Wealth
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5 ways to take advantage of a high dollar


By Bryan Borzykowski
moneyville.ca
Toronto Star
October 25, 2010




SHUTTERSTOCK PHOTO



As the dollar hovers near par with the U.S. dollar , here are five ways Canadians can take advantage of the strong loonie, beyond shopping deals down south.


1. Buy U.S. stocks

David Kat, a financial planning specialist with Meridian Credit Union has been counseling clients to purchase blue chip American stocks, as a way of taking advantage of the U.S. dollar.

If the greenback is at par you’ll be buying American stocks dollar-for-dollar. If it goes above par you’ll get a discount, just as you would if you bought a product at a U.S. shopping mall. When the Canadian dollar falls below par, as many economists think it ultimately will, your American stocks will increase in value.

“It the dollar falls to 90 cents, even if the stocks that mutual fund stayed flat, you’ve gained upwards of 10 per cent on the conversion,” he says.


2. Open a U.S. savings account

If you’re a frequent traveler to the states, it’s a good idea to open a U.S. savings account, says Ashif Ratanshi, head of branch investments, deposits and direct investing at RBC. The goal is to eliminate any exchange rate volatility, he says, so by depositing American money onto this type of account it makes no difference whether the dollar is up or down.

“You don’t want to worry about exchange rates,” he says. “Park your leftover cash in an U.S. account at your Canadian branch.”


3. Get a U.S. Credit Card

Both Ratanshi and Kat recommend this option. If you use a Canadian credit card in the States you’ll be dinged by fees and exchange rate differences. One day the dollar could be up the next it could be down and you’ll never know exactly how much you’re paying.

A U.S. credit card allows you to buy things in American dollars and then, with the money that’s in your U.S. savings account, you’d pay off the credit card. “When you come back to Canada you’d pay $100 for the $100 you spent,” says Ratanshi.


4. Buy U.S. dollars

There are two reasons to buy U.S. dollars. It's close to a 1-for-1 deal and if our dollar falls back as expected, those dollars will be worth more if you convert them back to loonies.(Of course, there's always a risk the loonie will continue to rise.

But Kat suggests buying American money, simply so you’ll have it when you travel. He buys U.S. dollars whenever the exchange rate is favorable. “Then it doesn’t matter what the exchange rate is at the time traveled," he says.


5.Purchase real estate

You’ve heard this before and you’ll hear it again — when the loonie rises, consider buying that second home you’ve always dreamed of. And, if you can, buy it with the U.S. dollars you’ve saved.

Kat has a client who had been saving American money for two years. Now that the exchange rate is almost on par and U.S. home prices continue to struggle, that person is taking his money out of a U.S. account to buy a home in the States. Of course, there are many other things to consider when purchasing a vacation property.

The advisor admits that it’s hard to time the market, so you may not be able to buy a home exactly when it’s on par, but as the dollar approaches parity, people should be prepared to jump.



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