# Parking USD in the short-term



## john.cray (Dec 7, 2016)

Hello everyone,

I've been sitting on a lump sum of cash for a few months now watching the US equities break new records every day. I might be naïve and doing this all wrong but I feel like after Trump's election the rise in equities' prices has not been backed by enough real economic growth and fundamentals but instead promises by a person who might not implement them fast enough or at all.

Anyway, I am looking for a strategy to park a large sum of USD for "the time being" until a correction occurs and I was wondering what more experienced investors would do if they were me (short of just investing it in equities and stop trying to time the market  ).

Currently this cash is sitting in an iTrade Cash Optimizer account (taxable) with 0.35% interest.

Goals and wishlist:
1. Relatively short term. Period of ... say up to 1 year
2. Maximum principal preservation
3. Maximum inflation compensation (keep in mind it's in a taxable account)
4. Liquidity

I realize all of the above might not be fulfilled at once, especially with the coming rate increases by the Federal Reserve but those are my guidelines.

What would you do?

Cheers,
JC


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## gibor365 (Apr 1, 2011)

I keep USD in ATL5500 that gives 0.55%. You can take a look at US short term bonds VCSH


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## james4beach (Nov 15, 2012)

That ATL5500 at 0.55% is actually a pretty high rate. Beware that there is no CDIC insurance for this. It's a totally uninsured deposit.

For cash, SHV is a good option with 0.45 duration and 0.6% yield after fees. That's a bond fund, so it doesn't guarantee this return but 0.6% is a good estimate of what you'll get with it. SHV is also very safe because it's entirely treasury securities which are backed by the US govt.

If you're willing to hold for longer, BSV is a good option. It has more like a duration of 3 so you'll want to aim to hold it at least a couple years. It yields around 1.7% but can experience more volatility due to its longer duration. I hold quite a bit of BSV, but I wouldn't treat it as cash. BSV is the American equivalent of XSB/VSB.

As far as timing the market, I would commit yourself to a predefined schedule that takes away the temptation to time the market. For example, I will be deploying more money into stocks in June and December.


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## james4beach (Nov 15, 2012)

You may be interested in this article
http://etfdailynews.com/2012/07/19/an-investor-guide-to-money-market-etfs-mint-shv-bil-gsy/

Beware of the ones with higher credit risk though. "Cash" is not the asset class to get high returns... that privilege is reserved for longer maturity bonds, and of course stocks.


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## NorthernRaven (Aug 4, 2010)

Apparently Hubert has finally got EFT working on their $USD account, so you can transfer in and out from other Canadian-domiciled USD accounts without having to do wire transfers. They are paying 0.75%.

That ATL5500 isn't CDIC-insured only because CDIC doesn't insure USD deposits. But otherwise it's a deposit at CIBC (their CIBC Asset Management subsidiary), so it probably shouldn't keep one up at night worrying.

For SVH, is that 0.60% just the distribution? If the treasuries held are yielding 0.75 minus 0.15% MER, that 0.60% might be offset by a decline in the share price due to the treasury values going down. iShares' info page shows a hypothetical forward distribution yield of 0.48%, a previous 1-year total return of 0.43%, and 3-year average annual total return of 0.14%, so I'm not sure where one should expect around 0.60%.


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## james4beach (Nov 15, 2012)

NorthernRaven said:


> That ATL5500 isn't CDIC-insured only because CDIC doesn't insure USD deposits. But otherwise it's a deposit at CIBC (their CIBC Asset Management subsidiary), so it probably shouldn't keep one up at night worrying.


Ah, didn't realize that was under CIBC. Sounds quite good!



> If the treasuries held are yielding 0.75 minus 0.15% MER, that 0.60% might be offset by a decline in the share price due to the treasury values going down.


Within a 6 month period the portfolio is replenished so there is no risk of price decline as long as your horizon is at least 6 months. This ETF gives you exposure to the 6 month t-bill yield.



> iShares' info page shows a hypothetical forward distribution yield of 0.48%, a previous 1-year total return of 0.43%, and 3-year average annual total return of 0.14%, so I'm not sure where one should expect around 0.60%.


The 0.48% distribution yield, like all bond funds, is irrelevant because this just extrapolates from the current distribution and that's never a good way to evaluate forward returns.

The right way to understand forward returns of a bond fund is to look at the yield to maturity, today, of what it's exposed to.

The 1 year and 3 year past returns were the returns of *current t-bill rates at the time*. Here is the chart showing the last 3 years of the 6 month t-bill, which is the security that SHV is a proxy for. Whatever the t-bill yields is what you get:
http://stockcharts.com/h-sc/ui?s=$UST6M&p=D&yr=3&mn=0&dy=0&id=p13002477176

You can see from the chart that in the last 3 years, the 6 mo t-bill averaged a yield of about 0.25%. Subtract the MER and that's where the 3 year past total return of 0.14% came from -- pretty simple.

Here's the 6mo t-bill chart for the last year:
http://stockcharts.com/h-sc/ui?s=$UST6M&p=D&yr=1&mn=0&dy=0&id=p62469544296

You can see pretty clearly on this chart that the t-bill yielded about 0.45% ... and SHV returned even higher than expected after fees, but that's where the 1 year total return of 0.43% comes from.

TODAY the 6mo t-bill yields a whopping 0.84% which is considerably higher. Additionally, the SHV page shows the critical piece of information -- the "Average Yield" (called average yield to maturity on Canadian iShares pages) of 0.80%. Subtract the 0.15% and you arrive at an estimate of 0.65% of forward return.

*For SHV, a forward return of 0.65% to 0.70% is just about guaranteed as long as you're holding it for at least 6 months. If you hold it less than that, there may be a (tiny) hit to performance due to bond volatility. If you hold it longer, you simply get the returns of whatever the 6-month treasuries yield at the time -- your returns will track that*


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## james4beach (Nov 15, 2012)

james4beach said:


> For SHV, a forward return of 0.65% to 0.70% is just about guaranteed as long as you're holding it for at least 6 months. If you hold it less than that, there may be a (tiny) hit to performance due to bond volatility. If you hold it longer, you simply get the returns of whatever the 6-month treasuries yield at the time -- your returns will track that


As an aside, let me also use this opportunity to point out that this generalizes to all high-credit-rating bond funds because the only difference is the avg maturity/duration of securities they hold. So if you look at VAB, based on its yield to maturity and subtracting fees, a forward return of about 2.0% is just about guaranteed as long as you're holding it for at least *10 years*. If you hold it longer, you get returns of whatever the 10 year bond yields at the time and your returns track current bond market yields, whatever they may be -- _you're getting exposure to the 10 year part of the yield curve._

So with XBB or VAB, your returns are based on the "rolling returns" of the 10 year bond market, plus (significant) short term volatility.

With SHV your returns are based on the "rolling returns" of the 6 month treasuries market, with nil volatility. Basically, you're tracking the current US cash rate. SHV is a great buy right now, because you're getting the best yields seen in a long time! http://stockcharts.com/h-sc/ui?s=$UST6M&p=D&yr=5&mn=0&dy=0&id=p54752855890


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## gibor365 (Apr 1, 2011)

> That ATL5500 isn't CDIC-insured only because CDIC doesn't insure USD deposits. But otherwise it's a deposit at CIBC (their CIBC Asset Management subsidiary), so it probably shouldn't keep one up at night worrying.


 Exactly!
I personally prefer ATL5500 with 0.55% rate over SHV with 0.6% , Unlike ATL5500 , SHV can fluctuate.... to buy and sell it you need to pay commission (and you may want to sell it in chunks).
I like ATL5500 becouse there is no any trading fees, I can buy/sell even multiple times during a day... When I want to place US trade, I don't even need to sell ATL5500, as CIBC IE system will realize that I hold enough money in ATL5500,so I need to sell it only when my other US trade is executed


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## john.cray (Dec 7, 2016)

gibor365 said:


> I keep USD in ATL5500 that gives 0.55%


Thanks for the suggestion. I haven't tried to purchase a mutual fund through my Discount Brokerage account. I assumed it would be similar to ETFs/stocks except that it's in a separate "Mutual Funds" section in Scotia iTrade. When I tried to Buy the fund I got:



> The Fund Symbol entered may be invalid or is not available for online order entry. Please re-enter the Fund Symbol or select Symbol Search to find the correct symbol. For assistance, please contact Scotia iTRADE at 1-888-872-3388 or your Investment Executive.


While it does find the ATL5500 symbol (Renaissance U.S. Dollar High Interest Savings Acct) it seems like I can't just buy it online.

How did you buy yours?

Cheers


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## john.cray (Dec 7, 2016)

james4beach said:


> As an aside, let me also use this opportunity to point out that this generalizes to all high-credit-rating bond funds because the only difference is the avg maturity/duration of securities they hold. So if you look at VAB, based on its yield to maturity and subtracting fees, a forward return of about 2.0% is just about guaranteed as long as you're holding it for at least *10 years*. If you hold it longer, you get returns of whatever the 10 year bond yields at the time and your returns track current bond market yields, whatever they may be -- _you're getting exposure to the 10 year part of the yield curve._
> 
> So with XBB or VAB, your returns are based on the "rolling returns" of the 10 year bond market, plus (significant) short term volatility.
> 
> With SHV your returns are based on the "rolling returns" of the 6 month treasuries market, with nil volatility. Basically, you're tracking the current US cash rate. SHV is a great buy right now, because you're getting the best yields seen in a long time! http://stockcharts.com/h-sc/ui?s=$UST6M&p=D&yr=5&mn=0&dy=0&id=p54752855890



Thank you for the detailed explanation James. As always - highly educational.

If I understand this correctly now, if the Federal Reserve does bump the interest rate to 1% in a couple of weeks I guess SHV would be even more compelling? There should be a slight dip initially and then within a few months as bonds come to maturity and are recycled with new ones yielding higher it will quickly catch up. So if I buy it in this short dip then there will be a slight appreciation in addition to the higher yield going forward.

Cheers


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## gibor365 (Apr 1, 2011)

john.cray said:


> Thanks for the suggestion. I haven't tried to purchase a mutual fund through my Discount Brokerage account. I assumed it would be similar to ETFs/stocks except that it's in a separate "Mutual Funds" section in Scotia iTrade. When I tried to Buy the fund I got:
> 
> 
> 
> ...


Just went to Buy Mutual funds of CIBC Investor Edge and bought it.... Call your iTrade and ask...


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## james4beach (Nov 15, 2012)

I agree that ATL5500 looks attractive too



john.cray said:


> If I understand this correctly now, if the Federal Reserve does bump the interest rate to 1% in a couple of weeks I guess SHV would be even more compelling?


First of all, bonds don't necessarily fall when the Fed raises the rate. They can rise or fall based on the belief the Fed may raise rates. For all we know, the bond market might have already priced in all expectations.

But yes in general, the higher the Fed raises rates, the more SHV will be attractive.



> There should be a slight dip initially and then within a few months as bonds come to maturity and are recycled with new ones yielding higher it will quickly catch up.


Again, hard to say if there will be a dip, or when it will happen. But let's look back at historical data from 2016. You might say the peak of the bond prices was in August, and then bond prices tumbled. Typical bond funds fell between 4% and 10% as rate expectations went up. Those were big losses in bonds!

Here's how SHV responded to those "soaring expectations of interest rate hikes" -
http://stockcharts.com/h-sc/ui?s=SHV&p=D&st=2016-08-01&en=today&id=p08255966003

There was a 0.03% decline in SHV. That's all. It has virtually nil duration and nearly nil sensitivity to rising rates, because it's exposed to the very short end of the yield curve (3 month treasury bills)

The largest peak-to-trough fluctuation I see on SHV recently is 0.08%. I would say that your possibility of loss can't exceed 0.08% or so, and remember, the forward 0.6% to 0.7% return is virtually guaranteed.

SHV
downside: 8 basis points short term loss
upside: 60 to 70 basis points

ATL5500
downside: 0 provided CIBC stays solvent
upside: 55 basis points


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## Spudd (Oct 11, 2011)

I think ATL5500 is only available at CIBC because it's a CIBC fund. For Scotia, you'll need the DYN series.

https://ads.scotiabank.com/news/rate-increase-usd-personal-investment-savings-accounts


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## gibor365 (Apr 1, 2011)

> SHV
> downside: 8 basis points short term loss
> upside: 60 to 70 basis points
> 
> ...


You forgot trading fees


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## james4beach (Nov 15, 2012)

And with scotia that looks like only 45 basis points. I'd strongly suggest SHV over their HISA at 0.45%, but factor in your trading fees (thanks gibor!)


