Investing in USD

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Wing
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Investing in USD

Post by Wing »

In protecting myself from the potential depreciation in CAD, I'd like to put some money holding USD. I can only think of these options:

- Buy USD ETF
- Open a USD savings account at a bank and hold USD cash

What other alternatives are there?
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Re: Investing in USD

Post by peter »

The easiest way is probably to just buy US stocks or an ETF with US stocks. It doesn't matter if they're on the TSX (ETFs) or in the US, as long as they hold US stocks and are not currency hedged. Buying USD with CAD of course also bets on a USD increase vs. CAD but isn't very productive as USD accounts in Canada give basically no interest. Borrowing CAD (= going short CAD) is also a bet that CAD will decline (but against what?). Borrowing CAD to buy US stocks/ETFs doubles up on the USD bet. If you're really serious about this you can also look into currency futures. That would require a broker that gives access to them and an understanding of futures. I would suggest that for most Canadians diversifying into US stocks through any non-hedged ETF on the Canadian exchange is likely the most appropriate and simplest.
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Re: Investing in USD

Post by Wing »

Thank you! I'm new to ETF, let me do some research on that.
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Re: Investing in USD

Post by Peculiar_Investor »

Wing wrote:Thank you! I'm new to ETF, let me do some research on that.
You could start with our wiki article, Exchange-traded fund.
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Re: Investing in USD

Post by gobsmack »

Wing wrote:In protecting myself from the potential depreciation in CAD, I'd like to put some money holding USD. I can only think of these options:

- Buy USD ETF
- Open a USD savings account at a bank and hold USD cash
The first option above does not offer you the protection you are talking about. If you were to buy VTI, for example, it is entirely possible you would see both VTI and CAD lose value after you bought it. I think it may be best to concentrate on how you would like to invest the money without focusing too much on the USD/CAD rate.
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Re: Investing in USD

Post by adrian2 »

gobsmack wrote:
Wing wrote:In protecting myself from the potential depreciation in CAD, I'd like to put some money holding USD. I can only think of these options:

- Buy USD ETF
- Open a USD savings account at a bank and hold USD cash
The first option above does not offer you the protection you are talking about. If you were to buy VTI, for example, it is entirely possible you would see both VTI and CAD lose value after you bought it. I think it may be best to concentrate on how you would like to invest the money without focusing too much on the USD/CAD rate.
I think there is some confusion about what the OP means:
1. investing in the foreign exchange rate itself, i.e., he/she believes the greenback will appreciate against the loonie, or
2. investing in US$ denominated instruments, i.e., using USD (sub-)accounts.

If #1, it's a crapshoot. IMHO. I have no ability to forecast changes in exchange rates.

If #2, it's an "optical" illusion.
- Are you taller in inches or centimeters?
- Is it better to value your house in CAD or in EUR?
- Assuming you hold gold coins in your safety deposit box, for tracking returns, is the USD gold price or the CAD gold price relevant?
- If you hold Royal Bank shares, would you get a better return by holding them in Canadian dollars or US dollars?
etc.
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Re: Investing in USD

Post by DavidW »

adrian2 wrote:
gobsmack wrote:
Wing wrote:In protecting myself from the potential depreciation in CAD, I'd like to put some money holding USD. I can only think of these options:

- Buy USD ETF
- Open a USD savings account at a bank and hold USD cash
The first option above does not offer you the protection you are talking about. If you were to buy VTI, for example, it is entirely possible you would see both VTI and CAD lose value after you bought it. I think it may be best to concentrate on how you would like to invest the money without focusing too much on the USD/CAD rate.
I think there is some confusion about what the OP means:
1. investing in the foreign exchange rate itself, i.e., he/she believes the greenback will appreciate against the loonie, or
2. investing in US$ denominated instruments, i.e., using USD (sub-)accounts.

If #1, it's a crapshoot. IMHO. I have no ability to forecast changes in exchange rates.

