Weekend Reading – Pros and cons of investing in just Canada

Weekend Reading – Pros and cons of investing in just Canada

Hi Everyone,

Welcome to a new Weekend Reading edition, there are certainly pros and a few cons when investing in just Canada…

Given it’s “tax season” and tax refund season for some, I shared my ideas related to managing your tax refund this year.

Smart ways to manage your tax refund

Thanks to Rob Carrick The Globe and Mail who mentioned my post in his column: Look what’s happened to the cities with average $1-million home prices (subscription).

“Housing has definitely come down in cost since 2022. The average price of a resale home in February 2024 was $685,809, 16 per cent below the peak average of $816,720 in February 2022. Still, prices in several of the million-dollar cities have held up well.”

Rob mentioned this post: where to put your cash right now.

For the most part, if you’re not earning at least 4% on most of your cash these days you’re falling behind…

Where to put your cash right now

Weekend Reading – Pros and cons of investing in just Canada

Weekend Reading - Pros and cons of investing in just Canada

Image source: Pexels.

As a follow-up to this Weekend Reading edition, highlighting where I personally believe our TSX and some key stocks that drive it could rebound in 2024…I stumbled upon this article this week from 5i Research – partners of my site and work:

Pros and cons of investing in the Canadian vs. U.S. stock market.

I’ll let you read that 5i post for more insights but the punchline from Chris White’s article is something that resonated with me (and always has):

“The US stock market is home to an extensive array of publicly listed companies, and with thousands of stocks available, navigating this vast landscape can be overwhelming. Investors must decide which companies to research, analyze, and potentially invest in. The sheer volume of options can lead to decision paralysis. It is vital that investors understand a company’s financials, growth prospects, and management quality.”

The U.S. market is a challenging space to pick stocks, if your goal is to beat the market. 

Conversely, Canada tends to run on oligopolies – a few moaty stocks in some key sectors more than not.

  • You have our big-6 banks.
  • You have a few major telcos. You know the names. 
  • You have a few major utility companies. You can count them on two hands. 

The list goes on.

Beating the TSX (BTSX) can happen but it’s certainly not guaranteed nor consistent owning higher-yielding stocks.

Investing in our oligopolies, in theory, is the concept behind the 6-Pack (or 12-Pack) Canadian Portfolio which can work well at times:

  1. Own a few Canadian large cap stocks from key sectors for growth and income. 
  2. Own such companies for a long period of time because they enjoy a competitive advantage in Canada: since all things being equal, a moaty-firm should offer shareholders a higher, sustainable, competitive advantage than companies with smaller-moats or no-moats at all; scrambling for market share.

Then, beyond your 6-Pack or 12-Pack or “24” stock portfolio as you wish, just index invest beyond Canada. 

In recent years, for the latter, I’m eating more of my own cooking.

Thank goodness, since many Canadian blue-chip stocks are suffering while the U.S. market has been thriving.

via GIPHY

When it comes to the U.S. selections, I’ve sold off many U.S. dividend kings in my portfolio like JNJ and instead used the proceeds to buy other U.S. stocks or low-cost ETFs that I believed (at the time) could deliver more value.

Then and Now – Johnson & Johnson (JNJ)

So far, I’ve been right…including with BRK.B and QQQ but the financial future is always very cloudy.

I mean, it’s only been a year or so since I’ve sold all JNJ stock and added to those existing names I’ve held for a few years….that’s hardly a successful career change. 🙂 

Every stock or ETF seems like a great idea until it’s not. 

And not all ETFs are created equal…far from it. 

I read in October 2023, in just that month alone, the Canadian market experienced a notable surge in new ETFs: 37 of them coming to market.

37??

Here are some examples:

  • Should you invest in the Dynamic Active Global Equity Income ETF (DXGE-T)?
  • What about owning some Purpose Active Conservative Fund (PACF-T)?
  • There is also the Hamilton Technology Yield Maximizer ETF (QMAX-T)…and let’s not forget,
  • The BMO US Equity Accelerator Hedged to CAD (ZUEA-NE) that uses 2x leverage on an equally weighted bank strategy and hedged S&P 500, respectively.

