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Investing in US Small Cap and Blue Chip Stocks: A Guide for Malaysian Investors (2024)

Updated: May 24

As the world of investment continuously evolves, diversifying your portfolio remains a key strategy in mitigating risk and potentially enhancing returns. For most Malaysian investors looking to diversify, delving into the US stock market might be a considerable option. In this article, we examine two primary categories of stocks: blue chip stocks and small cap stocks, detailing their pros and cons as well as how you can start investing in them today.


What is blue chip and small cap stocks

What Are US Blue Chip and Small Cap Stocks?


US Blue-Chip Stocks

Blue-chip stocks represent well-established companies with a history of stability, reliability, and strong performance. They are often leaders in their respective industries, boasting a large market capitalization. Companies like Apple, Google, and Microsoft fall into this category, representing secure investment avenues that typically offer consistent returns and dividends.


US Small Cap Stocks

On the other hand, small-cap stocks represent companies with a smaller market capitalization, usually between $300 million and $2 billion. These companies, such as Revolve Group or Sunrun are often in their growth phase, with the potential to offer substantial returns, albeit at higher risk levels.


How to Invest in US Small Cap and Blue Chip Stocks from Malaysia?


Step 1: Preparing for Investment


1. Research and Knowledge Building

Before investing, build a strong foundation by understanding individual company performances, the US market trends, and sectoral growth patterns. Utilize resources like financial news platforms, investment forums, and analytical tools for this purpose.


2. Understanding the Currency Risks

You should also be wary of currency fluctuations between the USD and MYR. Currency risks can be mitigated by employing hedging strategies or diversifying the investment portfolio to include assets with low correlation.


Step 2: Selecting the Right Investment Platform


1. Choosing a Brokerage Firm

Select a reputable brokerage firm that offers access to the US stock market. One of the most reputable brokers in Malaysia is Interactive Brokers. Find out how you can use Interactive brokers here.


2. Setting up an Investment Account

Open an investment account with your chosen brokerage, ensuring to comply with all documentation and regulatory requirements, including proof of identity and address.


Step 3: Investment Execution


1. Building a Diversified Portfolio

Create a diversified portfolio that includes a mix of blue-chip and small-cap stocks. Consider consulting with a financial advisor to tailor a portfolio that matches your risk tolerance and investment goals.


2. Continuous Monitoring and Management

Once the investment is initiated, maintain a vigilant eye on the portfolio's performance. Make adjustments based on market trends, economic developments, and company performances to optimize returns.


Should You Invest in US Small Cap and Blue Chip Stocks?


Well, it all comes down to your investment goals, risk tolerance, and whether you’re confident enough in your investment knowledge. Here are some pros and cons for you to weigh out your decision.


Pros of Investing in US Small Cap and Blue Chip Stocks


1. Diversification

Investing in blue chip stocks or established companies can add a stable component to your portfolio, possibly mitigating risks associated with market volatility.


Meanwhile, when you invest in US small cap stocks, you’re diversifying your portfolio into sectors or industries that are underrepresented in the Malaysian market.


For example, you can include stocks such as Apple or Google (blue-chip) and a promising small-cap stock in the tech sector to have a balanced exposure to the growth dynamics of the US market.


2. Potential for High Returns

Blue chip stocks typically provide steady returns over the long term, including regular dividends. Meanwhile, small cap stocks have the potential to offer higher returns, especially if you invest in companies during the early growth stage. However, always consider that there’s a much bigger risk if you’re investing in small cap stocks.


Cons of Investing in US Small Cap and Blue Chip Stocks


1. Currency Risk

In both small cap and blue chip stocks, you’ll need to consider the currency risks involved in investing in US stocks, as fluctuations in the USD/MYR exchange rate can impact returns.


One way you can minimise this impact is by hedging your investments through financial instruments that offset currency risks, ensuring that they are not adversely affected by fluctuations in the USD/MYR exchange rate.


2. Geographical and Cultural Distance

Being geographically and culturally distant from the US market might result in a lack of nuanced understanding of market trends and company performances for both small cap and blue chip stocks.


To mitigate this, you could consider employing US-based financial advisors or using analytical tools that provide in-depth insights into the US market.


Conclusion


Investing in US small-cap and blue-chip stocks can be a lucrative avenue for those seeking to diversify their portfolios and potentially reap substantial returns. However, it comes with its set of challenges that can be overcome with meticulous preparation and knowledge. By thoroughly understanding these dynamics and strategizing accordingly, you can make informed decisions that align with your investment goals and risk tolerance.


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