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US Stock ETFs Explained: A Practical Guide for International Investors

TradeSmart TeamFeb 17, 202617 min read

Contents

Most people who start looking into US stock investing hit the same wall pretty quickly: there are thousands of individual stocks, and picking winners consistently is somewhere between difficult and impossible. ETFs exist to solve that problem, and for international investors sitting in Hong Kong, Australia, or elsewhere in the Asia-Pacific region, US-listed ETFs are one of the most efficient ways to get broad exposure to the world's largest equity market.

This guide walks through what ETFs actually are, which ones are worth paying attention to, and the practical steps to buying them from outside the United States -- including the tax and fee implications that rarely get mentioned in US-centric guides.

What Is an ETF, Exactly?

An Exchange-Traded Fund is a basket of securities -- stocks, bonds, commodities, or a mix -- that trades on an exchange like a regular stock. When you buy one share of an ETF, you are effectively buying a tiny slice of every holding inside that fund.

The concept is simple: instead of buying 500 individual stocks to replicate the S&P 500 index, you buy one share of an S&P 500 ETF and get exposure to all of them in a single transaction.

A few things that distinguish ETFs from mutual funds:

They trade throughout the day like stocks, with prices updating in real time. Mutual funds only price once at market close.
They generally have lower expense ratios. The biggest US ETFs charge as little as 0.03% per year.
No minimum investment beyond the price of a single share (and many brokers now support fractional shares, bringing the entry point down to a few dollars).
Tax efficiency -- due to their structure, ETFs tend to distribute fewer capital gains than equivalent mutual funds.

ETFs are not risk-free. They go up and down with the market. But they remove the single-stock risk of picking individual companies, which is why they have become the default starting point for most long-term investors.

Why US ETFs Specifically?

If you are based in Hong Kong, Australia, or mainland China, you have access to local ETFs as well. So why bother with US-listed ones?

Market breadth. The US stock market represents roughly 40-45% of global equity market capitalisation. Companies like Apple, Microsoft, Nvidia, Amazon, and Alphabet are all US-listed. Investing only in your local market means missing out on the companies that drive a significant portion of global economic growth.

Liquidity. The most popular US ETFs trade billions of dollars worth of shares every single day. SPY alone averages around $30 billion in daily trading volume. This means tight bid-ask spreads and minimal slippage when you buy or sell.

Cost. US ETF expense ratios are the lowest in the world. Vanguard's VOO charges 0.03% annually. Compare that to many Asia-Pacific listed ETFs that charge 0.30% to 0.80% for similar exposure.

Variety. There are over 3,000 ETFs listed on US exchanges, covering everything from broad market indices to specific sectors, countries, bonds, commodities, and more niche strategies. Whatever exposure you want, there is probably a US ETF for it.

The trade-off is that you are taking on currency risk (your returns will fluctuate with the USD exchange rate) and you need to navigate US tax withholding on dividends. We will cover both of those below.

The ETFs Worth Knowing About

There are thousands of US ETFs, but a handful dominate for good reason. Here are five that consistently come up in conversations among international investors.

VOO -- Vanguard S&P 500 ETF

VOO tracks the S&P 500 index, which includes roughly 500 of the largest US companies by market capitalisation. It is weighted by market cap, so the biggest companies (Apple, Microsoft, Nvidia) make up a disproportionate share of the fund.

Expense ratio: 0.03%
Dividend yield: Around 1.3%
Assets under management: Over $500 billion
Why it matters: This is the benchmark. When people say "the market returned 10% this year," they are usually talking about the S&P 500. VOO gives you that exposure at rock-bottom cost.

SPY -- SPDR S&P 500 ETF Trust

SPY tracks the same S&P 500 index as VOO. It was the first ETF ever listed in the US (launched in 1993) and remains the most heavily traded ETF in the world.

Expense ratio: 0.0945%
Dividend yield: Around 1.2%
Assets under management: Over $600 billion
Why it matters: SPY is the go-to for active traders because of its enormous liquidity and very tight options market. For long-term buy-and-hold investors, VOO is generally the better choice due to its lower expense ratio.

VOO vs SPY: Which One?

This is one of the most common questions beginners ask, and the honest answer is: for long-term investors, the difference is minor but VOO wins on cost.

