Investing has some universality to it. From Afghanistan to Zimbabwe, deferring today's consumption to build tomorrow's fortune is largely the same. Let's compare two similar charter members of the developed world—two countries that share a language, much of the same culture, and a 5,525-mile border. Here are some differences in investing when comparing the U.S. and Canada.
Key Takeaways
- Canadian markets include theToronto Stock Exchange (TSX), the third-largest market in North America, and theTSX Venture Exchange (TSXV), a venture capital marketplace with many small companies listed.
- U.S. markets, which include the New York Stock Exchange (NYSE), are larger and more liquid, with more sectors and companies for investors.
- Canadian banking and healthcare industries are stable; the top five banks hold 85% of the country's banking assets.
North American Neighbors
In some ways, Canada and the United States are more similar than they are different. Their institutions are most trustworthy and secure, at least compared to those of most of the rest of the world. Each operates as a democracy, and each runs one of the top ten economies in the world. Both countries rank in the top 25 in the Heritage Foundation's 2023 Index of Economic Freedom (although the U.S. just barely made it, at number 25). However, the U.S. is almost ten times the size of Canada in terms of population.
Both countries are oil exporters, although the energy sector comprises a larger share of the Canadian financial markets than in the U.S. However, the U.S. is now one of the largest oil producers in the world. For example, in 2018, the U.S. had higher petroleum and natural gas production than Russia and Saudi Arabia.
Despite similarities in economic standing, Canada's financial market has experienced its fair share of unpredictable events, some of which would even surprise its bordering neighbor to the south.
Canadian Financial Markets
Canada has several stock exchanges, the largest of which is the Toronto Stock Exchange (TSX). The TSX is the largest market in Canada, offering more than 1,500 companies with a total market cap of $2.8 trillion. It is where the most senior equities are traded. Other Canadian exchanges include the Montreal Exchange (MX), the Canadian Derivates Clearing Corporation, the Canadian Securities Exchange (CSE), and the TSX Venture Exchange.
The TSX Venture Exchange (TSXV) is a venture capital marketplace headquartered in Calgary, Alberta, with offices in Toronto, Montreal, and Vancouver, British Columbia. The exchange provides venture companies with access to capital while protecting investors. It lists small Canadian stocks, with more than 1,700 companies available. The TSXV bills itself as the nation's "junior listings market," which is to say that almost all of the companies whose stock trades on it are emerging or growth companies.
The Canadian Depository for Securities Limited (CDS) acts as the primary clearinghouse for Canadian trades, the movement of securities between parties, the maintenance of records, and other necessary financial actions.
The TSXV belongs to its parent, TMX Group, as does the Toronto Stock Exchange and the Montreal Exchange.
Canada offers plenty of choices for those looking to buy mining and energy stocks. Plus, the country's healthcare and banking sectors not only have government backing but typically offer very attractive dividends.
U.S. Financial Markets
The U.S. has been traditionally regarded as the world's beacon of economic freedom, with much less regulation of its market of consumer goods and services as compared to other countries. It is home to several stable markets, including the New York Stock Exchange, which is the largest exchange in the world. Investors in U.S. markets can choose from a wide range of stocks and securities of all kinds; for investors looking to diversify, the U.S. boasts more sectors and companies within various industries than you'll find in Canadian markets.
Investors can gain access to international companies within the U.S. that generate most of their revenue from overseas. For example, companies such as McDonald's Corp. (MCD) and Procter & Gamble Company (PG) are typically considered reliable, stable companies with steady earnings and consistent dividend payouts.
The U.S. free-market system makes for easy exchange and creates opportunities to grow a thriving business, especially when combined with a competitive banking system with plenty of market players. In fact, the contrast in banking systems is one of the biggest economic differences between the U.S. and Canada.
Canadian Banking
When it comes to banking, assets are concentrated in the hands of a few in Canada—very few. Canada issues a sparse number of bank charters, meaning its Big Five banks dominate lending and deposits. Canada's five largest banks are:
- Royal Bank of Canada (RY)
- Toronto-Dominion Bank or TD Bank (TD)
- Scotiabank (BNS)
- Canadian Imperial Bank of Commerce (CIBC)
- Bank of Montreal (BMO)
Canada's Big Five control the vast majority of the country's domestic banking assets—nearly 85%—with only a handful of smaller alternatives. However, the typical dividend yield paid by Canada's top five banks is typically from 4% to 7%, which is several percentage points higher than most U.S. banks.
U.S. Banking
In the U.S., meanwhile, the top five banks manage approximately 50% of all assets held in banks in America, leaving many other financial institutions slicing off pieces of the market. The five largest banks in the U.S. are:
- JPMorgan Chase & Co. (JPM)
- Bank of America Corporation (BAC)
- Citigroup Inc. (C)
- Wells Fargo & Co. (WFC)
- U.S. Bancorp (USB)
The practical difference is that American investors have far more choices when shopping for loans. The sheer number of American banks means that bank failures are a more common occurrence than in Canada, but for some consumers, that's a tradeoff for not having an oligopoly in charge of the industry.
However, a counterargument can be made for stability over options, given that the World Economic Forum has cited Canada's banking system as the soundest in the world. Two small Canadian regional banks folded in the 1980s, and they remain the only banking failures in the country in the last 100 years. No Canadian banks have failed in the 21st century, while the U.S. had three major bank failures in March 2023 alone.
According to the Organisation for Economic Co-operation and Development, which operates under the aegis of the United Nations, Canada's household savings rate of 10.5% is lower than the 12.4% savings rate in the U.S. as of 2021.
Is Canada Good for Foreign Investment?
Canada is an attractive destination for foreign investors. Foreign direct investment in Canada grew by 157% from 2020 to 2021, bringing in $59.6 billion. More than 51% of Canadian stocks are owned by U.S. investors, according to Santander Bank.
What Is the Difference Between the NYSE and the TSX?
Located in New York City, the New York Stock Exchange is the largest market in the world, with a total market cap of about $25 trillion in July 2023. The TSX, Toronto's stock exchange, is quite large itself, with a market cap of just over $4 trillion; it is the 11th largest stock market globally.
Can Americans Buy on the TSX?
Yes, Americans can buy on the TSX. Many companies listed on the TSX are also listed on U.S. exchanges, but if you want to buy securities on the Canadian exchange from the U.S., look for a brokerage that will let you do it directly, as there are many who offer this service.
The Bottom Line
Among citizens of the world's richest countries—which Canada and the U.S. both are—differences in investing typically come down to net worth and income. For instance, a 30-year-old Canadian with 2.3 kids and an annual salary of $50,000 isn't going to have an investment portfolio similar to that of a 60-year-old Canadian with an empty nest and a $5 million war chest. Rather, that 30-year-old Canadian is probably going to have an investment portfolio similar to that of a 30-year-old American with 2.3 kids and a $50,000 annual salary. When controlling for age, life station, and similar variables, American and Canadian investors have more in common than not.
