Global diversification is one of the golden rules of investing.
It helps you reduce risk and enhance return potential. In the past, diversifying globally within a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) often meant incurring currency conversion costs.
Now with the U.S. Dollar Registered Plan, you can diversify globally with U.S.-based investments, while avoiding U.S./Canadian dollar currency conversion costs and reducing the impact of unfavourable exchange rates. These are new and they are here to stay.
With the U.S. Dollar Registered Plan, you can buy, sell and settle U.S. dollar-denominated securities such as stocks and bonds in U.S. dollars.
This makes purchasing U.S. securities much more cost-efficient within your RRSP, RRIF, Tax-Free Savings Account (TFSA) or other registered plan.
Previously, you had to pay currency conversion changes twice.
Once when you converted Canadian dollars to U.S. dollars to purchase U.S. dollar-denominated securities, then once again when you converted U.S. dollars to Canadian dollars to settle a sale. Those days are over.
You can still convert between U.S. and Canadian dollars within the U.S. Dollar Registered Plan, but now the choice is yours, giving you much greater control over any currency conversion costs.
For example, in the past, if you sold an investment denominated in U.S. dollars, the sale would automatically settle in Canadian dollars at the prevailing foreign exchange rate.
Now with the U.S. Dollar Registered Plan, you can settle in either U.S. dollars (without currency conversion costs) or Canadian dollars (with currency conversion costs), depending on your needs.
As before, you can contribute Canadian dollars, then convert to U.S. dollars when you’re ready to purchase U.S. securities. In addition, you can now contribute in U.S. dollars and receive a contribution receipt in Canadian dollars for filing your income tax return – without actually converting to Canadian dollars.
Choice: Contribute, buy, hold and settle in U.S. or Canadian dollars.
Cost efficient: When trading U.S. securities, you can choose to settle in U.S. dollars to avoid currency conversion costs.
Reduced risk: Diversify globally with U.S. investments to reduce risk.
Greater opportunity: Access a greater range of opportunities in different sectors of the global economy through the U.S. marketplace.
Flexibility: Available for most RRSPs, RRIFs, LIFs, LRIFs, PRIFs, LIRAs and TFSAs.
With the loonie soaring above par, it is a prudent time to consider US dollar investing in your registered accounts.
This article is supplied by Kirbey Lockhart, B.Sc. CIM, an Investment Advisor with RBC Dominion Securities Inc. Member–Canadian Investor Protection Fund.