Archive for July, 2013

Estimating the cost of not having a US Dollar RRSP account

July 25, 2013


If you hold a self-directed Registered Retirement Savings Plan (RRSP) account at a broker like TD Direct Investing or Scotia iTrade that still does not offer the ability to segregate USD-denominated securities held in RRSP accounts from securities denominated in Canadian Dollars, you are incurring a cost when dividends are paid into your account. The total cost depends on two factors: (a) the dividend yield of each holding that pays a dividend in US dollars (note that this may include both US-listed securities such as stocks and ETFs and about a score of Canadian companies that are listed on the TSX but pay a dividend in US dollars) and (b) the cost of converting US dollars into Canadian dollars at your broker.

To calculate how much it is costing you to hold a RRSP account at one of the offending brokers, I put together a simple Google spreadsheet. Just enter the cost of converting currency (as of this writing, a typical broker will charge roughly 2 percent for converting CAD into USD or vice versa), the holdings in your RRSP accounts that pay dividends in US dollars and their dividend information. The cost of dividend conversion is simply the total US dollar dividends received in a RRSP account multiplied by the cost of converting currency. Note that I have included Encana Corp. (TSX: ECA, NYSE: ECA) in my example below. Encana is a Canadian corporation that is a component of the TSX Composite Index but it pays dividends in US dollars, which will be converted into CAD in both Canadian dollar RRSP accounts and investment accounts at all brokers.


Some readers are under the mistaken impression that investors can avoid the currency conversion costs by enrolling in synthetic DRiPs. Unfortunately, DRiP investors are paying not just once but twice for converting currency. Their USD dividend payments are first converted into CAD, then their CAD are converted back into USD and only then are the dividends used to purchase more shares.

TD Direct Investing Disappoints on US Dollar RRSPs

July 22, 2013


It is more than 3 years now since RBC Direct became the first big bank discount broker to offer a US Dollar RRSP. The next year, BMO InvestorLine followed suit and allowed clients to segregate the US dollar investments in their RRSPs. While TD Waterhouse (now called TD Direct Investing) reacted to these moves by implementing an auto wash feature, it is disappointing to note that the broker still does not offer a true US Dollar RRSP account. It is doubly disappointing because TD Direct’s customer service representatives had been hinting to clients that a US Dollar RRSP is in the works and expect it to launch in the first half of 2013.

It is easy to quantify the cost of sticking with TD Direct Investing when some of the competition offer true US Dollar RRSP accounts. The automatic washing helps in saving on currency conversion charges when selling a security denominated in US dollars and buying another USD security even on different days. But, due to the lack of a true US Dollar RRSP, US dollar dividends received by a TD Direct Investor are forcibly converted to Canadian dollars and charged a fee of approximately 1.9 percent.

Let’s quantify the hit to an investor due to the lack of a true US Dollar RRSP. Take John, a self-directed investor, who holds $100,000 worth of Vanguard Total Stock Market ETF (VTI) and $100,000 worth of Vanguard FTSE Developed Markets ETF (VEA) in a TDDI RRSP account. John receives about $5,000 worth of dividends in US dollars from these two holdings and since the currency is being converted at 1.9 percent, staying with TD Direct is costing John $95 per year compared to RBC Direct and BMO InvestorLine.

What TD Direct Investing Customers can do

Clients of TD Direct Investing should quantify their cost of staying (1.9 percent of total US dollar dividends received in registered accounts) and determine whether it is worth their time and effort to switch to a broker that does offer US Dollar RRSP such as RBC Direct Investing or BMO InvestorLine (as an added bonus Norbert Gambits at these two brokers are fully automatic even in non-registered accounts). Clients may well decide that they are willing to bear the cost for the convenience of having all their accounts in one place.

This and That: Zweig column, Kahneman interview and more…

July 18, 2013


Saving Investors from themselves

In an excellent column in The Wall Street Journal Jason Zweig says that though the market constantly changes, sound advice rarely does.

Daniel Kahneman Interview

In an interview with The Motley Fool behavioural economist Daniel Kahneman discusses his field, his book and how his insights could help investors.

Designing an ultimate portfolio

The article is aimed at US investors but this Paul Merriman’s article in MarketWatch offers a step-by-step process for designing what he calls an “ultimate buy-and-hold” strategy.

Is ‘Smart Beta’ all that smart?

An article in The Economist magazine wonders if the new trend towards “smart beta” — capturing excess returns than the market by deviating from traditional capitalization weighted indexes — will suffer the same fate as alpha seekers.

Say No to Postal Code Requests

An article in Forbes points out why it may not be wise to give out your postal code when stores request it for customer traffic analysis purposes.

Home Brew Beer

The weather is hot outside and one’s thoughts naturally turn to beer. Canadian Money Forum members shared their experiences with brewing beer at home.

It’s takes a thief to know one

Bernie Madoff who operated the largest Ponzi scheme in history for decades and is now a “communications director” at a US Federal Correctional Facility offers tips on keeping your money safe from the predators on Wall and Bay Streets.

Normal markets, not 2008

Money manager Cliff Asness tells Fortune magazine that either interest rates are going to head back down or economic growth is going to pick up and either scenario is good for stocks.

Things to never buy new

This video on Yahoo Finance says that buyers can save a ton of money by buying things like cars and jewelry second hand.

Dow 36,000 revisited

While admitting he was wrong, the co-author of the unfortunately titled and timed book Dow 36,000 says he is now more respectful of the role that bonds can play in a portfolio.