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## gibor365 (Apr 1, 2011)

Spudd said:


> I think ATL5500 is only available at CIBC because it's a CIBC fund. For Scotia, you'll need the DYN series.
> 
> https://ads.scotiabank.com/news/rate-increase-usd-personal-investment-savings-accounts


Better to call and ask. TDB8150 is TD fund and afair 5 years ago I couldn't find it online, but when I called rep said that they can buy it for me....


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## gibor365 (Apr 1, 2011)

james4beach said:


> And with scotia that looks like only 45 basis points. I'd strongly suggest SHV over their HISA at 0.45%, but factor in your trading fees (thanks gibor!)


For ages I was keeping US$ in Tangerine, but now they give only 0.15%, so I started to do RRSP contribution directly in USD moving US cash from Tangerine to Investor Edge.
Too bad they are not offering third party USD GIC


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## humble_pie (Jun 7, 2009)

a brief cruise among USD hi-yields shows that US money market funds are yielding slightly higher than USD bank account products:


highest yield i saw on this cruise is royal bank's RBF 305, yielding .91% according to some data bases & requiring a minimum $100k initial purchase.


other data bases show the above fund yielding .64%, so the truth remains to be seen. It might be that the .91 yield is only for RBC clients buying a particular series either at roybank discount broker or else at dominion securities. It might be that other investors buying through 3rd party brokers can only purchase rbf 305 in a series with lower yields.


for purchases less than 100k, roybank has RBF 261, reportedly yielding .51% (reported yields may vary depending on the data base.)


tddi offers TDB 166 with a yield ranging from .44 to .52%, depending on the data base.


td previously offered a premium USD MFF with a higher yield, but it's currently being re-orged, is not available to new investors.


BMO clients might be interested in the house USD high-interest product AAT780, presently yielding .50%.


ATL 974 is a renaissance investments USD MMF yielding .68%. Among basic USD MMFs with low minimum purchases, this one is a high-yielder. Renaissance is owned by cibc.


folks buying any USD MMF should look at the list of total holdings in recent financial statements to get a sense of the individual fund manager's taste & style. While all of these MMFs contain some unknown & possibly dodgy products - these are the products that deliver the higher return, while US t-bills are paying zip - the ratio of dodgy to stodgy but better-rated holdings varies from one fund company to another.


.


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## gardner (Feb 13, 2014)

TDDI offers TDB8152 ($US investment savings) -- yielding 0.40%
Tangerine has $US GICs with yields in the 0.45% (1Y) to 2.0% (5Y)

For bond funds, I would have a think about tax efficiency. Holding a premium bond fund in a taxable account may leave you worse off than keeping the money under your pillow.


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## gibor365 (Apr 1, 2011)

ATL 974 annual performance
2016 2015 2014 2013 2012 2011 2010 2009 2008
0.6%	0.1%	0.1%	0.1%	0.1%	0.1%	0.1%	0.2%	2.1%


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## james4beach (Nov 15, 2012)

An investor should be honest with themselves about how long they want to keep the money as cash. It seems that many people say they want cash liquidity but then keep the money sitting there for years on end, say 5 years or more. They are forfeiting a lot of return in these cases.

BSV is a fund I like, and ultra low fees from Vanguard. It has 3 year avg maturity and currently yields around 1.7% which is really excellent for something that's almost as good as cash. It kicks the pants off of any "money market fund" or bank account earning zero point tiny interest. BSV is a bastion of my American 401(k) retirement plan.

And of course if you're actually keeping the US cash sitting there for many years on end, you should probably be invested in a bond fund like AGG which is now yielding over 2.5%. Your long term return in a bond fund like AGG is likely to exceed cash/money market returns. However this is only suitable for investment time horizons of the 10 year+ time scale. Since my time horizon is shorter than that, I stick with BSV.


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## gibor365 (Apr 1, 2011)

> An investor should be honest with themselves about how long they want to keep the money as cash. It seems that many people say they want cash liquidity but then keep the money sitting there for years on end, say 5 years or more. They are forfeiting a lot of return in these cases.


james, it's not really possible  , there are many events in life that can change your time horizon ... and better be save then sorry


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## james4beach (Nov 15, 2012)

I agree gibor, life events keep changing. But I still think the short term bond funds (VSB in Canada and BSV in US) are a good middle road, because even if you get out prematurely you really won't be facing any significant losses. They are good for almost cash like storage.

Many people on these forums use XSB for the same idea


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## john.cray (Dec 7, 2016)

That's the catch in my case too, isn't it? I don't really know how long I would be comfortable waiting for a correction in the equities market. For now I am giving myself 1 year but hoping a buying opportunity comes up much sooner. For now I think I am leaning towards BSV.

Thank you everyone for chiming it. Really appreciate it!


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## jargey3000 (Jan 25, 2011)

...(heart) CMF ....


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## humble_pie (Jun 7, 2009)

today Fed chairman Janet Yellen told the executives club in chicago that the Fed will likely raise rates at its policy-making meeting scheduled for later this month. Yellen added that the Fed expects to raise rates two additional times during 2017.

also earlier today, Fed vice chairman Stanley Fischer gave the same message to a new york city conference. Rate increases coming this month, Fischer said.

would not these raises likely hammer three-year bond funds in the short term & be a particular pitfall for investors who are looking to merely stash USD cash for shortish periods of time - less than a year - in no-brainer applications? why get involved with bond funds & the prickly task of out-guessing the US federal reserve system, when one is only talking safe haven for US cash for 30-360 days?

imho a reputable USD MMF appeals because easy, simple & relatively risk-free. IMHO discussion of whether investors "should" keep cash or "should" invest surplus funds in bonds - or in GIC ladders or any other type of investment vehicle - belongs properly to discussions of portfolio allocation, not discussions of cash stashing.

https://www.nytimes.com/2017/03/03/...n-region&region=top-news&WT.nav=top-news&_r=0

.


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## getliquid (Mar 2, 2014)

james4beach said:


> That ATL5500 at 0.55% is actually a pretty high rate. Beware that there is no CDIC insurance for this. It's a totally uninsured deposit.
> 
> For cash, SHV is a good option with 0.45 duration and 0.6% yield after fees. That's a bond fund, so it doesn't guarantee this return but 0.6% is a good estimate of what you'll get with it. SHV is also very safe because it's entirely treasury securities which are backed by the US govt.
> 
> ...


CDIC does not cover foreign currency no matter what account you put it in?

The only way is to put it in a brokerage then it will be insured by the brokerage trading insurance up to a million I believe? That was how it was explained to me anyways.


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## james4beach (Nov 15, 2012)

Right, CDIC only insures Canadian dollar deposits. I don't think brokerage CIPF insurance would cover these HISA vehicles either.

CIPF coverage _would_ insure a cash balance sitting in the brokerage account. But when you buy ATL5500 or another HISA, you are holding something like a mutual fund (it's a pooled deposit held centrally by the brokerage) and I don't see any reason that would be insured by CIPF.


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## humble_pie (Jun 7, 2009)

getliquid said:


> The only way is to put it in a brokerage then it will be insured by the brokerage trading insurance up to a million I believe? That was how it was explained to me anyways.





the above is not how i understand CIPF insurance.

this insurance provides only for a situation in which an entire brokerage would fail.

within an account held at a still-solvent broker, my understanding is that individual holdings, whether USD or CAD, are never insured.

an individual stock could bankrupt & become worthless. There would be no CIPF protecton.

a money market fund in either CAD or USD could be destroyed by a rogue trader. There would be no CIPF protection.

CIPF is not even an existing fund. It's nothing more than the ability of the brokerage industry, acting collectively, to raise by special assessment an amount that would bail out an individual brokerage house, here or there, that might happen to fail.

in the event of a global financial collapse, there would be no CIPF whatsoever. Too many brokers would be going under. The survivors would be barely surviving, would certainly not be in any position to donate funds to save their bankrupt brothers.

there always appears to be widespread misunderstanding of what the CIPF is, starting with the misnomer because CIPF is not a separate existing insurance "fund" per se. In addition, broker representatives are either not properly trained to discuss this fund or else they are trained to extol CIPF in overly rosy terms, as if the fund were some kind of magical $1 million deux ex machina.

when it comes to money market funds, an investor can look at the full list of holdings in the financial reports (do not look only at the "top ten.") There will be some dodgy paper there. Every money market fund has dodgy paper. These are the holdings that boost current yield. The fund manager is paid to manoeuvre in & out of dodgy paper. 

there will also be stodgy paper. Perhaps not good enough to be rated, but at least commercial paper that one has heard of, or bankers' acceptances from chartered banks, etc. A prospective MMF buyer would want to look at the ratio of dodgy to stodgy.


.


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## james4beach (Nov 15, 2012)

humble_pie is right. CIPF is about protecting against broker insolvency.

If a bond fund suffers harm and collapses, that's not insured.
If a stock crashes, that's not insured.
If a pooled money deposit (HISA) collapses, that's not insured.

For example if you hold a GIC and the issuing bank collapses, CIPF doesn't help you out there. That becomes a CDIC insurance claim, for deposit insurance. That's why a non-CDIC eligible HISA deposit is at risk and won't be covered by CIPF or CDIC insurance.


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## james4beach (Nov 15, 2012)

jargey & others. You may also want to check out *MINT*. This one is interesting in that it's actively managed, so the managers have the freedom to vary the duration as they try to adapt to Fed policies etc. They have done an excellent job so far, and this thing has had almost the stability of cash while providing a higher return. The price has been more stable and cash-like than BSV.

http://canadianmoneyforum.com/showthread.php/113121-MINT-for-high-yielding-US-cash

I still hold BSV. Here's a chart (in total return) over the last year. You can see that it was volatile due to the Fed rate hikes:
http://stockcharts.com/h-sc/ui?s=BSV&p=D&yr=1&mn=0&dy=0&id=p60524255202

Here's the chart of MINT, much steadier and less volatility. This is more like owning an ISA, with higher yield:
http://stockcharts.com/h-sc/ui?s=MINT&p=D&yr=1&mn=0&dy=0&id=p69558044843


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## gibor365 (Apr 1, 2011)

Yes, MINT looks interesting. YTM 1.94 - 0.36MER = 1.58% . It's almost 3 times higher than ATL5500. However, for every buy/sell I have to pay 6.95 fees, ATL is 100% free trades


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## sansum (Apr 15, 2017)

Just beware if you're buying any Funds (Money Market or Bond) in USD, you'll have tax implications on the appreciation/depreciation of the fx fluctuations.


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## john.cray (Dec 7, 2016)

sansum said:


> Just beware if you're buying any Funds (Money Market or Bond) in USD, you'll have tax implications on the appreciation/depreciation of the fx fluctuations.


Precisely. This is the part that really got me thinking hard. I intent to keep the funds in USD after withdrawal. So I might get better return with SHV or even MINT, but the tax I might have to pay on the "fictitious" gain in CAD might well offset the whole gain.

Having said that the only way I can think of avoiding the USD to CAD conversion of the principal for tax purposes is to keep the money in USD savings account. If anyone else has any better suggestions - please do share.

Cheers,
JC


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## humble_pie (Jun 7, 2009)

john.cray said:


> Precisely. This is the part that really got me thinking hard. I intent to keep the funds in USD after withdrawal. So I might get better return with SHV or even MINT, but the tax I might have to pay on the "fictitious" gain in CAD might well offset the whole gain.
> 
> Having said that the only way I can think of avoiding the USD to CAD conversion of the principal for tax purposes is to keep the money in USD savings account. If anyone else has any better suggestions - please do share.
> 
> ...



it's my belief that, even if investor stores USD in a bank account, it will still be subject to capital gains/loss on any currency fluctuation upon the first occasion of the following to occur:

a) investor converts the USD back to CAD; or
b) investor buys a US security, which then assumes its own gain/loss history.

what i'm doing with my USD premium money market fund (yield at present something like .96% while funds are on call 24 hours) is taking the monthly distributions in cash. These will be taxed as other income as when received. 

i am not DRIPPing because monthly DRIPs will be a PITA to have to record (get BOC rate of the day each month, etc.) 

this approach allows the original investment in CAD cost base (BOC rate as of the day of purchase) to continue towards gain or loss as history will prove itself.

if i sell some but not all along the way, the gain/loss calculation methodology will be the same as calculating gain/loss for a partial stock sale.

.


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## AltaRed (Jun 8, 2009)

Agree with HP here. CRA is pretty clear in its various responses that USD is suject to cap gains/losses when eventually used in a transaction (conversion to CAD, purchase security, etc). Doesn't matter where that USD is held, e.g. in a MMF or simply cash account. Albeit CRA allows the first $200 of gains to be non-reportable.

