# Investing in USA stocks vs. Canadian stocks



## ValP (Jan 20, 2021)

Hi guys,
I notice you discuss within this forum predominantly Canadian stocks. What is the reason? Are you investing mostly in Canadian stocks?

My RRSP and TFSA portfolios mainly consist of dividend US stocks as I think that the US economy performs much better than the Canadian economy. Am I doing something wrong here? E.g. am I missing anything?

Thank you in advance.


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## KaeJS (Sep 28, 2010)

Well,

There is the spread... For one...
The withholding tax... For two...
The possible currency risk... For three...

Who wants to pay that?

All my US exposure is through Canadian listed ETFs.


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## AltaRed (Jun 8, 2009)

IF one does invest in US dividend stocks, they are best placed in the RRSP because: a) they don't have a FWT on dividends, and b) dividend income from US stocks in non-registered accounts is taxed as ordinary income in any event. TFSAs don't have retirement account recognition, so the 15% FWT is lost forever on dividends from US stocks.

US stocks overall (S&P500/Wilshire 5000) have slightly outperformed Canadian stocks overall (TSX Composite) over 50 years but not by much. US stocks did terribly in the first decade of this millennium relative to the TSX but outshone the TSX considerably in the decade following. The Norm's Asset Mixer can be used to check whatever 10-20 year time periods you wish..... if you object to a 50 year look.

If the loonie ever creeps upwards to parity with the USD, your USD holdings will face headwinds on a CAD equivalent basis. Your sentiment may be tainted by recency bias of the past 10 years, OR you may think you are a great stock picker only picking winners.


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## londoncalling (Sep 17, 2011)

Because it's the Canadian Money Forum!

All sarcasm aside,

Many chose to hold the bulk of their investments in the currency where they live or plan to retire. Others feel that the Canadian market is such a small part of the world economy and therefore choose to limit their exposure to Canadian stocks. It's possible to get international exposure on the Canadian market to some extent by buying companies that do business internationally. Some feel the TSX does not offer enough sector diversification as it is mainly banks, pipes, utilities and commodities and offers little in the way of tech. Historically the US and Canadian markets tend to outperform and underperform each other. I hold several US stocks and ADRs in my LIRA and RRSP accounts. I hold Canadian listed stocks in my TFSA. There is likely nearly as many portfolio compositions as there are posters on this forum. Some strictly couch potato, some hold ETFs and individual stocks as part of their core and explore. By your post it looks like you have a tilt to individual dividend stocks. I would suggest you are not doing anything wrong with your choice to hold US stocks but do you have an Investor Policy Statement which includes allocations for US, Canada etc.?


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## Tostig (Nov 18, 2020)

KaeJS said:


> Well,
> 
> There is the spread... For one...
> The withholding tax... For two...
> ...


And BMO Investorline does not offer DRIPs for US holdings. Don't know about other brokerages.


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## Jimmy (May 19, 2017)

No you aren't. The US market is ~ 54 % of the total market so you should have at least 1/3 of your stocks there. There are ~ 6,000 US stocks too vs maybe 700 in Canada. Much better selection of ETFs also.

The Canadian market is especially limited as well for tech, green tech and medical.


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## Covariance (Oct 20, 2020)

ValP said:


> Hi guys,
> I notice you discuss within this forum predominantly Canadian stocks. What is the reason? Are you investing mostly in Canadian stocks?
> 
> My RRSP and TFSA portfolios mainly consist of dividend US stocks as I think that the US economy performs much better than the Canadian economy. Am I doing something wrong here? E.g. am I missing anything?
> ...


You are not missing anything as it relates to geographic allocation. In the global context Canada is a small percent of the total investment universe. In fact home bias is a well documented source of underperformance and added risk, so to the extent that your process is casting a wide net, in theory you are better off. There are of course tax benefits to owning a Canadian dividend payor. Assuming you are using total after tax expected return as a criteria this should be addressed.


