Converting CAD to US

[Russellhantz]

Hi Friends,

I'm a brand new member and am really excited to be joining the community. Looking forward to reading all your insights and slowly slogging through all the threads. I have an immediate question which I tried to search for but couldn't find anything.

I know the argument against market timing but what about currency exchange? I'm Canadian and I currently have 20% in an intl ETF (XEF), 20% in a SP500 index (VUN) and the rest I have split up into 12 canadian dividend growth stocks at about $2,000 in each. Is 20% enough US exposure? I have been antsy to dive into some US consumer stocks because my Canadian stocks are mostly Utilities, Financial and Telecom, but the current Canadian dollar is at a brutal .78USD. I'm looking to convert $8000 CAD. Does the exchange rate matter in the long run? or is a 20% exposure in a US index enough to wait for a better conversion rate a few months down the line?

Thanks in advance!

[earthtodan]

Welcome to the forum. With US consumer staples still pretty highly valued in my opinion, you may be paying a premium on top of a premium.

From my side of the border though, it's been great having TD go on sale!

[benjamen]

I am not sure how the taxes for Canadians work, but you could also try investing in other parts of the world such as Europe (GSK, Nestle, UL) or Australia (BBL) that do not have such a bad currency conversion.

[Russellhantz]

Thanks guys for the great suggestions and important points. I'm gonna look at the withholding taxes on foreign stocks in canada.

As for the premium on the premium comment, once the Fed raises the interest rate wont the american dollar just continue to get stronger? I guess if it is not a good time to buy due to exchange rate, would it be best to increase my US etf allocation and continue investing in Canadian stocks till the exchange gets a little more even, hopefully a few months from now?

How about the canadians on the forum? Are you guys holding out for a better exchange rate?

[Roadmap2Retire]

Hey Russell,
Welcome to the forum. Im Canadian as well.

I wouldnt try to time the market and simply look for good investing opportunities. Yes, the US$ is expensive and all trends seem to point that the US$ bull market will continue for a while (most economists agree that the currency trends are long trends - that span multiple years and do not quickly change back and forth - and some are expecting this strong US$ uptrend to continue for the next 4-5 years). No one really knows how its going to play out - thats why we play this game right?
The initial investment might be a bit expensive, but look at it this way - your dividends are also paid in US$, which means your returns if you are converting back to CAD$ are better, all things being equal.

But the flip side to that argument is that most equities in the US except a couple of sectors are very expensive - with very high PE and other ratios. So, there might be better opportunities at home or elsewhere.

A good way to take advantage of this is to look for Canadian companies which derive a major or part of their revenue from the US, so they benefit from the strong US$ when they report in CAD$. The banks are the obvious choice - such as TD, RY and BMO - which have a strong US presence.

[Russellhantz]

Hmmm. Interesting point R2R. I guess most of my concern stems from trying to set up my core portfolio sooner rather than later and getting in on some of the good american dividends and levelling out my Canadian portfolio exposure. Not coincidentally when I look at my current portfolio performance on google finance all I see is red and white .

I guess maybe my question boils down to this:

Is it more important to set up core holdings / sector distributions first when building a portfolio or does value trump everything when growing the portfolio? Should i be going for diversification first or value?

[Roadmap2Retire]

Do they have to be mutually exclusive?

I understand why you are asking that question in the current market environment. But even in this environment, there are some really high quality companies available at decent prices - CVX, XOM, JNJ are all trading at good-to-decent valuations. And these companies can form any portfolio's core.

[hendi_alex]

IMO the strong USD has nowhere to go but down. Would be very hesitant to put too much exposure into US stocks if living in Canada. Since late last year I've been diversifying away from US exposure.

[crimsonghost747]

I mostly missed the euro dropping against the dollar, though I did manage to grab some USD back in the good days of 1.35
Currency pairs are tricky and I believe that the principle of dollar cost averaging can also be used with them.

But in the end it's up to what you believe the USD/CAD will be in the future. For example I'm still not against turning euros into dollars and buying from the USA since I have very little faith in the EU and the euro, so I see them possibly moving closer and closer to parity in the coming years, maybe even the USD being stronger at some point.

[Russellhantz]

I C. I think the CAD will continue its slump. The next couple years are going to be slow for canada and with the US taking off I wouldn't be surprised to see the CAD get down to .75US shortly and then hover around .80US for the next couple years at least.

I guess if i think this it doesn't matter and i'll accept that the CAD wont get much better for the next few years so why not start the US component of the portfolio now.

my 8000 CAD will probably buy me around 6000 USD. my plan was to split it into 4 piles of 1500 each and put it in JNJ, CVX, DIS, KO.

or would you guys recommending putting all 6000 into 1 stock?

[rapidacid]

(03-14-2015, 03:49 PM)Russellhantz Wrote: my 8000 CAD will probably buy me around 6000 USD. my plan was to split it into 4 piles of 1500 each and put it in JNJ, CVX, DIS, KO.

or would you guys recommending putting all 6000 into 1 stock?

Depends what the rest of your portfolio looks like, but I'd be more inclined to dump it all into JNJ or KO

[Russellhantz]

(03-14-2015, 06:40 PM)rapidacid Wrote:

(03-14-2015, 03:49 PM)Russellhantz Wrote: my 8000 CAD will probably buy me around 6000 USD. my plan was to split it into 4 piles of 1500 each and put it in JNJ, CVX, DIS, KO.

or would you guys recommending putting all 6000 into 1 stock?

Depends what the rest of your portfolio looks like, but I'd be more inclined to dump it all into JNJ or KO

What would be the reason for going for larger allocation? The transaction fees currently free and even then they are a nominal .05% fee for diversification.

My current portfolio:

2000 in each:
RY.TO - Bank
BNS.TO - Bank
BMO.TO - Bank
CM.TO - Bank
CU.TO - Util
FTS - Util
ENB.TO - Energy
RCI.B - Telecom
BCE - Telecom
TRP - Industrial
CNR - Railroad
REF.UN - Reit

9000 - VUN - US etf
9000 - XEF - INTL etf