TFSA Investors: 3 Steps to Get Into Cross-Border Investing

Overseas trading can be scary. But if you follow these steps, you can certainly achieve far higher returns than just sticking close to home.

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The Tax-Free Savings Account (TFSA) is great for so many reasons. Canadian investors can bring in returns and dividend income that can last them decades. But the problem is, many Canadians are focusing far too much on Canadian stocks.

Not to say you shouldn’t! After all, here at Motley Fool Canada we push for Canadians to support our local businesses. But, we also want Canadians to do well with their money long term. And part of that is having exposure not just to different sectors, but even different countries.

Yet it’s something many investors are scared to do. And it’s why Chief Executive Officer Ashley Groves has created Deaglo Investments to help Canadians easily discover companies outside our own borders.

Getting started

“There’s only so much wealth in Canada and [places] where you can get that wealth from,” Groves said in an interview with Motley Fool. “The things I love about investing overseas is that you have an untapped resource of people.”

That’s why one of the best ways to start investing in other countries, is by looking into things you’re already familiar with in Canada. In this way, Groves recommends using artificial intelligence (AI) for this. Retail investors can have access to what’s going on all over the world, and deciding whether now is the right time to invest in Canada, or perhaps somewhere else?

“There is no reason why retail investors shouldn’t have access to information to what is going on in Brazil, for example,” he said. “Investors want to feel comfortable and confident investing in that market as if it’s their local market.”

That’s why finding a manager that’s familiar with the country’s intricacies, legal framework, and investment structure can be beneficial, Groves says. Canadian investors can simply find an open foreign share class in Canadian (or local) currency. That way, you’ll see that all your returns are going to be in Canadian dollars.

Create goals

From here, just like with any investment, Canadian investors should create goals. And that means knowing exactly what you get when you take out your money. For example, there is a cost of moving Canadian dollars into United States dollars. There is also a wire fee to consider, and even a hidden fee from banks. These can be as much as 3%, which is 3% when you invest, and 3% when you take it out.

That’s why creating goals is so important. Canadians can do some simple calculations so that once they see they have reached their goal, they can take out their cash. In any market, the last thing investors want to do is try and time the market, which can fluctuate rapidly day to day.

That’s where Canadians can hedge their exposure to these overseas companies. Investors can simply add their costs into their returns, and calculate how much it will then cost to hedge their investment strategy to see if it’s worth it.

Get empowered!

There is a lot of uncertainty and lack of confidence when it comes to investing in the market, no matter where you are, Groves says. And that uncertainty leads to a lack of conviction in investing elsewhere. This can hurt returns, and limit the amount investors can make over time.

And it’s not difficult to start in Canada. An example could be if Canadians invest in an exchange-traded fund (ETF) hedged against the Canadian dollar, such as the BMO S&P 500 Hedged to CAD Index ETF (TSX:ZUE).

ZUE ETF offers exposure to the most diversified of U.S. equities, with currency hedged against the Canadian dollar to bring down impacts on currency. Plus, you have a team of portfolio managers looking after it for you. You’re therefore investing overseas, have managers at your disposal, and don’t need to worry about Canadian exchange rates. Further, there are no tax implications as you’re investing in the BMO Canadian ETF, making it a great place to start.

“Be empowered making these decisions,” Groves says.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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