If #2, it's an "optical" illusion.
- Are you taller in inches or centimeters?
- Is it better to value your house in CAD or in EUR?
- Assuming you hold gold coins in your safety deposit box, for tracking returns, is the USD gold price or the CAD gold price relevant?
- If you hold Royal Bank shares, would you get a better return by holding them in Canadian dollars or US dollars?
etc.
If you did hold Royal Bank shares, are you investing in #1 or #2 when you repatriate your dividends?

I am currently about 50/50 Canadian stocks to US+ stocks in the USD account and slowly increasing the US amount as reinvestment ability allows. I do consider currency movement in my dividend stream planning and although the currency rate does effect my dividend stream, I find myself paying more attention to currency movement and how it effects my margin room. I don't have a target percentage by country for the USD account, there is just more to choose from on the US exchanges. I don't really want to replace the Canadian stocks there for weaker companies although I have done a little of that for currency exposure while maintaining my cashflow requirements - I would like to be increasing the strength of the portfolio.

Another option is to buy one of the TSX listings that trades in US dollars. For myself, these annoy me. They usually have a .U behind the symbol.
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Re: Investing in USD

Post by Wing »

How about if I see buying USD as a stand alone investment by itself? Is holding USD cash in bank the simplest option I have (just like buying gold and shove it into the safe deposit box)?

ETF really seems too complicated for me to understand. I'd probably get lost while needing to bake into the currency fluctuation, change in prices, dividends, fees, etc. I prefer to keep things as simple as possible with no/low fees.
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Re: Investing in USD

Post by gobsmack »

Wing wrote:How about if I see buying USD as a stand alone investment by itself?
This is how the CRA will treat your purchase of USD. It is an investment. When you sell your USD later, you will have to declare a capital gain/loss just as you would with an ETF or a stock. (i.e., assuming you are not buying/selling in a registered account like the TFSA).

I am not trying to discourage you from investing in ETFs. I am simply clarifying that it will not offer you the protection you are after.
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Re: Investing in USD

Post by twa2w »

If you simply want to play the currency then yes a simple USD bank account would do the trick. You could also buy USD gics at your bank, there are also currency swaps and futures you can do through your broker but these may require more knowledge or a larger investment.

Investing in gold, us etfs etc brings other factors besides currency into play such as market risk and you are no longer looking at a pure currency play.
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Re: Investing in USD

Post by brucecohen »

twa2w wrote:If you simply want to play the currency then yes a simple USD bank account would do the trick. You could also buy USD gics at your bank
Note that USD accounts are not CDIC insured.
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Re: Investing in USD

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Re: Investing in USD

Post by DenisD »

DLR/DLR.U can be used for Norbert's Gambit. But I don't think it's good for a long term holding because of the relatively high MER.

TDDI has USD money market funds such as TDB166 and TDB8152 which have a constant price of $10 and pay a small amount of interest monthly. But the price and interest aren't guaranteed. I assume other brokers offer similar products.
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Re: Investing in USD

Post by adrian2 »

DavidW wrote:Another option is to buy one of the TSX listings that trades in US dollars. For myself, these annoy me. They usually have a .U behind the symbol.
It makes no difference for all intents and purposes.
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Re: Investing in USD

Post by adrian2 »

DenisD wrote:TDDI has USD money market funds such as TDB166 and TDB8152 which have a constant price of $10 and pay a small amount of interest monthly.
Lately, that small amount of interest has gone up quite a bit, in relative terms.
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Re: Investing in USD

Post by gsp_ »

TDB8152 is a HISA and has not moved. TDB166 is MM and has gone up.

TDCT has cashable(no interest) US$ term deposits of less than a year with comparatively better rates and branch employees have a little leeway to bump up the rates slightly from what's listed on their website. Best option I found for USD not needed imminently.
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Re: Investing in USD

Post by adrian2 »

gsp_ wrote:TDB8152 is a HISA and has not moved. TDB166 is MM and has gone up.
You're right, I was referring to the US$ MMF, where the interest rate has tripled, or more, from the low ebb.
I'm using RBF261, the RBC US$ MMF, currently paying 0.75%
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Re: Investing in USD

Post by gsp_ »

adrian2 wrote:I'm using RBF261, the RBC US$ MMF, currently paying 0.75%
Where is that number(0.75%) from and is that before or after the .17% MER? Thanks.

