When I write ‘head south’ I am talking about the number 1 warm-up designation for Canadians and that is to the southern US. Many will go to Florida or course. Texas and Arizona are also very popular. I’d strongly suggest that you make your way to California as well, you many never see Florida again. Those Canadian retirees who head south on a regular basis and for an extended period are known as Canadian snowbirds. They even have their own association.
And there are many Canadians who like to head down south for a couple of weeks to get away from the ice and snow and ‘warm up’. In Central and Eastern Canada, this past Winter was particularly difficult with non-stop snow and ice and cold temperatures. But many were stuck here in the great white north thanks to this graphic …
And this chart on the Canadian vs US Dollar …
Yup, our Canadian money simply does not go far when you’re travelling to the States. Currently it cost about $1.35 to buy a US dollar. That would mean that your $3,000 condo rental might cost you over $4,000. Every time you make a purchase it costs you considerably more in Canadian dollar terms. You’ve recently experienced considerable lifestyle inflation if you’re a traveler.
I’ve talked to many retirees and recent retirees who did not go South this past (terrible) Winter due to the weakness of the Canadian dollar. Many working Canadians who wanted to get away also pulled the plug on vacation plans thanks to that sinking Canadian dollar.
These folks need to hedge their lifestyle. There’s no reason for a currency to hold you back. Most Canadians need to hold some US-dollar stock and bond investments as well as some US cash for the next trip or three. Most of us will hold that well-diversified portfolio that includes US assets for our longer term retirement portfolio, but we don’t apply that same strategy to our shorter-term monies that might fund special and regular events such as those trips. We can completely remove the currency risk by holding enough US dollar stock and bond assets as well as that US cash account.
If you hold US stock funds you’ll get that combination of the potential for portfolio growth in tandem with protection against a weak Canadian dollar. US based portfolio growth will hopefully pay for future trips to the US. As you may know the US stock market has been on a tear for the last decade, greatly outpacing Canadian and International markets. If you’re comfortable with ETFs (Exchange Traded Funds) there are many simple low-fee options. You might have a look at the MoneySense Best ETFs for 2019. Here’s the link to the ‘Best’ US ETFs.
Keep in mind that you do no want the CAD-hedged, or Canadian dollar hedged assets. You want US stocks with that US dollar exposure. You want the XUU and VFV not the VSP and ZSP. These are ETFs that have US exposure but they are priced in Canadian dollars. You will face some currency conversion charges when you go to purchase those US dollars. But the main focus here is to eliminate that weak Canadian dollar risk.
There are a few tricks of course in the land of holding US assets and currency conversions back and forth. Here’s an outline on Norbert’s Gambit from Million Dollar Journey. That process allows you to convert CAD to U.S. dollars with minimal tradings costs, but no currency conversion charges.
U.S bond exposure
It may be more than prudent to also manage that US stock exposure volatility or risk by way of some US bonds. For US bond exposure you might look to BMO who offer a suite of bond ETFs in Canadian and US dollars. As an example here’s the BMO Mid-Term US Treasuries ETF ZTM.U. Once again you might create your own US balanced portfolio with a 20%, 30%, 40% or even 50% bonds. That will reduce the portfolio volatility and decrease the time the portfolio might need to recover in a major market correction. We don’t want markets to derail our trips. You can also go directly to iShares US and Vanguard US sites to see their full suite of US bond offerings in US dollars.
Keep in mind that the ZTM carries price risk. In times of rising rates the bond prices will go down. You might also look to ultra short bonds such as UBIL.U from Horizons. The yield is near 5%, so you will be paid well and there is no price risk. Ultra short bonds are cash-like. BMO also has ultra short options.
I would suggest that you consider a mix of mid duration and those ultra short bonds. You might slant more towards the ultra short (cash).
Creating US dollar accounts
Here’s a great primer from RBC on holding US assets and withdrawing US funds from their dual currency accounts. And here’s an overview from Questrade on holding US dollar accounts in RRSP and TFSA. Check in with your discount broker on their account offerings and on how you might best hold and withdraw your US dollar assets.
You can certainly hold US dollar assets in a US RRSP or RRIF account. And you should be able to transfer those US proceeds to your US dollar savings account. In that case, you can avoid any withholding taxes and currency conversion charges. Of course, you’re going to create taxable income when you remove funds from your RRSP or RRIF or LIF.
