Canadian Stocks vs US Stocks

Dividend Earner

Dividend Earner

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5 min read Affiliate Disclosure

Why not invest it all in US stocks? How do you decide to buy a Canadian stock vs a US stock?

As a Canadian, we are country biased to invest in Canadian stocks. It’s only natural. In fact, we all earn Canadian dollars and the exchange rate is an extra step to overcome.

Have a review of my portfolio to put the following into context.

4 Reasons Why I Invest In US Stocks

There are a few reasons why I invest in US stocks and completely ignore the all other countries aside from Canada.

Reason 1. The US stock market offer access to leading companies in industries we do not have in Canda. Some of the best dividend growth stocks are from the US.

Reason 2. The US stocks I focus on are global conglomerates and do business in the rest of the world. They are mostly mega cap stocks. That provides me exposure to the world by proxy.

Reason 3. The US stock market is much much bigger than the TSX. The US economy is much much bigger than the Canadian economy and the profit potential, even for large or mega cap stocks, is still often greater than in Canada. The annual ROR for my US holdings compared to my Canadian holdings is proof. There is a reason why many of the TSX 60 trade on the NYSE and expend in the US.

Reason 4. It’s an economy I am familiar with as a neighboring country, and believe I can keep up with the socio-economy development.

The Currency Exchange Wall

The currency exchange is the first barrier all investors struggle with.

Not only are you trying to make a good investment with your US stocks, now you have to consider the exchange rate and think of your potential gain or loss from currency exchange at some future point in time.

This is where how you think about it all makes a difference.

In my case, I stopped thinking about the currency exchange. If you focus on the exchange rate, you are trading currencies and it’s not the same. I have exchanged USD currency using the Norbert’s Gambit at nearly every rates.

Instead, I focus on the investments to ensure I pick the right ones. Once I have my money in USD, I usually just keep it in USD, I don’t move it back and forth.

While I track all performance with my portfolio, I do not track whether or not I am making money from my currency exchange. Most of the time it’s done with DLR and DLR.U in my non-registered account and I have to pay capital gains on that.

I track the annual ROR performance of my investments in their respective currencies, so when you see Apple with an ROR over 20%, there is no currency conversion.

There are only a handful of Canadian stocks that perform like the US stocks I have been holding to grow a portfolio during the accumulation years. These companies usually have a low yield like Alimentation Couche-Tard.

Why Not 100% US Stocks?

For starter, there are 3 accounts for investing each with different tax considerations when it comes to capital gains, dividends, return of capital and interest. For tax details, you can read more here.

  • RRSP: All tax-free.
  • TFSA: Withholding tax of 15% on the dividends.
  • Non-Registered: Withholding tax of 15% on the dividends.

You can see the breakdown of currency by account for my portfolio. Most of the US holdings not in a RRSP have either a low yield or pay no dividends.

Since dividends play a part in the total return of a stock, I try to only keep low-yield US stocks outside my RRSP.

While you could buy an ETF that invest 100% in US stocks and trade in Canadian dollars, you are then mostly index investing and settling for market returns. There is nothing wrong with that either but it’s a different approach.

Why keep Canadian financials in a non-registered instead of buying US holdings?

It’s mostly for safety. I know the Canadian bank stocks. I know how they operate and I know what to expect in terms of returns. You can see I have held many for almost 10 years and the return is around 12% – 14% ROR. It’s pretty consistent with the banks.

The banks also pay a good dividend when it comes to stocks and it’s part of my income strategy for my non-registered account.

A little hint here, when someone tells you that you should not expect more than 6% or 8% on the stock market, have a look at the banks. That’s what you should target but then again, we often sabotage our portfolio with duds … My technology greed with AMZN, SHOP and TWLO might byte me back.

What Is The Most Optimal Account Setup

It’s all about taxes. Just be efficient with taxes.

You will read to not hold this and that in such account but often they are rules to simply keep everything simple. For example, I don’t have ETFs in my non-registered account mostly because I don’t want the accounting of return of capital. Online brokers might not handle all the taxes for you unfortunately.

The reality is that it’s about taxes. Know if you get a dividend, an eligible dividend, or a distribution as tax implications are very different.

While I have a few holdings not paying dividends, I invest in dividend stocks because I have a method to select dividend stocks that works. I will admit to be a bit greedy with TWLO, AMZN and SHOP.

I do not like to simply add more and more companies to my portfolio. That’s why you see the same holdings in multiple accounts. I simply like those investments and I sleep well at night.