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.

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.

This and That: Money in a mattress, falling markets and more…

June 21, 2013


Stuffing money in a mattress literally!
From the “why didn’t I think of that file” here is an interesting story on Bloomberg TV about a mattress maker in Spain who is tapping into today’s mistrust of the banking system by selling a mattress with a built in safe.

Falling Markets are a good thing!
Stocks, bonds, REITs, commodities and even good old bonds are falling like nine pins lately. The Wall Street Journal’s Jason Zweig says that if you are going to be accumulating assets for the next little while, lower asset prices are good for you (though it might not seem that way).

Things to avoid at garage sales
If you are going to shop at garage sales this summer, Reader’s Digest offers a list of items to avoid. It seems to me that avoiding items on the list such as bike helmets are just common sense.

Frugal Disney World
A wag said that the true magic of Disney is the amount of money they can extract from your wallet everyday. Still, it looks like Canadian Money Forum members have tips on how to save money at Disney World.

No Irrational Exuberance
In an interview with CNBC’s Squawk Box, former US Fed Chair Alan Greenspan says that stock markets are “significantly undervalued” based on equity risk premiums (here’s a good explanation of ERP).

Why ERP should be used with care
In a blog post, Aswath Damodaran, a Professor of Finance, pokes holes in Greenspan’s comments and points out that historically an increase in interest rates has tended to reduce the equity risk premium (the return from stocks is risk-free rate plus ERP), so stock prices may not be so undervalued after all.

Bond Bear, Stock Bull
Fortune magazine explained why Greenspan’s comments that bond yields are going to rise and stocks are a bargain based on current equity risk premiums makes little sense.

I’d like to be a couch potato, but…
Michael James says that while many investors are convinced by the arguments in favour of indexing, true couch potatoes are rare.

Blogs as a business
Million Dollar Journey shares some insights into how much it costs to start and maintain a blog or website.

The Power of Denial
Here’s something completely different: CBC’s The Current ran a story on an intriguing theory that the thing that is so special about humans is… denial. That would explain a lot of why so many people still believe in active management (sorry, couldn’t resist it).