Strategies for moving currency (US to Canada)

[FLBiker]

Background -- we're an American family moving to Canada as permanent residents in a few months.  We're planning to buy a house (hence moving a chunk for the down payment).  I'll also most likely be paid in USD, and thus be transferring money regularly.

I've gotten some ideas for techniques for moving currency -- I'm currently planning to do either TransferWise or Knightsbridge (please let me know if you have opinions).  I also know about Norbert's Gambit, and I understand that I could theoretically do it with individual interlisted stocks (but NOT ETF indexes as I want to avoid PFICs).

I'm curious, though, for some direction on bigger picture strategies.  What are the big picture considerations in terms of currency conversion?  For example, with investments, we talk about diversification, low fees, risk tolerance, NOT market timing, etc.  I'm sure there is a similar set of principles around currency conversion, but I don't know them.

My current thinking is that we'd convert most of our cash (likely around $100K - $150K between cash and house profit) to CAD when we move (because I feel like the exchange rate is currently good.  But what about investments?  For our taxable, we're planning to hold it in a Canadian brokerage (Questrade) in US-domiciled Vanguard ETFs.  But for our tax-sheltered, should we switch some of it to Canadian dollar based funds?

Does anyone have any recommended reading on the "philosophy" of currency conversion?  Note, I'm not interested in Forex trading -- I just want to make sure I'm doing my currency exchange in a reasonable way.

I'd also be interested in recommendations for a professional I could talk to -- I'm happy to pay for an hour or two of work for someone who would look at the specifics of our situation and make educated recommendations.

Thanks!

[ctuser1]

My current thinking is that we'd convert most of our cash (likely around $100K - $150K between cash and house profit) to CAD when we move (because I feel like the exchange rate is currently good.  But what about investments?

The above, especially the bolded section, and.....

Note, I'm not interested in Forex trading -- I just want to make sure I'm doing my currency exchange in a reasonable way.

are incompatible...

For your broader question:

Canadian economy is very small. For perspective, it is *much* smaller than California, about the size of Texas and just a tiny bit larger than NY-State. So, it is likely to have more volatility/risk.

I also think US is more innovative. I am hopeful that the innovative nature will outlast the current political climate.

Given these two, I'd probably have elected to keep assets divided between USD and CAD, with a heavier bias towards USD, maybe even a 2/3rd vs 1/3rd split.

[FLBiker]

Ha, touche!  I guess I'm hoping in part that by learning more about big picture currency conversion, I can let go of some of my market timing inclination -- that was certainly the impact that learning about investing had on me.  I went from actively trading individual stocks to actively managed mutual funds to index investing the more I learned.  I assume there's a similar (albeit likely simpler) learning curve around this and I'd like to begin it. :)

[TrMama]

I'm not sure there's much of a philosophy on currency conversions. Other than perhaps applying a dollar cost averaging approach so you never get burned too badly. I'd also find a bank that allows you to easily and cheaply convert so you don't spend too much on fees. Questrade might have one, TD also has good options.

I think you first need to figure out your preferred asset allocation and then work backwards from there to determine how much CAN$ vs US$ you should have and when you'll convert from one to the other. Even if you intend to live here forever, I still wouldn't make any massive changes until you've lived here for at least 3 years. Why 3 years? Because this is the amount of time it takes for the novelty of a new place to wear off.

However, I'd caution against ever putting too much into the Canadian market. Even as a Canadian citizen who's paid in CAN$ and plans to remain here for life my AA sill only calls for 25% in Canadian equities. As ctuser1 pointed out we're a small economy. We're also a resource based economy. This means the economy  isn't diversified and can be subject to market forces beyond our control. For me this means I hold quite a lot of US index funds, even though I'll likely never earn US dollars or live there.

You might find the Canadian Couch Potato blog to be interesting reading.

[FLBiker]

Thanks for the response!  I've checked out the Canadian Couch Potato and found it useful.  And I'm a little surprised to hear you recommend TD as I thought all the bank rates were kind of bad.  I'll have to take a second look.

I wasn't saying that I'd necessarily shift my portfolio to be largely in the Canadian market, exactly.  I was thinking more that, in my tax-sheltered accounts I could hold the Canadian dollar version of, say, Vanguard Index funds.  I had thought this was a thing (as I thought it was one of the ways that people did Norbert's Gambit).  And, fundamentally, that's one of the things I don't really understand -- if I hold the same fund (say a Vanguard index fund) what impact does the currency I hold it in have (if any).

[meghan88]

Re. moving and converting fees, have you looked at xe.com?  You'll get much better rates than you would at a bank.  It is easy to set up an account.  Their online currency converter will show you mid-market rates, so your actual rate will be a bit worse, but not as bad as what the banks will charge re. your portion of the "spread" between buy and sell.  I checked out Transferwise to compare against xe, and xe was better. YMMV.

Example of xe's rates vs TD:  Exchanging CAD$ 1000.00 for US$, I could get US$ 1314.41.  Yet over at TD, I'd only get US$ 1288.50.  That's quite a difference.

There is also revolut.com - available in the US and coming soon to Canada.  Looks like they will give you the interbank rate (maybe even a better rate than xe.com) if you do your transfers during weekdays.  On weekends, xe.com also has a higher spread than on weekdays, so please remember to only transfer funds on weekdays if you use xe or revolut.

