International Investing Basics for Australians

International investing often gets framed as a single decision: “Australia versus the world.” In practice, it is a familiar investing activity with a few extra layers that can surprise beginners.

Those layers are not exotic. They are mostly about mechanics: currency, tax, and the way products are structured for Australian investors.

This article explains the core building blocks of international investing from an Australian perspective, without discussing specific products.

This is general educational information, not personal financial advice.

Why international investing exists in many diversified portfolios#

Australia is a small share of global share market capitalisation. Global investing can therefore broaden exposure across regions, sectors, and currencies. Diversification is often described as reducing single-point failure risk, not as eliminating losses.^¹

A “soul” line that tends to hold up is that diversification is rarely exciting in the moment. It is a long-run design choice.

The extra layer most people notice first: currency#

Currency exposure changes the return path#

When an Australian investor buys overseas assets, returns are affected by two moving parts:

1. The local market return (for example, US shares rising or falling in USD terms)
2. The AUD exchange rate movement against that currency

Even if the overseas market is flat, currency movement can create gains or losses in AUD terms.

Currency risk is not always “bad” or “good”#

Currency exposure can either amplify or reduce volatility depending on the period. It can also diversify risk if Australia experiences a different economic cycle to other regions.

Currency movement is not predictable in a reliable, investable way for most participants. It is better understood as an additional source of uncertainty layered on top of market risk.^¹

Hedged versus unhedged (conceptual)#

Some investment products offer hedging that aims to reduce currency exposure back to AUD. Hedging has costs and can change the pattern of returns. It does not eliminate market risk.^²

The key beginner concept is that hedged and unhedged exposures can behave differently even when they hold the same underlying overseas assets.

Market access: how Australians actually buy international exposure#

International exposure can be obtained in several ways:

• Australian-domiciled funds that hold international assets
• Foreign-domiciled funds or directly held international shares via a broker with overseas market access

The difference is not only convenience. It can influence tax documentation, investor protections, and reporting.

Australian-domiciled versus foreign-domiciled funds#

“Domicile” refers to where the fund is legally established. Domicile can affect:

• Which tax rules apply at the fund level
• Which investor documents are provided
• How distributions and foreign income are reported

Australian-domiciled funds often provide Australian-focused tax statements and reporting formats. Foreign-domiciled holdings may involve different tax forms and reporting.

This article keeps the explanation general because products vary. The key is to notice domicile as a structural attribute, not a marketing feature.

Tax is the second layer: withholding tax and reporting#

Withholding tax (high level)#

When overseas companies pay dividends, foreign governments may withhold tax before the dividend reaches the investor or the fund.

Whether this is visible in a cash amount depends on how the exposure is held (directly, through an Australian fund, or through a foreign fund). Australian tax rules may allow a foreign income tax offset in some circumstances.^³

The important beginner point is that dividend income from international assets can have a different “net” path than Australian dividends, which often include franking credits.

Documentation and forms#

Some foreign markets require forms to apply treaty rates (for example, US withholding tax documentation). Brokers and fund providers often handle parts of this process, but the details depend on structure and residency.

The ATO’s guidance on foreign income and foreign tax offsets is the anchor reference for Australian taxpayers.^³

Trading and settlement mechanics#

Trading hours and price discovery#

International markets trade in their local time zones. For Australians, that means many overseas markets trade overnight.

The practical effect is that prices can move significantly while Australians are asleep. This is not unique to international investing. It is simply more visible when time zones differ.

Settlement and corporate actions#

Settlement cycles, corporate actions, and dividend payment practices can differ by market. These differences often appear as small operational surprises: different ex-dividend dates, different withholding tax timing, and different corporate action processes.

A general rule is that complexity rises as the holding chain lengthens (broker, custodian, foreign registry, and currency conversion).

Costs that are easy to underestimate#

International investing often introduces extra costs beyond brokerage:

• Foreign exchange conversion costs (FX spreads or margins)
• Custody or platform fees (in some account types)
• Higher bid-ask spreads for less liquid overseas securities

These costs are not always large individually. They are often invisible until they are aggregated across time.

Political and regulatory differences#

International assets sit under different legal systems. Shareholder rights, disclosure standards, and market conduct enforcement vary across jurisdictions.

For most investors using broad international exposure, this is less about day-to-day decision-making and more about understanding that “global” is not a single system. It is a collection of systems.

A simple checklist of concepts (not actions)#

For beginners, the most durable concepts to understand are:

• International returns are a mix of market returns and currency movement.
• Hedging changes the return path and adds costs.^²
• Domicile affects tax reporting and investor documentation.
• Withholding tax exists and can affect dividend income.^³
• Costs include FX, not only brokerage.

These points do not dictate any specific investing approach. They simply describe the extra layers that appear when investing crosses borders.

Closing#

International investing is familiar investing plus extra layers. The big ideas are diversification, currency exposure, and the tax and product structures used to hold overseas assets.^¹³

Once those layers are understood, international exposure becomes less mysterious. It becomes another set of trade-offs managed through structure, fees, and risk.

Summary#

International investing can broaden diversification for Australians, but it adds currency exposure and additional tax and operational mechanics. Currency movement can change returns in AUD terms, and hedging can reduce that exposure while introducing costs. Product structure, including fund domicile and withholding tax handling, affects reporting and the investor experience.

Sources#

1. Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91. https://doi.org/10.2307/2975974
2. Vanguard Group. (2014). Currency hedging: Separating the wheat from the chaff. https://corporate.vanguard.com/content/dam/corp/research/pdf/currency_hedging.pdf
3. Australian Taxation Office. (n.d.). Foreign income and foreign tax offsets. https://www.ato.gov.au/individuals-and-families/income-deductions-and-offsets/types-of-income/foreign-income
4. Australian Securities and Investments Commission. (n.d.). Investing in international shares. Moneysmart. https://moneysmart.gov.au/shares/international-shares