For Canadian investors, sticking entirely to the TSX can feel comfortable. We know the banks, pipelines, railways, telecoms and energy companies. There are plenty of excellent businesses here. But Canada represents only a relatively small part of the global stock market. If you want exposure to companies like Microsoft, Apple, Amazon, Alphabet, Visa or Costco, eventually you’re going to have to look south of the border.
Personally, I think U.S. stocks can play an important role in a Canadian portfolio. Not because American stocks are automatically better, but because they give us access to industries and businesses that simply aren’t represented very well on the TSX. The good news is that buying U.S. stocks from Canada is actually pretty straightforward. The part that gets confusing is everything around the purchase: exchange rates, account selection, withholding taxes and whether you should even own the U.S.-listed stock in the first place. Let’s break it down.
The Biggest Misunderstanding
I think one of the biggest misconceptions is that investing in U.S. stocks is complicated simply because the shares trade in U.S. dollars. It really isn’t. Most Canadian brokerages allow you to buy stocks listed on the NYSE or Nasdaq from the same account you use to buy TSX stocks. The bigger question isn’t whether you can buy them. It’s how you buy them efficiently.
Currency conversion fees can quietly eat into returns. Dividends from U.S. companies can receive different tax treatment depending on the account they’re held in. And constantly moving money between Canadian and U.S. dollars can become surprisingly expensive. Those details matter much more to me than figuring out which button to press to buy the stock.
How I Think About U.S. Stocks
I don’t see Canadian and U.S. stocks as competing choices. I see them as different pieces of the same portfolio. Canada gives me exposure to some excellent sectors. Our market is particularly strong in financials, energy, materials, utilities and infrastructure. The U.S. market opens an entirely different door. Technology is the obvious example, but it goes much further than that. Healthcare, semiconductors, payment networks, consumer brands and industrial technology all have far deeper representation in the American market.
That’s why I wouldn’t avoid a great company simply because it trades in U.S. dollars. At the same time, I wouldn’t buy something just because it’s American. My philosophy doesn’t really change. I’m still looking for good businesses, reasonable valuations, strong balance sheets and companies I believe can compound their earnings over long periods. The ticker symbol being on the Nasdaq instead of the TSX doesn’t change that.
Breaking It Down
The first thing you’ll need is a Canadian brokerage account that allows U.S. trading. Most major Canadian brokerages do. From there, you generally fund the account in Canadian dollars and either convert some of that money into U.S. dollars beforehand or allow the brokerage to convert it when you make the purchase. This is where I’d pay attention. Some brokerages charge fairly substantial foreign-exchange spreads. If you’re converting thousands of dollars repeatedly, those costs can start adding up.
That’s why I generally prefer keeping a U.S.-dollar side of the account when possible. If I sell one U.S. stock and buy another, I don’t necessarily want the money automatically converted back into Canadian dollars in between. Then there’s the account itself. You can generally hold eligible U.S. stocks inside accounts such as a TFSA, RRSP or FHSA, as well as a regular non-registered investment account.
But the tax treatment isn’t identical. Under the Canada-U.S. tax treaty, U.S. dividends paid to Canadian residents are generally subject to a 15% U.S. withholding tax. (Canada) RRSPs receive particularly favourable treatment because the Canada-U.S. treaty recognizes Canadian retirement arrangements. That can make an RRSP an attractive place for U.S. dividend-paying stocks. An RRSP also allows investment income to grow tax-deferred while the money remains inside the plan. (IRS)
A TFSA works differently. Canada doesn’t tax investment growth or withdrawals inside the TFSA, but U.S. withholding tax on dividends can still apply. That doesn’t mean I’d avoid U.S. stocks in a TFSA. If I own a great growth company paying little or no dividend, that withholding tax may be almost irrelevant to my investment decision. Context matters.
For non-registered accounts, foreign investment income and capital gains can create Canadian tax-reporting obligations. Canadians whose total cost amount of specified foreign property exceeds $100,000 at any point during the year may also have to file Form T1135. Foreign property held inside RRSPs and TFSAs is excluded from that particular reporting requirement. (Canada) Tax situations vary, so I’d confirm anything specific to your circumstances with a qualified tax professional.
Real Example
Let’s say I have $5,000 CAD available to invest and I’ve decided I want to own a U.S. company trading at $100 USD per share. For simplicity, suppose $1 USD costs $1.37 CAD. My $5,000 CAD would theoretically convert to about: $5,000 ÷ 1.37 = $3,650 USD That would give me enough to buy roughly 36 shares at $100 USD each, before commissions and currency-conversion costs. But imagine my brokerage effectively costs me another 1.5% through its currency-conversion spread.
That’s around $75 CAD disappearing before I’ve really started investing. Once? Not disastrous. Repeated over years of buying and selling U.S. securities? Now I’m paying attention. This is why I think investors should understand their brokerage’s foreign-exchange structure just as much as its trading commission.
How I’d Apply It
If I were starting today, I wouldn’t immediately convert half my portfolio into U.S. dollars. I’d start with the portfolio itself. What am I missing? If I already own Canadian banks, pipelines, utilities and railways, perhaps my next investment should provide exposure I can’t easily get on the TSX. Maybe that’s a technology company, maybe healthcare. maybe a broad U.S. index ETF.
Once I knew what I wanted to own, I’d decide which account made the most sense. For a U.S. dividend-heavy investment I intended to hold for decades, I’d strongly consider my RRSP. For a high-growth company with little or no dividend, I could be perfectly comfortable holding it in my TFSA. And if I were investing larger amounts in a non-registered account, I’d make sure I understood the tax and foreign-property reporting requirements before creating unnecessary headaches later.
Mistakes I’d Avoid
The first mistake I’d avoid is constantly converting between Canadian and U.S. dollars. Every conversion can cost money. I’d also avoid choosing investments solely because of tax optimization. Saving withholding tax doesn’t turn a mediocre company into a great investment. Another mistake is assuming the U.S. market is automatically more attractive because it has produced excellent long-term returns.
Valuation still matters. A fantastic business can still be a poor investment if I pay far too much for it. Finally, I’d avoid making my portfolio unnecessarily complicated. You don’t need 25 U.S. stocks simply because you now have access to them. One broad ETF or a handful of high-quality businesses may accomplish exactly what you’re looking for.
Final Thoughts
Investing in U.S. stocks from Canada isn’t nearly as intimidating as it first appears. The actual purchase is easy. What matters is understanding the decisions surrounding it: why you’re buying the company, which account you’re using, what you’re paying to convert currencies and how taxes may affect the investment. Personally, I think having access to both Canadian and U.S. markets makes me a better investor because it gives me a much larger pool of businesses to choose from. I don’t want to buy something simply because it’s Canadian. And I don’t want to buy something simply because it’s American. I want to own great businesses at prices that make sense. For me, that’s the part that matters most.
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