Foreign investing

Investments offer a world of opportunity. By investing only in the Canadian market, you’re accessing just a portion of available opportunities and potentially limiting the growth of your savings.

Benefits

Investing in U.S. and international markets could provide you with benefits you might not get by investing in Canada alone, including:

  • Diversification of your portfolio
  • The potential for reduced portfolio risk and increased returns through exposure to global investments
  • Access to some of the world’s leading brands (such as Coca-Cola®, Microsoft®, McDonald’s®, Disney®) and industries (such as health care, auto manufacturers and pharmaceuticals) that aren’t widely available in Canada
  • A possible reduction in portfolio volatility because international markets and industries may react differently to those in Canada, even during similar economic conditions
  • The potential for higher returns for aggressive investors who invest small portions of a portfolio in emerging markets or global growth opportunities

Considerations

Investments in international companies include unique risks:

The effect of currency exchange on returns. If money is converted into foreign currency to make an investment, changes in the value of the Canadian currency, relative to the foreign currency, will affect the investment when it’s valued in Canadian dollars. So even if the investment itself has a positive rate of return, when converted to Canadian dollars, its value could turn out to be negative. The opposite is also possible.

Potential tax issues. Some foreign countries may withhold tax on foreign income, which isn’t recoverable in registered plans. Furthermore, for non-registered plans, foreign dividend income doesn’t usually receive as favourable a tax treatment as Canadian dividend income.

Typically higher investment management fees and fund costs. These funds generally have higher management fees and operating costs (such as custody, trustee, trading and tax costs) than those investing exclusively in Canadian stocks and bonds.