Investing

RRSP and TFSA - invest in CAD or USD?

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  • Aug 23rd, 2020 4:43 am
[OP]
Newbie
Feb 9, 2020
13 posts
2 upvotes

RRSP and TFSA - invest in CAD or USD?

Hello everyone! I cashed out my RRSP and TFSA mutual funds and want to invest the funds into a combination of individual stock and ETFs.
The basic dilemma I am facing is whether to invest them in CAD or USD (after conversion).
In which currency do you invest yours? What are the pros and cons of each? What do you recommend?
Thanks and have a great weekend.
8 replies
Deal Fanatic
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Dec 14, 2010
6081 posts
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I personally think that the quality of company and valuation are more important than the currency risk of being in USD.

In RRSP, dividends are fully tax deferred, if a US company pays US$1 in dividends, you get US$1. In TFSA, there’s a withhold tax on dividends, so if a US company pays US$1 in dividends, you get US$0.85.

Every portfolio is different, there’s no right or wrong setup. On my case, I have US stocks (investing) exposure on my RRSP. And that’s because I have a large exposure to Canadian stocks on TFSA and margin account. On my TFSA, I hold Canadian stocks that are not tax favorable on my TFSA, like REITs and income trusts. I also hold growth stocks on my TFSA, since I like to use my TFSA for large purchases - this way, gains are withdrawn tax free and I gain the investing room back next year, which I use to move some of the trading and growth investing from my margin account back to TFSA, so it’s always fully maximized.

Plan your Canadian and US exposure first. Which companies you want to invest on. Define what to buy first. Then you can dive into the how, which includes the “container” that you will hold these stocks.



Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

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[OP]
Newbie
Feb 9, 2020
13 posts
2 upvotes
Great insights.
Quick question - when you buy US stock in your RRSP, do you buy them in USD or in CAD? If you buy them in USD, do you convert CAD to USD within your RRSP?
rodbarc wrote: I personally think that the quality of company and valuation are more important than the currency risk of being in USD.

In RRSP, dividends are fully tax deferred, if a US company pays US$1 in dividends, you get US$1. In TFSA, there’s a withhold tax on dividends, so if a US company pays US$1 in dividends, you get US$0.85.

Every portfolio is different, there’s no right or wrong setup. On my case, I have US stocks (investing) exposure on my RRSP. And that’s because I have a large exposure to Canadian stocks on TFSA and margin account. On my TFSA, I hold Canadian stocks that are not tax favorable on my TFSA, like REITs and income trusts. I also hold growth stocks on my TFSA, since I like to use my TFSA for large purchases - this way, gains are withdrawn tax free and I gain the investing room back next year, which I use to move some of the trading and growth investing from my margin account back to TFSA, so it’s always fully maximized.

Plan your Canadian and US exposure first. Which companies you want to invest on. Define what to buy first. Then you can dive into the how, which includes the “container” that you will hold these stocks.



Rod
Deal Fanatic
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Dec 14, 2010
6081 posts
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Norinyeg wrote: Great insights.
Quick question - when you buy US stock in your RRSP, do you buy them in USD or in CAD? If you buy them in USD, do you convert CAD to USD within your RRSP?
I convert to USD so that dividends settle in USD. So everything from that point remains in US$ and is done in US$.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
[OP]
Newbie
Feb 9, 2020
13 posts
2 upvotes
Makes sense. Thanks a lot.
How do you convert your CAD to USD? Do you use Norbert's gamble or just go for a simple transfer/conversion by the bank?
rodbarc wrote: I convert to USD so that dividends settle in USD. So everything from that point remains in US$ and is done in US$.


Rod
Deal Fanatic
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Dec 14, 2010
6081 posts
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Norinyeg wrote: Makes sense. Thanks a lot.
How do you convert your CAD to USD? Do you use Norbert's gamble or just go for a simple transfer/conversion by the bank?
My brokerage allows me to convert CAD to USD, so that my portfolio has a US side and a CAD side. They are traded independently. Many brokerages allow this setup. I think you cannot deposit USD into RRSP or TFSA, I believe it needs to be deposited in CAD and then converted to USD.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Addict
Jul 15, 2009
1949 posts
1064 upvotes
Norinyeg wrote: Hello everyone! I cashed out my RRSP and TFSA mutual funds and want to invest the funds into a combination of individual stock and ETFs.
The basic dilemma I am facing is whether to invest them in CAD or USD (after conversion).
In which currency do you invest yours? What are the pros and cons of each? What do you recommend?
Thanks and have a great weekend.
Good question.

I use CAD in TFSA and USD in RRSP.

CAD because exchanging is a pain and costs a lot. Pay 2.5% in both directions and you've lost 5%. My amounts are small enough that Norbert's Gambit is not worth the trouble.

USD because in an RRSP, when you buy US ETFs directly, you don't pay US withholding tax, but when you buy the same ETF wrapped in a Canadian ETF, you pay the withholding tax regardless. This saves about 0.3% a year, so 3% for a 10 year investment, 6% for 20 years, etc. This savings is not available in a TFSA, only in an RRSP.

For details, see here:
https://www.pwlcapital.com/resources/fo ... /?ext=.pdf
Member
Feb 8, 2015
350 posts
291 upvotes
Manotick, ON
RRSP & TFSA Money Maker Quick Guide:

Non Registered: AC, BA, UAL, DAL, CCL, RCL, AAL

TFSA: SHOP, FB, AMZN, NFLX, GOOG, TSLA, ZM, NVDA, AMD, SQ, ETSY

RRSP: MSFT, AAPL, HD, COST,


The strategy:
-Sell all your non registered at losses. Get out of the sector. Carry forward the losses or deduct them against past capital gains for a major tax refund.
-Keep collecting your fat pay checks in your RRSP.
-Let your TFSA grow to infinity and beyond
Jr. Member
Jul 17, 2018
159 posts
88 upvotes
Generally speaking, the US stock markets have produced greater returns than the TSX. It's certainly easier to invest in Canadian stocks. It's a good idea to have a mix.

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