Jun 11, 2013 Be smart. Be nimble. Be informed.

by Canadian MoneySaver

In normal times, when there is growth and dynamism in the global economy, there are plenty of good reasons to keep your investment money inside Canada. We’ve got a functioning democracy, we can boast a large measure of political and economic stability, and we’ve got what the outside world needs – the building blocks of commodities and resources. 

And, as the world has been shown over the past five or so years, our financial system is conservatively managed and, broadly speaking, rock-steady. Oh, one more thing not to be overlooked – Canadian equities and the Canadian economy are the devil you know, which provides a certain degree of investment comfort level.

But these are not normal times. Europe is a mess, with economies more or less contracting. France is actually in recession – and everywhere else on the continent, unemployment is racing along at near-record highs. In Asia, there is growth, but at a slowed-down pace. The bright spot appears to be our juggernaut neighbour to the south where the housing market is in recovery, where consumer spending has surprised everyone to the upside, and where the newly encouraged U.S. Federal Reserve is actually beginning to think in terms of scaling back its quantitive easing economic stimulus program.

Here in Canada, investors have felt the pinch of a global economy in disarray. Commodities and resource prices have tanked. Gold and silver prices are in the dumpster. Oil prices have retreated significantly. Industrial metals prices (copper and its brethren) have collapsed in the face of reduced global demand. 

And on top of all that, there are folks out there who worry about the sustainability of the Canadian housing market, which implies not only a nasty wealth-effect surprise for consumer homeowners,  but also the potential for a difficult stretch for the nation’s mortgage lenders, Canada’s big banks.

Some smart folk – individual retail investors and big institutions alike – saw this coming over the course of the past year. And they did what smart folk always do when they see risk and opportunity – they scaled back on what they saw as their newly at-risk holdings (Canada) and they dropped some cash into the U.S., where they saw opportunity.

Two things have happened since the start of 2013: the U.S. market, right across the board, has been on fire; Canada, as measured through the TSX index, has been little more than a smouldering bonfire, with resources and commodities particularly taking it on the chin.

Here are the raw market numbers: From Jan. 1, 2013 through Friday, May, 17, 2013, the U.S. markets were substantially higher, in the 16- to 19-per-cent range. Every index was up markedly – the Dow Jones Industrials, the S&P 500, NASDAQ and the small- to mid-cap Russell 2000. Here in Canada, our TSX 300 index was up less than three per cent over that same 19-week period. And here’s the kicker: Canadian investors who shifted some holdings into the U.S. six months ago has seen not only a dramatic increase in the value of their U.S. holdings, but they have also gained on the currency-conversion front because the U.S. greenback has gained somewhat over the loonie thus far in 2013.

The moral of this story: Don’t be Canada-centric. Yes, we have a lovely country here and a nation chock-full of lovely people, but small-market Canada, with its huge, over-weighted reliance on resources, isn’t always the best place to park your investment cash.

Broaden your horizons. Be smart. Be nimble. Be informed. And don’t be reluctant to take advantage of the opportunities that lie outside our border.

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