One of my biggest frustrations as an ETF investor is that so few online brokerages allow you to hold US dollars in registered accounts. Last year BMO InvestorLine became just the fourth brokerage to add this feature, following RBC Direct Investing, Questrade and Qtrade.
A few other brokerages offer partial solutions: TD Waterhouse, for example, allows you wash your trade if you’re selling one US security and buying another in an RRSP. But that doesn’t help you if you have new US dollars your want to contribute to your registered accounts.
My own brokerage, Scotia iTrade, offers a so-called US-Friendly RRSP. For a flat fee of $30 per quarter, you can buy US securities in your RRSP with Canadian dollars and avoid the usual spread, which is about 1.5%. I test-drove this service last year, and it’s adequate if you’re making a large transaction once a year. But I’m not going to pay $120 annually for it. Especially now that I’ve discovered a solution for sidestepping currency exchange fees in RRSPs—a solution that should work at any brokerage.
Four simple steps
Although most brokerages do not allow you to hold US dollars in RRSPs, they all allow you to do so in non-registered accounts. So here’s the technique: you buy the New York–listed ETF in US dollars in a non-registered account, and then transfer it in-kind to your RRSP. I tried out the strategy this month, and it worked without a hitch.
If you already have US cash in a bank account, follow these steps:
- Open a non-registered account with the same brokerage where you hold your RRSP. (Make sure the account carries no annual fee.) It took about a week for my new account to be up and running, as I had to send some paperwork by mail.
- Link the non-registered account to your US-dollar bank account so you can transfer funds without converting the currency. My US-dollar bank account is also at Scotiabank, so this was simple, but it may be more problematic if your brokerage account and your bank account are with two different institutions.
- Transfer US dollars from the bank account to the non-registered brokerage account and use this money to buy shares of a US-listed ETF. I bought additional shares of Vanguard’s Total International Stock ETF (VXUS), a core holding in my RRSP. Because the purchase was made with US dollars, I paid no currency conversion fee. My only cost was the $10 trading commission, which I would have had to pay anyway.
- Transfer the ETF shares in-kind from the non-registered account to the RRSP. At Scotia iTrade, there is a simple online form for this transfer request and it took about 30 seconds. If your brokerage does not offer this service online, you may have to call customer service. Once the transfer is complete, you will receive credit for an RRSP contribution equal to the market value of the shares in Canadian dollars.
The tax consequences
This sleight of hand may not be entirely without tax consequences. An in-kind transfer to an RRSP triggers a deemed disposition, meaning the Canada Revenue Agency treats it as though you sold the shares. If your ETF goes up in value between the time you buy it and the time you transfer it, you’ll incur a taxable capital gain. Unfortunately, if the value of the shares falls, you cannot claim a capital loss.
This is a rather small risk, however, as you can transfer the shares almost immediately. I filled out the online form the day after I made the purchase—I didn’t even wait for the trade to settle—and the shares showed up in my RRSP the following day. Because you pay a trading commission and a bid-ask spread when you purchase the ETF shares, you’re already starting with a small loss. So for you to incur a significant tax hit, the market would have to move up quickly and dramatically. Even then, the tax bill would likely be lower than the currency conversion fee you would have paid.
A gambit to call my own
Even if you don’t have a US-dollar bank account, you can still use this trick if you start with Canadian dollars. Simply transfer your loonies from your bank account to the Canadian side of your non-registered account and then use Norbert’s gambit to convert the currency before you make your ETF purchase.
You can do this using the Horizons US Dollar Currency ETF (DLR and DLR.U), which trades for free at Scotia iTrade. I tried this method as well, and it works fine, although I did have to wait three days for the DLR trade to settle before customer service could journal it over the US side of the account so I could sell it. The bid-ask spreads cost me about 0.20%, or $2 on every $1,000 converted.
I’ve always envied Norbert Schlenker for having a gambit attached to his name. So I invite investors everywhere to use this trick and to share it with others, but you have to refer to it as “Dan’s gambit.” I think it’s a fair exchange, don’t you?
Hi Dan,
I also use Scotia iTrade and have used Dan’s gambit – worked like a charm for me too. Cheers!
MC
A strategy which is both awesome and brilliant at the same time. This will definitely help to reduce the spread erosion factor on investing/trading.
