[SRQinvestor]

I have $100m US in cash that is doing nothing. (live in Canada) I am looking for ideas on what investment ideas readers would have for this. If investments (stocks, etf's, mutual funds) are made in US $ is there a simple way to hedge the currency risk? tks

 

[takingprofits]

Probably the easiest gain to be made from US cash is to convert it now while it enjoys this little bounce up. I think the whole world is of the opinion that the value will only go down from here.

 

[hylaride]

If you have a $100 million in cash you should most definitely not be asking for advice here, but talking to 5 or 6 different high-net-worth specialized investment advisors.

If that's a typo and by 'm' you meant 'k' I'd do what people have recommended for years for Canadians and split it 3 ways: Canadian, American, and International equities/bonds. If your timeframe is long enough, any inflation/devaluation of the US dollar will eventually be reflected in prices for everything you have there.

If this money is needed in the near term (less than 5 years for say a down payment on a house or tuition or something), you're better off leaving it in Canadian bonds or term deposits as to not be subject to potentially large swings in exchange rates.

 

[SRQinvestor]

Tks for catching the typo. It is $100K and a part of a larger portfolio. The money is available for 5 -7yr deployment (retirement after that).

 

[hylaride]

There are ways you can hedge currency risks with some ETFs, though most of them involve converting your cash to CAD and using currency hedged ETFs that have foreign equities. This article explains it. The main drawbacks are higher fees. Canadian Capitalist also demonstrated some odd differences; he followed up with it again later.

Despite all that, those ETFs are probably the easiest way to hedge. However, if you plan to spend some of your time as a snowbird, you'd probably be best leaving it in USD and investing from there and forget about currency hedging, lest exchange fees (typically around 2% at a regular bank) take your hard earned money.

 

[leslie]

I disagree with the advice to convert the US$$ into Loonies. It was claimed that this would crystalize a profit. But the reverse is true. The Loonies has strengthened hugely and the dollar weakened.

I disagree with the advice to be moving cash between the currencies. The fees to do so are too large. And pretty soon you will be wanting back in.

A little late now, but when you have US dollars sitting there that you don't know what to do with, the easiest hedge is to buy the Loonie ETF (N-FXC). This effectively moves your exposure from dollars into Loonies, without the fees. If you still don't put the cash to work, I still recomment it, even though there may be a pull-back (because I believe the Loonie will continue to strengthen).

Personally my US$ position is hedged with an overdraft at my broker equal to my US equity positions. I created the OD by buying N-FXC, so there is no carry trade going on here. Interactive Brokers charges very low interest on the OD, but your broker's rates may make this a more costly hedge.

I am using my US cash to buy commodity type investments. But I am certainly not recommending anything. Learn more about hedging US exposure.

 

[hylaride]

I disagree with the advice to convert the US$$ into Loonies. It was claimed that this would crystalize a profit. But the reverse is true. The Loonies has strengthened hugely and the dollar weakened.

I never said it would crystalize a profit. We don't know how long he's had the money in USD even.

SRQinvestor isn't even trying to play the forex game, which is why he wants to hedge. You can't predict what's going to happen to the exchange rates. There are too many variables. What I did recommend was that if he is going to retire and remain in Canada, he's going to eventually need to convert it back to CAD either way. So if he's going to invest in broad index funds, he's best using a hedged ETF/mutual fund priced in CAD. There are organizations where you can convert money and only pay the wire fees and a very small spread (1-2 pips). If he's going to spend some of his retirement in the US then moving the money back into CAD would be counter productive and he should leave it there. If that's his plan and he doesn't want to invest (he insinuated that he does) but merely hold the cash, I agree with your Loonie ETF recommendation.

While the brokerage overdraft works well with quick, speculative investments, if and when interest rates go back up to 4-5% then he's paying thousands of dollars a year in interest just to maintain his hedge position. If his current income is in a lower tax bracket, the tax deduction of the interest for investment purposes won't save him much. If he wants to invest in individual stocks, he may also have little choice but to go that route (if he wants to invest the full $100K). Also, the man wants simple. He may or may not be comfortable with borrowing that much money this close to retirement.