As I wrote elsewhere though, I think re-invested distributions (not the original capital) could be 'converted' to CAD at the annual forex rate (at least in theory) rather than forex of the day. Simply because CRA allows 'recurring income' via a T5 for example to be converted at the annual forex rate. That may be a complicating factor though in keeping track of ACB because one could not 'update' their ACB until at least January for the prior tax year (after BOC publishes the annual forex rate). Then one has the new ACB for the coming year...rinse and repeat.

Added: None of this was much of an issue (with CRA) when the loonie was trending upwards since one's failure to report a cap loss is of no consequence to the taxpayer. But the last 5 years with the decline of the loonie, the problem is real. See 5 or 10 year chart here http://www.xe.com/currencycharts/?from=CAD&to=USD&view=10Y Anyone holding USD $10k in 2012 would have a big cap gain if those funds were used recently.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> As I wrote elsewhere though, I think re-invested distributions (not the original capital) could be 'converted' to CAD at the annual forex rate (at least in theory) rather than forex of the day. Simply because CRA allows 'recurring income' via a T5 for example to be converted at the annual forex rate. That may be a complicating factor though in keeping track of ACB because one could not 'update' their ACB until at least January for the prior tax year (after BOC publishes the annual forex rate). Then one has the new ACB for the coming year...rinse and repeat.



i thought about all that. Sounds like a great big bloody fat PITA. Much easier to strip off the distributions when paid, get em declared as foreign income. Leave the capital intact. Then report gain or loss when capital - or a portion of capital - is sold.

i observed that the CRA bulletin specified that every buy/sell of every USD security is to be reported as an individual gain/loss transaction in CAD. For stocks, i've always been doing that. IE if one sells a stock in USD, that's a taxable event. Does not matter whether one next buys a different stock in USD, one still has the gain/loss on the first sale to report in CAD.

i'm treating the core capital of a USD MMF holding the same way as a stock, for tax reporting purposes. If some day i start posting from the bordeaux jail, y'll will know that i shall have been proved wrong

.


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## OnlyMyOpinion (Sep 1, 2013)

Before I retired we established a USD side to our TDDI trading acc, bought some US stock dividends, some US-pay Cdn stocks, a US bank acc and US credit card. All with the intention of generating US income and spending significant time traveling through the US and other US-denominated places. Circumstances over the past 3 yrs have required us to stay in Canada to deal with family issues. 

These same issues have pointed to the prudence of simplifying my tax and accounting requirements rather than risk leaving them to my spouse. 

The most complicated aspect of our finances is this damned USD stuff (T1135, Fx). I find it a pita and my spouse would be lost trying to deal with it. I'm going to begin unwinding our USD income souces and accs, and take our lumps with fx when & if we need the greenback for travel. 

This is not to say we won't have any US or international exposure. We will, but it will be in registered accs and/or tax-slip etfs.


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> Before I retired we established a USD side to our TDDI trading acc, bought some US stock dividends, some US-pay Cdn stocks, a US bank acc and US credit card. All with the intention of generating US income and spending significant time traveling through the US and other US-denominated places. Circumstances over the past 3 yrs have required us to stay in Canada to deal with family issues.
> 
> These same issues have pointed to the prudence of simplifying my tax and accounting requirements rather than risk leaving them to my spouse.
> 
> ...



me i believe that if you hold an inventory of US stocks, USD-dividend canadian companies, etc, then you should not really have any problems. Each security gets treated individually, it the cost base is the cost in CAD as of the date one bought the security, the proceeds are the proceeds in CAD as of the date of sale, the resulting gain or loss in CAD therefore includes any appreciation or depreciation in the currency. The currency fluctuation is co-mingled with gain or loss in the security itself, but to canadian tax authorities all gains are the same.

i was a bit stumped when i got this USD thingy as it's 6 figs. However i've figured it out now. You know what? i was greatly helped by discussion of how-to-report currency gains/losses here in cmf forum!

good luck with the seasonal pruning of the portf. When you're done i hope there will be enough left over for a dream trip in USD. You've mentioned how you are caring generously for elderly not-so-fortunate relatives, so you deserve such a trip.

.


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## john.cray (Dec 7, 2016)

humble_pie said:


> it's my belief that, even if investor stores USD in a bank account, it will still be subject to capital gains/loss on any currency fluctuation upon the first occasion of the following to occur:
> 
> a) investor converts the USD back to CAD; or
> b) investor buys a US security, which then assumes its own gain/loss history.


This makes sense indeed. Just to clarify my situation and to make sure I am not missing something, here's what I've got:

Currently I have USD cash, that has been earned as such (no prior CAD->USD conversion), that I have already paid taxes on (after calculation taking into account exchange rates). Today I keep this USD cash in iTrade cash optimizer USD account that pays 0.25% measly interest. I keep track of the BoC noon rate for every monthly interest payment, although I realize that I can use the annual average rate too, so that I can calculate the proper taxes at the end of the year in CAD on the earned interest. My point here was that in this situation I don't have to worry about any capital gains on the principal, since there will be none - it's just a savings account and the principal doesn't change, nor do I do any transactions with it. Am I right to think so? If that's the case then I don't have to worry about currency fluctuations affecting the principal.

Had I chosen to put it in SHV, BSV, MINT, etc then I have to start keeping track of a new ACB of that newly purchased security in CAD (although I bought it in USD) using the BoC noon rate of the settlement date of the transaction. Then, assuming this is a short-time holding, after I sell it say 3 months later I have to use the new exchange rate of the settlement date to see if I realized any capital gains/loss. This is where the big risk comes: if the Canadian dollar has jumped in value then I'll have to report and pay capital gains which might surpass the extra interest that I've gained by doing so. This is what made me think that if I am going do that just for a few months it might not be the smartest thing.

Please correct me if I am thinking about this the wrong way.

Thank you,
JC


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## john.cray (Dec 7, 2016)

Hmm, now that I read this over and over again I think I am mistaken indeed. What you are saying is that in fact I have to treat the savings account as an investment after all, eh?

So do I use BoC noon rate of the date when I first put money in the savings account to start the ACB? With subsequent transfer out (say for buying US-traded ETFs) and the BoC noon rate of the withdrawal forming the other end of the capital gain calculation?

Then the new US security that I buy will form a new ACB of its own using the settlement date of the transaction.

Please confirm


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## gardner (Feb 13, 2014)

If it's a savings account like TDB8152, then I doubt it would be a valuation event that should trigger capital gain/loss. If it was an ETF like MINT, then I think that would be a capital gain/loss valuation event.

Personally, where I am uncertain is how to treat acquisition of a 5Y GIC. Is that a valuation event that should trigger capital gain/loss, or just a cash for cash transaction?


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## humble_pie (Jun 7, 2009)

gardner said:


> If it's a savings account like TDB8152, then I doubt it would be a valuation event that should trigger capital gain/loss. If it was an ETF like MINT, then I think that would be a capital gain/loss valuation event.



theoretically & technically speaking, i believe that any inventory of foreign currency that gains or loses vis-a-vis canadian dollar, is subject to capital gains/loss review when its nature changes. Even a bank savings account.

but in actual practice, i believe that the tax authorities are not paying attention to smaller accounts & smaller amounts. It's when one's foreign currency holding might climb north of 50k that one should develop proper accounting procedures.

if there are any accountants on here with expertise in this area, we can see how much their input would be dearly appreciated!






> Personally, where I am uncertain is how to treat acquisition of a 5Y GIC. Is that a valuation event that should trigger capital gain/loss, or just a cash for cash transaction?



certainly not an accountant here, but i feel that final disposition of such a GIC could be a gain/loss reporting event. Across 5 years there would likely be currency fluctuation.

.



.


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## humble_pie (Jun 7, 2009)

james4beach said:


> jargey & others. You may also want to check out *MINT*. This one is interesting in that it's actively managed, so the managers have the freedom to vary the duration as they try to adapt to Fed policies etc. They have done an excellent job so far, and this thing has had almost the stability of cash while providing a higher return. The price has been more stable and cash-like than BSV.
> 
> Here's the chart of MINT, much steadier and less volatility. This is more like owning an ISA, with higher yield:
> 
> http://stockcharts.com/h-sc/ui?s=MINT&p=D&yr=1&mn=0&dy=0&id=p69558044843





MINT's real name is Pimco Enhanced Short Maturity Active ETF.

pimco is a good name. We hear that a hotshot new manager has replaced bill gross & because of his genius, cash is now pouring into pimco in torrents.

but y'll know how i am interested in shadowy derivatives holdings in ETFs that substitute for named securities, or are used to enhance performance, or both. So i'm wondering what that word "enhanced' in MINT's title means. What kind of derivatives might be "enhancing" this out-performing vehicle?

once again, merely reading the annual or semi-annual complete list of holdings will not answer this question. Regulators in both the US & canada evidently do not require funds to publish their derivative holdings.

it's only by scouring the prospectus that one can find language permitting an ETF to hold futures, interest rate swaps, options & other synthetic derivative products. The prospectus will also state whether a fund engages in representational sampling instead of holding the actual investments named in the published lists. 


.


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## AltaRed (Jun 8, 2009)

gardner said:


> If it's a savings account like TDB8152, then I doubt it would be a valuation event that should trigger capital gain/loss. If it was an ETF like MINT, then I think that would be a capital gain/loss valuation event.
> 
> Personally, where I am uncertain is how to treat acquisition of a 5Y GIC. Is that a valuation event that should trigger capital gain/loss, or just a cash for cash transaction?


I agee with HP. Any event that triggers use of USD savings triggers a cap gains/loss event. Savings in USD is still capital and that capital can appreciate or depreciate depending on forex changes. Whether you use that USD to buy a USD GIC, CAD GIC, USD MMF, CAD MMF, US or CAD stock, etc, etc. it still triggers a disposition of USD and a purchase of something else. Example: The sale of USD cash has a certain disposition value in CAD. The ACB of what was acquired, even a US MMF thus has that same value in CAD equivalent....which you must keep track of until you sell it in the future...resulting in another cap gain or loss as the case may be.

But, as HP also said, it is up to you to decide how granular you go with smaller accounts and small amounts of cash. CRA itself is not concerned with less than $200 in cap gains/losses in a year due to forex changes. It is a dilemma most investors/taxpayers face and I doubt most are paying attention. I don't know what the threshold might be for CRA to come knocking. It may be that for most investors/taxpayers, it would never come under scrutiny until they decided to look at something else more concerrning.... e.g. missing declaration of a chunk of income, or exessive expenses, etc, etc. Best not to invite a CRA computer flag resulting in an investigation.


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## AltaRed (Jun 8, 2009)

john.cray said:


> Hmm, now that I read this over and over again I think I am mistaken indeed. What you are saying is that in fact I have to treat the savings account as an investment after all, eh?
> 
> So do I use BoC noon rate of the date when I first put money in the savings account to start the ACB? With subsequent transfer out (say for buying US-traded ETFs) and the BoC noon rate of the withdrawal forming the other end of the capital gain calculation?
> 
> ...


Yes, a savings account in USD is indeed an investment, i.e. it is capital. USD savings will have its ACB based on the CAD equivalent when you put it there, e.g. the CAD equivalent disposition value on the sale of a USD stock, based on day of settlement. I believe it is the Noon BoC rate (the only one that will exist long term I believe....closing rate is disappearing....or is it the other way around?). When you use that USD in savings to buy a USD ETF, you then have a CAD equivalent disposition of USD cash based on the BoC rate on the date of settlement for that US ETF purchase (T+3). That forms the CAD equivalent ACB of that US ETF you just bought. 

If you have added USD interest to that USD savings account (or MMF) during the course of the year, you can use the annual forex rate. Indeed, that income will be on a T3 or T5 in USD for tax purposes, in which you convert using the annual forex rate. Brokerages often give the wrong advice in these matters. They sometimes think that capital acquisitions and dispositions can be done at the annual forex rate... just like recurring income can be converted at the annual forex rate. Nothing is further from the truth. CRA has actually lmade a concession to taxpayers allowing them to use annual forex rate for recurring income. Otherwise it would be a ruddy mess converting that $20 in USD interest on that T5 at 12 separate forex rates.


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## john.cray (Dec 7, 2016)

Thanks AltaRed and others. I think I've completely dropped the ball on this one to be honest. I'll go back to review my cash account and report the capital gain/loss properly with a tax assessment after talking to my accountant.

Thank you so very much for pointing out all of this. Although I came across this multiple times I never realized a US savings account actually realizes capital gains/losses. If it wasn't for this thread I would've been in hot waters! Appreciate all your input and advise.