Looking at its holdings I've never heard of the majority of the Trusts' commercial paper it holds. Wonder what JHymas would say about this stuff.
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Re: Investing in USD

Post by rapporteur »

Wing asked:
What other alternatives are there?
One other choice is buying/selling a CFD (contract for difference). OANDA is one Canadian firm offering them.

For a US dollar/Canadian dollar hedge (USD/CAD) you might buy $100,000 dollars worth of USD (US dollars) while shorting the corresponding amount of Canadian dollars. It needn't be $100,000 - it can be any amount you choose (even MUCH less). Moreover, your leverage is 50:1 (a two-edged sword that may badly cut the greedy or unwary) so you would only need CAD $2700 or so to (just barely) cover this amount. However, it would be wise to have a significant additional cushion (margin) in case exchange rates start moving against you - maybe CAD $10,000. You can (fully or partially) cancel any time.

Doing this you earn the (overnight) interest rate spread between the two currencies (currently this 'carry' is working slightly against you). However, the interest rate spread is usually swamped by the fees OANDA (or other CFD broker) charges you and you wind up paying either way. Currently it would cost about CAD $2.00/day to hedge US $100,000 (i.e., buy USD/CAD).

For an example, see:
https://www.oanda.com/forex-trading/ana ... calculator

Not advocating, just informing :D

Regards,

PS I do this to (partially) hedge some US ETFs I own back to Canadian dollars (i.e., I do it the opposite way, shorting USD/CAD instead of buying it)

PPS I think Questrade also offers CFDs but last I checked (quite a while ago) their vig was higher
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Re: Investing in USD

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gsp_ wrote:
adrian2 wrote:I'm using RBF261, the RBC US$ MMF, currently paying 0.75%
Where is that number(0.75%) from and is that before or after the .17% MER? Thanks.
http://www.fundlibrary.com/funds/db/fun ... =13332&t=2

Yield as of yesterday: 0.7723% (after MER, net to investor)
gsp_ wrote:Looking at its holdings I've never heard of the majority of the Trusts' commercial paper it holds. Wonder what JHymas would say about this stuff.
Interested as well.
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Re: Investing in USD

Post by gsp_ »

adrian2 wrote:http://www.fundlibrary.com/funds/db/fun ... =13332&t=2

Yield as of yesterday: 0.7723% (after MER, net to investor).
Thanks. The google hits I looked at(fund's homepage, M*, etc.) all had outdated info.
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Re: Investing in USD

Post by gobsmack »

adrian2 wrote:
gsp_ wrote:
adrian2 wrote:I'm using RBF261, the RBC US$ MMF, currently paying 0.75%
Where is that number(0.75%) from and is that before or after the .17% MER? Thanks.
http://www.fundlibrary.com/funds/db/fun ... =13332&t=2

Yield as of yesterday: 0.7723% (after MER, net to investor)
In a taxable account, how would the ACB calculation for a USD money market fund work out? Would it be like a daily drip in USD?
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Re: Investing in USD

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gobsmack wrote:In a taxable account, how would the ACB calculation for a USD money market fund work out? Would it be like a daily drip in USD?
Distributions to all MMF / HISA are accrued daily and paid monthly (or when you liquidate the position).
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Re: Investing in USD

Post by jiHymas »

gsp_ wrote:
adrian2 wrote:I'm using RBF261, the RBC US$ MMF, currently paying 0.75%
Where is that number(0.75%) from and is that before or after the .17% MER? Thanks.

Looking at its holdings I've never heard of the majority of the Trusts' commercial paper it holds. Wonder what JHymas would say about this stuff.
Lots of ABCP and pools; e.g., Clarity Trust, Canadian Master Trust, Sound Trust, Ridge Trust and Banner Trust. Looks like a lot of work on credit analysis to be done for a handful of beeps.
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Re: Investing in USD

Post by gsp_ »

Thanks James.

More work than I'm willing to do, sticking with short term TDCT GICs for now.
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