Why global investing still matters

A lab technician looks through a microscope.

To gain access to the leading names in health care, information technology and consumer products, you must look beyond our borders.

Canadian investors may be tempted to stick close to home as they consider their investment choices for their Retirement Savings Plan (RSP) contributions. In recent months, the recovering Canadian stock market has looked increasingly attractive, given a stronger dollar, a stable financial system and a resource sector showing steady growth.

Despite Canada’s shine, investing globally is still important to the long-term success of a diversified portfolio — particularly for your RSP. Here are five good reasons to invest globally.

1. Greater opportunities. It’s easy to forget that Canada represents a mere 3% of the world’s investment opportunities, measured by market capitalization, and that nearly half of the world’s investment opportunities are to be found outside of North America. If you limit your RSP to Canada, you’re missing out on so many other opportunities.

2. Diversification potential. Canada’s stock market remains heavily concentrated in the resource and financial sectors — nearly a third of the value of the S&P/TSX Composite Index depends on the fate of the financials sector, while more than 45% is connected to resources, including energy and materials.

3. Access to market sectors. For the same reasons noted above, the Canadian market is lacking large-cap companies in a number of important and growing industries. To gain access to the leading names in health care, information technology and consumer products, you must look beyond our borders. Just search the top global names in these fields and you’ll find that most are based in the U.S. and Europe.

4. Canadian dollar buying power. A stronger Canadian dollar does offer advantages when you’re purchasing U.S. investments, as you’ll get more for your money. In other words, it costs less to purchase U.S. stocks and exchange-traded funds (ETFs) when the Canadian dollar is on the rise.

5. Emerging growth potential. Emerging markets such as China, India and Brazil are expected to grow relatively fast compared with the developed world. Competitive advantages such as lower wages, a huge labour pool, growing populations and solid domestic demand could lead to strong economic growth for many years to come. While the inherent political and economic risks make emerging markets volatile and sometimes a challenge for choosing individual stocks, you can gain exposure through ETFs or actively managed mutual funds.

The newly enhanced WebBroker Markets & Research site is an excellent source for investment ideas and news for Canadian and global investing.