Investors continue to be concerned about high debt levels in many European countries. That’s especially true of the so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain).

Portugal recently accepted a 78-billion euro ($107 billion Canadian) bailout package from the European Union and International Monetary Fund. That’s in addition to previous bailouts for Ireland (67 billion euros) and Greece (110 billion euros). Worries persist that Greece, in particular, may not be able to cut its spending enough to avoid defaulting on its debt.

Why we recommend that you focus on Canadian stocks—and limit your European holdings

We’ve long recommended that Canadian investors be very selective about investing in Europe, and limit their European holdings to a smaller portion of their portfolios, no more than 10%, say.

As we said, many of Europe’s major economies, especially the PIIGS countries, still need major structural reforms. In addition to cutting social spending, these reforms include removing outmoded job-protection laws and measures to lower both business and personal tax rates.

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Canadian stocks put you in a better position to profit with less risk

We continue to recommend that most investors hold the bulk of their portfolios in Canadian stocks. That’s because, unlike many European economies, Canada has a number of strengths that helped it weather the economic downturn — and put its economy and certain Canadian stocks in position to continue to profit in the ongoing global economic recovery.

For one, the big-five Canadian banks had limited exposure to the complicated, risky financial products that brought down many international banks. Canada’s banks have long demonstrated an ability to identify and stay out of these types of arrangements. That’s another good reason why we continue to recommend all five big Canadian banks in our investment services and newsletters, including Canadian Wealth Advisor, our newsletter for safety-conscious investors.

As well, the new Conservative majority government has pledged to further reduce corporate taxes in Canada. That will help support the country’s economy, and attract jobs and economic growth.

To top it off, Canadian stocks qualify for the dividend tax credit. In contrast, you pay tax at the same rate as ordinary income on the full amount of your foreign dividends, including Europe.

Look to exchange traded funds for lower-risk European investing

If you want to do some investing in Europe, we think the best way to do so is through exchange-traded funds (ETFs). We cover a carefully selected group of ETFs in Canadian Wealth Advisor. One of them is the iShares MSCI Germany Fund (symbol EWG on New York).

Exchange traded funds are set up to mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. Exchange traded funds trade on stock exchanges, just like stocks.

The iShares MSCI Germany Fund’s top holdings are Siemens AG (engineering conglomerate), 11.0%; BASF (chemicals), 8.7%; Bayer (diversified chemicals), 6.6%; Allianz (insurance), 6.4%; Daimler AG (automobiles), 6.3%; E.ON (energy), 5.5%; Deutsche Bank AG, 5.5%; SAP (software), 4.6%; Deutsche Telekom, 4.4%; and Volkswagen (automobiles), 3.1%.

Exports account for around 45% of Germany’s economy, so it needs a continued global recovery to sustain its growth. Even though many European countries are struggling (including Portugal Italy, Ireland Greece and Spain), the German economy is steadily recovering.

You can get our full analysis of the iShares MSCI Germany Fund and a number of other ETFs suitable for international investing in Canadian Wealth Advisor. Click here to learn how you can get one month free when you subscribe today.