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Why Canada Is A Poor Place To Invest


Unless you own a house in Toronto or Vancouver, Canada hasn’t been a good place to invest over the past ten years. If we look at the performance of Canada’s main stock index, the TSX, over the past decade, the returns have been abysmal. With only a 17% cumulative gain over 10 years, anyone who has held the index has only seen capital gains of 1.6% compounded annually. That’s pathetic.

Getting Swindled

What makes it even more painful for Canadians is how many investors are getting fleeced by their financial advisor. I’ve already mentioned how financially illiterate we are as a population, and I’ve already warned how advisors are out to get your money, but it still amazes me how much we trust these advisors to do the right thing for us.

When it comes to investing, Canadians are a gullible bunch and most often fall prey to bad investments like this BMO Canadian Equity mutual fund:


Yeah, the Canadian stock market was bad, but these funds are worse. Can you imagine holding on to a mutual fund for ten years only to find out it’s been up a measely 3.21% annually per year? Strip out the dividend and it’s a pathetic 0.5% gain per year.  Yuck! No wonder Canadians have lost faith in stocks.

It’s also not surprising for many Canadians to be holding many mutual funds exactly like this one that have gone nowhere in the last decade. Scores of financial advisors have been selling these funds and promising a decent retirement, only to see paltry returns.

The fact is, as Canadians, we don’t know any better. We cheer on the home team to help us bring home our retirement nest egg, but in the end it fails. Canada is but a small part of the global economy, and thus it’s important to realize that Canada isn’t a great place to invest.

Our economy is small. Our population is small. Aside from free health care and a good looking Prime Minister there really isn’t much else to say about the Canadian economy. That’s why it’s important to look abroad when investing.

Looking Abroad

While the TSX has been anguishing over the last decade. The S&P 500 in our neighbouring America has more than doubled. That’s because the US is a behemoth of an economy when compared to Canada. Not only are there more people south of the border, there are significantly more diversified businesses that are represented in the S&P 500. Having a piece of the American economy in your investment portfolio isn’t a bad idea. Even if their President isn’t as good looking as our Prime Minister.

S&P 10 years

It’s not just the American markets that have outperformed the Canadian market, but even the UK markets have done much better than Canada. Just witness the FTSE 100 chart:

FTSE 10 year

Let’s also not forget our Asian powerhouse Japan. The Nikkei 225 index has performed admirably in the face of a long recession.

Nikkei 10 year

What am I trying to prove? Simple. It’s important to diversify your investments not only in asset type, but asset location. Most Canadians blindly follow the advice of financial advisors who sell products that benefit themselves. That means pandering mutual funds holding Canadian companies that most likely hold stocks in the banks that they work in.

A smarter investor would demand more from their advisor. They would want to have geographic diversity by investing across the globe. This limits our risks as investors to economic downturns that happen in only a specific geographic area.

Remove The Bias

As Canadians we want the best for our country, but we also have to look after ourselves. Limiting our scope to investing in Canada is too narrow sighted. It’s also a recipe for disaster, as witnessed over the last decade. We can always make more money, what we can’t make up for is the time we lost while holding stagnant investments.

It’s no wonder that many Canadians don’t believe in the stock market. We have our eyes turned blindly to only our own stock marketplace while countries abroad have thrived. The fact that we are so narrow sighted is probably the reason why many Canadians have only known real estate as their only form of investment.

I’m not saying you shouldn’t be patriotic towards the country you live in and the country we love, but when it comes to investing for your future, it’s important to open your horizon to the entire globe. Keep your Canadian investments to a minimum. Try to limit your equity exposure in Canada to no more than 25% of your portfolio. In fact, in my personal opinion, Canadian equities shouldn’t even exceed 15% considering our small economy.

There are many places that are growing much faster than Canada. It’s time to take advantage of that fact.


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One Comment

  1. […] That’s why this blog preaches balance. Don’t be a hero and try to swing for the fences. Building wealth takes time, savings and perseverance. Most novice investors should keep at least 40% of their portfolio in safe investments such as bonds, preferred shares or high interest savings accounts. The other 60% should be fully diversified into equities spread out across the world. Remember that investing only in Canadian equities isn’t a smart thing. […]

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