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## AltaRed (Jun 8, 2009)

I fully agree it is important to have significant exposure to the US equity market simply because the US is over 50% of the global equity market on a market cap basis. It doesn't mean though that US stocks are superior. The OP is simply an opinion/assertion not necessarily borne by facts.

That all said, one can certainly disproportionately pick dividend yielding stocks through dividend ETFs of which there are several choices both in the US and Canadian markets. That is an easier way to invest than by stock picking in Canada, the USA, or both. Some, like me, stock pick Canada (a market I understand the best) and ETF everything else ex-Canada. I clearly cannot (or will not) spend the time necessary to stock pick the USA.


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## KaeJS (Sep 28, 2010)

AltaRed said:


> Some, like me, stock pick Canada (a market I understand the best) and ETF everything else ex-Canada. I clearly cannot (or will not) spend the time necessary to stock pick the USA.


I do the exact same thing.
Cherry pick in the market I know, understand, and can see/feel in my surroundings.

Then ETF everything else.


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## Covariance (Oct 20, 2020)

AltaRed said:


> I fully agree it is important to have significant exposure to the US equity market simply because the US is over 50% of the global equity market on a market cap basis. It doesn't mean though that US stocks are superior. The OP is simply an opinion/assertion not necessarily borne by facts.
> 
> That all said, one can certainly disproportionately pick dividend yielding stocks through dividend ETFs of which there are several choices both in the US and Canadian markets. That is an easier way to invest than by stock picking in Canada, the USA, or both. Some, like me, stock pick Canada (a market I understand the best) and ETF everything else ex-Canada. I clearly cannot (or will not) spend the time necessary to stock pick the USA.


Agreed. No logic in making individual or even sector specific investments unless one has an edge. Presumably OP has a basis for concentration in US divis. But that wasn't really his/her question.


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## MrMatt (Dec 21, 2011)

Lots of forums with US stock info and talk.

Not many with Canadian specific info, I come here for the Canadian perspective.

Most of my holdings are US/International.
However I think Canada has a good number of excellent companies, that fit well with my portfolio.

Also if you're buying a company, Canada doesn't have the attention of the US, which means that there are better lower prices. It's important that for most of my profile, I'm buying a company to own, not buying a stock to trade. I'm one of those guys who intellectually cheers when prices drop. 

I did say intellectually, I still don't like to see my holdings price fall.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> I fully agree it is important to have significant exposure to the US equity market simply because the US is over 50% of the global equity market on a market cap basis. It doesn't mean though that US stocks are superior.


Yeah, that's right. 

Everyone uses the reasoning that since Canada is a small portion of the overall market, they shouldn't use that to determine their country preference. 

Who cares what portion a country represents? Isn't that counties return more important? What if that country offered a huge tax advantage - is that not more important than their portion of the overall market?

ltr


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## Ponderling (Mar 1, 2013)

I invest in USD US stocks for pharmaceuticals (ABBV, PFZ, JNJ, MRK, etc where the CAD market is in my opinion is weak.

Also stable consumer staples AMAZ, SBUX, PEP, MNST, etc. 

Then bets on post covid recoveries: RTX, CNNE. 

Also to broaden telecom and utility stock holdings so not just concentrated in Canada. 

Most of my USD is in VTI for broad market and IYW for tech focus. 

I also hold a big generic ETF USD bond AGG. 

About 60% of our RSP funds in in USD section of my ITrade account.


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## londoncalling (Sep 17, 2011)

like_to_retire said:


> Yeah, that's right.
> 
> Everyone uses the reasoning that since Canada is a small portion of the overall market, they shouldn't use that to determine their country preference.
> 
> ...


Due to globalization money flows into and out of a country's market with the click of a mouse. Printing of money and purchasing of sovereign debt has been a longstanding practice as countries try to manipulate productivity, debt, inflation, currency, and GDP. Perhaps allocation by geography is an outgoing concept. How much of a country's wealth or lack thereof is actually owned by those living there? Everybody is competing for each other's investment money be it dollar, yen, wan, Euro, sterling or crypto. Governments and companies have a lot of levers they can pull. It is not the closed market system of the 19th and 20th Century. Like others above I choose to have most of my money invested in Canadian and US markets. LTR is correct. Return is what matters most to investors whether it be individuals, companies, investment firms, or nation states.

