# £ to CAD - Do it now or wait?



## Kher-Spade

Hello everyone

Newbie here and first post so please bear with me. I have been browsing this place for some time and I must say there are some extremely genius minds on here who really seem like they know the Canadian investment industry inside out.

So, like I said I am a newbie - not just on the CanadianMoneyForum; but also in Canada! I have moved over from the UK some time ago and I have some GBP savings sitting in the bank that I haven't brought over yet. I never really explored investment options when I was in the UK (I guess I was too busy saving!) but with all Brexit (some call it Brexsh*t while others have named it as Regrexit) stuff the insecurity is hitting as to what might happen to the Sterling if UK really quits the EU. Its true that the CAD is not doing so great right now but if I was to transfer my savings at the current rate I am likely to lose more than CAD15,000 on the total amount compared to say if I transferred it pre-Brexit.

Eventually I would like to invest that money in some credible funds in my new homeland Canada and I know for sure that if/when I bring those savings over I will have (A LOT!) of questions on where to park it. But first I need to answer the main question i.e. Should I convert the British Pounds into Canadian Dollars now or should wait a little bit longer? Of course nobody can guess what will happen to the £ or the Loonie. Right now the £ is under pressure from the uncertainty of Brexit but so is the Loonie from oil. Certainly no one can predict which direction each one of them might go over the rest of 2016 or 2017. Some say Brexit will never happen no matter how much the public votes against Europe but others say the oil will also never be back to the level where it was at its peak (~$140/barrel) so the CAD is bound to stay low for some time (unless something drastic happens and CAD divorces itself from oil).

So, I will save my investment questions for later but for now if someone can provide their insight on what to do with my foreign funds that would be highly appreciated.


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## mordko

Like you say, there are several factors at play. On the one hand British economy is one of the few growing quite well in the developed world while ours is really struggling. On the other hand Canadian government is planning to spend like crazy, which will depreciate CAD. UK is planning to borrow and spend too which will hurt sterling. Canada is impacted by what is going to happen in the US, which could go upside down if Trump gets elected but it's unlikely. American economy is at a point where we really don't know which way it's going to go. Uncertainty will be putting pressure on sterling over the next 2 years. Pound could get hurt by economic troubles in the Eurosone, which are almost a certainty. Canadian housing market looks dodgy, which could hurt the loonie. There are other factors and scenarios at play, some of them are unknown. So, I agree that we can't predict the future, which unfortunately is the usual state of affairs.

So, you have to develop a plan which works, whatever happens.. The answer to your question depends on what you want to do with your money and where it is sitting.

Option 1. You plan to spend your 100k now or at some point over the next 5 years. 

The most important factor to consider is currency risk. You could gain from changes in the exchange, but you could also lose. You can't invest into shares over short periods of time, so you are exposing yourself to risk for no real gain. You will be spending in CAD, so your money should be in CAD. Bring it across and change ASAP.

Option 2. You won't need the money over the next 5 years.

Invest. time = money. Over long periods of time you will gain, markets tend to double your cash every 2 years. Not only that, they provide some protection against the currency risks because you are buying real assets. To give you an example, I have about 2 hundred thousand invested in the UK in British and international stock markets. Over the last year GBP dropped by over 15 percent vs CAD. Yet my sterling denominated investment actually grew, albeit it's a tiny gain. Even my British shares only fell by 5 percent in CAD terms, but EM went up by over 10 percent in CAD.

Whether you want to exchange under this scenario depends on your ability to use tax free vehicles for investment, such as RRSPs, pension funds, etc. If you can shield your investment in the UK, then you might as well invest it there. You need to "buy" different parts of the world, and "buying" Britain and Europe will be more efficient with funds in the UK. Your future CAD savings could be invested over here in local or US markets. Eventually your British pension fund could be transferred to an RRSP in Canada, you can try to pick a time when the pound is strong and the British economy is doing well, however there is no rush.

If you can't shield your investments from tax then you might as well move it straight away. It would simplify your tax reporting. 

In summary, you should exchange and move it, unless it's currently sitting in a tax shielded vehicle such as pension.


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## Kher-Spade

Thanks a lot mordco. That was a very insightful response. Appreciate your time to write such a detailed note. Also it is very helpful to hear from someone who has his fingers in the same pie.

To answer your question whether I will need this money in the next 5 years or not, I do not know. I am huge fan of investing into commercial real estate because of the higher rental returns and lesser headache than residential. I recently did come across an opportunity which was within my price range so I jumped at it (financed by my Canadian savings). So if another similar opportunity shows up I would definitely be up for it except that it would have to be paid for by my GBP savings this time unless I win the lottery.



mordko said:


> If you can shield your investment in the UK, then you might as well invest it there.