Come to think of it, if one was to just hold US cash in say a chequing account that pays 0% interest (or under the mattress for that matter) would one be in the same situation when it comes to tax implications? I.e. use the exchange rate on the date of acquiring the US cash and then the exchange rate of purchasing a US-listed ETF for example?

Once again, thank you all for helping me realize my mistake. Appreciated!

Cheers,
JC


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## AltaRed (Jun 8, 2009)

john.cray said:


> Thanks AltaRed and others. I think I've completely dropped the ball on this one to be honest. I'll go back to review my cash account and report the capital gain/loss properly with a tax assessment after talking to my accountant.
> 
> Thank you so very much for pointing out all of this. Although I came across this multiple times I never realized a US savings account actually realizes capital gains/losses. If it wasn't for this thread I would've been in hot waters! Appreciate all your input and advise.
> 
> ...


It does not matter what kind of account. Cash is a capital asset whereever it is. 

However, I don't really advise anyone going backward in time and doing T1-ADJ for the past X years of tax returns.....unless maybe the cap gains numbers are large (thousands of dollars) and thus cap gains tax would be 10-25% of the total depending on your marginal tax rate, and thus hundreds of tax dollars owing...... 

Ignorance is no excuse but some good judgement is in order here on a practical/pragmatic matter.... Also, don't forget timing of acquistion and disposition matters too. Even in a year where the loonie might have fallen from 80 cents to 75 cents, the loonie would have had its ups and downs throughout the year too. It is quite possible to have a 'loss' instead of a 'gain' in that kind of year depending on which specific days USD cash was obtained and used.

Now that you know, do your 2016 taxes correctly and then take some time later on to process the value of going back for T1-ADJ, and/or the magnitude/vulnerability of past sins. CRA is terribly backlogged in certain matters and I suspect T1-ADJ processing for past years is not high on their list.

Added: If you look at a 10 year chart here http://www.xe.com/currencycharts/?from=CAD&to=USD&view=10Y you can see where:
1) 2008 could have had dramatic consequences if one had acquired USD early 2008 and used it late 2008 or early 2009 to purchase something, but on the other hand, if one didn't use the USD until 2010 or 2011, there is not much difference in the value of the loonie between early 2008 and mid-2011...Might have even had a capital loss.
2) The biggest risk of a cap gain would be if someone acquired USD at near par in 2007 or early 2008, or 2010-2011 and didn't use it until 2014-2016, then there would be lots of cap gains. It's all a matter of timing.


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## john.cray (Dec 7, 2016)

Thanks for the advise.

I only have to deal with 2016. I acquired US cash 2016 only and just recently submitted my tax return (with the help of an accountant). I have to go back and do a re-assessment anyway though because of other issues. So this one will be added as well.


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## james4beach (Nov 15, 2012)

I've been following these foreign currency discussions with interest, since I receive income in USD. The way "out" I've chosen, myself, is to steadily convert to CAD to minimize the USD amounts. I don't ever have more than 30K USD cash sitting around.

Accounting for the cost basis etc has indeed been a problem and I find it difficult enough to track the 30K. I wouldn't want to track a larger cash inventory than that.

If one is tempted to hold something big like 50K+ of USD exposure, maybe it's easier to track in a vehicle like BSV or MINT. At the time of purchase you record the cost (in CAD, as you always do for cap gains) and then you hold it until disposal. Perhaps I'm wrong but that seems easier to track than a pile of cash.


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## AltaRed (Jun 8, 2009)

john.cray said:


> Thanks for the advise.
> 
> I only have to deal with 2016. I acquired US cash 2016 only and just recently submitted my tax return (with the help of an accountant). I have to go back and do a re-assessment anyway though because of other issues. So this one will be added as well.


As per prior discussion with others, the cap gains (or losses) for forex gains goes on the Bonds and Debentures line in Schedule 3. 

And per a G&M article....if true, only the portion beyond $200 is reported (I never knew that before). I always interpreted the $200 threshold as saying nothing is reportable unless it is over $200 and then the whole gain (or loss) is reportable.


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## john.cray (Dec 7, 2016)

To make matters even more complicated I just spoke to my accountant and tried to convey the message that we probably have to reevaluate the whole US pile of cash generating capital gains/losses thing and he said that he doesn't believe that the US cash in a savings account (or otherwise uninvested) can generate capital gain/loss. I am trying to find an exact quote from CRA regarding this so that I can be more specific. So far I have a globe and mail article http://www.theglobeandmail.com/glob...ax-hit-on-us-dollar-accounts/article28440263/ that talks about this as well as https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-for-foreign-currency-cash/

If you guys can point me to an official CRA page that describes this I'd much appreciate it.

In my case the amount is over $150,000 USD so it would make a big difference. The accountant's thinking so far is that since I've already paid taxes on this money then no further capital gains should be involved unless I purchase a US ETF.

What I am trying to point out is that simply holding US cash and then using it to buy clothes in the US for example or convert to CAD cash or buy US-traded ETF will in and of itself generate a capital gain event that I have to declare. If that event is a purchase of a US ETF then of course I'll establish a new ACB with the exchange rate of the settlement date of the transaction - that is separate.

Do I need a new accountant?


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## gardner (Feb 13, 2014)

john.cray said:


> he doesn't believe that the US cash in a savings account (or otherwise uninvested) can generate capital gain/loss


This part, I am confident, is true.

http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html



> Foreign currency funds on deposit are not considered to be disposed of until they are converted into another currency or are used to purchase a negotiable instrument or some other asset, i.e. foreign funds on deposit may be moved from one form of deposit to another as long as such funds can continue to be viewed as "on deposit".


Again in section 13.



> the Department considers a transaction resulting in the application of subsection 39(2) to have taken place ...
> ... at the time of conversion of funds in a foreign currency into another foreign currency or into Canadian dollars,
> ... at the time funds in a foreign currency are used to make a purchase or a payment


As long as the money is just sitting there, you have nothing to report. But you *would* want to keep track of the ACB of those USD and, indeed, paying your USD Visa bill will generate a loss/gain event.


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## humble_pie (Jun 7, 2009)

gardner said:


> This part, I am confident, is true.
> 
> http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html



oh good, you found it. Good old CRA bulletin No. IT95R. I once read that thing in its entirety.

what i remember is exactly what you have quoted. The way i read this language though, it says that USD or any other foreign currency can be moved around from one bank account to another, but the minute the funds are taken out of bank deposit, bingo, the taxpayer has a capital gain or loss. Perhaps i'm not understanding the document correctly, but until i stand corrected that's how i do understand it.


_" Foreign currency funds on deposit are not considered to be disposed of until they are converted into another currency or are used to purchase a negotiable instrument or some other asset, i.e. foreign funds on deposit may be moved from one form of deposit to another as long as such funds can continue to be viewed as 'on deposit.' "_

Again in section 13.

_" the Department considers a transaction resulting in the application of subsection 39(2) to have taken place ...

... at the time of conversion of funds in a foreign currency into another foreign currency or into Canadian dollars,
... at the time funds in a foreign currency are used to make a purchase or a payment."_


please notice the final quoted sentence. As soon as the banked foreign currency - USD in this case - is removed from bank deposit for just about every purpose, including making a purchase say of clothes or travel, in addition to making a purchase of an investment security as opposed to a bank deposit, then the banked funds are subject to gain/loss calculations & reporting.

i realize i am being daring enough to oppose both john cray's accountant plus gardner here in cmf, so possibly my reading of Bulletin IT95R has always been wrong?

.


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## OnlyMyOpinion (Sep 1, 2013)

I've never been clear (or convinced) of the deemed disposition of USD when you spend it on goods & services such as during a vacation as the ACB link above discusses. 
How is that reconciled with the CRA comment in the above link and highlighted below which says: 
_Where it can be determined that a gain or loss on foreign exchange arose as a direct consequence of the purchase or sale of goods abroad, or the rendering of services abroad, *and such goods or services are used in the business operations of the taxpayer*, such gain or loss is brought into income account. 
If, on the other hand, it can be determined that a gain or loss on foreign exchange arose as a direct consequence of the purchase or sale of capital assets, this gain or loss is either a capital gain or capital loss, as the case may be._

I do agree that crystalized currency gains/losses and capital investments are fair game.

My earlier comment stands - I'm moving towards having as little to do with monopoly money as possible.


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## AltaRed (Jun 8, 2009)

john.cray said:


> To make matters even more complicated I just spoke to my accountant and tried to convey the message that we probably have to reevaluate the whole US pile of cash generating capital gains/losses thing and he said that he doesn't believe that the US cash in a savings account (or otherwise uninvested) can generate capital gain/loss. I am trying to find an exact quote from CRA regarding this so that I can be more specific. So far I have a globe and mail article http://www.theglobeandmail.com/glob...ax-hit-on-us-dollar-accounts/article28440263/ that talks about this as well as https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-for-foreign-currency-cash/
> 
> If you guys can point me to an official CRA page that describes this I'd much appreciate it.
> 
> ...


It is true that cash simply sitting 'on deposit' whether in a brokerage account, bank account, etc. does not trigger a capital gain/loss event, and you can move it between deposit accounts per gardner and hp.


But as soon as you use it to buy something (not just a US ETF), you have a gain/loss on the currency you have used to buy something with it. That cap gain/loss is based on the difference of the CAD equivalent ACB of that USD cash when you got the USD cash, and the value of it in CAD equivalent when you use it to buy something. Again, I agree with what gardner and hp are saying.

Added: 
Example 1: My USD side of my brokerage cash account accumulates dividends. I then use some of that cash at some point to buy a USD security. I have triggered a cap gain/loss event on the amount of USD I have actually used. The remainder amount simply continues to sit until I use more of it later on.

Example 2: I also use USD to buy goods and services. So when I need to replenish my Wells Fargo account in the USA, I move USD from my brokerage account to my Wells Fargo account. Since they are both deposit accounts, I do not trigger a capital disposition. However, it seems CRA also believes if I then use that USD to buy goods and services, I have now triggered a cap gain/loss event. Like OMO, I find that part bizarre. It is not as if I am converting USD to CAD to buy a good or service in CAD. I am actually making a foreign transaction priced in USD to begin with. Oh well.....


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> My earlier comment stands - I'm moving towards having as little to do with monopoly money as possible.



yay
there's something to be said for those desert prophets living in caves a thousand years ago

.


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## john.cray (Dec 7, 2016)

AltaRed said:


> It is true that cash simply sitting 'on deposit' whether in a brokerage account, bank account, etc. does not trigger a capital gain/loss event, and you can move it between deposit accounts per gardner and hp.
> 
> But as soon as you use it to buy something (not just a US ETF), you have a gain/loss on the currency you have used to buy something with it. That cap gain/loss is based on the difference of the CAD equivalent ACB of that USD cash when you got the USD cash, and the value of it in CAD equivalent when you use it to buy something. Again, I agree with what gardner and hp are saying.


Right. This is my current understanding too. Here is my full case:

1. In 2016 I exercised and sold company options as well as received and sold RSUs awarded as a bonus. All of those were US securities generating US cash stored in US brokerage for a while.
2. I opened a USD savings account in Canada that I fed with the US cash from the US brokerage over the course of 2016. The taxes on the US cash that I used to transfer in have been paid but the point here is that this after-tax money can now generate *new* capital gains when I actually use it to buy something new since time has passed and exchange rate has fluctuated, right?
3. This came in the form of me exchanging $50,000 USD to CAD at some point later in 2016. There's a purchase.
4. This year (2017) I bought $20,000 USD worth of VWO in a taxable account. So another one.

So there you go, out of all the USD cash that I had accumulated (peaked at about $150,000 USD) I *spent* $70,000 in transactions that are considered a taxable event and I have to calculate capital gains/losses after proper conversions, right? The remaining say $80,000 have *not* yet been used to generate such an event, so all I have to be concerned for now is to keep their ACB for the future purchases. I intend to use it to buy VTI for example.

5. In addition, now VWO has its own ACB using the USD/CAD exchange rate of the settlement date of the purchase. That I keep separately.
6. At some point during 2016 I have held more than $150,000 USD in that savings account, but first it was stored in a US brokerage so that tells me I have to file T1135 as well.

I tried to explain to him all that and yet he didn't think I have to pay any extra capital gains due to the exchange rate fluctuation. He did confirm that the VWO holding will have its own ACB and has to be tracked in CAD to which I pointed out that the cash USD holding should be treated exactly the same way.


