Ask Dave: USD Holdings in an RRSP

A reader recently e-mailed me with a question. Here it is:

Hi Dave,

Just a quick question, please.

I saw that you included Vanguard funds in your RRSP holdings but I am confused about that. I thought Vanguard only sells their funds to Americans (not to Canadians) so how are you doing that within the RRSP?

My answer:

Nope, anyone can by Vanguard ETFs. Not sure what you mean by “funds”. If Vanguard also has mutual “funds” those might be different. But their ETFs are just like stocks so you can buy them in the same way that you can by stock in other US companies.

He continues:

I am ready to open a self-directed RRSP for the first time. My wife is an American and has Vanguard funds and we just can say enough about them. I would love to include Vanguard funds (read index/ETFs) in my RRSP as well but how do I do it? Can I acquire them within any self-directed RRSP account company?

My answer:

I see, you DO mean index/ETFs. Yes all companies should allow you to buy them. The only annoying part is that no broker allows you to keep US cash in your RRSP (even though by Canadian law that is allowed). The consequence of that is that if you own VTI in US dollars and want to change it to VWO in US dollars you have to sell it, at which point it gets converted to Canadian dollars and then buy VWO at which point it gets converted to US dollars. So you get dinged on the exchange. If you only did this every 10 years or something like that, it would not be a huge deal (compared to the gains/losses you made on the underlying investments). See an article of mine, “Foreign Exchange Costs Associated With USD Investments in an RRSP” for related calculations. There is currently a lawsuit going on against BMO to stop the practice of not allowing Canadians from holding US cash in their RRSPs (even though it is allowed).

3 thoughts on “Ask Dave: USD Holdings in an RRSP”

  1. Actually, TD Waterhouse allows you to do what is sometimes called a ‘wash trade’ but that may not work in the specific situation you describe. You can buy a US dollar money market fund and add to that at any time you want. This effectively allows you to hold US dollars in your account (although you are really holding units of a mutual fund). Then when you decide to buy a US stock or ETF you can go ahead and place an order as you normally do. Then if you have enough in the US money market fund you can call TD Waterhouse and ask them to sell enough of the US money market fund to cover the stock/ETF purchase you made and ask them to not convert the US funds to Canadian and then back to US again, just get them to use that to pay for the US stock/ETF. Since stocks have a 3 day settlement period and mutual funds only have a one day settlement period this works well. There may be other brokerage houses that allow you to do the same thing but I have an account with TD Waterhouse so that is all I know about. Canadian Capitalist wrote about this a few months ago if you want more information you can check out his site.

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