Connect with us

Investor Education

How Currency Fluctuations Impact Canadian Investors

Published

on

How Currency Fluctuations Impact Canadian Investors

How Currency Fluctuations Impact Canadian Investors

For many Canadians, currency movements are an everyday part of life.

When the Canadian dollar is strong, it means that going south of the border is cheaper. Whether it’s a vacation in Hawaii or a shopping spree in New York City, a strong Canadian dollar can buy more in terms of U.S. dollars.

Likewise, a weak Canadian dollar can buy fewer U.S. dollars – meaning that travel, shopping, and other expenses in U.S. dollars are more expensive.

The Same Effect

The impact of currency fluctuations isn’t limited only to foreign purchases.

In fact, as today’s infographic from Fidelity Investments Canada shows, these same fluctuations can also affect the performance of your portfolio.

Why is that the case?

Many Canadian portfolios have exposure to American-listed companies such as Apple, Wells Fargo, Tesla, or Johnson & Johnson. As a result, fluctuations in the USD/CAD rate can have a profound impact on how these investments perform in Canadian dollars.

How Does This Work?

Here’s an example of the impact of currency in action:

  • A Canadian investor puts $100 CAD into a fund that buys U.S. stocks
  • At the time of investment, $1 CAD buys $0.80 USD
  • After exchange, $80 USD is invested in the U.S. market
  • The U.S. market goes up 10% in one year, and is now worth $88 USD
  • However, over the year, the exchange rate changed to $1 CAD per $0.85 USD
  • Converted back to Canadian dollars, at the new rate, the $88 USD is now worth $103.52 CAD, which is just a 3.5% gain in domestic Canadian currency

In the above case, a strengthening Canadian dollar ends up dampening the returns coming from the U.S. market.

In contrast, if the exchange rate went the other direction – meaning Canadian dollar was weakening – any returns would actually amplify.

Long-Term Planning

If currency fluctuations can have a substantial impact on investments, what does this mean for portfolio construction and assessing risk?

There are two main schools of thought on this:

Hedged: Some funds use a hedging strategy to try and cancel out any currency fluctuations. Ideally, the end result of this would be representative performance of the U.S. market.

Unhedged: This strategy does not try to anticipate currency fluctuations, since the long-term effects of currency movements tend to even out over time.

According to Fidelity Investments Canada, over the 20-year period of November 28, 1997 to November 30, 2017, the impact of currency fluctuations on the S&P 500 had a difference in annualized returns of 0.5%.

In other words, U.S. dollars invested in the S&P 500 had a 7.2% return, while Canadian dollars invested in the same stocks had a 6.7% return after adjusting for exchange rates.

Click for Comments

Investor Education

Ranked: The Best Stock Brokers for Investors and Traders

Whether you’re searching for low fees or an easy-to-use trading platform, this clear breakdown can help you find the best stock brokers.

Published

on

A heat map scoring the best stock brokers on a variety of categories like research and education; most of the category names and broker names are obscured from view in this preview image.

Published

on

The following content is sponsored by StockBrokers.com

Ranked: The Best Stock Brokers for Investors and Traders

Choosing the right online trading platform might seem tricky. There are lots of options, and finding the best stock brokers could require a lot of time and research. Luckily, a team of experts has already done the work for you!

In this graphic from StockBrokers.com, we show how stock brokers performed in a variety of categories so you can make an informed decision.

Breaking Down the Best Stock Brokers

StockBrokers.com analyzed 17 select brokers using actual trading accounts or demo accounts. 

The below table shows the overall scores, with 100% being the highest possible score. It also breaks down ratings in the ease of use, mobile trading, and commissions and fees categories, which have the heaviest weightings in the overall score. 

Stock BrokerOverall Ease
of Use
Mobile
Trading
Commissions
& Fees
Fidelity9910099100
E*TRADE971009990
Charles Schwab971009790
Merrill Edge941009690
Interactive Brokers93809990
Firstrade88809490
tastytrade85908990
Ally Invest85907990
Webull85909190
Robinhood841009090
TradeStation82709090
J.P. Morgan
Self-Directed
Investing
82857990
Vanguard78955690
Tradier77907590
eToro77858790
SoFi Invest74906490
Public.com70856890

Source: StockBrokers.com as of January 23, 2024. The overall score is based on the following category weightings: 25% ease of use, 25% mobile trading apps, 20% Commissions and fees, 10% investment options, 10% research, 5% platforms and tools, 5% education.

Fidelity has the top overall score in 2024, with an excellent app, clear navigation, and low fees. When it comes to fees, Fidelity skips many charges that are common among other brokers. It also doesn’t accept payment for order flow, which is when brokers direct your orders to market centers that pay them a referral fee. 

E*TRADE and Charles Schwab are tied for second place when it comes to the best stock brokers. According to StockBrokers.com, E*TRADE has the best platform for mobile trading. The company offers one app focused on casual investors, and another for beginner to intermediate investors that has a useful—but not overwhelming—number of tools. 

Charles Schwab, on the other hand, boasts the best desktop trading platform where investors can keep track of huge watch lists and follow streaming market news.

How Brokers Bring Additional Value

Apart from giving you the ability to trade stocks online, brokers also offer other perks like trading tools and education. Here’s how the same 17 brokers scored on these types of features.

Stock BrokerInvestment
Options
Research Platform
& Tools
Education
Fidelity969694100
E*TRADE95999396
Charles Schwab971009595
Merrill Edge89989399
Interactive Brokers999910093
Firstrade90877569
tastytrade80559284
Ally Invest89777382
Webull76638858
Robinhood74496273
TradeStation94659170
J.P. Morgan
Self-Directed
Investing
78755791
Vanguard88674868
Tradier76467335
eToro54566653
SoFi Invest60415486
Public.com53444653

Source: StockBrokers.com as of January 23, 2024. The overall score is based on the following category weightings: 25% ease of use, 25% mobile trading apps, 20% Commissions and fees, 10% investment options, 10% research, 5% platforms and tools, 5% education.

Interactive Brokers holds the title of “best for professional traders” thanks to its wide range of highly customizable tools, investment options, and research. Investors can also trade in foreign markets and hold multiple currencies, for those interested in forex trading.

While not included in overall scores, StockBrokers.com also rated brokers on their customer service through nationwide phone testing. Fidelity and Merrill Edge are the best stock brokers when it comes to customer service. Both companies answered calls in less than a minute on average, and their representatives had high professionalism. 

Picking the Best Brokerage Account

When you’re choosing from a list of the best stock brokers, you’ll want to consider which features are most important to you.

StockBrokers.com offers clear, in-depth reviews and compares brokers on more than 150 different account features and fees. You can also see screenshots of what various pages look like within the trading platforms. 

Visual Capitalist Logo

See StockBrokers.com’s guide to the best online trading platforms of 2024.

Click for Comments

You may also like

Subscribe

Continue Reading

Subscribe

Popular