The US stock market is the biggest in the world. It contains all the major companies and dictates the global financial market. This makes it a great option for those living to the north of its borders. So, can a Canadian invest in the US stock market?
Canadians can invest in US stocks. The steps for doing this are: choose a broker, open and fund an account, research, and buy stocks. It usually costs more to buy these stocks, but the diversity and high performance make it a good choice. There are also factors to consider when choosing a broker.
Investing in us stocks is quite easy when in Canada. But this is a financial decision, so don’t rush into it. Here, we discuss how Canadians can invest in the US stock market and the things to know.
How to Invest US Stocks from Canada
As a Canadian, you can invest in US stocks following these steps:
1. Compare Brokers and Choose the Most Suitable
The first step is to find the right broker. There are several types of brokers you can use. Online stockbrokers are the best options if you’re just getting started. These brokers list several stocks that you can buy directly on the platform. There are several online stockbrokers in Canada. Compare their rates and their offerings to choose the right for you. Other options include using a full-service stockbroker or buying the stocks directly from the company. Your level of investing skills can also determine which platform you use. Some are best for beginners, and others are for savvy investors.
2. Open and Fund Account
Once you’ve found a suitable broker for you, the next step is to open an account. You can easily register on these platforms and fund it like your bank account. You’ll need to provide proof of identity and other basic details. After creating an account, choose how you want to fund it. This best option would be to transfer electronically or link the account with your card.
3. Research Stocks
You most likely have some stocks in mind when you decide to open a brokerage account. But this is a financial decision, so you need to be more strategic. Buying stocks is about placing the right bets with the information you have. So, you can start research with the stocks you’re already familiar with. Look into the companies whose products you already use. Don’t get lost sifting through the data and buying stocks to be an owner. You can research using the company annual report, SEC filings, quarterly earnings, news, etc. Most brokerage platforms have several analytic tools for research, and there are tutorials on using these tools.
4. Buy Stocks
Once you’re satisfied with the research and know which stocks you want, it’s time to buy. You don’t need to buy everything at once. It’s all about strategic investing, so take your time. If you want to buy high-performing and expensive stocks, it’s advisable to buy fractional rather than full shares. Several broker platforms allow this. The more you trade US stocks, the more you’ll learn about the market and how to manage your investments.
Cost of Investing in US Stocks from Canada
Buying US stocks while in Canada is pretty simple and cheap. Just make sure you use a broker that offers access to US stocks. With less than $10 per trade in brokerage fees, you can add US stocks to your portfolio.
The brokerage fees usually differ from one platform to another. But most platforms will charge higher brokerage fees for international trades. The platforms also charge foreign exchange fees when you trade stocks. In addition, there might be additional costs such as inactivity fees on international accounts. So, make sure you understand the rules on the platform before you start using it.
Another option to invest in US stocks is through exchange-traded funds (ETFs). These ETFs hold US stocks but are listed on Canadian stock exchanges. So, they offer an indirect way to trade US stocks.
Why invest in US Stocks
There are several reasons to invest in US stocks while in Canada. They include:
1. High Performance
The US stock market has historically better performance than that of Canada. The S&P 500 has had an average annual return of around 14% in the last decade. Canada S&P/TSX had about 6.9% on average within the same period. Thus, the US stock market usually performs better than Canada’s on average.
Investing in US stocks allows Canadians to diversify their portfolio and get exposure to a bigger market. The US market has more companies than Canada. The two biggest stock exchanges in the world by market capitalization, NASDAQ and NYSE, are also here. The biggest tech companies in the world are all here, so the investment opportunities are numerous.
What to consider when choosing a stockbroker
There are many factors you should pay attention to when selecting a broker. They include:
1. Brokerage Fee
Every broker charges when you trade stocks, but the fees are higher for international stocks. So, you need to compare their fees. You can always expect it to be higher than the broker fee for Canadian stocks.
2. Monthly Fee
You also should check if there are any monthly fees you have to pay on your account. Some platforms will require access to some features or maintain your account.
3. Exchange Rates
There’s usually a hidden correlation between the exchange rate and broker fee. Most platforms use the rate to make up for the low broker fee. So, consider both to know the true cost of using the platform.
4. Accessible Markets
Your investing goals might come into play here. Several platforms offer internal markers access to a few countries. Of course, the US is usually among the countries. But some offer access to several.
5. Display of Market Data
Information is crucial when trading stocks. So, check to see if the market data on the platform is up to date. The manner of presentation is very important as it aids how quickly you understand the information.
6. Available Trading Options
Stock trading goes beyond just buying on the spot. There are several trading options, each with its complexities. See whether the platform has multiple trading options, which will aid your investment strategy.
7. Customer Support
Always verify the quality of customer support available when using an online stockbroker. You don’t want to be left hanging if you run into any issues while trading.
Trading US stocks offer you several benefits. But it’s important to be familiar with the process before starting. While it’s easy to buy US stocks now, it’s still a financial decision and costs more than investing in Canadian stocks. So, research adequately.