Comments on: US Dollar vs. Canadian Dollar Investments Inside RRSP? http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/ Not just another (Canadian) financial blog Fri, 05 Dec 2008 12:04:00 +0000 http://wordpress.org/?v=abc By: Ask Dave: US Dollar Investments Inside Your RRSP at Investing Intelligently http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-7254 Ask Dave: US Dollar Investments Inside Your RRSP at Investing Intelligently Thu, 08 Nov 2007 06:37:16 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-7254 [...] as you approach retirement and not expose yourself to unnecessary currency risk (see “US vs. Canadian dollar investments made inside an RRSP” for more detail, especially bullet point 2). You will also incur lower costs (assuming you [...] [...] as you approach retirement and not expose yourself to unnecessary currency risk (see “US vs. Canadian dollar investments made inside an RRSP” for more detail, especially bullet point 2). You will also incur lower costs (assuming you [...]

]]> By: Dave http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6681 Dave Fri, 16 Mar 2007 21:40:14 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6681 Fernando, I can't confirm this unfortunately. But if I ever find out I will let you know. Fernando, I can’t confirm this unfortunately. But if I ever find out I will let you know.

]]> By: Dave http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6680 Dave Fri, 16 Mar 2007 21:39:36 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6680 Investoid, this is a late reply to your comment, but one should also be aware of the risk of having all one's investments in Canadian dollars, due to inflation. Diversifying to other currencies reduces this risk. Investoid, this is a late reply to your comment, but one should also be aware of the risk of having all one’s investments in Canadian dollars, due to inflation. Diversifying to other currencies reduces this risk.

]]> By: Fernando Montenegro http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6679 Fernando Montenegro Fri, 16 Mar 2007 21:18:21 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6679 I'm also looking into this for my personal RRSP. One other aspect in favour of US-based ETFs investing in the US market versus Canadian-based ETFs in the same market is a potential tax benefit. According to what I've found so far, that the tax treaty between Canda and US specifies that no tax is withheld on distributions in US investments that are meant for Canadian retirement (RRSP). To me (I'm not an accountant...) this means that I get the full dividend distribution from a US-based ETF if I hold the US-based ETF, while a Canadian ETF holding the same investments must deduct the withholding tax. Assuming a 15% withholding tax, this can mean 45bps on a 3% dividend. Quite significant, if I understand this right... Can anyone confirm this? I’m also looking into this for my personal RRSP. One other aspect in favour of US-based ETFs investing in the US market versus Canadian-based ETFs in the same market is a potential tax benefit.

According to what I’ve found so far, that the tax treaty between Canda and US specifies that no tax is withheld on distributions in US investments that are meant for Canadian retirement (RRSP).

To me (I’m not an accountant…) this means that I get the full dividend distribution from a US-based ETF if I hold the US-based ETF, while a Canadian ETF holding the same investments must deduct the withholding tax.

Assuming a 15% withholding tax, this can mean 45bps on a 3% dividend. Quite significant, if I understand this right…

Can anyone confirm this?

]]> By: Tim D http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6635 Tim D Thu, 08 Mar 2007 21:34:30 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6635 Great advice, Canadian Capitalist! I checked - and unlike RBC, BMO Investorline charges $25 for the contribution in kind to the RRSP (called by BMO as a "Transfer to RRSP fee"). Anyway, good advice nonetheless. On VTI - yes, purchased it yesterday. I also put small amounts of money in a US small-cap index, a real-estate index and an international equity index. I rounded out my portfolio allocation with the lehman bond index. I already hold a European index - so, I think I am now good. I strongly believe in David Swensen's asset allocation advice - and am embracing his approach. In terms of currency hedging - I think it makes sense to have some assets in CAD$, a CAD$ index and maybe a small-cap index. But, total portfolio allocation should mirror our economy's relative weight in the world (so, pretty small). As I get close to retirement - quite a long way away to be sure (I am only in my late 30s), I will move assets to CAD$. Thanks again for your advice! Great advice, Canadian Capitalist! I checked - and unlike RBC, BMO Investorline charges $25 for the contribution in kind to the RRSP (called by BMO as a “Transfer to RRSP fee”). Anyway, good advice nonetheless.

On VTI - yes, purchased it yesterday. I also put small amounts of money in a US small-cap index, a real-estate index and an international equity index. I rounded out my portfolio allocation with the lehman bond index. I already hold a European index - so, I think I am now good.

