Well I got the site moved over to a new server and sorted out the kinks. If anyone notices anything weird let me know.
I’m proud to announce that I am getting rid of all the Google Ads from my site. They just don’t make enough money to be worth it. A second factor is that I have always written on this blog for fun, as a hobby, and not because I want to make money. I want to make sure people know that when they read my posts. I find that some blogs tend to pump out articles just to increase ad revenue.
I may think about phasing out my link ads as well. As some of you might already know, Google frowns upon links ads these days and some sites have had their page rank reduced due to unrelated paid link ads. The link ads on my sites are mostly debt-related and not very related to what I blog about so this has worried me a little. Most of them don’t expire until later this year so I’m not worrying about those yet.
Another question (or should I say several questions) from a reader about US dollar ETFs. Paul wrote:
Thanks for the great blog – as a relatively new investor interested in building an ETF portfolio, I have found a great deal of useful information on your site – its much appreciated. I wanted to ask you a few questions regarding the use of the Vanguard ETF’s especially in light of the soaring loonie which is nudging US$1.06 these days.
Do you think that the strong loonie should be an extra incentive for Canadians to buy the Vanguard ETF’s to diversify their portfolios? I feel that the strong loonie offers us an opportunity to buy these US$ based shares at a discount given that historically the CAD has been weaker than the US$. But I have read some blogs that warn that that may all be changing and that with increasing global demand for Canadian resources and with the problems in the US economy, we may see our dollar at least on a par with the US$ for a while to come.
No, I don’t think that the fact that the Loonie is extra strong (relative to the past) should be any extra incentive to buy Vanguard ETFs (read: US dollar ETFs). You are right, with pending problems in the US economy and increasing demand for Canadian resources the Canadian dollar may go even higher, or the Canadian dollar may fall back (or the US dollar may rise) to it’s historical norm relative to the US dollar. It is difficult to predict. It is good to own Canadian dollars if you plan on spending the proceeds of you investments in Canada. On the other hand if inflation ever became very bad in Canada and the Canadian dollar fell against the US dollar it would be nice to have US dollars. Also, if the Canadian dollar fell against all other currencies and you planned to spend your retirement savings travelling, then it would be nice if some of those investments were in something other than Canadian dollars. I think it’s important to have a balance and to not put all your eggs into one basket. He continued,
Also, I read your post about the exchange rate spread issue when buying US based ETFs and how if you do not plan to keep these ETF’s for a long time, the MER is essentially boosted by the costs associated with converting CAD to US$ and then eventually back again. Would this issue not lend more argument to buying ETF’s like XIN or XSP which have higher MER’s but at least you do not have to pay a chunk of change when you convert back to CAD?
Of course you would have to do some calculations yourself to see which is better (or see my post about foreign exchange costs). There are a bunch of variables involved: the foreign exchange rate spread, the MERs of XIN/XSP, the MERs of the Vanguard US$ equivalents, and the length of the time the investments were held. In general you’ll probably see that as the length of time increases, the lower MER investment will become more attractive. As the length of time decreases, the investment without the foreign exchange fees will become more attractive.
Lastly, I have read a lot about the exchange rate risk Canadians face buying ETF’s like VWO, VEA, VPL or VGK. How much of an issue is this? Surely as long as the ETF grows and we are buying these ETF’s now with a strong loonie, the risk must be fairly small and one could do well when the CAD eventually returns to a more realistic level with the US$.
I try not to worry about it too much because if you look at the long term historical trend, the Canadian dollar and the US dollar have not diverged substantially, although they do encounter some pretty big swings, as we have recently witnessed.
Right now I am inclined to overweight my portfolio with VTI, VWO, VPL and VGK to take advantage of the buying power of the loonie and then rebalance it with more XIC later when the CAD weakens a bit. Would this make sense right now or is there serious risk to assuming the CAD will weaken in the next few years?
Personally I wouldn’t assume the CAD will rise of fall in the next few years. Plan for a probability of either situation happening. Stick with an allocation of CAD and an allocation of USD that you are comfortable with, no matter what the current state of the loonie/dollar is, and the stick to that allocation. If you want to speculat, that’s up to you, however, but if you’re talking about a retirement portfolio I would just pick an allocation and go with it. If one currency rises substantially above the other you’ll find yourself buying the cheaper currency just to keep the portfolio balanced.
Anyway, thanks for you help and I look forward to reading your thoughts on these issues.
Thanks for your question Paul, and sorry for the delay in responding to it.
According to this article, Ohio high schools to include personal finance courses as of 2010. The article says:
Last year alone, BGSU students borrowed $129 million to attend school. Their debt worries don’t end here. Many are piling up bills they can’t pay on credit cards. The solution: mandatory personal finance classes in high school. That’s going to happen in 2010, the result of a bill sponsored by Ohio Treasurer Richard Cordray.
When I was in high school in BC we had a Business Education class in Grade 12. That included some personal finance topics such as preparing tax returns and investing in the stock market (those are the two I remember anyways). I had heard that the program was scrapped the year after I graduated and sure enough, the most recent google hit I can find is from 1997 or 1998 so they must have gotten rid of it. It’s too bad, as it was a good course. I know that I am definitely going to teach my kids about personal finance and investing even if they aren’t taught it in school. But I feel bad for all the kids out there who learn about some of the basics because it is not included in most school curricula.
Here’s a few tips on how to save a few bucks: 10 Smartest Ways to Live Beneath Your Means. Brown-bagging my lunch is probably one that I will never do (the cafeteria is just too easy and too cheap to pass up) but all the other tips are great.