The TSX is the main Canadian Stock market index. All publicly traded companies in Canada are listed here. It’s made up of companies from the banking sector, insurance, oil & gas, manufacturing, industrials and so on.
Keep in mind that Canada is small. Last year, Canada’s stock market capitalization represented just 2.7 percent of the $109 trillion global market.
How has the TSX performed over the last 10 years? About 4.3%/year.
Not great in comparison to the US.
The S&P 500 has generated a hefty 18.4 %/year.
NASDAQ is about 31%/year.
Why is this?
Government policy has a lot to do with it. Canada has scared away investment dollars.
You and I as retail investors are not that big of a deal to the overall TSX. It’s the big-money players that have the most impact. It’s what we call institutional money.
Here's a line from a March 12, 2024 article in the Financial Post: Last week, 92 prominent senior executives, investment managers and individual investors signed an open letter to the federal and provincial ministers of finance expressing concern with “the decline in Canadian investments by pension funds and its impact on the Canadian economy.”
Our own Bank of Canada recently published a report on the productivity gap in Canada and how much of a concern this is.
Here are a few lines from the report: "Canada has seen no productivity growth in recent years. And over the past four decades, we have actually slipped significantly compared with some other countries. In fact, relative to the United States, among G7 countries we are now second only to Italy when it comes to productivity decline."
In Canada, we have an aging population. This creates an additional lag in productivity. This is one reason why the government has opened the borders to let more new people in. We need more younger people to make up for the amount of people retiring. We need more workers. We need more people paying into CPP and paying taxes. As a side note, your home has likely been your number 1 investment, but you have to sell it to get the money. Or go into debt with a reverse mortgage or line of credit.
So what’s the connection between the TSX and government policy?
The current federal government has been beating this idea of taxing the rich for some time. They want to be seen as the party for the middle class - whoever that middle class is.
This beating of that drum may gain some political points, but it does nothing for our investment growth or for attracting investment money from outside the country.
This theme of taxing the rich has driven away investment money - which is greatly needed if we are going to deal with the productivity gap. There has been a steady decline in foreign investment money into Canada for the past decade. Canada is seen as “uninvestible”. Mainly due to bad government policy. This is a geopolitical risk. Uncertainty is to investing as water is to fire.
I’m trying to be as apolitical as possible, as I am sure many of you support different political parties. The proof is in the pudding - we are struggling as a country with melding together our social priorities with our economic realities.
Our own Canada Pension Plan (The Fund | CPP Investments) manages $632 Billion and only 12% of those investments are in Canada. The fund has done incredibly well for the last decade, but only because of the investments it has made outside of Canada. The management team, which operates independently of any political party or the government, does not see Canada as a great place to invest.
We share the sentiment of CPP and other large pension funds.
We love our country and believe there are lots of great companies but these companies offer little upside. If it wasn't for the dividends being paid there would be next to no growth at all on your Canadian assets. As such, a very small percentage of any of our client’s assets are allocated to Canada. Be careful what you wish for and who you vote for because your social agenda will have an impact on your financial agenda. There are always unintended consequences to every extreme choice one makes.
We help our clients create sustainable, predictable, and tax-efficient cash flow for retirement, to ensure they do not overspend and run out of money; or underspend and die the richest people in the graveyard.
Want to retire soon? Learn more about our services and book an appointment.
Retirement Income, Investment, & Tax Planners,
Willis J Langford CFP
Nancy Langford CRS