Oh boy. 

Long gone are the days (??) from March 1990, when the Toronto Stock Exchange listed the Toronto 35 Index Participation Fund. The fund tracked the TSX 35 index under the ticker symbol “TIPs.”

You might know this ETF better today as: iShares S&P/TSX 60 Index ETF (XIU).

Thankfully, XIU is still around and doing well overall as long as you have a long-term time horizon. 

Since the launch of TIPs, the Canadian ETF market has seen remarkable growth with over 1,000 ETF available to retail investors today. Source: my friends at https://cetfa.ca/. @cetfassn

While some niche ETFs can offer (and have delivered) great returns, the majority of them are not worth owning IMO. Investing risk taken doesn’t always translate to rate of return rewards. 

Pros and cons of investing in just Canada

Give or take, Canada’s economy makes up just 3-4% of the world’s investing markets – so putting all your investing eggs into just Canada immediately eliminates most of the investing world on purpose. In doing so, you are shrinking your investing universe. Especially on the growth-side. 

Mind you, returns from Canada have hardly been bad over long investing periods which makes any Canadian home bias somewhat effective – at least historically.

Through dot-com booms and busts, The Great Financial Crisis, and a global pandemic, equity returns for XIU remain solid at the time of this post earning DIY investors over 7% annualized since inception and just over 8% for the last 10-year run.

I argued years ago it was never a better time to be a DIY investor including investing in Canada’s moaty stocks.

As I’ve matured as an investor (i.e., get older too!) I’m just mindful that while Canada has been a great place to invest (and will likely continue to be long-term) other options remain attractive and available for higher growth. 

More Weekend Reading – Beyond the pros and cons of investing in just Canada

Related to this theme, Dale Roberts wrote about the cost of your Canadian home bias – still relevant a few years later… 

Reader email of the week (adapted slightly for the site):

“Hi Mark – looking at what is going on here…. really did not see sentiments getting this bad on BCE. I think T (Telus) is also caught in the downdraft but “Big Compounding Engine” (BCE) has me concerned – and now below my cost for the first time ever. Wondering what you are doing?”

Love the question, thanks for that!

The short answers are:

  • Not selling any BCE or Telus now. Staying invested. 
  • Not actively buying any BCE or Telus. Instead, putting more money into low-cost XAW, QQQ and other U.S. assets (see more BRK.B above over the last year) when I have the money to do so. 

Readers might recall I maxed out my/our TFSAs in 2024 (this year) with XAW. 

Dan Kent over at Stocktrades.ca highlighted some of the Best TSX ETFs to own. Nice to see they included low-cost XIU as well among others.

Well said by Doug:

Fans of my site, MoneySense, wrote an inspirational post for younger investors: how to save (and invest) your first $100,000.

“Saving and investing $100,000 is a popular finance goal for Canadians. Thankfully, with growth and compound interest, it’s not out of reach.”

I can attest that was a huge milestone for us to pass back in our 30s.

I like having fun with my stock market predictions. Here are mine for 2024.

Honest Math enjoys the same good fun. @honest_math

Save, Invest, Prosper!

As always, check my Deals page – partnerships and discounts to help you make the most out of your money – some of them you can’t find anywhere else!

Check out my partnerships with:

  • Dividend Stocks Rock (including my deep lifetime discount from Mike!)
  • 5i Research
  • StockTrades.ca
  • LegalWills
  • Borrowell 
  • and more!

As always, you can also consider reaching out here for some low-cost financial projections services – anytime.

Cashflows & Portfolios

I launched this service with my DIY investor good friend – a service founded by DIY investors for DIY investors without the conflict of any advice, without costly fees (like some folks charge), while offering money-back guarantees because we’d expect that as DIY folks ourselves…

In fact, there are now two (2) low-cost services to choose from:

  • Done-For-You – we do the work and data entry, and provide your reports OR 
  • DIY – whereby you do all the work, you do your own data entries, and you get your own results in the software – we essentially open up some professional financial software for you to use to be your own retirement income planner!

