Reader Question On US Dollar Investment

by Mike Holman

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I posted on a reader question regarding buying a stock in Canadian or US dollars some time ago.

This is another question from that reader.

Ian writes that he has a large $US money market mutual fund sitting in a non registered account that for tax efficiency should be registered but he just can’t swallow the forex conversion at below par (he obtained the US$ when it was worth much more than the Canadian dollar).
My answer

As far as keeping your US$ money market in a non-reg account in the hope that it will go up – I would say that is not a good strategy. I’m not saying sell it, but rather you should look at your total investment portfolio, figure out asset allocation which will include different currencies and go from there. If you can fit in the US$ into a non-reg account then great, otherwise forget about the past and just set up the best portfolio you can starting now.

You are doing a lot of investing in US dollar securities which I think is a good move since the Canadian dollar is very high. It may hurt to convert the US dollar cash into Canadian dollars but if that’s the better move then you have to do it.

I saw Peter Lynch speak a number of years ago and one of the points that I remember best was his example of someone who bought a stock at $100, the stock goes down and the investor gets all despondent and just wishes the stock would go back up to $100 so that they can sell it and not lose any money. They refuse to sell the stock or buy more – they just want to sell the stock at the price they paid (ie get a refund). Lynch said that this is not a logical way to invest. You have to evaluate that stock at the new price and figure out if you would buy it at that price (ie keep it) or if not, then you should sell it.

I don’t know much about your overall portfolio but I can’t imagine that having a lot of money in a money market fund in a non-reg account fits in very well. If you were to put that money into an rrsp and buy US$ investments then you are really not converting anything (ignore the double currency conversion) – it will still be US$.

Please note that I am not a financial advisor and you should consult with a professional financial advisor before implementing any financial changes.

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{ 7 comments… read them below or add one }

1 Jordan

If he wants to register the assets but not pay any forex, he could consider buying US stocks and donating them in-kind to his RRSP. Most RRSPs don’t allow for USD cash, but they all allow for US-listed stocks.

If he wants to keep his money in Canadian assets, he could even invest in Canadian cross-listed stocks that trade on the NYSE/NASDAQ.

2 Four Pillars

Thanks Jordan – Cdn Cap pointed that out as well on the original post (which I kind of forgot about).

3 telly

What about Questrade’s USD account?

4 telly

Should have read “USD RRSP account”.

5 Four Pillars

Telly – yup.

I actually wrote this post before they announced their USD change.

I readily admit that at least half of this post is garbage – however my point of not hanging on to loser investments is still valid.. (I think) :)

Mike

6 telly

ha! I appreciate your honesty. :)

So now you can use the post as an advertisement for Questrade and maybe get someone to sign up. :)

7 Four Pillars

Hey, good idea! Maybe I’ll “edit” in a few more lines and an affiliate link… :)

Mike

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