This would be a great idea but the fact that I am no longer a legal resident of the UK blocks me from accessing investments in that country which I previously could. Simplicity in tax filing in Canada is definitely also my preference so I don’t know how capital gains/profits etc. are reported on Canadian Tax Return.



mordko said:


> Eventually your British pension fund could be transferred to an RRSP in Canada.


Unfortunately I have already transferred my UK RRSP because the UK government is slowly closing in on locking RRSPs until retirement for those who leave the country in order to curtail the flight of money from the country. 

I also have RRSPs in Canada through my ex and current employers but they have not produced any good returns so far. May be cuz my knowledge of funds is quite limited at the moment so I am not using the right funds, idk. 

I am currently looking at TFSAs cuz both my wife and I have some room combined. So if I do bring my GBP savings over I will be looking for advice on how and where to invest them for both of us. Someone recently suggested Franklin Templeton cuz their vast choice of funds so I maylook into that . 

Also, if you don’t mind me asking how did you invest in the UK? Did you have to transfer the money over and do it through a UK advisor, or did you just convert into GBP in Canada and went from there?


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## mordko

> Also, if you don’t mind me asking how did you invest in the UK? Did you have to transfer the money over and do it through a UK advisor, or did you just convert into GBP in Canada and went from there?


I spent 10 years in England. When I moved to Canada I transferred all spare cash/proceeds from the house sale. At the time the exchange rate was 2.4 (2004). I kept my pension funds in England; at that time there was no treaty and the money couldn't be moved like you can now. I still keep them in the UK; it gives me several advantages for European investment. It's done well over the years with 7% annual return and the latest currency trouble hasn't hurt it all that much.

When time comes, TFSA is a really good vehicle because you can withdraw tax free any time and it's not counted as "income". 

RRSP is good if you anticipate that your income will go down in the future (e.g. when you retire). Otherwise you will actually pay more tax in the future vs current gain. 

If you are investing in the stockmarket and the amount is over 100K, consider ETFs. This is a really good system because the charges are really low: http://canadiancouchpotato.com/wp-content/uploads/2016/01/CCP-Model-Portfolios-Vanguard-2015.pdf

Here is a book that is sweet and short and explains how "Canada" works in terms of investment: https://www.amazon.ca/gp/product/09...=0987818910&linkCode=as2&tag=blesbythepota-20


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## Kher-Spade

wow you did really well for yourself by getting such a great rate. I don't know if GBP-CAD will ever go up to $2.4 again!

I agree that RRSP is a good investment but I understand that its "tomorrow's money" and you have to pay tax on it when you withdraw it. The only 2 reasons I invest RRSPs is to get the free money from my employer, or to reduce income tax when I am self-employed (have a personal corporation in Canada).

TFSA no doubt is an extremely good vehicle if you invest into the right Mutual Funds, and one that we are considering right now. Do you have any recommendation if we should open one with a bank or an independent provider like Franklin Templeton?

ETFs sound a little bit more complex but it may be a consideration for the future. Although I bet the gains are taxed quite heavily!

So do you have to have a special accountant to take care of the capital gains on your investments abroad? From my experience most high street accountants struggle with questions like that on tax returns and end up screwing you over instead of saving you taxes.

BTW thank you for sharing the couchpotato link and the book recommendation. I will check both of them out.


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## mordko

I don't know much about Franklin Templeton. In general Canadian mutual funds charge exorbitant MERs, the average is over 2% every single year. Mawer is considered to be one of the more reputable providers of mutual funds. TD e-series is another low cost option, but that's basically buying the index. If you have enough $s then ETFs are a better option. 

No, ETFs are no more complicated than mutual funds. You just need to make sure you don't go for a fancy marketing product and stick with basic vanilla index ETF. These have lower taxes than mutual funds because they don't trade very often, so you are not forced to incur capital gains all the time. With ETFs you can avoid certain taxes altogether, e.g. withholding tax in the US, if you hold a USD ETF within an RRSP. Mutual funds will always be subjected to US withholding taxes. 

My son is about to become an accountant, which helps with some of the trickier issues. He is special. He does our taxes, but there is nothing to declare while it's within a British pension fund and I am not drawing any income. And you don't really need an accountant for trading in the US market unless you start doing something fancy. If you have actual foreign income or business then it gets more complicated and then you need a good accountant.