If all of the above turns out to be true, one remaining question I have is regarding the exact dates that I have to use to establish the ACB for the US cash. Do I use the dates that I first received the US cash in the US brokerage - i.e. all the individual dates of sale of the US securities or the dates when I transferred over in bulk in the Canadian savings account?

Any feedback is welcome, since it looks like I am in a bit of a pickle here.

Cheers guys,
JC


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## AltaRed (Jun 8, 2009)

Good summary. Here is my take:
2. Correct
3+4 Yes, you spent $70k in 2 transactions, each with a different forex rate. Only the first one is a 2016 transaction. The VWO one is a 2017 transaction. Then keep the ACB of the remaining $80k and you will have another forex capital event when you spend it to buy VTI.
5. Yes
6. Yes. Even if the cash was in that US brokerage account for one day, you have to file the T1135.

It is extremely disappointing your accountant does not understand the Income Tax Act on this matter, but I suspect there are many out there that don't get it.

The exact dates will be the individual settlement dates of the sale of securities (when the cash is deposited in your account). The cash that you moved from your US brokerage account to your Canadian account is simply a deposit to deposit transfer. No trigger.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Good summary. Here is my take:
> 2. Correct
> 3+4 Yes, you spent $70k in 2 transactions, each with a different forex rate. Only the first one is a 2016 transaction. The VWO one is a 2017 transaction. Then keep the ACB of the remaining $80k and you will have another forex capital event when you spend it to buy VTI.
> 5. Yes
> ...


Perfect. Thank you for clarifying this. Really appreciate it.

So my accountant is looking into this and I hope we agree on the above. What keeps bothering me is that we might not. What do I do? Do I simply take his word and do nothing? If I go down that path and I have provided all of the above information to him and yet he deemed it non-taxable would it still be me who's responsible for the penalties if CRA audits me and finds it wrong or would it be him on the line? I asked him before we started working on this regarding mistakes and he confirmed that he would take on the financial burden of such mistakes if it's his fault, but first he said "I make no mistakes" so not to worry.

Alternatively I fire him right now and look for the services of another accounting company and we redo the whole thing all over again. What's more pressing is that the T1135 needs to be filed before the end of April. We already filed the tax return and according to him we have 3 years to do the assessment but what about the T1135 - that one we never filed?


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## james4beach (Nov 15, 2012)

John Cray,

When in doubt it is best to keep a clear paper trail that you have engaged in a serious effort to follow the laws and regulations. For example, keep copies of the emails where you inquire with your accountant. *You clearly want to do the right thing, and are just trying to figure out what the right thing is*. Keep copies of emails as evidence that you are doing that.

Tax law is complex and none of us can get everything right all the time. I've tried for years to figure out how to properly account for my short selling; accountants and CRA can't give me clear answers, they contradict each other, etc.

This forex stuff is a mess too.

Tax authorities come after people who are trying to screw the system, deliberately conceal, or deliberately not pay what should be paid. They generally don't (aggressively) come after people who are making an honest effort to do the right things.


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## gibor365 (Apr 1, 2011)

> Tax law is complex and none of us can get everything right all the time. I've tried for years to figure out how to properly account for my short selling; accountants and CRA can't give me clear answers.
> 
> This forex stuff is a mess too.
> 
> Tax authorities come after people who are trying to screw the system. They don't come after people who are making an honest effort to do the right things.


 They may come after everyone  . This is the major reason why all my investments (include US$ ones) are ONLY in registered accounts (include TFSA). In non-reg are only plain GIC and HISA (+ one legacy US brokerage ESP)


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## james4beach (Nov 15, 2012)

PS, I agree that your T1135 issue is a bigger deal than forex issues. However I do not know what your deadline to file/amend that is. Perhaps someone else here can clarify.

Further edit: when I say forex is a mess, I mean the part about tracking the cost basis on the pile of amorphous cash. The gain/loss on specific transactions should be very straightforward ... it's the exchange rate in effect when the trade happens. Purchase for a certain CAD value, sell later for a certain CAD value, difference is capital gain.


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## gibor365 (Apr 1, 2011)

> Tax authorities come after people who are trying to screw the system, deliberately conceal, or deliberately not pay what should be paid. They generally don't (aggressively) come after people who are making an honest effort to do the right things.


Maybe "generally " and maybe non-"aggressively" . Several years ago, CRA paid me (by mistake) some big $$$. I called CRA, they confirmed that it was their mistake and asked me to pay back. I paid and at month end, CRA charged me fees and interest. When I called them about this BS, CRA rep told that they cannot do anything as "this is the system who charged me" . 
It took me 5 calls and 3 hours on the phone to get fees and interest cancelled. 
VIVA CRA!!!


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## james4beach (Nov 15, 2012)

humble_pie said:


> MINT's real name is Pimco Enhanced Short Maturity Active ETF.
> 
> pimco is a good name. We hear that a hotshot new manager has replaced bill gross & because of his genius, cash is now pouring into pimco in torrents.
> 
> but y'll know how i am interested in shadowy derivatives holdings in ETFs that substitute for named securities, or are used to enhance performance, or both. So i'm wondering what that word "enhanced' in MINT's title means. What kind of derivatives might be "enhancing" this out-performing vehicle?


I reviewed this ETF earlier and found that it _does_ contain derivatives. This is a more complex vehicle than just a traditional bond fund. They are using some exotic vehicles and derivatives to generate income. I feel that this risk is mitigated somewhat by the extremely short duration of the debts they hold.

But humble_pie you are correct: it contains derivatives and there's some exotic/active management happening here.


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## james4beach (Nov 15, 2012)

gibor365 said:


> It took me 5 calls and 3 hours on the phone to get fees and interest cancelled.
> VIVA CRA!!!


gibor, I hear you, but still nothing compared to the IRS. Dealing with them, you have to worry about jail time and enormous penalties for seemingly simple violations (like failing to file FBAR)


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## gibor365 (Apr 1, 2011)

james4beach said:


> gibor, I hear you, but still nothing compared to the IRS. Dealing with them, you have to worry about jail time and enormous penalties for seemingly simple violations (like failing to file FBAR)


Maybe James.I've never dealt with IRS (luckily), so cannot comment. But compared to Israeli analog, CRA is a huge mess and bureocracy. After I immigrated from Israel, local analog of CRA was looking for me 5 years... in order to return money they own me


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## AltaRed (Jun 8, 2009)

john.cray said:


> What's more pressing is that the T1135 needs to be filed before the end of April. We already filed the tax return and according to him we have 3 years to do the assessment but what about the T1135 - that one we never filed?


Whatever you do, file the T1135 before the end of April. If your only US domiciled asset in 2016 was the $150k USD cash, then you are under the $250k CAD threshold and can use the Part A simplified method. All they ask is how much foreign income (e.g. from the interest while in the US brokerage account) and cap gains/loss (none from the $150k) but there will be from the exercise and sale of the US stock. It should be pretty straightforward and not dependent on any issue you are still resolving on the cap gain/loss on the currency.

Am I missing something else here? Meaning did you have some other assets, such as US stock or ETFs in your Cdn account in 2016?


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## john.cray (Dec 7, 2016)

AltaRed said:


> Whatever you do, file the T1135 before the end of April. If your only US domiciled asset in 2016 was the $150k USD cash, then you are under the $250k CAD threshold and can use the Part A simplified method. All they ask is how much foreign income (e.g. from the interest while in the US brokerage account) and cap gains/loss (none from the $150k) but there will be from the exercise and sale of the US stock. It should be pretty straightforward and not dependent on any issue you are still resolving on the cap gain/loss on the currency.
> 
> Am I missing something else here? Meaning did you have some other assets, such as US stock or ETFs in your Cdn account in 2016?


The only assets that this US brokerage account can hold is my company's US stock + cash. This is a special liquidation-only brokerage account. Cash came from sales as well as dividend and minuscule interest.

Are they asking for the maximum amount at any one day in the account? That might be hard to find exactly but going back through brokerage statements the most I've had might be $170,000 USD.

I'll need to chat with the accountant again. I don't want to file anything on my own now that I am working with him. But I totally want to get this over with as soon as possible.

Thank you


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## james4beach (Nov 15, 2012)

It's virtually impossible to figure out the peak daily balance. I think it's enough to use values as shown on monthly statements.

Curious, why did your accountant not think you need the T1135 ? Maybe they didn't know you had more than 100k foreign assets.


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## john.cray (Dec 7, 2016)

When we talked on the phone he didn't think there were any extra capital gains on the USD cash. I forgot to mention the T1135. 10 minutes later I sent him some emails with links and also pointed out about the possible need of filing T1135. He hasn't said anything in particular against filing T1135 per se. So I'll give him some time to get familiar with all this and I hope we'll talk soon.


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## john.cray (Dec 7, 2016)

Come to think of it though ... shouldn't he have figured it out? I mean we went through all the transactions through 2016 and he saw the amounts including one large transaction that should have prompted him. After all we had to calculate the capital gains on this money in the first place. He also knew that I kept it in US brokerage and then moved over to Canadian brokerage.


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## AltaRed (Jun 8, 2009)

The accountant should know this stuff. 

I agree with James that I only use the monthly brokerage statement and by definition that means the balance at the end of the month. CRA says this is okay on the T1135 form instructions. I do this for all my US domciled holdings.... although for my US domiciled bank account in Texas, I use the maximum on any given day in a month. So don't fret over intra-month spikes

You may have missed another point of my earlier post. It is not only the US brokerage cash that matters for the T1135, it is also any other US domiciled stocks or ETFS you held in your Canadian brokerage account that count too. But USD cas h in your Canadian brokerage account doesn't count towards this total. Example: You own IBM or JNJ in your non-registered Canadian brokerage account in 2016. That counts as well towards your $100k CAD equivalent or $250k CAD equivalent Cost Basis. Holding $100k USD cash in your Cdn brokerage account does not.


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## john.cray (Dec 7, 2016)

AltaRed said:


> The accountant should know this stuff.
> 
> I agree with James that I only use the monthly brokerage statement and by definition that means the balance at the end of the month. CRA says this is okay on the T1135 form instructions. I do this for all my US domciled holdings.... although for my US domiciled bank account in Texas, I use the maximum on any given day in a month. So don't fret over intra-month spikes
> 
> You may have missed another point of my earlier post. It is not only the US brokerage cash that matters for the T1135, it is also any other US domiciled stocks or ETFS you held in your Canadian brokerage account that count too. But USD cas h in your Canadian brokerage account doesn't count towards this total. Example: You own IBM or JNJ in your non-registered Canadian brokerage account in 2016. That counts as well towards your $100k CAD equivalent or $250k CAD equivalent Cost Basis. Holding $100k USD cash in your Cdn brokerage account does not.


Hey AltaRed,

Thank you for the clarification. Indeed I might have missed your point earlier. To answer your question: The only US domiciled ETF that I have ever held, in any account, has been VWO which I purchased about a week ago. So no other foreign property to add to the US brokerage cash portion.

Once again though, thank you for catching that and bringing it again to my attention. I am very new to all this and certainly lacking the necessary knowledge.

This goes for all of the participants in this thread. Thank you guys! At the end of today I feel like I've received much more help here than the professional accountant that I hired to help me with all this so that I don't have to become an expert myself.

Cheers,
JC


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## AltaRed (Jun 8, 2009)

We all learn here on a regular basis...even those of us with a presumed 'good handle' on the issues. 

Given you will be looking at Part A of the T1135, it should be pretty simple to fill in the blanks. Your accountant will have already sorted out (or soon will know) what your cap gains will be on the exercise and sell of stock options for Schedule 3 so that would plug right in on the T1135. Just file it before Apr 30th. There is low (or zero) tolerance (and steep penalties) for missing timely filing of that form.


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## james4beach (Nov 15, 2012)

AltaRed, could you clarify this regarding what counts as pushing you over the $100,000 requirement to file

How about USD cash amounts held in a Canadian bank or brokerage? If you have USD cash at CIBC valued at over $101,000 CAD, do you have to file T1135 ?


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## gardner (Feb 13, 2014)

I do not believe that cash of any currency in a Canadian account will contribute to T1135 amounts. It has to be interest in something domiciled outside Canada -- ownership of PG or VTI, for example, or cash in a Guernsey savings account.


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## humble_pie (Jun 7, 2009)

gardner said:


> I do not believe that cash of any currency in a Canadian account will contribute to T1135 amounts. It has to be interest in something domiciled outside Canada



agree ^^

gradually we will see canada-domiciled investment vehicles* of every stripe - bank accounts, ETFs, mutual funds, other products - becoming slightly more expensive to own, or (the mirror opposite) they will offer slightly lower return.

the reward will be the toronto or other canadian city head office of the operation.

it's not just form T1135. Such canada-based investment products will not count as US estate holdings in a canadian estate inventory for IRS purposes. 

years ago CC predicted that canadians will be happy to pay more, or receive less, for such investments.


