Author Topic: Canadians - do you buy Canadian stock indexes?  (Read 3264 times)

scottish

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Canadians - do you buy Canadian stock indexes?
« on: April 29, 2015, 06:11:28 PM »
Is Canada a good investment?    Sure we get tax breaks on dividends from Canadian companies.   These are worthwhile.

But most of our colleagues in the US don't buy Canadian stocks outside of their international holdings.   I feel unpatriotic saying this, but we're really just another small country in terms of GDP.  Our economy is small and poorly diversified compared to the United States.   So are Canadian stocks worth buying aside from the dividend tax credits?  Or are we better off diversifying between the US and the rest of the world?

And then I started wondering, well, if I were to avoid Canadian stocks, when does making geographic allocations become market timing?  The Chinese economy has arguably the most growth potential in world for the next decade.   If I'm going to avoid Canada because of our economy, then should I invest in China?  Corruption in China adds risk to making Chinese investments...

Wikipedia http://en.wikipedia.org/wiki/Stock_market says that the US stock market is about 34% of the world market capitalization.   If I want to follow the 'just buy the market' philosophy, then I'd want my asset allocation to be about 34% VTSAX and 66% VTIAX.   But most of the allocations I've seen on the forum are closer to 50-50 between these 2 funds.   Alternatively, I could just focus on VTWSX which claims to do the allocation for me.

Does anyone have a good philosophy they'd like to share on this one?

tyir

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #1 on: April 29, 2015, 06:22:24 PM »
One reason to purchase Canadian stocks at a higher rate than what a global allocation would call for (~4%) is to reduce your currency exposure. Some currency risk is good, and can count as additional diversification, but as most Canadians will want to withdraw C$ afterwards, having all of your money indexed in other currencies gives a higher level of risk without benefit.
There are hedged funds for non-Canadian indices, however these have bigger tracking errors that will add additional cost in the long term.

The second major reason (as you noted) is reduced dividend taxes in taxable accounts.

CCP had a whole article about this:
http://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/

scottish

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #2 on: April 29, 2015, 06:40:21 PM »
oooh, good one.   My mindset right *now* is that currency risk is in the other direction.   But this is just recency bias.  Thank you!

beee

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #3 on: April 30, 2015, 11:55:33 AM »
I buy 30/30/30/10 (Canada, US, Intl, Bonds).
Even if Canada is just 4% of the world stock market, it's 100% of the country I live in and plan to live in the future.
That's why I see it as investment into it's and mine future.

Retire-Canada

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #4 on: April 30, 2015, 02:03:39 PM »
I'm shooting for:

CDN = 35%
USA = 50%
Int'l = 15%

scottish

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #5 on: April 30, 2015, 03:53:15 PM »
Our current allocation is heavily Canadian, (around 60/30/10 Canada/US/International) and I'm in the process of rebalancing out to something like 30/30/30.

VikB, why do you have so much in the US?


SK Joyous

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #6 on: April 30, 2015, 04:36:36 PM »
We are:

30% Canada
30% US
20% Developed International
10% Emerging
10% Canadian REIT

We favour Canadian markets because this is our currency and where we will spend most of our time (and money) in retirement, and is the country that provides me and my family with employment.

daverobev

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #7 on: April 30, 2015, 07:50:08 PM »
More than 10% Canadian seems too much to me. Especially considering what percentage of the TSX is a certain few banks.

I love the divi tax credit, and I am happily keeping Canadian stuff unregistered.

Remember that stock prices are not independent of currency movements!

RichMoose

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Re: Canadians - do you buy Canadian stock indexes?
« Reply #8 on: May 01, 2015, 09:09:16 AM »
If you plan on retiring in Canada, I think it's definitely wise to have a decent amount of Canadian exposure. As my portfolio grows, most of my Canadian assets are going to be in my unregistered account only for the obvious tax benefits. This translates to a ~30-40% Canadian allocation.