I recently informed you of the monumental stock market downturn suffered by some shares of American technology companies. I don’t have the right to make any recommendations, but among the cripples mentioned, some seem to me to be approaching the “purchase” zone because they are so inexpensive.
I’m not the only one smelling the bargains.
The Martin reader too. At the rate it’s going down, a few titles will soon be mature enough to fill it up, he notes. Even though he already owns US stocks, he wonders for the first time about currency conversion fees.
“How far do we get with this? Is it better to open a US currency account to buy and sell US stocks? »
Invest in the United States
I never messed around with it too much, as long as I managed my own affairs. I’ve always been the type to sit on my positions.
The question is no less relevant, especially these days when you have to be imaginative to save money.
Avoid the US market?
This is not serious.
But when you buy shares of Disney, Microsoft or Tesla directly, there is an additional price to pay for converting currencies. Note that with exchange-traded funds, we don’t have this problem.
Conversion fees
Fees are rarely shown in black and white, they are usually built into exchange rates. If we ignore the official rate, which varies continuously, we don’t really have an idea of what it costs.
A few months ago, the Globe & Mail asked 13 online brokers, including those of Desjardins and the National Bank, to provide the cost in Canadian currency of an investment in US stocks of US$15,000. It hovered around $19,400, with the exception of Questrade and Interactive Brokers which stood out clearly with prices of $18,818 and $19,050 respectively. We are talking about a difference that can reach $600 for a transaction that is certainly significant, but standard. (On the evening of December 31, US$1 cost C$1.26. The exercise was conducted in the morning).
The problem is that fees are applied to both purchases and sales. For an investor who buys and keeps his shares (buy and hold), it may seem like a lesser evil. For one who trades often, these fees seriously affect returns.
A US dollar account
The solution is to open an account in US$. The downside: you have to manage two accounts, one Canadian and one American.
Most major platforms offer this option, with the notable exception of Wealthsimple, which charges a 1.5% conversion fee, a fee that can be avoided with a $10 per month subscription.
“With the US dollar account, you pay the conversion fee once when you deposit funds into it. You can then buy and sell securities in the account without paying each time. When we want to take cash out of the account to have Canadian dollars, then the fees will apply, ”explains daytrader François J.-Dubois, founder of the Facebook group D*Trading, which joins 15,000 stock market enthusiasts.
Liquid assets in US dollars, just like American securities, expose Quebec investors to exchange rate fluctuations. When the US currency gains strength, it mitigates the descent of US equities (in Canadian dollars). On the other hand, it increases the cost of acquiring securities.
This is the price to pay for investing in the most diversified and dynamic stock market on the planet.