You might also go the route of opening a US dollar TFSA account. In that case you would face the 15% withholding taxes on US dividends and 10% on US bonds. It’s difficult to be ‘perfect’ at times and perhaps being perfect is not important. That was a theme of John Robertson in my recent review of The Value of Simple. A small withholding tax on a small portion of your total return might be of a minor concern compared to the greater task of hedging your US travel costs. Of course the benefit of the TFSA is that the proceeds and gains will not be taxable income or taxable in any way.
You can even access US dollar investment accounts by way of Robo Advisor Justwealth. They have many snowbird clients who cover their US travel costs by way of the US accounts that are linked to an external US savings account. Here’s the link to their US account performance page.
The simple U.S. Balanced Portfolio
The most advantageous way to manage those US travel costs might be with a dedicated US dollar investment account . You might create a Balanced US Investment portfolio consisting of those US stocks and US bonds. In good years for the stock market you would harvest from the equity investments. In bad years for markets you would turn to the US bonds. And again, you’d hold a mix of mid duration and ultra short bonds.
The wild card is that you may not want to or have the ability to immediately move considerable sums to a US dollar account. This might be a building process where you create that US investment account and build assets over time. If you plan to travel internationally you may add those international assets as well. The key is to hedge your lifestyle, or your future retirement travel plans. Included in the mix will be a Canadian allocation. There’s the potential for Canadian dollar to outperform the US dollar moving forward.
You may not be a self-directed investor and may need some mutual fund options. I’ll be back with an article covering that space.
Thanks for reading. Kindly hit those share buttons.
I guessing a couple of typos crept in – it’s Norbert’s Gambit not Norbitt’s Gambit – also your table shows XUU MER as .08 while in the comment is .07
Thanks vbgcai, Yes I’ve penned it as Norbert’s so many times. Not sure why my brain went to another place. The XUU reference and chart is pulled directly from the MoneySense article. I believe they are referring back to the Management Fee.
Thanks for the proof 🙂
For me I just suck it up, but last fall was the first time in 6 years that I’d taken a vacation in the states. The other issue is traveling even further south you still have to keep in mind that the US dollar is the official currency in Panama and Ecuador and in Belize it’s a fixed rate of $1 US dollar = $2 Belize dollars. Just about everywhere in the Caribbean takes US dollars.
My Questrade account is funded through transfers from my credit union, all in Canadian dollars. Are you saying that I can go in and make a trade in the NYSE, say I want to buy shares in Apple, and does Questrade do a currency exchange for me?
VFV trades on the TSE in Canadian dollars so I’m not quite sure how that translates back into US dollars. But I’m more curious how I can buy US stocks that trade in US dollars when all I have is the lowly Canadian dollar. I do not have US bank accounts.
Hi Cheryl, Justin Bender did a clean and simple video for Norbert’s Gambit for Questrade clients. Of course there will be transaction costs to consider.
https://www.youtube.com/watch?v=bE3wc-1rTII
You can also use the move to slide current Canadian assets to the US dollar account side. I will check in with Questrade on the ability to link a US Savings account. I would guess and hope that it is possible. If any reader knows that answer please post that here in the comment section.
Again, for those not already covered, this might be a gradual US dollar investment account building process, over time. Retirees and semi retirees hopefully already have that covered with their well diversified portfolio that includes US dollar assets, perhaps in RRSP/RRIF and TFSA or non registered.
Hi Dale. Thank you for providing that video. And way to go for embedding that link in the comment! That’s very helpful. Sounds like the biggest pain is reaching someone at Questrade on the phone to convert to DLR.U.TO It seems like it all has to go through the RSP account instead of just the regular margin trading account? That sucks because that’ll be taxed when it comes out. Right now I’ve been just putting my RSP dollars into VGRO but it’s not like I’m stuck om it. I’m really open to getting ETF in US dollars in there. Sounds like this might be an interesting way to go about it.
Thanks Cheryl, I’d suggest you call Questrade and to see what is possible. You’d be able to do the Gambit where US account are permitted. As you state there can be tax considerations for non reg. And of course RRSP RRIF for those of us in that stage.
I love the VGROs of course. That gets you about 32% US stock exposure but It comes attached to other ‘stuff’. I think we’re best served isolating the US assets if we want to truly hedge or cover our travel lifestyle and set up that US savings account.
But in the end, again, being perfect on this might not be possible, or necessary. The key is to hold those US and perhaps International assets. But being as efficient as possible with respect to withholding and conversion fees should be considered.
And get the ‘best’ US travel credit card.