Feature	VOO	SPY
Index tracked	S&P 500	S&P 500
Expense ratio	0.03%	0.0945%
Structure	Open-end fund	Unit Investment Trust
Dividend reinvestment	Immediate	Held in cash until distribution
Options liquidity	Good	Excellent
Best for	Long-term holding	Active trading, options

If you plan to buy and hold for years, VOO's lower expense ratio and ability to immediately reinvest dividends gives it a slight edge. If you trade actively or use options, SPY's superior liquidity matters more.

QQQ -- Invesco QQQ Trust

QQQ tracks the Nasdaq-100 index, which includes the 100 largest non-financial companies listed on the Nasdaq exchange. This gives it a heavy tilt toward technology: Apple, Microsoft, Nvidia, Amazon, Meta, and Alphabet together make up a substantial portion of the fund.

Expense ratio: 0.20%
Dividend yield: Around 0.6%
Assets under management: Over $300 billion
Why it matters: QQQ has dramatically outperformed the S&P 500 over the past decade-plus, driven by tech sector growth. But it is also more concentrated and more volatile. In down years for tech, QQQ falls harder than VOO.

QQQ is not a pure technology fund -- it includes companies like Costco, PepsiCo, and Amgen. But the tech weighting means its performance is heavily tied to how the big tech names do.

VTI -- Vanguard Total Stock Market ETF

VTI tracks the CRSP US Total Market Index, which includes roughly 3,600 stocks across large, mid, small, and micro-cap companies. It is the broadest single-fund exposure to the entire US equity market.

Expense ratio: 0.03%
Dividend yield: Around 1.3%
Assets under management: Over $430 billion
Why it matters: VTI gives you everything VOO gives you, plus mid-cap and small-cap stocks that are not in the S&P 500. The historical return difference between VTI and VOO is tiny, but VTI offers slightly better diversification.

SCHD -- Schwab US Dividend Equity ETF

SCHD tracks the Dow Jones U.S. Dividend 100 Index, focusing on companies with at least 10 consecutive years of dividend payments and strong financial fundamentals.

Expense ratio: 0.06%
Dividend yield: Around 3.4%
Assets under management: Over $60 billion
Why it matters: SCHD is the go-to choice for investors who want income from their portfolio. The dividend yield is meaningfully higher than VOO or VTI. The trade-off is that SCHD is underweight in growth-oriented tech stocks, so it tends to underperform during strong bull markets led by technology.

Quick Comparison Table

ETF	Index	Expense Ratio	Approx. Yield	Holdings	Focus
VOO	S&P 500	0.03%	~1.3%	~500	Large-cap US
SPY	S&P 500	0.0945%	~1.2%	~500	Large-cap US (trading)
QQQ	Nasdaq-100	0.20%	~0.6%	~100	Tech-heavy growth
VTI	Total US Market	0.03%	~1.3%	~3,600	Broad US market
SCHD	DJ US Dividend 100	0.06%	~3.4%	~100	Dividend income

How to Buy US ETFs from Hong Kong and Australia

The practical mechanics of buying US ETFs from outside the United States depend on where you are and which broker you use.

From Hong Kong

Hong Kong investors have excellent access to US markets. There are no capital controls restricting cross-border investment, and several brokers cater specifically to the HK market.

Popular broker options:

Interactive Brokers -- The gold standard for international investors. Low commissions (around $0.005 per share, minimum $1), access to dozens of markets worldwide, and strong regulatory backing. The interface has a learning curve, but the product is solid.
moomoo (Futu) -- Zero-commission US stock trading, free Level 2 data, and a familiar interface for Hong Kong users who have used Futu NiuNiu. Good for both beginners and active traders.
Tiger Brokers -- Another zero-commission option popular in Hong Kong, with a clean mobile interface and competitive FX rates.

Most HK brokers allow you to fund your account in HKD and convert to USD at the point of trade. Watch the FX spread -- it is where zero-commission brokers make their money.

From Australia

Australian investors also have good access, though the broker landscape is slightly different.

Popular broker options:

Interactive Brokers -- Same global platform, strong choice for Australians who want access to multiple markets.
moomoo Australia -- Zero-commission trading on US stocks, CHESS sponsorship for ASX holdings, and free Level 2 data. A competitive newcomer in the Australian market.
Stake -- Built specifically for Australians investing in US stocks. Simple interface, no commission on US trades, but limited to US and ASX markets only.
CommSec International -- CommSec's international trading arm. Higher fees ($19.95+ per US trade) but backed by Commonwealth Bank, which some investors value for the perceived safety.