But since he hasn't provided some of this information, he's going to have to take what we gave him and decide himself.

 

[el oro]

Converting to $CDN would be a good idea at the moment. The USD will soon drop in value with inflation. Commodities will be up from inflation. The $CDN is more of a resource based currency and will therefore outperform the USD in the near future.

 

[canadianbanks]

Canadian dollar is a fiat currency and will go down with the USD, which is of course fiat as well. The rate of debasing might be slightly lower compared to the USD, but still you will lose lots of purchasing power if you keep what you have in cash.

 

[el oro]

Canadian dollar is a fiat currency and will go down with the USD, which is of course fiat as well. The rate of debasing might be slightly lower compared to the USD, but still you will lose lots of purchasing power if you keep what you have in cash.

Agreed. Cash and money market funds won't be a good investment but $CDN will fare better than the USD.

 

[Kinny]

As Peter Schiff has mentioned hundreds of times, the best way to hedge against US dollar inflation, is to invest in multinational companies that is traded in the US stock market.

By multinational companies, he means companies who are well positioned in the emerging markets and that generates revenue from foreign industries, rather than from the US itself.

This way, you don't have to deal with exchange rates/fees and at the same time, invest in emerging markets if USD does collapse.

One way to see it is, if the USD does collapse, and there is high inflation, US stock price will be inflated as well, unless the company you invested in only operates in the US...then it may be a different story....because the possibility of those US companies 'growing' during an inflation, may be well limited.

 

[el oro]

As Peter Schiff has mentioned hundreds of times, the best way to hedge against US dollar inflation, is to invest in multinational companies that is traded in the US stock market.

By multinational companies, he means companies who are well positioned in the emerging markets and that generates revenue from foreign industries, rather than from the US itself.

This way, you don't have to deal with exchange rates/fees and at the same time, invest in emerging markets if USD does collapse.

One way to see it is, if the USD does collapse, and there is high inflation, US stock price will be inflated as well, unless the company you invested in only operates in the US...then it may be a different story....because the possibility of those US companies 'growing' during an inflation, may be well limited.

That's good advice. But what if inflation happens outside of the US as well? We're in a world recession/depression and most world economies aren't growing much if at all.

 

[OhGreatGuru]

Roll them up into tight little bundles, and fasten with wire;
Feed them into your air-tight wood stove.

Seriously, who knows where currency is going? If this 100K is just "part of a larger portfolio", and you are looking at 5-7 year time frame, I would be tempted to buy a small condo in Arizona simply because of the depressed real estate market in the US. But having it managed as a revenue property for the next few years could complicate your income and tax situation more than you want.

PS. If I had to guess, I would say this is a good time to convert to CDN $, because I expect CDN$ to start going up again as soon as oil prices pick up, and this will happen faster than the US economy/US$ improves. Another consideration is whether or not you see yourself taking extended vacations in US over the next few years, in which case you may want to keep a US$ account.

 

[HaroldCrump]

I would be tempted to buy a small condo in Arizona simply because of the depressed real estate market in the US.

If that's what you wanna do, these guys have been advertising the same quite a lot recently on Radio
http://www.forgetwinter.com

 

[Mike H.]

I recently converted some $US to $CAN. I talked to several banks and got the best conversion deal from Olympia Trust. http://www.olympiatrust.com/fx/

It was fast and easy. I called them and booked a rate, faxed identification and my signature. I delivered a $US draft and received a Canadian draft in return. All in the space of one hour.

 

[leslie]

But the problem is that with most brokers you cannot withdraw US dollars (in US currency) from the account in order to get it to the exchange company. In all the comparisons of discount brokers one aspect (of many that I find important) always ignored is this exactly.

The Bank of Montreal broker (cannot remember their name) has their accounts set up so that your US cash is actually sitting inside a US dollar 'chequing account'. You can deposit US-pay checks at your bank branch directly into the broker account. And they give you US-pay checks to use to get money out.

They have p..'d me off in other stuff so I am no longer with them, but they get marks in this regard.