5 Reasons Why You Should Add Canadian Stocks to Your Portfolio

Self-directed American investors should be investing in the Canadian economy for various reasons. They have a large natural resources sector with ample growth potential, and at the same time, developed an advanced skills economy. Rarely do you see a country with so many natural resources have this advanced skills economy because of its low inflation rate.

What makes the Canadian economy so trusted is its stability. Due to its financial, banking, and business policies, the country has protected its domestic economy from some of the worst slowdowns in recent years.

Thanks to their low budget deficit and low inflation, Canada’s political extremes have little effect on their economy, unlike other advanced economies. Fortunately, Canada won’t experience politically induced economic shock. This is why investors worldwide trust in Canada’s economy – there is long-term stability and growth.

Read further if you’re looking for reasons to add Canadian stocks to your portfolio.

1. Geographic Diversification

Don’t put all your eggs in one basket and instead, spread your money across various investments to minimize risk. You can hold investments in different geographic regions to improve returns. The cycles that drive investments in different countries and foreign markets don’t flow together due to the various time zones and trading hours. If there is a fall in one market, it can be offset by the gains in another market. 

Preserve your wealth by investing in Canadian stock and diversifying your assets. Your investments will also have less risk caused by economic and political changes in different parts of the world. Even if an area is vulnerable to change, such as an earthquake, the investments in other foreign markets will provide balance to your portfolio.

2. Invest in Cannabis Stock

Cannabis stock is relevant for long-term investments, especially now that the US federal reform of marijuana laws could be taking effect. With marijuana being legal for both medicinal and recreational use in Canada, cannabis stock on the Canadian stock market has made significant gains over the years and could be ready for further upswings in its prices.

Investing in Canadian pot stocks allows American investors to gain exposure to legal marijuana’s global expansion. Experts predict this market to grow between 2020 and 2027 by about 18% annually.

3. Hedging Against a Weak US Dollar

American self-directed investors can benefit from investing in foreign stocks when the American dollar weakens. Foreign markets may not be affected by the US dollar losing value, so investors select foreign stocks to hedge their dollar investments.

With hedging, you are transferring your risk to protect your portfolio from uncertainty. By adding Canadian stocks to your portfolio, you are protecting your investments if the US dollar loses value. Simply put, when one asset goes down, the other is expected to go up in value.

Investors will have consistent gains while not taking on too much risk.

4. Canadian Dividend Stocks

The US may have thousands of dividend-paying stocks available, but by adding Canadian dividend-paying stocks to your portfolio, you create a balance.

The Canadian Dividend Aristocrats are a select group of 87 S&P 500 stocks that have increased their annual payouts for the last 25 consecutive years.

Eliminating risk is impossible, even with dividend-paying stock in your portfolio. However, self-directed investors can lower their risk and create a passive income by buying stock from dividend-paying companies.

5. Canada’s Strong Economy

The Canadian banking system is known globally to be the most safe and sound, with the Canadian economy being stable. Because of this, Canadian banks can borrow at lower rates compared to their international rivals.

Canada’s strong economy has protected the country from the worst political extremes affecting the global economy. For investors, Canada provides long-term stability with growth.

The Bottom Line

American self-directed investors looking to expose their portfolios to the foreign market should consider purchasing Canadian stocks. They are similar to US markets, but with the added advantage of Canada’s thriving industries, you have the opportunity to diversify your portfolio. With global diversification, you can offset a US decline with a foreign rise.

Investing in Canadian stock gives investors the chance to invest in a strong economy with vast natural resources. Like any other investment, it’s always essential to do your research.