Hey Dan, I should be getting dibs on naming rights on this strategy!
http://www.canadiancapitalist.com/contribute-us-stocks-in-kind-to-your-rrsp/
@CC: Damn you, Ram. I get one chance at having my own gambit, and you have to pull out a five-year old post and claim to have discovered it first. Fine, let’s call it “Ram’s and Dan’s Gambit.” :)
I’m cool with that :)
Seriously though, this method has the potential to save hundreds of dollars for those who routinely have USD savings. Also, with TDW you can contribute TDB166 in-kind and avoid currency conversions by signing up for automatic wash trading.
http://www.canadiancapitalist.com/automatic-wash-trading-at-td-waterhouse/
Great site Dan…my first post, avid follower. Just wanted to mention…
It is possible to avoid the forex charge on the initial transaction with TDW in RSP and TFSA accounts. With thanks to Canadian Capitalist, and members named avrex and Humble Pie, I bought RY (Royal Bank) on TSX, sold immediately on NYX, (automatic washing already signed on for at TDW), and paid only the 2 x $9.99 commisions to convert to USD, which will show as TDB166 US Money Market in my account.
Just make sure to ignore the dollar value in the “Market Value” column, as TDW must automatically show it as equivalent in $CAD. There is a lot of useful info and tips from posters on the Canadian Money Forum site….I posted as madMike on one of the threads but can’t find it now. Here is one in which avrex (I believe he started the thread and has a lot of detail) and Humble Pie have a lot of educational info.
http://www.canadianmoneyforum.com/showthread.php?t=4828&page=5
@madMike: Thanks for posting the comment. Yes, it’s true that this gambit is unnecessary if your brokerage allows you to wash trades, as TDW does. I know that Scotia iTrade does not allow this, and I imagine other brokerages also have the same restrictions. Thanks also for the link!
Great post Dan. For those of us who are paid in CAD won’t we still incur a FOREX fee when putting money into the USD bank account?
Great idea Dan (and Ram)!
I think this method would be most useful for an investor who already has a non-reg account and has enough assets to avoid annual account fees or is converting a lot of Canadian dollars.
It does take a bit of work to set up a new account and most brokerages have annual account fees unless you have specific asset levels, so if you have a non-reg account open just for this purpose, you will have to consider those potential costs as well.
If any of those factors apply, that will raise the bar a bit as to whether “DRams gambit” is worthwhile for any particular investor.
@Adam: If you don’t already have the US dollars, then you just need to use Norbert’s gambit in the non-registered account first. You don’t even need the US dollar bank account.
@Mike: Yes, you should not open a non-registered account to do this if you will need to pay an annual fee. I believe at Scotia iTrade you need only $10,000 in household assets to qualify for no-fee accounts. That may be higher at other brokerages.
I like DRam’s gambit. Could catch on. :)
Thanks for this post.
I wonder if you can swap a US ETF from an open account with another ETF in an RSP?
A related question: can you swap an asset in an RSP with an asset in an open (non reg) account without having to pay any tax on the transaction?
I was wondering if I could switch shares an income generating bond ETF with shares in an equity ETF that has a small capital loss in my RSP. I am rebalancing my accounts and I would also like to take use the capital loss to offset a gain in the open account.
The RamDamGambit!
@Andrew: The transaction I describe is simply moving a security from one account to another: it’s a one-way move, with no swapping.
@Patrick: Sounds too much like goddammit. :)
@ Andrew:
Yes, you can swap provided the dollar values are the same. If not, the net difference is considered a “contribution” or a “withdrawal” and there are different tax consequences for each. The brokerage will charge you a fee.
No, you cannot use your capital loss in the RSP account to offset a gain in your “open” account.
I’ve got a strange perspective on this, given that it’s exactly what I did for my first contributions to both my TFSA and RRSP, so it’s not exactly new to me…
And BMO is a pain, they wouldn’t let me contribute the ETFs to my registered accounts immediately, I had to wait the trade needed to settle.
What about using a forex broker to hedge? With 50:1 leverage it means parking 2% of your investment but you get it all back.
If you want cheap conversion you can normally link two accounts and pay a small fee ($25) but ger a very very tight spread (0.0001 instead of 0.025) but that’s independent of the risk mitigation.
I’ve been doing this for the last few years with my TD Waterhouse RRSP. As Paul G mentions, the initial non-registered trade needs to settle before you can contribute in kind. As well, depending on when you call, TD lets you choose the exchange rate that is applied. If the amount of funds is large enough it can have an impact on contribution room etc.
@Paul G and Phil G: At Scotia iTrade they do not seem to require the trade to settle before the transfer goes through, so clearly the brokerages handle this differently. Which isn’t surprising, as that is true of many types of transactions. Thanks for the info.
