How to Invest in Canadian Stocks
Investing in Canadian stocks has the obvious advantage of diversification of one's portfolio--a key point during turbulent economic times. Moreover, Canada's banking system is highly regulated and therefore given to fewer fluctuations than is the U.S. market. That said, don't jump blindly into Canada's portfolio pool before you realize what you are getting. Also, be informed about what's hot in Canada--commodities, namely--but right now not even that can be counted on.
- Difficulty:
- Moderately Challenging
Instructions
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Decide whether you have the equity to invest at this point.The American markets as of late September 2008 had tanked to new lows. The ripple effects seen throughout the world, from China to Europe, have proven how one cataclysmic mishap in the United States has global implications.That said, Canada's market is fairly stable. It has fewer banks and, according to Pierre Villeneuve, managing director of Mapleride Capital in Toronto, "[Canada's is a] highly regulated equity market that’s politically stable, so it’s quite safe from that aspect."
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Choose your broker, primarily based on the size of your proposed investment.According to Marcus New, CEO of Vancouver-based Stockhouse, an online retail investment service, the size of one's transaction helps to determine whether he should go abroad or stick to a local market. For small investments, say $2,000, just stay with a U.S. broker.Villeneuve points out that one needn't worry about investing in an ADR (American Depository Receipt) when it comes to Canadian stocks. "We usually have cross-listings--like a Nortel, which was a darling during the dot com boom, is listed in Toronto and New York."Just as Canada is our close geographic neighbor, so too is it our financial cousin. Our markets are closely intertwined. Villeneuve says half their trades globally are with the United States. "I think we [Canada] are the largest trading partner to the U.S. China is obviously rising [though] in terms of importance because of the massive amounts of exports they generate."
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Research your investments.Just as you'd do with a U.S. stock, check the fine print on what you have heard and read about a stock. Canada is known for its strong commodities market, but as of autumn 2007, even that market wasn't particularly hot. However, one exception is the gold market.In an anything-can-change-on-a-dime climate, though, you must check into gold, other commodities or whatever Canadian stock you deem worthy of your time and investments.Both New and Villeneuve concur, though, that diversification of one's U.S. portfolio beyond our American borders is not a bad idea.
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Understand the differences between your local market and Canada's market.For example, the idea of a sub-prime loan, which got the United States into the financial market mess in autumn 2008, is a non-issue in Canada.Law says too, that "They do not have the degree of leverage that the banks [in the United States] do. Some of those banks in the States like Lehman Bros. had 60 [or so]... times leverage, whereas regulated banks [such as Canada's] are under 15 times leverage or 20 times leverage."
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Follow up on your investments.Professionals agree that the amount of oversight one needs of their portfolio varies according to the individual investor. Some people want to check daily and others weekly. That's up to you.
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Tips & Warnings
Don't worry about buying an ADR when it comes to Canadian stocks. Since they are our close geographic neighbor and we have close cultural ties with them (including language), trading between countries is common and less fraught with risk than trades between the United States and more remote countries.
In Canada there "is a diversity of opportunities" for U.S. investors, says Villeneuve. Particularly, he says, with regard to commodities. "If they can't access the Canadian stocks via their U.S. accounts, there are a number of very solid banks that have brokerage firms that would allow foreigners to open accounts and allow foreigners to trade."
Royal Bank of Canada, Bank of Montreal, Toronto Dominion Bank and Scotia Capital, and CIBC are the top five banks in Canada and all have investment brokerage wings.
Look before you press "send" on your computer when buying online.
Don't assume you'll be able to trade in Canada. According to Marcus New, an American investor isn't automatically confirmed as a client of a Canadian firm. The online application process functions much like a credit card application would, New says, with not everyone making the cut. If you are rejected, try another firm.
While the Canadian market is more stable than ours, remember the cause-and-effect theory. Says New, "When the U.S. market gets a cold, Canada sneezes too."