Edited: for grammar and punctuation


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## KaeJS (Sep 28, 2010)

Might go without saying..

But there is tons of prudent, factual, and otherwise fantastic knowledge in all of these responses.

This is the CMF I miss and love.


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## illions (Jul 27, 2021)

A good company is a good company no matter the country. Certainly there is more coverage of US stocks making them easier to research and learn about. There are also a lot more companies to choose from.

The US market is also a lot more liquid. Options are much easier to trade then on a CA market.


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## Buckwheat (Dec 11, 2021)

I'm a rookie investor, and I have 3 holdings: one Australian ADR through a US bank, and 2 US holdings. I may make some investments in Canadian holdings after Canada's environment minister makes his announcements about de-carboning the country, in March. I generally think that the USA has better growth & returns, from what I can see, but the Canadian economy has its strong points.


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## zinfit (Mar 21, 2021)

Over the past 15 years the focus of my RRSP investing has been the USA. I have zero regrets. In terms of returns and exchange rate changes I have done much better then investing in Canadian stocks. If one wants strong exposure to health, tech, big retail and other key segements you have to be in the US market. As Buffett said no one ever got rich by betting against the US economy.


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## Tostig (Nov 18, 2020)

US markets took another dip last week. In combination with the rise in the CAD against the USD, US stocks are in sale.


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## zinfit (Mar 21, 2021)

Hard to get stocks like J&J, Apple, Google, Microsoft, Costco, Google, Ford, Tesla, Home Depot, Costco , Stryker, United Health, Pfizer , Deere, Caterpillar Nvadia and many others in Canada. These stocks represent many of the world's very best operations.


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## james4beach (Nov 15, 2012)

ValP said:


> I think that the US economy performs much better than the Canadian economy. Am I doing something wrong here? E.g. am I missing anything?


Long term data shows very similar stock returns from both Canada and the US. This can be seen in the very long term analysis published each year by (for example) Credit Suisse in their Global Investment Returns Yearbook which looks back even farther than the 50 years mentioned by @AltaRed

Since long term US and Canadian performance has been similar, I think whether you focus on US or Canada, the results going forward should be similar. But there can also be some tax advantages when investing domestically.

Based on historical data, I don't see any reason to think Canadian equities would do worse than American going forward. In fact Canada has been one of the best long term performing equity markets in the world. Off the top of my head, the top performers over the very long term have been the US, Canada, Australia, Germany too I think

As far as global reach, take a quick look at the top weights in the TSX index for example. Many of these are global companies:

RY has a huge investment bank division, and that's a global operation
TD has significant US banking operations
BNS has quite a large footprint in Latin America
BAM is definitely global, assets and revenue all over the world
CNR is domestic rail but highly tied to the import & export economy
CP the same

Generally though... I think there is always *recency bias* when it comes to stock returns. People love US stocks right now because they have recent high returns. From an investment standpoint, there's probably more benefit to actually looking at places like Canada, Europe, Japan and paying _less attention to America_.


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## zinfit (Mar 21, 2021)

james4beach said:


> Long term data shows very similar stock returns from both Canada and the US. This can be seen in the very long term analysis published each year by (for example) Credit Suisse in their Global Investment Returns Yearbook which looks back even farther than the 50 years mentioned by @AltaRed
> 
> Since long term US and Canadian performance has been similar, I think whether you focus on US or Canada, the results going forward should be similar. But there can also be some tax advantages when investing domestically.
> 
> ...


Good post. My concern with a Canadian only holding is you miss out on some big sectors like health, tech and the industrials. Its really hard to find stocks like Apple, Merck ,Deere, Costco and Tesla in Canada.


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