As a My Own Advisor reader, you always get a discount off either service. Just mention my site. That’s it.  

Enjoy your weekend. 🙂

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.

14 Responses to "Weekend Reading – Pros and cons of investing in just Canada"

  1. Lloyd (63, retired at 55) · Edit

    If I were 10-20 years younger and focused on growing the portfolio I’d likely be more concerned with more global diversification. As it stands now, we’re into the fourth quarter of the game and far enough ahead that we’re calling the safer plays just so no ones gets hurt. A little bit in the DJIA e-series, some BAM and BIP.UN might not be ideal, but it’s good enough for sort of ex-Canada for us.

    Reply
    1. I can see that, Lloyd. No concerns here based on what you wrote and own including some Brookfields…very well run companies and I own those for income and growth too.
      Mark

      Reply
  2. Great article Mark as usual.
    I do suffer from home bias I guess since we have 32 Canadian holdings and no US or international but like many investors in Canada only argue 🙂 that those big Canadian companies don’t just rely and have businesses in Canada but all of them generate most of their revenues from the US and global we can talk about our banks our pipelines our utilities etc…as for lack of growth in Canada between me and my wife we both have CP CN ATD DOL TFII MRU etc.. that have done extremly well.
    at the end of the day the main goal should be to pay yourself first and invest whether in real estate which worked wonders for us or index investing or picking stocks.

    Reply
    1. Very fair, Gus. I also own (thankfully) a few blue-chippers that have international operations: CNR, CP, ATD, RY and others.

      TFII in particular has been flying in the last 5-years. Well done if you own a bunch. 🙂

      Mark

      Reply
  3. When I retired about 20 years ago, I followed the usual advice and put some of our retirement savings into the S&P500 as well as Russel 2000 and a couple of individual stocks. Over the following year the US markets had substantial gains. But the C$->US$ FX rate dropped. I actually lost money.

    I sold all of my US holdings back then. I could (maybe should) have gone to hedged versions of some funds, but was disillusioned with US market back then.

    The above is just an illustration of one additional risk of investing in the US and foreign markets. For those of us in retirement with relatively short investment horizons, should we be adding that additional FX risk?

    Because markets in US are vast, we are also faced with using index funds. These of course include the good with the bad. It’s worth looking at the S&P history if you think the US market will always be a place to invest. Check the 16 year period from 1966 to 1982. https://www.macrotrends.net/2324/sp-500-historical-chart-data

    More recently, I did add about 5% in US & world markets but mainly because I had US$ available. Those US$ holdings will churn out some US$ cash to fund US$ expenses.

    I am sure we could have done better over the past 20 years if we had more in US and foreign markets. But by staying in Canada, we have done well enough. Assuming a $1million starting amount, we would now have $2.4 million despite spending $1million over past 20 years. Canada, without much help, has done well for us 🙂

    Reply
    1. Great comment.

      Honestly, I think you want a bit of U.S. and international mix, for the reasons some Canadian stocks are lagging now. You could also argue it’s a great time to buy some companies too – just lagging/poor/down prices: BCE, Telus, most big-6 banks, all major utilities, and more…

      FX concerns are real, don’t deny that.

      I have no idea if the next year, let alone 20 years, will deliver better returns from Canada vs. U.S. vs. international but if I had a hunch, I would say Canada will lag the U.S. by a few %.

      If you want to make a really strategic choice, probably a good bet is investing in India. Growing middle class there.

