For diversification purposes, investors will typically want to have a portion of their holdings come from outside of Canada...either the US or internationally. Now there are lots of Canadian companies whose revenue comes from outside Canada, but in some sectors there is simply not enough selection. Also, in the ETF arena, there are many more options (not covered by Canadian ETFs) and most have much lower management fees than Canadian ETFs do.
US Stocks and ETFs are listed on US exchanges, so before making your first purchase there are some things to set up and be aware of.
The main trouble with buying and selling US stocks is the fact that US dollars must be used. This means that without proper planning you are converting CAD (Canadian Dollars) to USD (US Dollars) during a purchase and then doing the reverse during the selling. Each time you convert currency, the bank (or brokerage) takes one to two percent of your money.
Imagine selling a US stock and then wanting to use the proceeds to purchase another US stock...you could potentially get dinged 2% during the sale and then dinged another 2% during the purchase. This can really add up!
In addition, if your US stock is paying a US dividend, your brokerage may convert those dividends back to CAD even though you would prefer to keep them in USD (for another stock purchase potentially).
Indeed, the best solution is to have your accounts set up so that no currency conversions are done automatically by the brokerage. Instead they are done by you in a controlled manner, when you see fit. And with some planning, you can can get that conversion commission down as well. Read on to find out more...