Practical Steps

Regardless of which broker you choose, the process is broadly the same:

Open an account and complete identity verification (KYC). Most brokers require a passport and proof of address.
Fund your account. You can usually deposit in your local currency (HKD or AUD) and convert to USD within the platform.
Complete the W-8BEN form. This is a US tax form that declares you are not a US tax resident, reducing the withholding tax on your dividends from 30% to 15% (for residents of countries with US tax treaties like Australia) or 10% (for Hong Kong residents under the HK-US treaty).
Place your order. Search for the ETF ticker (e.g., VOO), choose market or limit order, enter the number of shares, and confirm. US markets trade from 9:30 AM to 4:00 PM Eastern Time (roughly 10:30 PM to 5:00 AM Hong Kong time, or 1:30 AM to 8:00 AM AEDT during US winter).

Tax Implications You Need to Understand

This section matters more than most guides let on. Tax treatment of US ETF investments varies significantly depending on your country of residence.

US Dividend Withholding Tax

The US government withholds tax on dividends paid by US ETFs to non-resident investors. The default rate is 30%, but tax treaties reduce this:

Country	Withholding Rate (with W-8BEN)	Without W-8BEN
Australia	15%	30%
Hong Kong	10%	30%
Mainland China	10%	30%

You must file the W-8BEN form with your broker. Most brokers will prompt you during account opening. The form is valid for three years and must be renewed.

If you forget to file the W-8BEN, the full 30% will be withheld -- and clawing that back is a slow and painful process.

Capital Gains

The US does not tax capital gains earned by non-resident investors on US securities. This is a significant advantage. If you buy VOO at $400, sell at $500, and you are not a US tax resident, the US government does not take a cut of that $100 gain.

However, your home country likely does tax capital gains:

Australia -- Capital gains from US ETFs are taxable income. You get a 50% discount on gains from assets held for more than 12 months.
Hong Kong -- No capital gains tax. This is one of the biggest advantages for HK-based investors.
Mainland China -- Tax treatment is complex and enforcement varies. Technically, worldwide income is taxable, but the practical situation for individual overseas stock investments remains somewhat ambiguous. Consult a tax professional.

Estate Tax

This one catches people off guard. The US imposes estate tax on US-situated assets (including US ETFs) held by non-residents, with a relatively low exemption threshold of $60,000. For large portfolios, this can become a meaningful concern. Some investors use Ireland-domiciled ETFs (like CSPX instead of VOO) to avoid this issue, though those come with their own trade-offs in liquidity and cost.

Understanding Expense Ratios and Fees

Expense Ratios

The expense ratio is the annual fee charged by the fund, expressed as a percentage of your investment. It is deducted automatically from the fund's net asset value -- you never see a line-item charge.

On a $10,000 investment:

VOO at 0.03% costs you roughly $3 per year
QQQ at 0.20% costs you roughly $20 per year
A typical Asia-Pacific ETF at 0.60% costs you roughly $60 per year

These differences seem trivial on small amounts, but they compound over decades. Over 30 years on a $100,000 investment with 8% annual returns, the difference between 0.03% and 0.60% in fees amounts to over $30,000 in lost returns.

Brokerage Fees

Commission-free US stock trading has become standard among modern brokers targeting international investors. But watch for:

FX conversion fees -- This is the biggest hidden cost. Even zero-commission brokers charge a spread on currency conversion, typically 0.15% to 0.50%. On a $10,000 investment, that is $15 to $50 each way.
Withdrawal fees -- Some brokers charge $25-50 for wire withdrawals.
Platform fees -- Some brokers charge monthly fees for data or account maintenance, though this is becoming less common.
Inactivity fees -- Interactive Brokers removed theirs in 2021, but some brokers still charge if your account is dormant.

True Cost Calculation

When comparing brokers, calculate the total cost per year including all of these components, not just the commission. A "free" broker with a 0.50% FX spread is more expensive than a broker charging $1 per trade with a 0.10% FX spread if you are making a few large investments per year.

Common Mistakes to Avoid

Having talked to hundreds of international investors over the years, these are the mistakes we see most often.