As for impacting RRSP contribution room, it’s no different whether you’re contributing cash or transferring securities. Transferring $1,000 worth of shares is the same as a $1,000 cash contribution, so it should be easy enough to keep track of this.
Thanks for this post.
I am with iTrade and I have already contributed to my TSFA for the year, 5k. Can I use this method my TSFA, ex. buy DLR.U and swith to DLR to purchase US equities afterwards? or will iTrade automatically convert amounts back to canadian dollars…I’m confused…
@Dave: iTrade does not allow you to hold US dollars in a TFSA. Converting the currency with DLR/DLR.U will not work in this case: if you purchase US equities in your TFSA, they will convert the currency automatically.
Thank you for another very interesting post.
I had a question regarding the practical aspect of trading DLR and/or DLR.U. When I looked at the possibility of trading these ETFs in the past to lower currency costs, I noticed very small volume and bid-ask spreads that were fairly high -higher than the 0.2% you alluded to. Hence, I have a (perhaps a wrong) perception that there is a liquidity issue with these ETFs?
Your post seems to imply that liquidity and frictional costs of 0.2% were not an issue when trading DLR. Did you have to wait along time to get your order filled? I presume you had to use a limit order.
@Philippe: There is typically a bid-ask spread of two cents on DLR/DLR.U, and the shares trade at about $10, so that’s 0.2%. The low trading volume on this ETF (or any ETF) does not necessarily mean that there is a liquidity problem. I use limit orders when I trade ETFs, and in this case the order was filled immediately.
Interesting strategy, but it seems like a lot of work. Why not just go with Questrade where there are no fees for the USD RRSP? The option to trade commission-free ETFs doesn’t exist there, but with no minimums and not having to worry about conversion costs or do the in-kind transfers, it seems like a much simpler way to go.
@Joe: Fair point, though it’s only a bit of work to set up the account initially. Once it’s up and running, it’s really no more work than making the purchase directly in the RRSP. The transfer takes just a few seconds.
There are some convenience advantages to using the brokerage associated with your bank. I also use index mutual funds in my smaller accounts, and Questrade charges a fee for mutual fund deposits.
QUOTE:
I think it’s a fair exchange, don’t you?
END QUOTE
…just thought I would mention I saw the pun – this man is clever not only in finances but writing too!
what are the reasons for canadians to invest in us dollars? Is it to add further diversification or is it because of the presently weak us dollar? Is this something the average investor should consider?
Thanks
@Cory: Some currency diversification in an equity portfolio is a good thing, but really this is more about investing in foreign equities. And the most efficient way to invest in foreign equities is with ETFs that are traded on US exchanges. They typically have much lower fees than Canadian foreign-equity ETFs.
I just wonder by using the the Horizons US Dollar Currency ETF (DLR and DLR.U), you can trades for free at Scotia iTrade? No commission? If yes, is there any fee to maintain your account in Scotia iTrade?
@Francis: There are no account fees for RRSPs at Scotia iTrade. They also offer commission-free trades on about 50 ETFs, including DLR.
I just wanted to add the following tale for any RBC Direct Investing Customers who may have received confusing advice on buying/selling DLR/DLR.U at the brokerage.
I started phoning to confirm the possibility of journaling the ETF and got an insistent broker and her supervisor insisting this could not be done, as it was denominated in $CDN.
On the day I journaled it, I found this was no problem, but was warned that as a $CDN valued instrument, it would be exchanged at that days exchange rate, which I was trying to avoid.
Finally I sold DLR.U exactly as Horizons and this blog envisions it. I phoned and it was clearly confirmed to me that if you own DLR on the US side of your account, you can put in a sell order for DLR.U for the same number of shares. I did this and it kicked out the $US. As the $CDN got stronger over the last couple days, I probably have a tiny capital gain to declare next year.
Hey Dan,
I’m sorry to hear that Ram rained on your parade and beat you to it, but when it comes to Canadian investing he’s pretty well covered everything! That leaves nothing for the rest of us to write about… LOL you must have known it was too good to be true. :)
A great post! and a couple of points…
(1) I have a TDW US Cash Account ( US Dollar trading account). Though I haven’t used it, there are no inactivity fees with TD so I keep it in place. I also have US chequing account. So there are no exchange fees either when I transfer US Dollars into the TDW US Cash Account. Its essentially the same as you are doing, but without the extra hassle of a currency conversion when you transfer in kind to the RRSP – because it’s in a US dollar account. Right?
