How to Buy US Stocks in Canada while Saving on Foreign Transaction Fees in 2022

Why do I buy US Stocks in Canada in Canadian Dollar?

Part of my strategy is to keep investment in the stock market simple so I can focus more on my complicated Crypto investment. Therefore, I only buy stocks and ETFs listed on Canadian Exchanges TSX and NEO priced in our very own Canadian Dollar $CAD.

My goal here is to show you some simple methods on how to buy US stocks in Canada and save on fees and commissions. Remember saving more means investing more, right?

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Related: 5 Best Technology ETFs in Canada

What are some benefits of buying International Stocks in Canadian Dollar?

There are mainly three reasons to invest only in stocks or ETFs listed in Canadian Dollar $CAD.

Investors can avoid the headache of converting USD to CAD and vise versa. It also eliminate a portion of FX (Foreign Exchange) conversion fees which ranges from 1.5% to 3% on each currency transaction. In addition, it helps as a hedge against currency fluctuations.

How to buy US Stocks in Canada

Hence comes the benefit of Canadian Hedged stocks and ETFs.

In this article, I am going to cover the best and easiest ways to own some of top US companies like Apple, Meta, Alphabet (Google), Amazon, and many more directly in Canadian dollar $CAD.

How to Buy US Stocks in Canada while Saving on Foreign Transaction Fees?

Method 1: Buy ETFs (Index Funds) in Canadian Dollar

Naturally, this is the most known method to own US (or any international) stocks in Canadian Dollar. The benefit of ETFs is that investors won’t have to pick stocks individually which gives a broader exposure while reducing the risk of a being negatively impacted by a single company.

I personally own many ETFs which are listed in my Exotic Series of the Best ETFs in Canada and some other articles I posted on the blog.  One disadvantage of owning ETFs is that investors neither have a direct control on the owned shares nor can predict dividends or distributions. Second downside of ETFs is their management fees.

$XUU, $XQQ, $TLF are some of the best US ETFs to hold. I also recommend $VIU which is an All Cap Developed except North America ETF. I also like $TECH ETF which has exposure to the giant technology FANGMA (Facebook, Apple, Netflix, Google, Microsoft, Amazon) companies.

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Method 2: Buy Canadian Depositary Receipts (CDRs) on NEO Exchange

CDRs are an efficient and easy way to own a foreign including US stocks in Canadian Dollar. CDRs have a built-in currency hedge mechanism which reduces the currency fluctuation complication for investors.

Buying CDRs means owning fractional shares of foreign companies with small amounts. This makes owning companies like Google or Amazon accessible to small investors.

Fun Fact: The equivalent of CDRs in the US is called ADRs (American Depository Receipts) which have been trading in the US for years.

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CDRs also have a factor called CDR Ratio which is adjusted daily to represent the number of underlying shares owned by each CDR. To simplify, if Canadian Dollar gets stronger against the foreign currency (US Dollar), the associated CDR will represent more underlying shares and vise versa.

There are currently 23 CDRs provided by CIBC in Canada. These CDRs can be only bought on Neo Exchange. All these CRDs represent big US companies listed on NYSE or NASDAQ.

In addition to the above list, CIBC recently introduced below new CDRs which can be traded on Neo Exchange available on all major Canadian trading platforms like Wealthsimple and Questrade.

Starbucks CDR (CAD Hedged) – SBUX
Nike CDR (CAD Hedged) – NKE
McDonald’s CDR (CAD Hedged) – MCDS
Coca Cola CDR (CAD Hedged) – COLA
Verizon CDR (CAD Hedged) – VZ
Cisco CDR (CAD Hedged) – CSCO
UnitedHealth CDR (CAD Hedged) – UNH

As mentioned, CDRs can be bought directly using typical investment brokerage accounts in registered or non-registered accounts. As always, I recommend Wealthsimple Trade due to its no-fee structure which allows maximizing the profits by eliminating trading fees.

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Notably, there is a built-in foreign exchange fee charged by CIBC for these CDRs. However, the percentage is a favorable value similar to what large institutions pay which is currently 1.27%.

Fantastic Fact: There are no management fees for CDRs.

CDRs’ investors receive the underlying dividends according to their percentage of holding and the tax works similar to any other form of investment. This means, expect a 15% foreign withholding tax.

Conclusion on Buying International or US Stocks in Canada

Owning international including US companies in Canadian Dollar simplifies the investment for Canadian investors. It also helps against the fluctuation of currencies plus saving time and saving on fees.

Best methods to own US Stocks in Canadian Dollar $CAD is to buy ETFs in $CAD or buy CDRs on NEO Exchange through most brokers.

What is your investment approach? Share your thoughts and experiences.

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