EDIT: * i'm referring to canada-domiciled investment vehicles that, in turn, will hold foreign-domiciled securities, real estate, bank deposits & other assets. I imagine that in some cases the overseas assets will be "held" synthetically, by proxy derivative only.

.


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## AltaRed (Jun 8, 2009)

james4beach said:


> AltaRed, could you clarify this regarding what counts as pushing you over the $100,000 requirement to file
> 
> How about USD cash amounts held in a Canadian bank or brokerage? If you have USD cash at CIBC valued at over $101,000 CAD, do you have to file T1135 ?


As already noted by Gardner and HP, USD funds in Canadian accounts do not count. It is where the asset is domiciled that counts, not the currency. 

And as HP said, high(er) net worth individuals would be better to avoid much in the way of US domiciled investments to avoid risk of US estate taxes (the formula for which can change at the whim of the US Congress). A good portion of my ex-Canada holdings (ETFs) are Canadian domiciled versions, not US domiciled versions, for just this unpredictability of Washington.


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## james4beach (Nov 15, 2012)

Thanks very much. This is good news; as I earn USD income, I transfer it to a Canadian bank. I keep it in USD form but it accumulates in Canada.

And I agree about avoiding US domiciled investments. There are lots of great options in Canada... things like ZSP give pure S&P 500 index exposure without any T1135 or estate tax concerns.

Like you AltaRed I think it's important to minimize US exposures (like individual stock holdings) because they really can change those laws at any time.


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## john.cray (Dec 7, 2016)

A quick update for your benefit guys if you're still interested in my tax adventures: I spoke to my accountant and now he agrees that USD cash should be treated just like an investment and it does incur capital gains/losses when used! So when we redo the assessment we'll take that into account.

Additionally we're also submitting T1135 where we'll declare the dividends + interest received on the foreign stock/cash held in the US brokerage as well as the capital gain loss from the disposition of US stock. It looks like in the simplified version of the form (between $100,000 - $250,000) you don't have to declare the actual total account value, just the capital gain/loss from the sale of the securities.

Anyway, I think I am one step closer to finish this ordeal.

The last remaining bit that I am trying to do is figure out is the exact USD/CAD exchange rate, or the overall value in CAD for each transaction. The company seems to have used some rate that is quite different from the noon BoC rate of the exercise date. Since the amounts included in my T4 are calculated using this exchange rate I have to use those values as my cost basis in CAD, for each transaction. What I don't really have is a broken down version on a per-transaction basis.

Fun times!


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## john.cray (Dec 7, 2016)

Going back to the original topic of this thread. I just saw that BMO has recently launched a set of new ETFs. One of them that might seems appealing for USD parking purposes.

I am talking about ZTS-U (BMO Short-Term US Treasury Bond Index ETF (US Dollar Units)). It's longer term (2.75 years) than SHV but YTM is reportedly 1.38%
Inception Feb 28, 2017 and seems to be traded on the NEO. Not very liquid according to https://aequitasneoexchange.com/en/security-detail?q=ZTS.U

I am not familiar with the NEO exchange and overall not sure what to make out of this one. Hopefully others could comment on this.

The one advantage that I could see in holding ZTS-U vs SHV/BSV (or another US-listed ETF) would be that one wouldn't have to file T1135 in this case since the units are held by a Canadian ETF. Am I right?

Regards,
JC


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## AltaRed (Jun 8, 2009)

Correct, but you do still need to keep track of CAD equivalent ACB value for cap gains/loss purposes if held in a taxable account.


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## humble_pie (Jun 7, 2009)

^^

BMO seems to have a lot of these USD ETFs. US holdings - often via synthetic proxies - but domiciliation in canada.

it's very forward-looking of them. The appetite for these structures will surely grow, as they are sheltered from IRS reporting. Not just form 1135 but estate reporting to washington as well.

.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> ^^
> 
> BMO seems to have a lot of these USD ETFs. US holdings - often via synthetic proxies - but domiciliation in canada.
> 
> ...


For what it is worth, I have ZSP.U in my USD account to mop up differences in asset purchases/swaps and distributions when I do not need USD cash, rather than buying more US domiciled Vanguard ETFs. Same as ZSP but in USD like it should be. :/


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## humble_pie (Jun 7, 2009)

AltaRed said:


> For what it is worth, I have ZSP.U in my USD account to mop up differences in asset purchases/swaps and distributions when I do not need USD cash, rather than buying more US domiciled Vanguard ETFs. Same as ZSP but in USD like it should be. :/



thankx for sharing, i'll look into it but wondering what ZSP dot U yields? at the moment i'm holding USD in a canada-based USD MMF, the royal bank 305. It's yielding a high .93%, is available for withdrawal on 24-hour call.

i think all USD vehicles holding short-term paper should be monitored for deterioration in current yield though. Their yields have risen last few months but could reverse. They won't reverse down the day ms Yellen raises rates but inevitably if she acts, they will have to reverse within 3-4-5 months, depending on what their mandate allows them to do.

.


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## AltaRed (Jun 8, 2009)

Sorry, should have been clear. ZSP is an S&P500 equity fund. Was just using it as an example of ZSP (CAD) and ZSP.U (USD)


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## john.cray (Dec 7, 2016)

AltaRed said:


> Correct, but you do still need to keep track of CAD equivalent ACB value for cap gains/loss purposes if held in a taxable account.


Right! My lesson is that "No USD holding should be kept without calculating its ACB in CAD" for capital/gain loss purposes. A good article on this matter that I found is https://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-for-foreign-currency-cash/

Another detail that might not be immediately obvious from this whole thing is that since the yield from USD investments is USD cash, then that yield should be tracked exactly the same way. I.e. added to the pile of USD cash at the BoC noon rate as of the date of acquisition. This applies to dividends and interest. In the case of a cash savings account then the interest is simply added to the same pile of cash that generated it, since all USD cash is treated the same way - one type of security. This is my understanding at least.

If the above is true, then it seems like the hassle of keeping ACB of new (small) sums of USD cash due to distributions won't end until you get rid of the USD asset or if that USD asset has no distributions.

As a final remark: I wonder how many Canadians who hold USD cash/securities actually know the above and do keep proper ACB?

Regards,
JC


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## james4beach (Nov 15, 2012)

humble_pie said:


> BMO seems to have a lot of these USD ETFs. US holdings - often via synthetic proxies - but domiciliation in canada.
> 
> it's very forward-looking of them. The appetite for these structures will surely grow, as they are sheltered from IRS reporting. Not just form 1135 but estate reporting to washington as well.


I agree, BMO is doing the right thing here. These Canadian traded US vehicles are a good option though I haven't looked specifically at the new ones john.cray mentioned.

ZSP is a great example... this is an excellent S&P 500 index fund and it's grown to over $3 billion in assets. BMO saw a need for this (Canadian domiciled S&P 500) and filled that need.


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## AltaRed (Jun 8, 2009)

john.cray said:


> In the case of a cash savings account then the interest is simply added to the same pile of cash that generated it, since all USD cash is treated the same way - one type of security. This is my understanding at least.
> 
> If the above is true, then it seems like the hassle of keeping ACB of new (small) sums of USD cash due to distributions won't end until you get rid of the USD asset or if that USD asset has no distributions.


You still have to keep track of the CAD equivalent ACB of the USD whenever new USD is added to the pile. No different than for a security. The ONLY difference of a deposit account from an investment (security such as stock, MMF, etc) is that moving USD from one deposit account to another deposit account does not trigger a sales/purchase transaction.... so your original ACB stays the same in the new USD deposit account.

Think I gave you an example not long ago. If I take USD cash from my Cdn brokerage account (that is just sitting there) and move it to another USD deposit account (bank or brokerage), it does not trigger a transaction event. Whereas if I had taken that USD and bought a USD money market fund, that would have triggered a transaction and thus a forex event.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Yes, a savings account in USD is indeed an investment, i.e. it is capital. USD savings will have its ACB based on the CAD equivalent when you put it there, e.g. the CAD equivalent disposition value on the sale of a USD stock, based on day of settlement. I believe it is the Noon BoC rate (the only one that will exist long term I believe....closing rate is disappearing....or is it the other way around?). When you use that USD in savings to buy a USD ETF, you then have a CAD equivalent disposition of USD cash based on the BoC rate on the date of settlement for that US ETF purchase (T+3). That forms the CAD equivalent ACB of that US ETF you just bought.


I took a closer look at the plans that Bank of Canada has with regards to changing the method of calculation at http://www.bankofcanada.ca/2017/03/calculation-methodology-foreign-exchange-rates/. I noticed that since the beginning of 2017 they have started publishing the new daily exchange rate, using the new methodology, at http://www.bankofcanada.ca/rates/exchange/daily-exchange-rates/. It differs slightly with the old noon rate which is still available at http://www.bankofcanada.ca/rates/exchange/legacy-noon-and-closing-rates/. It seems that they will stop publishing data from the old method on the 28th of April (or 1st of May not quite sure). The question though is -- for the overlapping period (2017-01-01 -- 2017-05-01) which method do I use for tax purposes and converting USD to CAD ?

Maybe either one is acceptable but I can't find any directions. Does anybody know CRA's recommendation?

Cheers guys,
JC


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## john.cray (Dec 7, 2016)

Hello everyone,

Going back to the available options offered previously by others (now that I have a better idea of my tax situation) and hoping to get a better handle on those. 



james4beach said:


> And with scotia that looks like only 45 basis points. I'd strongly suggest SHV over their HISA at 0.45%, but factor in your trading fees (thanks gibor!)


James you say only 0.45% but there is this juicy DYN1351 (Personal - F) which seems to yield 0.70% in USD. Here is the link again https://ads.scotiabank.com/news/rate-increase-usd-personal-investment-savings-accounts 

Is this something that is not available for me? I was wondering if I can purchase those directly since I am not an advisor. From their FAQ:


> What is an Investment Savings Account (ISAs)?
> 
> An ISA is a savings account that can only be purchased through a financial advisor. An ISA is similar to a savings account at a bank branch. The main difference is that it is processed through "Fundserv."


Also what is the "Trailer Fee" that they mention for some of the series? Is this money that they will charge me if I convert back to cash. Here's a table describing them https://ads.scotiabank.com/ADS/Download/888/en

Do you pay a commission when buying those just like when you buy stocks/etfs?

Cheers folks,
JC


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## humble_pie (Jun 7, 2009)

john.cray said:


> ... there is this juicy DYN1351 (Personal - F) which seems to yield 0.70% in USD. Here is the link again https://ads.scotiabank.com/news/rate-increase-usd-personal-investment-savings-accounts




RBC 305 is a USD money market fund currently yielding around .93%

should be checked every month since this relatively high yield could easily segue downwards.

no need to be an RBC client. Should be able to purchase at most brokers.

individual MMF buyers do not pay trailer fees. The vendor - in this case the mutual fund division of RBC Dominion Securities - would pay any applicable trailer fee to brokers who sell the fund.

there is almost never any commission or load fee to buy or sell money market funds (i've heard that in the past, Investors Group was charging load fees for its money market funds) (i don't know IG policy at present, they might stil be charging load fees on MMFs)

settlement period for money market funds is usually one day. Easy come, easy go.


.


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## GreatLaker (Mar 23, 2014)

john.cray said:


> James you say only 0.45% but there is this juicy DYN1351 (Personal - F) which seems to yield 0.70% in USD. Here is the link again https://ads.scotiabank.com/news/rate-increase-usd-personal-investment-savings-accounts
> 
> Is this something that is not available for me? I was wondering if I can purchase those directly since I am not an advisor.


F series are only available to clients of fee based advisors that typically charge a fee as an annual % of assets. Unlikely a retail investor in a discount broker can buy it




> Also what is the "Trailer Fee" that they mention for some of the series? Is this money that they will charge me if I convert back to cash. Here's a table describing them https://ads.scotiabank.com/ADS/Download/888/en


Just like regular mutual funds, the fund company (in this case Scotia*) pays a trailing fee to the broker (in this case Scotia*) ostensibly for the ongoing support and advice (except discount brokers are prohibited from providing advice, but the trailer nonetheless gets paid.)
* may be different corporate entities within Scotia, like TD Direct Investing is a broker and TD Asset Management is the fund provider.




> Do you pay a commission when buying those just like when you buy stocks/etfs?


No. Buying and selling is free, like no-fee mutual funds.