There must also be a way to do Norbert's Gambit via buying and selling securities to get the funds converted, though of course that's not without its own risks.

[FLBiker]

Thanks!  I'll check out xe.  And thanks for the tip about doing it on a weekday, I didn't know that.

---

I just compared xe and Transferwise.  Doing $30,000 US, I get a better deal on Transferwise -- 39,560.26 on TW vs 39,399.00 on xe (vs 39042.00 @ TD).  I'll definitely check box whenever we do it, though.  Thanks!

[meghan88]

I think Revolut could be even better than Transferwise or xe if you're able to use them.

I'm guessing that there are legacy rates with xe.com - not all clients signed on at the same time, so rates may vary for different clients, and perhaps you can negotiate.

**Update re. Revolut - I think it's mainly available for EU residents, though they are trying to break into the Canadian and US markets.  I sure hope they do, because I'm tired of getting bilked for 3% or more whenever I use a credit or debit card outside of Canada ...

[FLBiker]

Thanks, I just added myself to the Revolut waitlist in the US.

And when you say 3%, are you talking about a foreign transaction fee, or just the spread between the exchange rates?

[meghan88]

Both, I guess, more or less.  For example, mid-market rates as between CAD and EUR are at 1.4326.  Yet, a credit card purchase made today shows a rate of 1.4737, which is more than 0.04 over mid-market.  If I withdraw cash from an ATM, TD will charge me at least 3.5% over mid-market.

[daverobev]

STRONGLY suggest Interactive Brokers. You get spot rate for transfers, basically, with no faff.

Even the best other method costs 0.5% unless you go for Norbert's Gambit.

Norbert's Gambit is done using interlisted shares - eg you buy DLR.U.TO and then 'journal' to DLR.TO. One is USD in USD, the other is USD in CAD. It costs the price of a couple of trades (I used to do this with Questrade, it would take about a week from buying one to selling the other).

But yeah for monthly income or large chunks, IB is the best.

[meghan88]

STRONGLY suggest Interactive Brokers. You get spot rate for transfers, basically, with no faff.

Even the best other method costs 0.5% unless you go for Norbert's Gambit.

Norbert's Gambit is done using interlisted shares - eg you buy DLR.U.TO and then 'journal' to DLR.TO. One is USD in USD, the other is USD in CAD. It costs the price of a couple of trades (I used to do this with Questrade, it would take about a week from buying one to selling the other).

But yeah for monthly income or large chunks, IB is the best.

Just went to their site - seems to be only for professionals?  Is it available to individuals in Canada?

[daverobev]

https://www.interactivebrokers.ca/en/home.php

They just target themselves as a bit more than say Questrade - slightly more technical.

If you click 'Open Account' you can see the first option is 'Individual Investor or Trader'.

[FLBiker]

Interesting, thanks for the recommendation on IB.  In looking at the platform, I'm not sure I'm an active enough trader to justify it.

I just did our initial "good faith" deposit on our house via Transferwise.  It cost ~$3775 USD to send $5000 CAD, vs $4023 USD from my credit union or $3889 from TD Bank.  Both of those bank rates include both the exchange rate and also the international wire fee.  It was very easy to use -- so far, I'm a fan.

I will look into IB, though, as we'll need to move some investments somewhere anyways.  I'd been leaning towards Questrade.  Thanks!

[FLBiker]

Update: The Transferwise process has so far been very smooth and quick -- they've received the money from my credit union already, and it is supposed to be in the Canadian bank account by the end of the day today (which would be ~30 hours).

And Interactive Brokers (US) will NOT work with US Citizens who are Canadian residents.  I may open an IB Canada account once I move, though, to hold taxable investments (US domiciled to avoid PFIC) and do currency conversion.

[Goldielocks]

You are on the right track using Transferwise or a Forex broker.  That's what we did to move the house money.

Since then, I have used Norbit's Gambit (at TD, but Questrade will help you too, TD over the phone support was amazing for this).  So, definitely look into Norbit's Gambit.  Really, I had the money in cash in the USD account, a phone call, and (after waiting for it to clear), money in the CAD account.  Done and done.   Having it at TD meant that it was linked to a TD chequing account and I could online transfer it there, and take it out via ATM or cheque or whatever.  My primary banking is not even TD.

Strategy -- The key strategy here, as someone who thought they could relocate for a few years and get a currency exchange benefit -- is don't count on it.

Move the $'s into CAD that you will live on while here.  If you plan to retire here, or will travel here a lot in future years, then have a portion of your retirement in CAD $'s so you can outlast a 7 year period of poor exchange rates. You can invest in US companies  / ETF  in CAD dollars, for a tiny MER penalty. 

Like the others say, only put 25% into CDN stocks.  The rest can be CAD dollar ETFs on US or internaitonal indexes, for money you want to eventually spend in Canada.  Keep USD for money you want to spend in USA.  You can set up USD trading accounts within your Canadian brokerage accounts and avoid exchange rates.

It sucks to have your foreign investments gain 40% over 8 years, yet be 10% down in the local currency that you want to spend it in.