Weekend Reading – Canadian home bias edition
Hey Friends,
Welcome to some new Weekend Reading: my Canadian home bias edition.
You can some recent Weekend Reading editions below:
Why juicy dividend income matters!
When is your retirement “enough number” edition.
A reminder I also shared this recent dividend income update – a brand new all-time high number!
Last but not least, I’m giving away 6 copies of The Money Master with thanks from the author, savvy real estate investor and speaker Sandy Yong. Check out my interview with Sandy and enter The Money Master giveaway here.
Have a great weekend and enjoy these reads!
Mark
Weekend Reading – Canadian home bias edition
On Financial Independence Hub, fan of this site and new MoneySense Investing Editor at Large Jon Chevreau obtained some insights from a CFA about how much Canadian content you should consider owning in your portfolio. The CFA answer:
“Based on all of the above, efficient portfolio theory argues your allocation to Canadian stocks should range between 3% to 30% of the equity side of your portfolio. That’s also based on individual preferences on additional details we won’t get into today.”
That’s fair. Personally, I’m striving for about 50/50 – 50% portfolio assets from Canada and then the rest from beyond Canadian borders.
What the CFA forgot in this thesis however (and I know Jon knows this based on how he invests – the savvy Jon Chevreau essay here about passive and active investing working in harmony), is that many Canadian companies don’t just operate nor derive some of their profits solely from Canada. Sure, some do, but many Canadian companies are far more international that you think.
- Last time I checked; Royal Bank (RY) operates in over 30 countries around the world – beyond Canada.
- Nutrien Inc. (NTR), is the largest producer of potash – and one of the top-3 largest producers of nitrogen fertilizer – in the world. Do you think all those goods just stays in Canada?
- Algonquin Power (AQN), a major Canadian renewable energy player – has three major operating subsidiaries: Bermuda Electric Light Company, Liberty Power and Liberty Utilities – not in Canada.
- Have you ever seen a map of Canadian National Railway (CNR)?
- Ever visit a convenience store? If you have, it’s probably owned by the night-owl founder himself Alain Bouchard. The company (Alimentation Couche-Tard (ticker ATD.B)) owns a whopping 15,000 stores across Canada, the United States, Mexico, Ireland, Norway, Sweden, Denmark, Estonia, Latvia, Lithuania, Poland, Russia, Japan, China, and Indonesia.
- Finally, what else do I need to say about Brookfield? A quick Google search and you’ll find companies like Brookfield Infrastructure Corporation (BIPC) and Brookfield Renewable Corporation (BEPC) that manage significant operations and assets beyond Canada – including acquiring more all the time!
These are just a few examples of course off the top of my head, and part of the reason why I own every company listed above.
Advisors often warn their clients to avoid home country bias. The main reason is we (Canada) make up only about 3-4% of the global market, implying that if investors just look at Canada, they are missing out on some opportunity costs.
That’s only partially true based on my thesis above. Historically, there is data to back it up too.
Check out: Taxtips.ca for more information including historical returns.
Certainly, what isn’t helping is our Canadian index is that historically cap-weighting is tilted in favour of our big-6 financial banks, life insurance companies, our energy sector and then: the rest.
I’d say for investors and advisors, we need to reflect a bit more on what home bias really means. If the aim is to create a diversified portfolio of companies that derive their profits from around the world, then you can actually do that in Canada. The rest of your portfolio, say 50%, can be from the U.S. or international holdings via indexed ETFs.
(By the way, these are some of the best ETFs and dividend stocks built to last for your portfolio):
But let’s not discount some of the positive impacts that come with any home bias.
If a beloved collection of Canadian dividend paying stocks keeps you invested, helps you ride out market storms, you have some comfort in understanding our regulatory framework, and/or you want to take advantage of the Canadian dividend tax credit like I do….then invest in Canada maybe all you want. Ignore the home bias noise.
In doing so, you’re likely to achieve your financial goals AND maybe just importantly, you might avoid getting fleeced by some financial advisor who is seeking your assets under management. Just food for thought. 🙂
This investor lost a colossal $108,462 in a day. Double his salary – in a day. Trading stocks. Don’t trade.