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## jargey3000 (Jan 25, 2011)

humble_pie said:


> RBC 305 is a USD money market fund currently yielding around .93%
> 
> should be checked every month since this relatively high yield could easily segue downwards.
> 
> ...


thanks for that info HP.

(heart) CMF!

..


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## john.cray (Dec 7, 2016)

Called Scotia iTrade just to confirm that I, as an individual investor, can purchase those ISA (Investment Savings Accounts) directly through my iTrade account. After some confusion and checking around the person confirmed that I am able to purchase the A and E series (https://ads.scotiabank.com/ADS/Download/888/en).

Those are respectively: 
* DYN1350 (A) = 0.45% in USD
* DYN1326 (E) = 0.60% in USD

Comparing those rates with the MMF offered previously by others I think I'll go with DYN. They carry no risk for the principal and the interest since they are just savings accounts. 

As per https://ads.scotiabank.com/frequently-asked-questions:



> What are the benefits of an ISA?
> 
> The beauty of an ISA is its simplicity. They are easy to trade, easy to explain to clients and provide easy access to cash when needed. Unlike the money market, principal and interest are guaranteed.
> 
> ...


She also confirmed that there are no fees associated. No purchase/sell fee or MERs.

So the above is virtually risk free. Am I missing anything?

Cheers,
JC


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## james4beach (Nov 15, 2012)

Regarding DYN1326 ... is there a minimum investment, though?

I'm a bit skeptical that you can get the higher yielding series at 0.60%


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## john.cray (Dec 7, 2016)

james4beach said:


> Regarding DYN1326 ... is there a minimum investment, though?
> 
> I'm a bit skeptical that you can get the higher yielding series at 0.60%



Yes, $100,000 USD (https://ads.scotiabank.com/ADS/Download/888/en)



> Minimum Initial Investment
> 
> A & F: none
> E: $100,000


DYN1350 requires $1000 minimum according to iTrade.


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## james4beach (Nov 15, 2012)

Ah, so if you do 100 K minimum, you can get 0.60% in their ISA? That's interesting.


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## humble_pie (Jun 7, 2009)

john.cray said:


> Called Scotia iTrade just to confirm that I, as an individual investor, can purchase those ISA (Investment Savings Accounts) directly through my iTrade account ...
> 
> * DYN1350 (A) = 0.45% in USD
> * DYN1326 (E) = 0.60% in USD
> ...




no, not missing anything at all. You've got the essentials. .45-.60% is so so so so, _so_ much better than .93%.

.


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## john.cray (Dec 7, 2016)

humble_pie said:


> no, not missing anything at all. You've got the essentials. .45-.60% is so so so so, _so_ much better than .93%.
> 
> .


The reason why I would prefer the savings account in this case is because I don't want the extra risk of fluctuation in price. Like you said those MMF have to be checked every month. The ISA guarantees the principal and the interest. So I am willing to forgo the extra 0.33% at the expense of safety. This is just a temporary setting anyway for me. I do appreciate the fact that others might prefer RBF305 (http://funds.rbcgam.com/pdf/fund-facts/funds/rbf305_e.pdf). According to the PDF they have:



> 72.6% CommercialPaper
> 19.8% ProvincialObligations
> 7.6% BankersAcceptancesandBank Obligations


James, both RBF305 and DYN1326 would require $100K initial investment, seems like it.

I value the input of everyone here though and I think all the information posted could become handy for investors in different situations.

Regards,
JC


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## jargey3000 (Jan 25, 2011)

*... both RBF305 and DYN1326 would require $100K initial investment, seems like it.*

Is this correct (re RBF305)?


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## john.cray (Dec 7, 2016)

jargey3000 said:


> *... both RBF305 and DYN1326 would require $100K initial investment, seems like it.*
> 
> Is this correct (re RBF305)?


HP originally suggested RBC305, but I only found RBF305, so I assumed it is 'F' instead of 'C'. Please correct me if I am wrong.

Again the RBC fund that I was comparing against is RBF305 (RBC Premium $U.S. Money Market Fund - Series A June 30, 2016) http://funds.rbcgam.com/pdf/fund-facts/funds/rbf305_e.pdf



> ...
> Minimum investment: US$100,000 initial, US$100 additional investment


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## humble_pie (Jun 7, 2009)

jargey3000 said:


> ... both RBF305 and DYN1326 would require $100K initial investment, seems like it.
> 
> Is this correct (re RBF305)?




RBF305 is indeed a premium USD MMF with a $100k threshhold. I don't know about the other fund/account you mention.


for less than 100k in greenbacks looking for temporary savings shelter, RBC Asset Management seems to offer 2 USD money market funds. Minimum subscription for both is $500.

1) there's RBF261. This is said to be yielding .59% at present.
2) there's also RBF1003 which is said to be yielding .64%. 

for comparison purposes, TD has a USD MMF with minimum $500 subscription. TDB166. This is said to be yielding .45%.

the reason i'm hedging a little on the "said to be" yields is that different data bases are showing different yields for each of the above-mentioned funds. The only one i know from practical experience is RBC305, which last month paid me more than its stated return as posted anywhere. The rate it paid to me for march/17 was .96%. Go figure. 

.


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## humble_pie (Jun 7, 2009)

john.cray said:


> The reason why I would prefer the savings account in this case is because I don't want the extra risk of fluctuation in price. Like you said those MMF have to be checked every month. The ISA guarantees the principal and the interest. So I am willing to forgo the extra 0.33% at the expense of safety.



a money market fund such as RBF 305 never fluctuates in price. It's always $10 USD. Other money market funds are the same. These are not bond funds.

the reason we'd want to keep an eye on a MMF yield is that this yield can fluctuate in its rate. Exactly the same way a USD savings account can fluctuate in its rate.

wondering how an ISA "guarantees ... the interest?'' that sounds more like a GIC or term deposit to me. These latter, however, usually lock money in for the duration of the term, whereas a money market fund or a HISA or an ISA are available on 24-hour call. The principal is normally fixed in MMF/HISA or ISA, but the interest such a vehicle pays out typically fluctuates over time. Because it fluctuates, this interest should be monitored, even if only casually.

.


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## james4beach (Nov 15, 2012)

humble_pie said:


> a money market fund such as RBF 305 never fluctuates in price. It's always $10 USD. Other money market funds are the same. These are not bond funds.


I think there is a difference between them.

RBF 305 is a money market mutual fund. It holds commercial paper and short term bonds, so its assets are debt securities. It's true that its price is constant at $10, but this is a bit artificial because the value of the underlying securities is fluctuating all the time. They just normally fluctuate so little that the fund can get away with giving a constant price.

The ISA vehicles are different, they are not commercial paper funds. They are deposit accounts, liabilities with the bank. It is a pledge by the bank.The bank says it will repay you this amount of money.

I think either one is fine but they are different things.


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## humble_pie (Jun 7, 2009)

jas4 i think you have an excellent fine point there, but ... keep in mind ... the only time i have ever heard of a money market fund in trouble was one US money market fund, domiciled in the US, whose NAV dropped below $10 during the crash of 2008/09.

i am not sure how very much more secure an ISA would be. Yes it's a pledge by the bank, but we don't know what capital tier or what a bank would actually be using to back this product or these products. In general, times that would be hard enough to shake money market funds would also be hard enough to shake up a number of banks.

.


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## AltaRed (Jun 8, 2009)

One difference is that most ISAs (not USD ones though) carry CDIC insurance while MMFs don't. Neither product guarantees yield. 

I also don't get the price fluctuation comment. With one or two US historical exceptions, the fund sponsor always maintains a steady $10 value. Anything else, and the investors would flee. What the OP may be referring to is that anything domiciled in USD will have a fluctuating value in CAD equivalent. Any time the loonie moves, the value of the USD MMF will change in CAD equivalent value.


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## james4beach (Nov 15, 2012)

Yes for the USD, I don't know whether the MMF or ISA is safer. Flip of a coin? I agree the MMF risk is negligible. One could argue it's actually safer than the ISA, since the MMF is backed by commercial paper (assets) whereas the ISA is just a promise of the bank. As with any other deposit, it's just a promise to repay you.

For CAD amounts, the ISA is much safer as it has CDIC insurance.


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## john.cray (Dec 7, 2016)

AltaRed said:


> One difference is that most ISAs (not USD ones though) carry CDIC insurance while MMFs don't. Neither product guarantees yield.
> 
> I also don't get the price fluctuation comment. With one or two US historical exceptions, the fund sponsor always maintains a steady $10 value. Anything else, and the investors would flee. What the OP may be referring to is that anything domiciled in USD will have a fluctuating value in CAD equivalent. Any time the loonie moves, the value of the USD MMF will change in CAD equivalent value.


Hi,

I wasn't referring to the USD/CAD fluctuation. I have to admin that I don't understand MMFs and how they function. What I did have in mind though, like I pointed out earlier, was just a comparison based on the information I found provided by the respective funds. Here it is again:

For Scotia ISA FAQ (https://ads.scotiabank.com/frequently-asked-questions):



> What are the benefits of an ISA?
> 
> The beauty of an ISA is its simplicity. They are easy to trade, easy to explain to clients and provide easy access to cash when needed. Unlike the money market, principal and interest are guaranteed.
> 
> ...


In particular the part *Unlike the money market, principal and interest are guaranteed.*


For RBF305 (http://funds.rbcgam.com/pdf/fund-facts/funds/rbf305_e.pdf):



> How risky is it?
> The value of the fund can go down as well as up. You could lose money.
> 
> No guarantees
> ...


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## AltaRed (Jun 8, 2009)

Okay.... So the Scotia ISA FAQ simply says it is a savings account and pays interest at the rate they determine from time to time. Only the CAD version has a CDIC guarantee. For a USD ISA though, there is no CDIC guarantee..... The only guarantee is what Scotia says (as long as Scotia does not default, go insolvent, etc.).

I agree Money Market funds do not carry guarantees of any kind.... because mutual funds are trusts, and thus do not carry guarantees by definition. What you quoted is a boilerplate statement for all mutual funds. However, no institution would let their MMF break $10 and so that $10 unit price is as about as solid at that uninsured USD ISA. They clearly are different than other mutual funds....and indeed even settle on the market at T+1 instead of T+3 like other mutual funds.

In effect, the only difference between a USD ISA and a USD money market mutual fund is the former is a savings account backed by the capital (liquidity) of the bank.... and the latter is backed by the commercial paper that the mutual fund invests its money market fund in... in order to create and pay interest. There could be a slightly higher comfort level with the ISA, but only because of the institution backing it. Would you buy a USD ISA from any second tier institution these days? OTOH, do you not think RBC, for example, would move mountains to ensure their MMF maintains its $10 unit value if for nothing else than its reputation? I just see about 50 shades of grey.


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## john.cray (Dec 7, 2016)

Hi,

Thank you all for the explanations. Very helpful.

Like I said earlier, I just don't know enough about MMFs and thus had to rely on the boilerplate text as you mention. What you're all saying is that the de-facto risk is pretty minimal and practically equivalent to the ISA and I might as well just buy the MMF from RBC and enjoy the higher interest. I'll go back and do some more homework on MMF 101 

Cheers,
JC


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## sansum (Apr 15, 2017)

*MMF vs ISA*

I'm with john.cray. I get a little confused with so many "products" offering in the market now. Not to mentioned, when buying USD MMF, it triggers capital gains/losses on the FX and that adds another layer of complications for small investors like me. I just put my USD into 90 day term deposits that yield 0.6%. 

However, I agree with others comments on the flexibility with MMFs and don't really see that much risks if the right ones are picked, that is.


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## humble_pie (Jun 7, 2009)

john.cray said:


> For Scotia ISA FAQ (https://ads.scotiabank.com/frequently-asked-questions):
> 
> In particular the part *Unlike the money market, principal and interest are guaranteed.*



i can't get your link to the scotia FAQs to open, nonetheless you have quoted the particular part that interests me. The part that says interest on a scotia ISA is "guaranteed."

perhaps i'm wrong here but i thought an ISA was just a plain daily interest savings account with a few hybridized features added? i was thinking that a bank running an ISA is free to change the interest rate any day, without advance notice? clients have to take what they're served, or else they're free to move their funds elsewhere?

at the end of the day, i just can't see how any bank could offer a savings account product with a permanent "guaranteed" interest rate. I don't even see how a bank can "guarantee" that it will continue to pay interest. Likely, yes. But guaranteed, no.

what it all boils down to is that most/perhaps all of these short-term income driven products do contain some dodgy stuff. Certainly the money market funds contain some dodgy. 

to change the topic almost completely: could folks please remember that there is no CDIC insurance nor any other kind of insurance, nor is any guarantee possible on any USD deposit, USD account or other USD paper held by canadians.