Dale
And yes one can link that US savings with Questrade.
https://questrade-support.secure.force.com/mylearning/view/h/Account/Funding+your+account
Thanks to Mark from myownadvisor for the link.
OK, I thought I’d follow up with my experience, based on taking the advice in the video in the above comment. Thanks!
I had a little money in my Questrade RSP account, the final transfer in from an RSP group fund of a company that I no longer work for – shortage of work. Too bad for me. I liked that job. This was Monday, 2 weeks ago. With that RSP money I bought 56 shares of DLR.TO. A couple hours later I phoned Questrade and asked to journal the shares to DLR.U.TO
Questrade said due to the 2 days for ETF purchase to settle, they’d have to wait but she got the ball rolling. She also said when I do this in the future, if I wait 2 days then phone Questrade, they can probably journal to US by the next day, 2 days at most. So she told me this transaction will be complete by Thursday. So the whole process should take 4 days at the most.
Thursday, I took a last minute journey south to Oregon, returning Tuesday night, so I did nothing for a few days.
On Wednesday morning I logged into Questrade and there I have my 56 shares of DLR.U.TO in a USD account! Yay! I sold them. The cash didn’t go into the account right away, so I left it till the next day. On Thursday I logged into Questrade and have the cash sitting in the US dollar account. I ended up buying 15 shares of DGRO with it.
Anyway, when I find another job, it’s my plan to continue doing this for the RSP. So I’m finally doing the US dollar thing in an RSP. Thanks again!
Awesome, thanks for sharing. It’s great to hear of the real life experiences of readers. Good or bad. But glad to read that is working out and the process was not that difficult. What were the costs?
As far as I can see, no costs with the journaling. Two trading costs add up to $5.35. I have no idea if I took a ding on the exchange rate, don’t want to look too closely at that one! So far I’m up about USD $9 on the stocks value which is better than going the other way!
We head to Ohio in July for my son’s baseball. Yes, we’ll take in a Cincinnati Reds game as well 🙂
While we may pay the hotel bill on credit card, take the hit, all of our US spending monies is sitting in our US cash account. We’ll bring lots of cash to avoid any currency conversions. It’s nice to have that part taken care of. US savings could cover credit card bill if need be.
For credit cards I’d suggest folks check out Barry Choi (money we have site) as he lists some cards that do not charge for US currency conversions. I believe it’s a Scotia card.
If I recommend a card – Home Trust Visa – free, pays back 1% annually, F/X at market rate (set by Visa, way better than you can do than even say Knightsbridge) and it has road service (!) (haven’t used the road servicet so cannot comment as to effectiveness)
only things that are a bit annoying:
– no PAD facility to pay off the monthly balance automatically – has to be performed manually 🙁
– no “tap” – meh!
I have used it for a while – works for me.
Thanks @fbgcai, good to know. The fees on top of conversions can be a killer. The most appropriate card is certainly part of the total travel ‘kit’.
I use Questrade to perform Norbert’s Gambit on a fairly regular basis. There’s no charge to purchase DLR.TO the same as with any ETF at Questrade (less the occasional ecn fee at around 30cents per $1k if the transaction counts as removing liquidity). To journal the shares you used to have to either call them, or use the chat function to request the journal, but they’ve just made this easier as there is now a dedicated “journal shares” option under the “management” tab when logged into your account.: https://www.questrade.com/learning/investment-concepts/dual-listed-securities/journaling-shares
They do charge a commission to sell the DLR.U.TO (the same as selling any ETF with Questrade), which works out around $5.30. They state this whole process is supposed to take 4 days to complete (5 if you only just bought the DLR.TO), but I find it is often completed quicker than that. I’ve only done this in my RRSPs so far, so can’t speak from experience if it’s the same within my margin account, but I don’t see any reason why it would. Based on their currency exchange fees I find the break even point (rather than just paying the currency exchange cost) for performing Norbert’s Gambit is any transaction over $1k. The only time I make an exception is if I’m trying to take advantage of a timely purchase opportunity, as the process takes a few days. Just to clarify I have zero loyalty or connection with Questrade (I also have a QTrade account!), I just find it a fairly simple process with them after finally taking control of my financial future four years ago-after reading my first article of yours!! You’ve changed my retirement in ways you can’t imagine Dale-thank you from the bottom of my heart!
Hi Scott, thanks for the update on Questrade and Norbert’s Gambit. That is very helpful. And I’m so glad to read that your retirement improved for the better. And I appreciate you sharing that. So nice to hear the blog helped. Please reach out at any time, if you have any questions.
Dale