I strongly believe in David Swensen’s asset allocation advice - and am embracing his approach.

In terms of currency hedging - I think it makes sense to have some assets in CAD$, a CAD$ index and maybe a small-cap index. But, total portfolio allocation should mirror our economy’s relative weight in the world (so, pretty small). As I get close to retirement - quite a long way away to be sure (I am only in my late 30s), I will move assets to CAD$.

Thanks again for your advice!

]]> By: Canadian Capitalist http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6633 Canadian Capitalist Thu, 08 Mar 2007 21:11:11 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6633 Oh, BTW, I'd go with the VTI instead of the S&P 500 because you also get exposure to small-caps (around 20% I think). Personally, I am going to get US exposure with VTI and add a small-cap value tilt. Oh, BTW, I’d go with the VTI instead of the S&P 500 because you also get exposure to small-caps (around 20% I think). Personally, I am going to get US exposure with VTI and add a small-cap value tilt.

]]> By: Canadian Capitalist http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6632 Canadian Capitalist Thu, 08 Mar 2007 21:08:12 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6632 I've been on traveling recently and just read this post. My suggestion to Tim is to buy a USD-denominated stock/ETF in his investment account and then make a contribution in-kind to his RRSP. I do this all the time and at RBC Direct there is no charge for the service. I am firmly of the belief that currency hedging has dubious benefit for long-term investors. Hedging has a cost (15 bps extra for XSP compared to IVV) and the key question is if the cost is worth the benefits. My answer is no because (a) a lower USD will benefit many of the large S&P components (b) S&P components with overseas operations themselves hedge the exposure (c) how come everyone is warning against currency risk AFTER the bulk of the appreciation has taken place? (d) For long-term investors who are going to periodically invest in the markets, they may or may not benefit from currency, but cost is a certainty (e) EFA itself is denominated in other currencies like euros, pounds and yen. Why put a hedge on top of a basket of currencies? I think your decision to invest in USD assets directly without a hedge is a wise one. I’ve been on traveling recently and just read this post. My suggestion to Tim is to buy a USD-denominated stock/ETF in his investment account and then make a contribution in-kind to his RRSP. I do this all the time and at RBC Direct there is no charge for the service.

I am firmly of the belief that currency hedging has dubious benefit for long-term investors. Hedging has a cost (15 bps extra for XSP compared to IVV) and the key question is if the cost is worth the benefits. My answer is no because (a) a lower USD will benefit many of the large S&P components (b) S&P components with overseas operations themselves hedge the exposure (c) how come everyone is warning against currency risk AFTER the bulk of the appreciation has taken place? (d) For long-term investors who are going to periodically invest in the markets, they may or may not benefit from currency, but cost is a certainty (e) EFA itself is denominated in other currencies like euros, pounds and yen. Why put a hedge on top of a basket of currencies?

I think your decision to invest in USD assets directly without a hedge is a wise one.

]]> By: Tim D http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6584 Tim D Fri, 02 Mar 2007 17:50:59 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6584 Yes, will do. I invest for the long-term, according to the asset mix suggestion implied in David Swensen's Pioneering Portfolio Management; periodic rebalancing is all I will do. Yes, will do. I invest for the long-term, according to the asset mix suggestion implied in David Swensen’s Pioneering Portfolio Management; periodic rebalancing is all I will do.

]]> By: Dave http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6582 Dave Fri, 02 Mar 2007 17:44:23 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6582 In the mean time, the most sensible thing to do is to just buy & hold your USD investments inside your RRSP. You'll incur the exchange when you go from CAD to USD but nothing after that until you withdraw. Or just buy the CAD versions of mutual funds and/or ETFs. In the mean time, the most sensible thing to do is to just buy & hold your USD investments inside your RRSP. You’ll incur the exchange when you go from CAD to USD but nothing after that until you withdraw. Or just buy the CAD versions of mutual funds and/or ETFs.

]]> By: Tim D http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6576 Tim D Fri, 02 Mar 2007 16:16:35 +0000 http://www.investingintelligently.com/2007/02/21/us-dollar-vs-canadian-dollar-investments-inside-rrsp/#comment-6576 Thanks, Dave. That is really helpful. I hope this gets resolved - and more than just TD come to offer wash trades. Thanks, Dave. That is really helpful. I hope this gets resolved - and more than just TD come to offer wash trades.

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