Should a Canuck invest in non-Canuck markets?
May 27, 2008 7:44 PM Subscribe
As a Canadian investor with a discount brokerage account (TD Waterhouse), what are the downsides to investing in NYSE stocks as opposed to TSX stocks?
What about stocks in European markets? What about ADR stocks? Most of my income is in US dollars and I have US dollar margin accounts. Some of my investing is personal non-RRSP, and some may be personal-RRSP.
(Motivation: Canadian stocks don't have great stock-screening facilities, and the exposure is heavily weighted towards either oil/resources or indigenous stocks without a massive upside).
What about stocks in European markets? What about ADR stocks? Most of my income is in US dollars and I have US dollar margin accounts. Some of my investing is personal non-RRSP, and some may be personal-RRSP.
(Motivation: Canadian stocks don't have great stock-screening facilities, and the exposure is heavily weighted towards either oil/resources or indigenous stocks without a massive upside).
Of course you should invest in non-Canadian markets. The only additional complexity you face is currency risk in addition to market risk. You may also face different bookkeeping requirements, though I expect (but am not certain) that you take the cost basis in CDN when you buy stocks and the profit in CDN when you sell for tax purposes, even if you don't necessarily convert to or from CDN. You should check with a tax accountant on that though.
You're quite right in terms of sector exposure - the Canadian market is heavily weighted to resources and local financials (banks, etc). Plus the TSX is becoming very heavily weighted with RIM, just like it used to be with NT.
I assume you are familiar with RRSP foreign investment limits, such as they are anymore - I believe they got rid of them.
posted by GuyZero at 8:12 PM on May 27, 2008
You're quite right in terms of sector exposure - the Canadian market is heavily weighted to resources and local financials (banks, etc). Plus the TSX is becoming very heavily weighted with RIM, just like it used to be with NT.
I assume you are familiar with RRSP foreign investment limits, such as they are anymore - I believe they got rid of them.
posted by GuyZero at 8:12 PM on May 27, 2008
If you're earning in USD and spending in CAD, you have to expose yourself to the currency transfer either way: the only question is when you move your money. People who have moved their money to Canada quickly have done far better over the last few years, but if you have reason to believe that trend won't continue, invest in US stocks by all means.
You are certainly right in that investing in NYSE-listed stocks gives you many more options as far as diversification goes. But do note that the currency risk is very much non-negligible.
posted by goingonit at 8:24 PM on May 27, 2008
You are certainly right in that investing in NYSE-listed stocks gives you many more options as far as diversification goes. But do note that the currency risk is very much non-negligible.
posted by goingonit at 8:24 PM on May 27, 2008
Response by poster: I should add that I am looking at a pretty long-term horizon, 10-20 years. I am not looking for a quick return here.
posted by sweet mister at 8:32 PM on May 27, 2008
posted by sweet mister at 8:32 PM on May 27, 2008
"What about stocks in European markets?"
As others have pointed out, diversification is critical for any investor, not just a Canadian. Definitely get exposure to markets other than your own. And I'd suggest that you actively seek exposure to other asset classes as well.
"What about ADR stocks?"
I've never liked ADRs, for several reasons. First of all, the issuing bank is making some money off the ADR, but clarity on cost - especially comparisons to other issuers - is difficult to come by. And there is a lot of paperwork involved in an ADR.
You'd probably be better off purchasing a mutual fund or ETF that has some exposure to the company you're interested in. At least that way you can (in the case of a mutual fund) compare and seek to minimise fund expenses. An ETF would let you purchase at the time that would most favour yourself - i.e., a discount to NAV.
"I have US dollar margin accounts."
A little OT to your original query, but I'd question why you've got margin facilities at all. Buying stocks on margin isn't advisable as a retail activity. I realise that many brokerages push margin accounts, but the reason why they do so is clear - brokerages make lots of money from margin accounts.
You really don't want to be purchasing shares on margin.
In terms of stock screening: off my profile I've linked to a number of financial news and market data services. You can certainly pick up / screen various offerings off some of the links there.
posted by Mutant at 4:39 AM on May 28, 2008
As others have pointed out, diversification is critical for any investor, not just a Canadian. Definitely get exposure to markets other than your own. And I'd suggest that you actively seek exposure to other asset classes as well.
"What about ADR stocks?"
I've never liked ADRs, for several reasons. First of all, the issuing bank is making some money off the ADR, but clarity on cost - especially comparisons to other issuers - is difficult to come by. And there is a lot of paperwork involved in an ADR.
You'd probably be better off purchasing a mutual fund or ETF that has some exposure to the company you're interested in. At least that way you can (in the case of a mutual fund) compare and seek to minimise fund expenses. An ETF would let you purchase at the time that would most favour yourself - i.e., a discount to NAV.
"I have US dollar margin accounts."
A little OT to your original query, but I'd question why you've got margin facilities at all. Buying stocks on margin isn't advisable as a retail activity. I realise that many brokerages push margin accounts, but the reason why they do so is clear - brokerages make lots of money from margin accounts.
You really don't want to be purchasing shares on margin.
In terms of stock screening: off my profile I've linked to a number of financial news and market data services. You can certainly pick up / screen various offerings off some of the links there.
posted by Mutant at 4:39 AM on May 28, 2008
I am Cdn, too, and used to use TD Waterhouse for my discount RSP acct, but then discovered etrade - they have no annual fee for their RRP account, versus I think it was $120 for the TD one. You may want to look at etrade.
posted by Penelope at 6:47 AM on May 29, 2008
posted by Penelope at 6:47 AM on May 29, 2008
This thread is closed to new comments.
posted by sweet mister at 7:45 PM on May 27, 2008