One of the best arguments for avoiding U.S. stocks is starting to become a non-issue.
No, the U.S. government hasn’t figured out a way to address its monster-size deficit and solve all its economic problems. If those are your reasons to forego U.S. content in your portfolio, then the news about U.S.-dollar RRSPs won’t mean much.
But for investors who have thought about capitalizing on our dollar reaching parity with the U.S. buck by purchasing American stocks, the new U.S.-dollar registered accounts coming in mid-May from online broker RBC Direct Investing are huge.
Two small independent firms, Questrade and Qtrade Investor, have for a while offered registered retirement accounts that allow clients to hold U.S. dollars without a forced conversion into Canadian currency. RBC DI’s introduction of this feature shows the mainstream is starting to embrace it.
About time, experienced investors have to be saying at this point. Right now, investors are being gouged every which way when they buy or own U.S. stocks or bonds. First, you pay a hefty foreign exchange fee to convert Canadian dollars to U.S. currency to make a purchase. When you sell, the proceeds are automatically converted back to Canadian dollars with yet another fat forex charge.
Receiving any dividends or bond interest in U.S. dollars? Ka-ching. Every time you receive a payment, it’s converted and, thus, reduced in value to the enrichment of your broker.
This currency conversion abuse is mostly eliminated in the U.S.-dollar registered retirement savings plans, registered retirement income funds, locked-in retirement accounts and tax-free savings accounts at RBC DI (notable exception: registered education savings plans).
You’ll still have to convert Canadian dollars when buying U.S. assets in your RBC registered accounts, including tax-free savings accounts. But after that, U.S. dollars stay in U.S. dollars.
“The money remains in U.S. cash until you decide to reinvest in another U.S. denominated asset, or you can convert it back to Canadian dollars,” said Jason Storsley, president and CEO of RBC DI. “But that’s at your discretion. There’s no forced conversion.”