From the Dividend Income File
Rommel from My Prudent Life offered up a few ways to build multiple income streams – some of them rather easily.
Speaking of income, congrats to fellow blogger and dividend investor Dividend Earner for making it in the mainstream media of late:
How one investor became a super hardcore dividend fan (and what you can learn from him).
Chrissy from Eat, Sleep, Breathe FI realized financial independence recently – which means to her:
- No longer having to work for money.
- Any work (paid or unpaid) is optional and purely for enjoyment.
A BIG congratulations to Chrissy and her family regardless of what those retirement police requirements are or are not – doesn’t matter!! You did it!
I like the new direction of Matt Poyner’s site – DividendStrategy.ca – thanks for the mention!
More Weekend Reading…
Does home bias have potential drawbacks? Yes. But the financial future is always very cloudy. This is why you should at least consider investing beyond Canada – even if you love our dividend paying stocks.
Check out the Best International ETFs in Canada to own here.
Rob Carrick wondered if you would buy ‘enjoy tonight’ meat? Uh maybe, but generally a hard no for me.
Peter Hodson shared five reasons why a market dip will….not….happen.
A big thanks to Dale Roberts and the MoneySense team for including me in this week’s edition of making sense of the markets – check out the link for the artcile and much more including Bitcoin news!
I’ll be back next week to answer a reader question about REITs. I love reader questions!
Want me to answer one? Leave a comment or visit my Contact page.
I try my best to answer every email or question…
Mark
More FREE My Own Advisor content:
How I invest in dividend paying stocks is always found here.
Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here.
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here.
A reminder you can Hire Me! to run any retirement projections for you. See my link below!
I also run a site with my partner called Cashflows & Portfolios, a site dedicated to free content for any age but also low-cost services about how to drawdown your retirement portfolio and provide personal, tailored answers to these time-tested questions:
- How much can I safely spend in retirement?
- Will I run out of money?
- What accounts should I drawdown first?
- What is the best drawdown order for tax efficiency?
- When should I take CPP or OAS?
- How much will my estate be taxed?
- And more!
All my best,
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hi Mark,
Thanks for the mention and congratulations for achieving such an awesome milestone. I love seeing all those great Canadian companies you’ve mentioned and I am a part to most of them if not all. I know it’s hard to pick one but if you remember I pick ATD.B to be the one that I buy and hold forever if there is one. The rest of those are just solid hence a good diversification is a must. Also, It’s great as well that you’re getting around $600 from cashback CC. I love cashback cards that pays cash or check not so much on loyalty points. We were also receiving almost same figure annually when kids still living with us. Now trying to spend less and divert those funds to increasing our dividend income.
ATD.B is a great stock and hopefully it will go higher over time. Alas, I’m not banking on anything in the financial future. I hope to “live off dividends” for the most part and any capital gains are a major bonus!
Mark
Aww, thank you Mark! The messages I’ve received from the community (including yours) have been so touching and heart warming. The personal finance community is just amazing!
I look forward to one day congratulating you on reaching FIWOOT! (I’m sure it won’t be long.)
Congratulations. So happy for you and M. I am so related to what you said in your blog. A very hard decision to make indeed. We are like more than 10 years older than you, but still cannot make the decision to walk away. Similar to M, both of us are right now at our peak earning time. Our income increased quite a bit after I made the plan to retire in 5 years. Now four years later, we should retire in one year according to our original plan but we decided to defer that time to three years later. Like Mark said, it’s a two more years syndrome.
Really admiring the courage you and M had. All the best to your retirement life. I am very sure you will have a very fulfilling enjoyable retirement.
I went to ask my DH if there is anything he dreamed about and can be bought with money, after reading your Mustang blog. Unfortunately he doesn’t.
Hi May—thank you for such a sweet comment. That one (or two) more year syndrome is a tough one to overcome! As I mentioned, we nearly succumbed to it ourselves.
However, it sounds like you and your husband discuss and know what’s meaningful and important to you. As long as you’re doing that, I don’t see anything wrong with staying at your job—even into traditional retirement years!