(2) Great strategy, except if you don’t have any US Dollars to begin with you are still going to get dinged with the exchange fee. And I think the discount brokers rates are not much better than the banks – if not worse. Here in Vancouver I use Vancouver Bullion and Currency Exchange to purchase US Dollars. Their rates are far better than the banks. So one could buy their US Dollars a little cheaper, then deposit those US Dollars right into the cheqing account, and avoid the bank’s higher exchange rates. You’re still paying a foreign currency exchnage fee, but it’s cheaper this way.
http://www.vbce.ca/index.cfm?fuseaction=Major_Currencies
Cheers
The Dividend Ninja
@Ninja:
(1) Yes, if you transfer money from a US dollar bank account to non-registered brokerage account, the funds stay in US dollars with no forced conversion. You can then use these US dollars to purchase US-listed ETFs.
(2) You’re absolutely right: as much as we criticize brokerages for their 1.5% currency conversion fees, your local probably much worse. A 3% spread is not uncommon, which is absurdly high. Looks like VCBE has a spread if 2.3%. I’m not sure it makes much sense to even have a US bank account at all unless you make some income in US dollars. You’re probably much better off doing Norbert’s gambit to convert the currency.
@JAH: That’s a disappointing response from your brokerage. The comment that “as a $CDN valued instrument, it would be exchanged at that days exchange rate” is not even accurate, as nothing is being exchanged when a security is journaled from one side of the account to another. It is just being priced in a different currency.
I’m not sure if you noticed this, but in my case DLR showed up on the US side of the account, but the ticker did not have the “.U” suffix. Even when I sold it I just entered DLR, but made sure that the order was executed on the US side of the account and it settled in USD.
RE: “As the $CDN got stronger over the last couple days, I probably have a tiny capital gain to declare next year.” I think it’s the other way around. DLR gives you exposure to the US dollar, so if the CAD strengthens, you would suffer a capital loss.
Dan, thanks for clarifying that, I’m going to look into the Norbert’s Gambit. The Passive Income Earner just wrote on that as well. :) This is why people like this blog so much!
Cheers
The Dividend Ninja
Thanks for your response CCP.
My main beef was that there was no consistent story available to me at the brokerage.
The last person I dealt with was very clear about the special status of DLR/DLR.U.
I was told to just sell DLR.U and it would look for DLR shares if need be. The end result was what I hoped for, but my poor little brain should not have been given the run around. Clearly not everyone working the phone lines has the full story on the product.
Wondering if you can help me figure out this dilemma:
Have a TD account with Can Cash, US Cash, TFSA and now a SDRSP Self Directed Rsp. I have some mutual funds (previously in a RSP managed by a broker) that are being sold and cash is transferred directly to SDRSP. If I pull money out of SDRSP to move it to UScash in order to pull a gambit will I get nicked? A good portion of this SDRSP will be US stocks so I wan’t to reduce my conversion charge. Thanks,
@Marko: You cannot take money out of an RRSP and move it into a cash account without paying taxes on it. Sorry!
Or just switch to Questrade who let you hold stocks in both currencies in the RRSP. They only convert currency when needed for a purchase. You can hold cash in both currencies, and they only charge 0.8% for currency conversion – still higher than it should be but it’s half of TDW.
“You can do this using the Horizons US Dollar Currency ETF (DLR and DLR.U), which trades for free at Scotia iTrade.”
@Couch Patato: I converted C$ to US$ with DLR/DLR.U at Scotia iTrade. While I bought DLR on my own and wasn’t charge for the trade (since DLR is on iTrade’s list of free-trade ETFs), iTrade’s platform didn’t allow me to sell DLR.U on my own. I had to sell DLR.U with a trader (that clearly hadn’t done it before) on the phone and I was charged $9.99. I thought DLR.U was also a trade-free ETF, but it doesn’t seem to be the case. Was it your understanding?
Hi again Dan,
I’m trying to follow your instructions to cut conversion costs and I have a question about the first step: “Open a non-registered account”.
Can this account be a TFSA? When I go to my discount brokerage website, my TFSA is listed as a Non-registered account but I am not sure if I can use it to perform your “gambit”.
Thanks a lot,
Cesar
@Cesar: No, the account can’t be a TFSA, simply because TFSAs (like RRSPs) cannot hold US dollars at most brokerages. It’s odd that your brokerage labels a TFSA as a non-registered account: this term refers to accounts that have to be registered with the federal government so they can regulate contribution room and exempt you from tax, and TFSA falls into that category.
