Author Topic: loonie buying US stocks right NOW?  (Read 4974 times)

scrubbyfish

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loonie buying US stocks right NOW?
« on: February 06, 2015, 08:02:59 AM »
I have different chunks to allocate at different points (long story). Today I newly have $71000 available to allocate. I use the Canadian Couch Potato model, lots in the US market.

I know we're not to try to time the market, and I know it's generally better to invest a lump sum earlier vs dollar cost average it over a future period, and I've read the threads like: http://forum.mrmoneymustache.com/investor-alley/are-you-making-any-moves-in-response-to-the-usd-cad-exchange-rate-shift/

But. I'm still perplexed.

Do I allocate this much money right now while the loonie is so low relative to US? Or not?

On the one hand it seems like "yes because we never know what's going to happen any which way and when" and because the better gains of the US market is considered in percentage, so a 10% gain, for example, is a 10% gain regardless of whether I could buy 80 or 100 shares on a given day. This said, is there any silliness in using CAD to buy US stocks right now? Do I break from the standard recommendations (e.g., get lump sum in as early as possible) in this case?

morning owl

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Re: loonie buying US stocks right NOW?
« Reply #1 on: February 06, 2015, 08:44:51 AM »
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But. I'm still perplexed.

Do I allocate this much money right now while the loonie is so low relative to US? Or not?

Why do you want to invest now? Do you see this as a good time to invest in the US markets? If so, why?

Your 71,000 will instantly become 53,000 in the currency you are living in. Is it worth a 25% loss to buy now? You are counting on (edited -- I'm not sure the percentage! I guess it depends on the currency value when you convert back to CAD) gains in what you buy just to break even, unless you are planning to retire to the US. (Or unless you have some kind of currency insurance, as was discussed in that other thread.)

Personally I think no, but I don't know your situation, so you may have other reasons for wanting to do this.
« Last Edit: February 06, 2015, 08:49:58 AM by morning owl »

Will

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Re: loonie buying US stocks right NOW?
« Reply #2 on: February 06, 2015, 08:53:21 AM »


Your 71,000 will instantly become 53,000 in the currency you are living in. Is it worth a 25% loss to buy now?

This isn't really valid.  You cannot compare apples to oranges.  Having 71,000 of one thing that you trade in for 53,000 of something else does not result in a 25% loss of value.

scrubbyfish

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Re: loonie buying US stocks right NOW?
« Reply #3 on: February 06, 2015, 08:54:44 AM »
Why do you want to invest now? Do you see this as a good time to invest in the US markets? If so, why?

Only because the MMM/CCP/etc stuff says to get your money into the market as early as possible, with lump sums also dumped in ASAP (vs dripped in slowly).

My longterm allocation plan is Canadian Couch Potato via Waterhouse, with a good 30% of the total amount going in to US stocks. That made sense 40 days ago, but I can't figure out if all that is true today.

No, I won't be moving to the US, and don't have currency insurance.

Your 71,000 will instantly become 53,000 in the currency you are living in. Is it worth a 25% loss to buy now? You are counting on minimum ~35% gains in what you buy just to break even...

Ah! So there IS some silliness to such a move...


morning owl

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Re: loonie buying US stocks right NOW?
« Reply #4 on: February 06, 2015, 10:39:09 AM »
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This isn't really valid.  You cannot compare apples to oranges.  Having 71,000 of one thing that you trade in for 53,000 of something else does not result in a 25% loss of value.

I realized after I wrote this that it is impossible to calculate because it depends on the currency rates when exchanging back to CAD. Oops.

This is an interesting discussion. You're right -- currency rates can only be relative.

My thinking, perhaps not articulated very well, is that currency rates, like the stock market, are cyclical. If you look at the history of CAD to USD, it is veering towards a low point now. That's not to say that it can't get any lower -- but historically, it is currently close to one of the three lowest dips in the past 60 years. This fact, combined with the fact that US markets are at an all-time high, make me hesitant to buy. I would rather wait a while until the cycles are aligned in a more advantageous way. This is not to say that I will find the height of the CAD dollar, or the lowest point of the US market, but based on history of both, this does not seem like a great time for Canadians to be buying US stocks.