In the end, there’s no wrong or right; just what works best for your unique situation. 🙂 Thanks again for the kind words!
Thanks Chrissy – let’s hope so 🙂 Best wishes.
Truth is you likely have much more international exposure then you realize depending where along the journey you are. We often forget that there may be more then just our personal portfolios to generate income. Example the CPP is only invested 15% in Canada and 85% internationally. My pension is about 40% outside Canada.
I think like Cannew and am 100% Canadian based for all my own investments and I am trying to create income and not so much grow the pile.
Great points about CPP for sure. I’m also working on my income stream for semi-retirement. Hopefully 3-4 years out, closer to 3 years as of December 2021.
Hi Mark. I have asked questions in the past that you were gracious enough to respond to….. with my thanks.
My wife and I invest in the TSX only. And only Canadian companies that qualify for the Dividend Tax Credit offered by our Canadian Government. We have just over $800,000 invested and are currently earning just under $40,000 a year in Dividends. This makes us very happy!
We have 2 more Houses to sell in the next 2 years. ( One in 2022, one in 2023). Our plan is to continue with good growth stocks that also have paid a consistent divided.
In my early 60’s, there is no pension. These divideds will be our income. This is thanks to all I have been reading from you Mark. Can’t thank you enough!!
Ross, outstanding…my goodness:
“We have just over $800,000 invested and are currently earning just under $40,000 a year in Dividends. This makes us very happy!”
I’ll say…
These comments make my day 🙂
Thanks for your readership.
Mark
Perfect timing for this article Mark and you explained it very well and it makes sense.
I’m at 60% Canadian 30% US (VTI ) and 10% international but like you said most of our big banks like TD RY BNS are heavily invested in the US and south america and europe so does our utilities like Fortis Emera AQN and others and so does MFC in Canada US and Asia and others of course like ENB and TRP etc…so yeah it makes sense that home bias is ok after all for so many reasons like the tax credits and the fact that most Canadian stocks yields more then US and foreign countries and beside that and I’m talking about myself why complicate things and chase companies all over the world when you can achieve it here in Canada but like you always said personal investing is personal 🙂
Gus, it seems you are doing very well. I suspect we own similar stocks – you’ve been following me for a while 🙂
Yup, ideally, my end goal is about 50% CDN and 50% U.S. and/or international. I would be fine with that. Until my 6-banks, including TD, RY, BNS and more stop paying dividends, along with EMA, FTS, AQN operations in the U.S. – I am fine with those stocks and more like NTR, CNR, etc.
The rest of my holdings is in boring VTI, QQQ and XAW.
I look forward to sharing my October 2021 dividend income update with you. Best wishes.
Mark I’ve been following your site for couple of years now and I’m extremly happy for what I learned from you, before it was only my index etfs that I have to say even though they did pretty well but I enjoy the predictable income that I get from the dividend growing stocks and capital gain on top of it ,it’s truly making money in your sleep.
Yeah many thanks for what you do Mark!
Ah, thanks Gus. Certainly investing in some individual stocks has some risks but I’m a huge fan of my portfolio – a bit biased 🙂
I look forward to hearing about your (income) updates over time!
Mark
Thank you Mark!
as for updates on income lets just say that October is good month when it comes to dividends all the etfs that i have drip in october like VCN VIU and VUN but I get more excited about my dividend stocks dripping more for some reason 🙂 Like 16 shares of AQN this month and bunch of others that dripped and about to do so like TRP BNS and CM it’s really a compunding machine but here I think I’m being lazy on tracking my yoy or monthly progress and I’m totaly relying on TDDI to do the comparison, but yeah going from investing in GIC when i was 19 yo to mutual funds and then with an advisor and ending up doing it myself thanks to guys like You Mark and Dan bortolotti who introduced index investing for me at first and then graduated into your hybrid approach the journey has been so blessing and I hope more and more people will learn about it.