@Canadian Capitalist: In response to my March 22 post, you wrote: “I will check with Horizons and ask them why DLR.U trades are charged a commission”. Did you have any clarification on this issue?
I bought DLR on the C$ side of my margin account, waited for 3 days for the settement date to pass, and asked the DLR units to be journal to the US$ side of my margin account (the 2 currencies portion have the same number and constitute only one account at iTrade). Once on the US side of the account, the securities still appeared as DLR with a note saying it was in C$. I tried to enter an order to sell it as DLR.U, but the platform said I didn’t had sufficient units. I prepared a mock-up order with DLR, but although it could have gone through, the pre-order confirmation was showing a steep FX fee. Since the all idea was to evoid such fee, I called client services that transfered me to a trader. Since he didn’t know DLR and was not familliar with the procedure, he wasn’t sure that the trade would pass and if I would be charged a commission. I give the OK anyway for a limit order at the bid price and it got though right away. I was hoping I would be charged, but I was indeed. I called iTrade about the issue, but they told me only ETF in C$ were on the free-trade list.
I like this idea but, need some clarification. First, I buy DLR in Canadian dollars in a Canadian Funds investment savings account. Second, I request to “journal over” the shares to the us side of my investment savings account. In this post you say that the shares once you journal them over will appear as DLR shares but, in Norbert’s Gambit you say the shares will appear as DLR.U. According to the post by the Dividend Ninja you will be charged currency conversion fee’s when using this method. Am I paying for the conversion when selling DLR(CDN$) in my US account to settle in US$ funds? At what point to I transfer “in kind” to my US RSP? Before or after selling DLR or DLR.U?
@John: Part of the problem here is that every broker handles these transactions a little differently, so it’s hard to be too specific. The shares should appear as DLR.U when they are on the US side of the account, but I have heard from some investors who say they show up as DLR. In either case, when you sell them, you should enter DLR.U in the order.
Re: “According to the post by the Dividend Ninja you will be charged currency conversion fee’s when using this method.” I’m not sure why he would say this. The whole point of the technique is to avoid currency conversion costs. If you do this in an account that allows you to hold both US and Canadian dollars (that part is key!), there is no currency conversion cost.
Once you have sold DLR.U you should have US cash in your account. You can then use these US dollars to purchase shares in a US-listed ETF. Again, there is no currency converted here. Only then do you put in the request to transfer the ETF shares to the registered account.
Does that help?
@Anyone who uses Questrade:
Do you have any recommendations with currency conversion? Have you used the DLR/DLR.U method?
Can you give a numerical example of a transaction with Questrade; one that would include initial amount, spread, fees, and final amount?
Thanks !!!
Hi Dan,
Like @madmike, I’m a long time reader, first time poster. I really enjoy reading the comments as they help to clarify my particular situation. In 2012, I setup my partner’s RSP portfolio at TD Waterhouse (TDW) with the Complete Couch Potato model portfolio, but because of this post and others writing about forex spreads, I’ve been afraid to buy the US traded ETFs, like VTI and VXUS. Instead, I purchased XWD-T and VUS-T which seemed like good alternatives in CDN$ (although I believe that they hedge currencies, which I’ve read you don’t think is good for long term investing). My plan was to stop contributing monthly to our RSP accounts so that I could make one annual lump sum investment, allowing me to use the “Dan Ram Gambit”, and transfer $US ETFs from my non-registered account “in-kind” to my RSP. However, on my third time through the comments, I finally understood the comment from @madmike that TDW does not require journalling if held in an RSP account. That simplifies the whole thing!
@CCP, can you confirm that with an account at TDW, I can avoid the forex spread by using @madmike ‘s suggestion and there is no need for me to be hording my RSP contribution limits outside my RSP and making one bulk purchase annually just to get US funds into my account without paying Forex spreads? Instead, I can get US currency in my TDW RSP with the purchase of a CDN stock cross listed on a US exchange. e.g. Royal Bank (RY) and sell it as RY-N. And I can do this right inside my TDW RSP? I have signed up for TDW auto wash, so the proceeds will go into US Money Market TDB166, which will be used to purchase my shares of VXUS and VTI. I will be charged the US$ exchange rate and 2x$9.99 commission, but no Forex currency spread. And if I understand this correctly, it is best to do all the currency exchange once annually, to avoid service charges on each transaction.
