is extremely high! Leverage magnifies profits, but it also magnifies losses. A market swing could wipe out your capital very quickly. It’s more suitable for short-term speculation rather than long-term “investing.”
To make it clearer for you, I’ve created a comparison table so you can see at a glance which method is best for you.
| Investment Channel | Pros | Cons | Suitable For |
| Domestic Sub-brokerage |
Full local language service Funds are held domestically, peace of mind Complies with local regulations |
High fees, minimum charges apply Fewer product choices Automatic 30% dividend tax withholding |
High-net-worth individuals or beginners who want to avoid hassle and prioritize fund safety. |
| International Broker |
Very low or free commissions Diverse product selection Powerful features (e.g., dividend reinvestment) |
Requires international wire transfers English-only interface and support Funds held overseas, regulatory risk |
Active investors with basic English skills who seek low costs and trade frequently. |
| Contracts for Difference (CFD) |
Can go long or short High leverage, flexible capital use 24-hour trading |
Extremely high risk, potential loss of principal Overnight interest costs Broker risk |
Professional traders with a high-risk tolerance, proficient in technical analysis, and looking for short-term speculation. |
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Theoretically, yes, but the process is extremely complicated! You need to apply for a tax refund from the Internal Revenue Service (IRS), fill out complex forms, and the whole process is time-consuming and labor-intensive. For the average investor, it’s usually easier to just forgo it. This is a very practical disadvantage of investing in U.S. stocks.
It depends on the channel you choose. Sub-brokerage may require a larger amount of capital to be cost-effective due to minimum fees. However, many international brokers support “Fractional Shares,” meaning you can buy a small piece of a Google stock for just $10, which is very friendly to small retail investors.
If you don’t have a large amount of capital (e.g., a few hundred dollars per transaction) and are comfortable with English, I personally recommend going directly with an international broker to save significant fees in the long run. If you have substantial capital and the security of “keeping your money in your home country” is a top priority, then sub-brokerage is your best choice.
I strongly advise against it! Please remember, CFDs are “trading” instruments, not “investing” instruments. Their high leverage and high-risk nature are contrary to the philosophy of long-term holding and value investing. If you want to achieve steady growth through U.S. stocks, stay away from the temptation of CFDs unless you know exactly what you’re doing.
In conclusion, investing in U.S. stocks is by no means a guaranteed path to riches. It comes with challenges posed by exchange rates, time differences, taxes, and various costs. Before you are drawn in by those staggering returns, please stop and honestly assess whether you understand and are prepared to deal with these disadvantages of investing in U.S. stocks.
Choose the investment channel that suits you best, manage your asset allocation properly, and never invest money you cannot afford to lose. Only when you put on the glasses of “risk awareness” can you see the real opportunities in the U.S. stock market more clearly. Wishing you a steadier and longer journey on your investment path!
Disclaimer: The content of this article is for personal experience sharing and informational purposes only and does not constitute any investment advice. All investments carry risks, and readers should exercise independent judgment and be responsible for their own investment decisions. It is recommended to consult a professional financial advisor before making any investment.