I think for most folks Gus – indexing works. However, I’m a fan of my hybrid approach which is largely:
1. CDN dividend stock investing for income and growth, and
2. Most indexing beyond Canada (although I own a few U.S. stocks).
It just feels right to me and my rates of return and income stream prove the approach is working well. I absolutely think that approach can work wonders for those that have the necessary patience and discipline as well. 🙂
One thing about AQN or some other companies that are paying their divs in US$ is that your take home pay diminishes as the CDN$ appreciates. Obviously it can work the other way around as well. Never the less I hold probably over 95% of my portfolios in CDN equities and am not looking to broaden my investments in to the USA. Always open to a bargain though.
But like you say MArk, many of the CDN companies are heavy in to the US or international countries. So holding a CDN company in a non-registered account is, I would think, the better way to go.
RICARDO
I think so Ricardo re: CDN companies in a non-registered account. I’ve felt that way for years and until I change my mind, I will continue to invest this way.
Thanks for your insightful comments as always.
Mark
I began the investment journey with the goal to have enough income to cover basic expenses and also aiming for tax benefits of Canadian eligible dividends. Right now Canadian DGI stocks are still our core holdings and will always be. For new money and dividends generated from our taxable account though, I am doing US and international, for better growth and possible tax benefits. Dividends from our taxable account right now are actually tax leaking instead of beneficial.
With investing, I am always open-minded and willing to extend my comfort zone, little by little. Canada is a very small country. I love Canada and I am proud to be a Canadian. But Canada is a very small country, and its economy is quite limited. Not only I am looking at US market, I am also looking at Asia and Europe.
You sound like me a bit 🙂
My new money is going into XAW likely for 2022 TFSA contributions – pretty much ready to invest in Jan. 2022. I will continue to invest in CDN stocks in my taxable account. Might buy some more there in a few months. Not sure what to buy yet. I was going to buy some more WCN but it shot up!!!
Yes Canada has some stocks that derive much of their income internationally and I own many of them. However if we stick to Canada we miss out on a lot such as biotechnology, medical and pharmaceutical stocks, etc. Canada is heavy in extraction commodity stocks and financials. We need exposure to big tech and the only place in the world to get that is USA. More and more of my portfolio is being invested internationally through ETF, mainly in my registered accounts. Sticking strictly to Canada is tying your investment hands.
Great points about missing our in other sectors in Canada Roger. If folks want those sectors, they should consider an all-in-one fund or an ex-Canada fund like XAW and VXC I think. A lazy way to invest in the world beyond Canada. I’m with you actually: “More and more of my portfolio is being invested internationally through ETF, mainly in my registered accounts.”
See example here:
https://www.myownadvisor.ca/lessons-learned-in-diversification/
I’ve found that when it comes to earning an income from my investments, one can do just as well by being wholly invested in Canadian stocks. I liken it to considering a job: Sure one might earn more going to the US, but there are good paying jobs in Canada and there are benefits staying here than going to the States. Maybe not a great comparison, but I’m 100% Cdn, and earning much more income than I need, and I don’t have to worry about exchange rates, market volatility, and loading up my RRSP/RRIF with US stocks.
I think if you’re meeting your goals, portfolio income or otherwise, then that’s all that matters!
I agree.
Its proven there are many successful ways to meet a persons goals. My method is different (diversification) than many in here-
Equities & Reits from Canada, US (USD), International(USD), Emerging(USD), some bonds, some GICs, some USD treasuries, some gold, some Bitcoin, some cash.
I don’t worry.
I think you’ve got a GREAT plan – if you feel like you don’t worry – that’s proof enough 🙂
Thanks. Its still more defensive than I eventually want but right now what I’m comfortable with.
That’s all that matters right?!
I’m calling that right.
I feel the same way. I pretty much stick to the dividend leaders on the TSX 60. Yes, I might make more money by diversifying but I’m far more comfortable relying on the historic returns I feel I know well and can count on. But I wonder (occasionally) am I sticking my head in the sand a little too much?
I could be as well James. ha.
I mean, I could have chose not to have any “home bias” – go 100% U.S. S&P500 and had higher returns over the last 20 years. Conversely, I could have had no home bias to Canada and just went with Euro stocks. I would have trailed the CDN index. Alas, investing is very dynamic.