      Sounds like you’ve done very well by a) having a plan and b) sticking to it, so even in Canada, without much help, Canada has delivered over time. I would happily take 7-8% returns for the coming decades myself. 🙂

      Kudos Graham,
      Mark

      Reply
  4. Trading in US equities is one area where you actually want to buy High and sell LOW – at least as far as our CDN $ is concerned. I have owned and do still own a very few US stocks. Your playing two games here. One is the (hopefully) stock appreciation and the other is the stock dividend. If our dollar sinks then the stock is worth less however the dividends are worth more. And vice-versa.
    You can own some TSX equities that pay in US $’s so right now they are looking good.
    Personally prefer CDN equities but that is my take on it.
    Waiting for BCE to, maybe, cut the div and if they sink in to the 30$ range I’ll have a good look at them. If they do cut the div then the 30’s won’t be far behind.
    RIF and LIF are still generating enough divs for me to increase my portfolios each year. However because of the US elections this year I will be accumulating dinaro this year to be able to meet the withdrawals next year.

    RICARDO

    Reply
    1. Thanks, Ricardo. I’ve always looked for growth in our portfolio with a solid mix of income. Before the pandemic, during and after, I’ve been buying more U.S. assets since I just don’t see growth happening in Canada – unfortunately. I won’t sell the majority of m Canadian stocks but I’m not actively adding a bunch either. I could be wrong of course since Canada could rebound a bunch in the coming years but I don’t see it catching up to the U.S. for sure .

      We’ll see how those U.S. elections shake down – interesting times…
      Mark

      Reply
      1. Hey Mark, there are very growth companies in Canada. It’s just that the larger indexes are dominated by slower growing value-type companies. Barry Schwarz from Baskin Wealth management had a very good podcast episode last fall about the “Toronto 12”.. twelve great canadian growth companies that outperformed the US market over the long-term.. An equal-weight basket of these 12 would have returned 21.1% CAGR total return since January 2018, higher than the NASDAQ (18.54% CAGR) and SP500 (12.6% CAGR). If you listen to the podcast, these companies are characterized by high quality and most have business models geared toward acquisitions. According to Barry Scharwz, this acquisition mindset explains their successes because they expand a lot outside of Canada. By the way, that list only lost 8% in 2022 when the US indexes were down 18% or more.

        Here the list of the Toronto 12, you will realize that many of them are well-known: Constellation Software, Dollarama, Alimentation Couche-tard, Thomson Reuters, TFI international. Boyd Group, Waste Connections, First Service Corp, Toromont Industries, Descartes Systems Group, ATS Corp and Collier International.

        I am an happy owner of most of these 🙂

        Reply
        1. Great stuff, Sly. I happen to own a few growth stocks: CNR, CP, WCN, and ATD in particular in Canada.

          CSU in particlar is phenonmenal and I “missed” the run-up on that one. Incredible run.

          “By the way, that list only lost 8% in 2022 when the US indexes were down 18% or more.”

          Impressive…

          I might still buy DOL. I hope my small basket of Canadian growth stocks will serve me well.

          I appreciate your comment and insights.
          Mark

          Reply
  5. As I read your post this week I forgot to say thanks for the tip on TDB8150 & TDB8152. Lloyd I believe sent in the tip. I bought some of both last week. No cost or trading fees and you are able to choose if the payout is in cash or reinvested. Bought some in my RRSP and USD trading account.
    Thanks Mark and Lloyd.

    Reply
    1. Most welcome, again, better than having your cash doing nothing. No trading fees while earning 4.5%+ on your cash (especially in registered accounts) is a good thing. Happy investing, Steve! 🙂
      Mark

      Reply
  6. Great read. I was especially interested in your JNJ comments.

    I hold it as well & have contemplated selling for 6 months now, but still have not, as don’t want the capital gains tax!

    Nevertheless, I might sell 25%, this week.

    Thanks

    Reply
    1. Thanks, Richard. Again, we’ll see if I am correct long-term. JNJ could go to the moon and I would regret my decision!
      I just believe for the coming years that BRK.B and QQQ will generate better returns for me while helping me realize my goals too.

      As always with any decisions, time will tell.

      Have a great weekend,
      Mark

      Reply

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