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## mordko

Ouch... Something crazy going on with the pound today. At one point it was down by 10% for no apparent reason whatsoever.


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## james4beach

mordko, you're right -- at some point today GBP was down dramatically (I don't see a full 10% but it still shows up on my charts). Can someone here who has Interactive Brokers tell us whether they saw the same thing in IB's FX market?

When I've had large amounts to move ... and generally I'm bringing everything to CAD the same way you plan to do ... my approach has been to convert a bunch of it, maybe half, right away. Then I space out the rest of it over time, like a year or more.

For me the strategy is about reducing uncertainty but also reducing the possibility that I'm doing the transaction at the worst possible time. Sell half of it today to reduce the uncertainty. And by spacing out the other sales, you get to average the rate. This way you won't feel silly if the GBP rebounds tremendously from today.

I earn USD income and am constantly doing the above


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## Kher-Spade

Thanks a lot mordko and james4beach. I greatly appreciate your responses. And I am surely going to have some more questions but first let me digest these helpful pointers that both of you have provided so far


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## mordko

Kher-Spade said:


> Thanks a lot mordko and james4beach. I greatly appreciate your responses. And I am surely going to have some more questions but first let me digest these helpful pointers that both of you have provided so far


Good luck.


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## mordko

james4beach said:


> mordko, you're right -- at some point today GBP was down dramatically (I don't see a full 10% but it still shows up on my charts). Can someone here who has Interactive Brokers tell us whether they saw the same thing in IB's FX market?
> 
> When I've had large amounts to move ... and generally I'm bringing everything to CAD the same way you plan to do ... my approach has been to convert a bunch of it, maybe half, right away. Then I space out the rest of it over time, like a year or more.
> 
> For me the strategy is about reducing uncertainty but also reducing the possibility that I'm doing the transaction at the worst possible time. Sell half of it today to reduce the uncertainty. And by spacing out the other sales, you get to average the rate. This way you won't feel silly if the GBP rebounds tremendously from today.
> 
> I earn USD income and am constantly doing the above


Apparently sterling crash was caused by the "algorithms" in thin trading. Something else has to be going on. The French government made some noises about kicking UK out of single market, but nobody really cares because within 12 months there will be a new government in Paris. However May hinted that she wants Bank of England to ease monetary policy and seemed to interfere with Bank's independence. This could be a sign of trouble ahead for the sterling. 

In general, currencies trade around about purchasing power parity, except over short periods of time. Shares markets on average go up. For this reason your strategy of averaging the price of your CADs by spreading purchases over a year will - on average - lose you money, assuming your USDs are not invested for that year. 

And if I were to take a bet on Sterling now, I would change it all into CAD today rather than wait a year.


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## Kher-Spade

mordko said:


> In general, currencies trade around about purchasing power parity, except over short periods of time. Shares markets on average go up. For this reason your strategy of averaging the price of your CADs by spreading purchases over a year will - on average - lose you money, assuming your USDs are not invested for that year.
> 
> And if I were to take a bet on Sterling now, I would change it all into CAD today rather than wait a year.


Great thought above. 

But how about waiting for 2 years or 3 years, or even slightly longer than that?

As much as May claims that she will trigger the Brexit by March 2017 there are analysts who say they wont believe it until it actually happens (the possibility of UK taking a U-turn on the referendum is alive and well in the minds of some since the British Bureaucracy clearly doesn't want the country to exit the free trade zone).

But even if they DO leave the EU there is something about the British that tells me that they will manipulate things in a way to make sure that their currency which will be at the front line of an economic hit in the event of an exit sustains or recovers its place as a world's major currency pretty damn quick so they can retain foreign trust in their economy.

Although, your previous point about any potential troubles in the Eurozone hitting the GBP is a very valid assumption IMO.


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## mordko

@Kher-Spade:

We can speculate forever but 3 years is a long time. There will be issues at play which nobody has even thought of. Maybe this will be the incoming Home Secretary: https://www.youtube.com/watch?v=uB4o5n2EGyA and Sterling will be fighting for parity with Zimbabwean dollar. Hopefully not, but why would you want 100K to sit doing nothing and subject to currency exchange risk if you might have to bring them across at any moment?


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## Kher-Spade

mordko said:


> Maybe this will be the incoming Home Secretary: https://www.youtube.com/watch?v=uB4o5n2EGyA and Sterling will be fighting for parity with Zimbabwean dollar.



LOL good find. :applause:


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## darylshriver

thanks for sharing this - heading to the UK in a few months and was researching my options.


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