Investing in Canada

September 20th, 2022
6 minutes read

Canada is widely regarded as one of the world’s most stable countries overall and possesses considerable factors for economic prosperity, and the country attracts significant amounts of foreign investment.[1] Canada operates a robust, mixed economy that excels because of various variables like competitive tax rates, a top-tier academic system creating one of the most educated populations globally, and peaceful international relations that have afforded it a broad network of free trade.

Are you curious about investing in Canada? Learn about Canadian Exchange-Traded Funds (ETFs), real estate crowdfunding, and P2P lending - 3 popular ways to invest in the Canadian economy.

Canada's Economy

Canada ranks as one of the top 10 largest economies in the world and is also one of the wealthiest nations, with a per capita GDP of approximately $52,000.[2] Canada’s economy is dominated by a large and diverse services sector that employs over three-quarters of the country's workforce.[3] Beyond services, Canada is rich in natural resources and has a strong manufacturing industry. Its major exports include crude petroleum, cars, gold, parts, and accessories for motor vehicles, with the United States as its primary trading partner.[4]

Much of the nation's wealth is tied up in the real estate, with Canada’s share of GDP spent on housing greater than any other industrialized OECD country.[5] Canadians also invest in Canadian industry through the country’s five designated stock exchanges.[6] Of these, the fully electronic Toronto Stock Exchange (TSX) is the most significant and ranks as the 11th largest in the world, with over 1500 of Canada’s top performing companies like Shopify and Royal Bank of Canada listed. Although the TSX comprises many top-tier financial services companies like the NYSE of its neighbor to the south, the Canadian exchange hosts a larger portion of energy, mining, and mineral stocks due to its economic reliance on natural resources.

Investing in Canada Through ETFs

Investing through ETFs is a low-cost and smart way to access the Canadian economy, enabling broad exposure and diversification. Canadian ETFs are accessible to non-residents of the country through licensed brokerages. Many investors interested in Canada purchase ETFs composed of Canadian equity through brokerages with access to the more accessible stock exchanges in the US.

The iShares MSCI Canada ETF (NYSE: EWC) is a popular option with targeted access to medium and large-sized companies across the Canadian stock market. This ETF consists of major companies like Royal Bank of Canada, Canadian National Railway, and Enbridge, with an affordable expense ratio of 0.50%, and has recorded close to an 8% annual return since its inception. The iShares S&P TSX 60 Index ETF (TSX: XIU) is another option for investing specifically in Canada's largest, most established companies. This ETF is composed heavily of Canadian financial services companies and pays out an annual distribution yield of 3.16% while charging a management fee of 0.15%.

Many other ETFs with Canadian exposure allows for more industry-specific targeting. Some of the most popular options for exposure to Canada’s rich natural resources include:

Canadian Real Estate Crowdfunding

Real estate has performed phenomenally well in Canada for the last few decades. So well, although buying Canadian real estate is available to anyone, it may no longer be affordable to many. Canada has lofty immigration goals to continue increasing its population by over 400,000 yearly to expand its economy, so real estate prices around its sprawling urban centers should continue to see stable growth.[7] For interested foreign buyers who don’t have the necessary 35% down payment or aren’t interested in the financial responsibility of a mortgage, real estate crowdfunding is an excellent option to obtain Canadian real estate exposure at a fraction of the usual cost.[8]

Those looking to take advantage of the country’s housing market can check out any of the 6 Canadian real estate crowdfunding platforms. Minimum investment ranges from $100 to $25,000 depending on the platform, and you can choose to invest in real estate deals in single-family, multi-family, or even commercial real estate. One of the available platform options in Canada even operates on blockchain technology.

P2P Lending & Debt Investing in Canada

Peer-to-peer lending platforms offer another great opportunity for portfolio diversification, and Canada offers a range of options, including loans in business, crypto, real estate, green energy, payday, and personal loans. P2P lending is completely legal in Canada with regulations set in place by the Canadian Securities Administrators. Proper documentation is required on all loans, and lending platforms must be registered in the country. Although still relatively new, P2P loans can be accessed through any of the 3 P2P lending platforms operating in Canada.

Risks of Investing in Canada

Canada is a country with great investment prospects, but there are three risks investors should be aware of when investing in the Land of Maple Syrup. First, Canada’s economy is very intercorrelated with the US economy. Investors seeking diversification beyond the US market won’t get as strong of diversification by investing in Canada as they would in other markets. Second, Canada’s economic growth is overdependent on real estate, which puts Canada at substantial financial risk if a major housing correction occurs.[9] Lastly, because Canada’s industry is largely based on its vast natural resources, the country’s economic growth is largely influenced by the performance of commodities, which are prone to cycles.

The Bottom Line

Canada’s highly ranked banking system and political stability make it a top-ranked investment destination for the long term. The country’s favorable immigration policies that attract high-value labor and vast natural resources that are becoming more accessible with each passing year should continue to stimulate economic growth. Whether you decide to invest in Canada through ETFs, real estate crowdfunding, P2P lending, or another method, Canada provides a relatively safe and stable investment opportunity in a world of uncertainties.

Article Sources

  1. Invest in Canada's FDI Report 2019: "Canada: A global competitor
  2. The World Bank: “GDP per capita Canada and Worldwide (USD)
  3. Statista: “Canada: Distribution of the workforce across economic sectors from 2009 to 2019
  4. The Observatory of Economic Complexity (OEC): “Canada Profile
  5. OECD: “Housing Sector Country Snapshot: Canada
  6. Government of Canada: “Designated Stock Exchanges
  7. “Canada Immigration Levels Plan 2022-2024
  8. The Wilson Team: “Mortgages for Foreign Buyers
  9. Royal York Property Management: “Canada’s Economy Is Still 30% More Dependent On Real Estate Than The US In 2006