Tips for Canadians Investing in the U.S. Stock Market

I have been self-investing in the U.S. stock market in recent years, and it’s not as simple as it may seem. The purchase process may be similar to that of the Canadian market, but there are vital factors to be aware of. If you’re interested in purchasing stocks on the U.S. market, here are some basic tips that I recommend you take note of:

Currency Exchange:

If your funds are in Canadian currency, you will have to convert the funds to U.S. currency. However, your financial institution / stock brokerage service will likely charge approximately 2.5 cents on the dollar. In other words, you will incur about a 2.5% fee on your original investment. You will incur the same fee when you sell your investment if you want to have the funds converted back to Canadian dollars. As a result, you will lose approximately 5% of your original investment just for investing on the U.S. market. To put that into perspective, if your plan is to invest for one year, and you earn a 7% return, you really only made about 2%.

Dividend Withholding Tax:

When investing in U.S. dividend stocks, your dividend payout will be subject to approximately 30% withholding tax. However, if you contact your stock brokerage service and fill out a W8-BEN form to prove you’re a Canadian citizen, you can lower the withholding tax to 15%. You can get the withholding tax back through the Foreign non-business tax credit.

Registered Accounts:

Some brokerage services allow you to invest in RRSP and TFSA accounts with U.S. stocks. However, you are unable to retrieve the 15% dividend withholding tax if they are under the TFSA umbrella.

The U.S. stock market definitely gives investors more stock options, however be aware about what I mentioned above. Specifically, if you are a "small-time" investor, the currency exchange can be a major issue. If you have any questions, leave a comment below. Happy investing!