Ignoring the W-8BEN Form

We mentioned this above, but it bears repeating. Filing the W-8BEN is the single easiest thing you can do to improve your returns. Missing it means you are giving away an extra 15-20% of your dividends for no reason.

Overcomplicating the Portfolio

New investors often buy eight or ten different ETFs trying to achieve "perfect diversification." In practice, VTI alone gives you exposure to the entire US market. Adding VOO on top of VTI is redundant -- VOO's holdings are already inside VTI. A portfolio of VTI plus an international ETF like VXUS covers the vast majority of the global stock market in just two funds.

Timing the Market

The temptation to wait for a dip before investing is strong, especially when markets are near all-time highs. The data is clear on this: time in the market beats timing the market for the vast majority of investors. Lump-sum investing outperforms dollar-cost averaging roughly two-thirds of the time, because markets trend upward over long periods.

That said, if investing a large lump sum all at once makes you uncomfortable, splitting it into three or four chunks over a few months is a perfectly reasonable approach. The best investment plan is one you can actually stick to.

Neglecting Currency Impact

If you earn in AUD or HKD, your US ETF returns are affected by currency movements. A 10% gain in VOO combined with a 5% decline in the USD against your home currency means your actual return is closer to 5%. Over long periods, currency effects tend to wash out, but they can amplify or reduce returns meaningfully in any given year.

Chasing Past Performance

QQQ's extraordinary run over the past decade-plus has led many investors to overweight technology. Past performance does not guarantee future returns -- this is a cliche because it is true. The tech sector could continue to outperform, or it could mean-revert. Building a portfolio based solely on what did well recently is a recipe for buying high.

Overlooking the Estate Tax Issue

For portfolios above roughly $60,000 in US-situated assets, the US estate tax is a real concern for non-resident investors. It is worth understanding the threshold and considering whether Ireland-domiciled alternatives make sense for the portion of your portfolio that exceeds it.

Frequently Asked Questions

Can I invest in US ETFs with a small amount?

Yes. Most modern brokers support fractional shares, meaning you can invest as little as $1 in any US ETF. You do not need the full price of one share to get started.

Are US ETFs safe?

US ETFs issued by established providers like Vanguard, BlackRock (iShares), and State Street (SPDR) are among the most regulated financial products in the world. The underlying securities are held by independent custodians. That said, "safe" does not mean "cannot lose value" -- the value of any equity ETF will fluctuate with the market.

How often do US ETFs pay dividends?

Most US ETFs pay dividends quarterly. The exact schedule varies by fund. VOO, SPY, and VTI all pay quarterly. Some bond ETFs pay monthly.

Should I buy accumulating or distributing ETFs?

US-listed ETFs are almost all distributing -- they pay dividends out to shareholders. If you prefer accumulating ETFs (where dividends are automatically reinvested inside the fund), you will need to look at Ireland-domiciled equivalents like VUAA (the accumulating version of VOO) or CSPX. These are listed on European exchanges and some Asian brokers provide access.

What happens if my broker goes bankrupt?

Your ETF shares are held in your name (or in a segregated custodial account), separate from the broker's own assets. If the broker fails, your holdings should be transferable to another broker. This is true for CHESS-sponsored holdings in Australia and for most properly regulated brokers in Hong Kong. Still, using a well-capitalised, properly licensed broker reduces the risk of this happening.

Is it better to invest monthly or as a lump sum?

Statistically, lump-sum investing outperforms dollar-cost averaging about two-thirds of the time, because markets trend upward. But dollar-cost averaging reduces the psychological pain of investing right before a downturn. If you have a regular salary and invest a portion each month, you are effectively dollar-cost averaging by default -- and that is a perfectly solid approach.

Getting Started

If you have read this far and want to take the next step, keep it simple. Open an account with a reputable international broker, complete the W-8BEN form, and start with a broad-market ETF like VOO or VTI. You can always add complexity later as you learn more -- but the biggest mistake is waiting too long to start.

The US ETF market is not going anywhere. The tools for international investors to access it have never been better or cheaper. The rest is just a matter of showing up consistently and letting compounding do its work over the years.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. ETF investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Tax laws are complex and subject to change -- consult a qualified tax professional for advice specific to your situation. The authors may hold positions in the securities discussed. Always do your own research before making investment decisions.