Dear Nancy,
I have been holding onto a large portion of U.S. dollars from selling a big portion of my U.S. portfolio. I want to invest some more in some Canadian banks and utilities but I'm hesitant to convert to Canadian dollars at this time. Should I just bite the bullet and change my money?
Signed Bob
Dear Bob,
If you want to invest the U.S. dollars you could consider buying an interlisted stock. The major banks do have their shares trading on the TSX and NYSE stock exchanges. The difference in prices between the two exchanges takes into account the currency difference.
If the security is still held in a U.S. dollar side of an investment account, the dividend is paid in U.S. dollars as well. You would have to keep track of the exchange rate each time it is paid or use the prescribed rate at the end of the year. The dividend still qualifies for the dividend tax credit since it is being paid by a Canadian company. For tax declaration purposes, you declare the cost and sale prices in Canadian dollar values.
All of this is a benefit if you are of the opinion that the U.S. in future will strengthen. I assume that is why you are reluctant to exchange the U.S. money now. If the U.S. dollar really does strengthen it will be reflected in the spread or price difference between the two markets.
When trading in any currency other than the Canadian dollar you are exposing yourself to foreign exchange risk. If you are not willing to take on this risk, it maybe the suitable time to look for mutual funds or exchange traded funds that hedge the dollar.
With the uncertainty and volatility in the world these days, the fewer risks the better.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com or visit her web site at nancywoods.com
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Nancy Woods