Investing 101 Pros and Cons of Investing in Canada Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Tumblr (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mint.com Published May 2, 2011 4 min read Advertising Disclosure The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is "as is" and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service. Canada is considered to be one of the safest places to invest in the world. The Canadian landscape is rich in resources, the financial sector is fundamentally sound and our commodity-backed currency is one of the strongest among developed markets. The Canadian stock market has been handily out-performing other indexes around the globe, with the TSX Composite Index averaging 15 percent growth per year over the past 20 years. As safe and promising as the Canadian economy appears, there are also plenty of risks for investors. Let’s take a look at the pros and cons of investing in Canada. THE PROS Resource rich: Canada is the largest exporter of minerals in the world and that resource focus has created a thriving mining industry. 60 percent of all public mining companies in the world are listed on the Toronto Stock Exchanges. There are over 3,600 companies listed on the two Canadian stock exchanges, and nearly 1,500 are mining stocks. Another 10 percent are oil and gas companies. Canada also has the world’s largest source of potash, which is necessary for makingfertilizer. Investors can look to Canada for opportunities to capitalize on the increasing world demand for precious metals, oil and gas and agriculture resources. Financially sound: According to a survey by the World Economic Forum, Canada’s banking system is the soundest in the world, indicating that Canada’s major banks are generally healthy with excellent balance sheets. This strong financial position means that Canadian banks now borrow at considerably lower rates than those of many of their international counterparts. While the six major banks in Canada held off on dividend increases during the financial crisis of 2008-2009, half of them have already raised their dividend this year, with the other half expected to do so by the end of 2011. Strong currency: Driven by the recent surge in commodity prices and depreciating US Dollar, the loonie has strengthened and now trades slightly above par with the greenback. Given the current state of the US economy and the increasing demand for Canadian resources, look for this trend to continue in the short term. Foreign investors purchasing stocks directly on the Canadian exchanges (and thus in Canadian dollars), are not only protecting their investments against the U.S. dollar losing value, they also stand to gain with every small drop of the greenback. THE CONS Lack of diversification: The Canadian market is very poorly diversified. More than 70 percent of the TSX Composite Index is made up of only three sectors (Energy, Materials, and Financials). While there are a few strong utilities and telecoms to choose from across the country, the consumer retail, health care and technology sectors are sorely lacking. TSX Top 10 Companies by Market Cap Company Symbol Sector Royal Bank of Canada RY Financials Toronto-Dominion Bank TD Financials Suncor Energy Inc SU Energy Bank of Nova Scotia Halifax BNS Financials Barrick Gold Corp ABX Materials Canadian Natural Resources CNQ Energy Potash Corp of Saskatchewan POT Materials Goldcorp Inc G Materials Bank of Montreal BMO Financials Canadian Imperial Bank of Commerce CM Financials Small market: Not only are the majority of sectors in the TSX under-represented, the Canadian economy is also very small, making up just 4 percent of the global market. As far as diversification goes, investing in Canada is like taking a tiny slice of an already small piece of pie. With most of your investments concentrated in 3 sectors, you could leave yourself at risk if there is a pull-back in commodity prices, the price of oil drastically falls, or there is a financial crisis similar to what happened in the US a few years ago. Currency risk: The loonie has been soaring lately, primarily driven by rising commodity and resource prices. But Canadian interest rates remain at ultra-low levels, and as inflation heats up, this puts the Bank of Canada in a predicament. If the Bank of Canada raises interest rates too quickly, they risk driving the loonie up even further against the US Dollar which could cripple an already weakened Canadian manufacturing sector that heavily relies on exports. However if interest rates remain at these historic low levels, Canada is at risk for higher inflation and a real estate bubble. The Canadian economy has been on a tremendous run over the past two decades. Whether it remains an investor’s haven for the next 20 years depends on whether these pros outweigh the cons. Are you bullish or bearish on investing in Canada? Robb Engen writes about Canadian personal finance at Boomer & Echo. Together with his mom, (she’s the Boomer, he’s the Echo) they offer their own unique perspectives on saving, investing and personal finance. Previous Post Time to spring clean your portfolio Next Post Should You Have Both a 401k and Roth IRA? Written by Mint.com More from Mint.com Browse Related Articles Mint App News Intuit Credit Karma welcomes all Minters! Retirement 101 5 Things the SECURE 2.0 Act changes about retirement Home Buying 101 What Are Homeowners Association (HOA) Fees and What Do … Financial Planning What Are Tax Deductions and Credits? 20 Ways To Save on… Financial Planning What Is Income Tax and How Is It Calculated? Investing 101 The 15 Best Investments for 2023 Investing 101 How To Buy Stocks: A Beginner’s Guide Investing 101 What Is Real Estate Wholesaling? Life What Is A Brushing Scam? Financial Planning WTFinance: Annuities vs Life Insurance