Yes, this sounds like market timing. I'm not saying that the stars are guaranteed to align on these two variables to my advantage. But these facts, and knowing their cyclical natures, make me hesitant to buy at the moment.

That said -- I am not an index investor, so I DO look for value stock purchases that could potentially be US equities. I do not rule them out entirely just because the CAD is low. For example a few weeks ago I purchased some US energy stocks while the dollar was at about 80 cents. Who's to say how that purchase will turn out, but for me, there seemed to be value there. I am always on the lookout for value, and it's challenging to see this when a low CAD / high US stock market align themselves.

morning owl

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Re: loonie buying US stocks right NOW?
« Reply #5 on: February 06, 2015, 10:45:07 AM »

My longterm allocation plan is Canadian Couch Potato via Waterhouse, with a good 30% of the total amount going in to US stocks. That made sense 40 days ago, but I can't figure out if all that is true today.

My bad, scrubbyfish... Ignore what I said about the 25% loss! This only assumes the dollar will be on par when you go to convert it back. I think it's partly a psychological loss for me, because it seems like the dollar was on par when I started taking investing stuff seriously :)

So you are looking to balance out your assets to a certain percentage of US stock? Then, if you're just wanting to create a balanced portfolio according to the Couch Potato allocations, it's worth considering... but as I said above, I'd be hesitant. This is totally a personal type of call though. I would wait, but as others have pointed out, I could be wrong in doing so! :)

Sorry if this isn't helpful, but I find the question interesting and am trying to figure it out for myself as well.

Heckler

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Re: loonie buying US stocks right NOW?
« Reply #6 on: February 08, 2015, 11:42:23 AM »
Could have, would have should have. 

VUN is still heading up, just not as sharply as VTI because of the exchange.
« Last Edit: February 08, 2015, 11:44:09 AM by Heckler »

rocketpj

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Re: loonie buying US stocks right NOW?
« Reply #7 on: February 10, 2015, 10:58:15 AM »
Meh, why sweat it so much.  The USD goes up when there is turmoil in the world, the $C tends to go down with commodity prices (though not as much as some currencies).

You are worried about the $C going up right after you buy, but the opposite could happen as well.  3 months from now it could be down further relative to the $US.

If commodity prices stay low and global markets keep having problems (esp. the Eurozone) then the USD is very likely to keep going up relative to our dollar ($C) in which case you would feel pretty smart having bought some US stocks right now.  Or the opposite could happen.

A more important question (in my opinion) is your time horizon.  If it is more than a decade then just follow your allocations and don't sweat it. 


Retire-Canada

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Re: loonie buying US stocks right NOW?
« Reply #8 on: February 12, 2015, 11:45:32 AM »
Meh, why sweat it so much. 
A more important question (in my opinion) is your time horizon.  If it is more than a decade then just follow your allocations and don't sweat it.

You want to get your money into the market. Stuff is changing all the time. As long as you choose investments with reasonable expectations for returns you'll be further ahead in a few years than any reasonable currency fluctuations.

I'm in Canada and when I get close to FI I'll be moving some cash into both currencies so I can keep some liquidity in each country for travel and for further investments.

At the moment I'm focused on growth so I don't want cash sitting around.

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scrubbyfish

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Re: loonie buying US stocks right NOW?
« Reply #9 on: February 12, 2015, 04:38:24 PM »
My bad, scrubbyfish... Ignore what I said about the 25% loss!

Yep, no worries! This is why we come here, to the forum, where we can hear and discuss several points of view until we find whatever gels. I appreciate you getting into the discussion. Even where we're incorrect (me = frequently), a thought can trigger a clarifying discussion, which is very helpful to lots of us.

I think one catch in all of this is that I've been assuming I don't have to convert CAD to USD to buy US-listed. I've been imagining I can buy (fewer) US stocks with CAD, vs convert to USD then buy. Now I'm thinking I must be incorrect, that any US stocks are ultimately purchased in USD funds, hence the currency risk. I'm going to head back to the other thread to try more to understand that piece, via discussion on the CCP quote.

 

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