My portfolio is ⅓ Canadian, ⅓ US and ⅓ international. In addition, the US portion is in US dollars.
Most investors, all over the world, have a country bias. They like to invest in what they know and of course, they know their national companies therefore that’s where they invest.
It is important, specially for investors of small (economically speaking) countries such as Canada (Canada is only 2% of the global economy) to diversify outside of their country’s economy. A person invested exclusively in Canada, is a person who is under diversified and is highly exposed to Canada’s specific risks. In fact, the Canadian economy is mostly dependent in natural resources, in particular oil. A big drop in oil prices could be devastating for the Canadian economy.
The first step towards diversification ( for a Canadian) should be to invest in the US. The US has a more mature economy, it is broadly diversified and we are already familiarized with most major US companies.
The most efficient way of investing in the US is by buying broadly diversified ETFs or mutual funds which represent the whole US Economy. With one click you can buy the S&P 500 index which represents the largest 500 companies in the US. Or the Total US market index.
The next question should be: If I invest in the US market, should I do it in US Dollars or Canadian Dollars. For most Canadian, investing in Canadian Dollars should be good enough.
How do we invest in the US?
I like investing through a company called Vanguard. They have built a great reputation of low cost and reliability. Another leader in the industry is Black Rock. But be aware that all major Canadian banks offer similar ETFs and Index funds.
Which one are my favorites?
In US Dollars I like Vanguard’s VOO which represents the S&P 500 and it has an expense ratio of only 0.04%. This means $4 for every $10,000 invested. I also like VTSMX which provides exposure to the whole US stock market. This one has an expense ratio of 0.15%.
Disclaimer. Please note that I am sharing my personal situation with my personal risk tolerance. Don’t blindly follow what I share in this article. Talk to a “fee only” financial adviser and share the idea of diversifying out of Canada with them.