Here’s why Canadians should limit their exposure to U.S. investments
Ray Dalio
Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, has a stark warning for investors in the American market.
“For those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying,” he wrote in an alarming post on X in May.
Dalio was referring to the recent downgrade of the U.S. sovereign credit rating by Moody’s, following similar moves by S&P Global in 2011 and Fitch in 2023.
This move was hardly surprising considering how the U.S. economy has been thrown into turmoil by Trump’s erratic policies.
Desmond Lachman, a senior fellow at the American Enterprise Institute, a public policy think tank based in D.C., said in June that Trump’s risky policies — not limited to tariffs, but also including his increasing pressure on the Chair of the Federal Reserve, Jerome Powell, to cut interest rates, among other poor choices — will result in an economic crisis in the states.
“The late MIT economist [Rudi] Dornbusch said that economic crises take a lot longer to occur than you might have thought possible. However, when they do occur, they occur at a much faster rate than you might have thought probable,” Lachman wrote.
“Maybe then Trump might dial back his aggressive import tariff and budget-busting tax cut policies. However, I fear that like in Greek tragedies, that is unlikely to occur before it is too late.”
With these gloomy predictions coming from experts on the U.S. market, what should Canadian investors do to ensure their portfolios aren’t too exposed to the volatility and risk of U.S. investments? Is it time to set your sights on other international markets?
The U.S. Dollar Index fell 10.8% in the first half of 2025 — marking its worst performance since 1973 when Richard Nixon was president. Meanwhile, inflation has steadily chipped away at the dollar’s purchasing power. According to the Federal Reserve Bank of Minneapolis inflation calculator, US$100 in 2025 buys what just US$12.56 could in 1971 — the year the U.S. moved off the gold standard.
Gold performance has been steadily increasing since Trump took office, and is up 33% since the beginning of the year. Its performance is due to the uncertainty in the stock market, as the metal is widely regarded as the ultimate safe haven during economic turmoil or geopolitical uncertainty.
Dalio himself has repeatedly emphasized gold’s importance in a resilient portfolio.
“People don’t have, typically, an adequate amount of gold in their portfolio,” he told CNBC earlier this year. “When bad times come, gold is a very effective diversifier.” Buying gold, whether bouillon or shares in the commodity, can help investors to weather the ups and downs of the market — both for U.S. and Canadian investments.
While many Canadian investors stick close to home when it comes to stock market investments, it may be time to look into international exchanges — in keeping with our move to increasing trade volume with countries in Europe and Asia. In the Canadian market, for example, sectors like technology or health care are underrepresented on the TSX, but these can prove to be valuable investments and good choices for diversification.
Canadian stocks typically skew to financial services, energy, and raw materials — which while strong categories, does leave investors open to risk when dips in those markets happen. Distributing your risk by filling the gaps with international stocks can help your portfolio to manage volatility.
Consider investing in stocks or index funds from the London Stock Exchange or the Euronext Stock Exchange, based in Amsterdam. The Tokyo Stock Exchange is also a strong contender, with over 3,900 listed companies, compared to just 1,700 on the Toronto Stock Exchange.
Moving your investments out of U.S. stocks entirely may seem too risky, and investors who have long horizons may stay put and hope for better things. Investing in U.S. stocks has long been attractive to Canadian investors, as the NYSE tends to outperform the TSX. Between 1957 and 2025, for example, the S&P 500 averaged a 10.33% rate of return, while the TSX Composite Index 1 returned 7.94% on investments on average between 1971 and 2021, according to Questrade.
For Canadian investors who hold U.S. stocks, hedged ETFs and mutual funds that use financial instruments to eliminate currency fluctuations are the best choice if you want to maintain some exposure to American stocks, per the TSI network.
In all, with our economies so intertwined, the volatility of the U.S. market cannot fail to impact the Canadian economy. To protect your investments from too much risk, be sure you’re in regular contact with a financial advisor to help you understand whether your portfolio is adequately balanced, and how you can find new ways to diversify and mitigate your risk.