I’ve gotta say that I find this a bit confusing as TDW doesn’t currently allow you to hold US currency in your account (but a TDW rep told me this week that it is coming this year!), but they do allow you to hold US traded funds. Do VTI and VXUS pay dividends? And if so, will they be converted to CDN$ in my TDW RSP until TDW allows their registered accounts to hold US$?
@Lisa: I can’t comment on TD’s policies, as I don’t have an account there and I’m not familiar with all the details of how they handle forex transactions. However, I’m concerned that your strategy may be penny-wise and pound foolish.
By keeping your savings in a non-registered account and making one lump-sum RRSP contribution every year, you can easily miss out on a whole year’s worth of growth. Last year, for example, US and international stocks were up over 15%. Every $1,000 sitting in cash for the year would have cost about $150, plus all that future compounding.
If you’re finding it expensive or inconvenient to buy US-listed ETFs, you may just want to forget about using them. Why not simply use VFV for US equities and the TD e-Series fund for international equities (both of which are unhedged)? The higher MERs are far less of a factor than the opportunity cost of delaying your investments for a full year.
To answer your specific questions, XWD does not use hedging. And, yes, VTI and VXUS pay dividends, and these will be automatically converted to Canadian dollars in your RRSP account.
To simplify your life and lower your costs, TD clients should consider something like this:
https://canadiancouchpotato.com/2012/12/06/ask-the-spud-combining-e-series-funds-and-etfs/
@CPP Thank you for the quick reply and for answering all my questions. However, you raised a few more questions.
When deciding to go with ETFs over e-Series mutual funds, I carefully read your FAQ htttp://canadiancouchpotato.com/couch-potato-faq/ and I created a spreadsheet to the comparison calculations. (This was before you created the template here: https://canadiancouchpotato.com/2012/07/30/comparing-the-costs-of-index-funds-and-etfs/)
My portfolio is six figures. The analysis revealed that annual fees with commissions were lower for me to go with ETFs. I already had a no-fee self directed account with $9.99 commission and I’m comfortable trading stocks. But you also say that ETFs are good for investors who “plan to make infrequent, lump-sum contributions”. I believed from all my reading that with the couch potato portfolio, I would no longer make monthly contributions to a selection of funds. Instead, I would re-balance my portfolio annually, adding in any new contributions at that time.
I do understand the value of dollar cost averaging. Did I misunderstand your point about “infrequent contributions”. Should the average couch potato with a six figure portfolio be making more frequent ETF purchases, maybe quarterly rather than monthly? And should the purchases be spread over the six ETFs in my portfolio? (Or possibly less transactions if used to re-balance.) Or should I make monthly contributions to the e-Series mutual funds in Option 2 and then re-balance once per year with the accumulation in the e-Series funds?
@Lisa: There are few hard and fast rules when it comes to deciding between ETFs and index mutual funds. The decision really comes down to considering the all-in cost of both options and then deciding whether the higher-cost option might be worth it because of added convenience. Many investors who use the e-Series funds are in a big hurry to switch to ETFs, but they should consider that the US and international e-Series funds are even cheaper than XWD, and they’re much easier to transact than US-listed alternatives.
Regarding investors who “plan to make infrequent, lump-sum contributions,” it’s important not to put the cart before the horse. In other words, why does one plan to make infrequent contributions rather than putting in a little every month? I was thinking here about commissioned salespeople, or others whose employment does not lend itself to regular paycheques. If you can make regular contributions you probably should, not because of dollar-cost averaging, but simply because it doesn’t make sense to sit on a lot of uninvested cash for months just so you can save $10 on a trading commission here and there.
If there’s one point I want to stress above all others, it’s that MERs are just one factor in all of these decisions. Saving 5 or 10 basis points a year in MER is just not that big of a deal compared with the opportunity cost of sitting on cash or not contributing regularly, trading commissions, bid-ask spreads, currency conversion and inconvenience.
Most investors don’t have access to the e-Series funds, and the index fund alternatives in Canada are pretty poor, so ETFs are often the best alternative. Those who do have access to the e-Series often don’t appreciate how good they are.
I would like to follow up on one of the questions asked earlier about RRSP swaps . I know this post is about RRSP contribution in-kind using US$ denominated securities for registered accounts that do not directly allow US currency, but does anyone know if RRSP swaps are still allowed at any of the brokerages since the 2011 Budget proposed penalties on swaps that result in an “advantage”? My current broker TDW has banned all registered swaps since then. What I wish I could do is swapping some of my US$ ETFs in my margin account with Canadian$ ETFs in my RRSP account since I have no more RRSP room left for the contribution in-kind trick described in this post. Thanks.