.


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## john.cray (Dec 7, 2016)

Hello,

HP, here is the link again https://ads.scotiabank.com/frequently-asked-questions
I think the automatic hrefing caught the closing bracket.

My understanding, and only that, is that yes they can change the interest just like they can on a regular bank savings account but until they do so, for any given period of time the promised percentage (0.60% for DYN1326) is guaranteed to be paid to you. No more, no less. Maybe they will change their minds and the next period they would lower it to 0.5% and that's that, but from there on until announced otherwise again you'll be getting a guaranteed 0.5%. At least this is how my banking savings account works. Again, I don't want to create any confusion but this is my understanding.

Again it is my understanding that the principal should not fluctuate in value in any shape or form. The only case that you could lose money is if Scotia itself becomes insolvent or bankrupts. And yes since USD isn't insured by CDIC in any institution, I as the holder of USD, take on that risk regardless of the deposit that I put the money in. This is the tradeoff of holding USD.

@sansum: as discussed here previously, and if I have learned my lesson well, moving USD cash between USD accounts (savings/chequing) should not trigger a forex captial gain. Now, I am a little hesitant regarding a purchase of an ISA (DYN1326) or a money market fund (RBF305), but I would say that since both those are traded like mutual funds and there is a purchase transaction then there *should* be in fact a capital gain/loss event upon purchase and sale. Maybe others can confirm or correct this.

The tradeoff that I can see in your case, is that you lock the money for 90 days with a short-term deposit, while keeping it in the above ISA/MMF would provide better liquidity.

Regards,
JC


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## AltaRed (Jun 8, 2009)

My understanding is that ISAs are deposit accounts and thus do not trigger a transaction event like money market funds do. Whether the ISA is sold like a mutual fund or is simply a HISA in an online bank is not relevant. CRA says deposit accounts do not trigger forex cap gains/loss issues and I assume ISAs are in that bucket.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> My understanding is that ISAs are deposit accounts and thus do not trigger a transaction event like money market funds do. Whether the ISA is sold like a mutual fund or is simply a HISA in an online bank is not relevant. _CRA says deposit accounts do not trigger forex cap gains/loss issues_ and I assume ISAs are in that bucket.




a false meme may be arising in cmf forum among some or possibly many readers of these threads on USD short-term interest products.

many readers are interpreting that if one owns a USD bank account type, there will *never* be any taxable capital gains or losses on any currency appreciation/depreciation that USD might undergo during the bank account holding period.

IMHO the above notion is not true. All that the USD bank account holding accomplishes is to postpone the final capital gain/loss calculation, until the day that the investor changes his USD from bank account into some other form of investment. 

for example: an investor moves for several years from one USD bank account to another USD bank account, always in search of the highest interest rate. At the end of those years, he buys an inventory of US stocks. Or he converts back into CAD. The point is that he exits holding USD in a bank type account.

at that exit moment, he will have a capital gain or loss on his inventory of US dollars for the whole time he has been holding & migrating those greenbacks around among the different bank accounts.

it would be foolish to believe that holding $100k in USD bank account means zero capital gains on currency appreciation ever, while holding $100k in USD money market fund means taxable capital gains on currency appreciation. Yet that is a foolish view i see running amok among some cmffers!

perhaps i'm not explaining these views properly, after all i'm not an accountant. The forum has some talented accountants on here, i'm sure they could do a much better job. But one thing i'm sure of, the Tax Act has no loophole so gigantic that it says zero-capital-gains-ever-on-foreign-currency-appreciation-when-taxpayer-holds-in-bank-account.

what that CRA interpretation bulletin on foreign currency appreciation says is that there will be no capital gains payable until taxpayer has disposed of his foreign currency holding, by moving it out of bank account. This approach is identical to stock appreciation.

we are not taxed capital gains on stocks that have risen in value either, until we finally dispose of such stocks. We can even move such stocks around from one broker to another broker without triggering capital gains - this would be an analogy to moving foreign currency such as USD from one bank account type to another bank account type. 


.


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## james4beach (Nov 15, 2012)

I agree with you humble_pie. Storing the USD cash in a USD deposit account-like thing, is just delaying the capital gain.

That's how I manage my paycheque USD. The money goes into a USD deposit account, stays in USD, until I eventually convert "USD cash" into another thing such as GICs or whatever stock.

The point at which I switch from "USD cash" -> some other thing, is the point at which I recognize the capital gain/loss.


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## humble_pie (Jun 7, 2009)

james4beach said:


> I agree with you humble_pie. Storing the USD cash in a USD deposit account-like thing, is just delaying the capital gain.



oh good
at least the forum has one other true believer
together we gone save da place

each:

.


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## john.cray (Dec 7, 2016)

With the risk of mudding the waters even further, I don't think AltaRed has suggested that there will be no capital gain/loss event ever on the USD currency. His comment was simply regarding buying DYN1326 with USD. Since DYN1326 is an ISA (a savings account) he thinks that this should NOT trigger a capital gain/loss event at the time of purchase/sell of that fund. Eventually of course when I decide to actually invest the USD in say VTI, then I will have to calculate the gain/loss of the forex using the initial date of when I first got the USD currency and not when I sold the DYN1326 (since that was a noop).

In contrast if I decided to go with RBF305 I'll need to have 2 capital gain/loss events. 1) when I buy the fund and 2) when I sell it.

HP and James, in this particular example do you not agree with AltaRed? Do you think that a purchase of an ISA triggers a capital gain/loss at that moment?


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## james4beach (Nov 15, 2012)

I am not an expert in this area. It took me about 2 hours just to figure out what was going on with my own FX reporting.

But in this example you mention, starting with USD cash and then buying DYN1326 (i.e. USD cash deposit), I agree that 'buying' this ISA should not trigger a capital gain. Like you say, this is a no-op event... cash -> cash.

I see that process the same as what I do, which is taking USD cash and transferring it into my USD deposit account. This does not trigger a capital gain either, so I don't think DYN1326 (a deposit account as well) would either.

Just FYI, the broker T5008 may show these ISA trades but they are also non-events for capital gain/loss, as they are not mutual funds and probably shouldn't appear on the T5008 at all.


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## john.cray (Dec 7, 2016)

james4beach said:


> I am not an expert in this area. It took me about 2 hours just to figure out what was going on with my own FX reporting.
> 
> But in this example you mention, starting with USD cash and then buying DYN1326 (i.e. USD cash deposit), I agree that 'buying' this ISA should not trigger a capital gain. Like you say, this is a no-op event... cash -> cash.
> 
> ...


Thanks for that. I guess I would have calculated capital gain/loss at the time of purchase and sell of DYN1326 when one wasn't necessary.

Appreciate that input as well.

P.S.
I wonder if the PITA of record keeping of USD assets/cash is worth the diversification benefit. According to Garth Turner one should keep 20% of their investments in USD.


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## AltaRed (Jun 8, 2009)

john.cray said:


> With the risk of mudding the waters even further, I don't think AltaRed has suggested that there will be no capital gain/loss event ever on the USD currency. His comment was simply regarding buying DYN1326 with USD. Since DYN1326 is an ISA (a savings account) he thinks that this should NOT trigger a capital gain/loss event at the time of purchase/sell of that fund. Eventually of course when I decide to actually invest the USD in say VTI, then I will have to calculate the gain/loss of the forex using the initial date of when I first got the USD currency and not when I sold the DYN1326 (since that was a noop).
> 
> In contrast if I decided to go with RBF305 I'll need to have 2 capital gain/loss events. 1) when I buy the fund and 2) when I sell it.
> 
> HP and James, in this particular example do you not agree with AltaRed? Do you think that a purchase of an ISA triggers a capital gain/loss at that moment?


Indeed, that is what I meant but can see how I was too cryptic with words. Movements between cash and deposit accounts does not trigger a capital gains/loss event, but it does whenever the money is then spent on goods and services OR another investment including a money market mutual fund...because one is buying units of a trust, not a deposit account.


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## AltaRed (Jun 8, 2009)

john.cray said:


> I wonder if the PITA of record keeping of USD assets/cash is worth the diversification benefit. According to Garth Turner one should keep 20% of their investments in USD.


It is if you are truly investing in USD assets like stocks, bonds, real estate, etc, etc. The only reason to hold USD cash is when you know you are going to spend it shortly...e.g. goods and services like a vacation or capital/real property. My USD cash slowly builds due to stock dividends and ETF distributions. It accummulates until I spend it on USD goods and services, usually at least once a year.


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## john.cray (Dec 7, 2016)

AltaRed said:


> It is if you are truly investing in USD assets like stocks, bonds, real estate, etc, etc. The only reason to hold USD cash is when you know you are going to spend it shortly...e.g. goods and services like a vacation or capital/real property. My USD cash slowly builds due to stock dividends and ETF distributions. It accummulates until I spend it on USD goods and services, usually at least once a year.


That's similar to my situation. I am timing the market to buy VTI (shame on me, I know) and I just wanted to offset some of the inflation in the meantime. Currently earning 0.25% in Scotia Cash Optimizer and thinking of buying DYN1326.

Thanks again to everyone who contributed to this thread. It's been an incredible learning experience for me!


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## john.cray (Dec 7, 2016)

A couple of additional points of interest:

1. Historical ISA rates (which can show you how often they have changed them) available at https://ads.scotiabank.com/rate-history

2. Early redemption -- something to check with an agent:


> If you redeem or switch your mutual fund within 90 days of the purchase date, there are two fees that may be relevant to you: (1) Early Redemption Transaction fees may be charged and deducted from the settlement amount by some mutual fund companies including Scotia Mutual Funds. Please refer to the prospectus of each fund for details. (2) Scotia iTRADE will charge an Early Redemption Fee of 1% (min. $38.88) to your Scotia iTRADE account. However, redemptions of Scotia Money Market Funds, Dynamic Money Market Funds, and all Scotia Mutual Funds are excluded and will not be charged the Scotia iTRADE early redemption fee.


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## humble_pie (Jun 7, 2009)

.

i agree with jas4 who says "I am not an expert in this area."




john.cray said:


> In contrast if I decided to go with RBF305 I'll need to have 2 capital gain/loss events. 1) when I buy the fund and 2) when I sell it.



the way i see it, it's not the purchase of the USD MMF per se that triggers a capital gain, it's because what you might have held previously in USD - which you are "disposing of" in order to acquire a new & different investment vehicle - may show currency appreciation & the disposition of that previous holding would be the taxable event, no?

buying a USD MMF & recording its cost base in CAD would be a simple bookkeeping procedure for an investor's records, not a taxable event.

but if investor had previously held USD bank account type products & these had shown significant capital appreciation over time, then investor would have a taxable event upon disposition. Whereas if he would continue with bank account type products, crystallization of any currency gain would be postponed.

i can see where someone with significant currency appreciation in a USD bank account might deliberately choose a lower-yielding ISA in order to postpone gains he might have to declare if he were to change to a different investment vehicle.

would i myself consider an ISA to be within the family of bank account products, not a wholly different investment vehicle? yes, i would.

_refrain: "i'm not an expert in this area"_


.


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## AltaRed (Jun 8, 2009)

1) It costs the mutual fund money to keep track of every transaction, and those costs are borne by mutual fund investors. Hence some attempt is made to decrease the burden of frequent transactions to the rest of the unitholders, and if one insists on a frequent transaction, then a fee helps to offset this cost.

2) It costs brokerages something to handle the purchase and sale of mutual funds and so because they do not charge commissions for mutual funds, they want to get at least one trailer fee from mutual fund sales/purchases, and that occurs once every 13 weeks (about 90 days).


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## seh (Nov 10, 2014)

humble_pie said:


> i can't get your link to the scotia FAQs to open, nonetheless you have quoted the particular part that interests me. The part that says interest on a scotia ISA is "guaranteed."
> 
> perhaps i'm wrong here but i thought an ISA was just a plain daily interest savings account with a few hybridized features added? i was thinking that a bank running an ISA is free to change the interest rate any day, without advance notice? clients have to take what they're served, or else they're free to move their funds elsewhere?
> 
> ...



I think there is CIPF insurance for USD cash held in brokerage accounts. Now, for example, is USD held in iTrade's "cash optimizer" account considered cash, and therefore covered under CIPF? Probably. Are USD GICs and USD ISAs covered? I'm guessing not.

Anyone care to comment?


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## james4beach (Nov 15, 2012)

CIPF insurance covers any currency cash in a brokerage account, if it is a cash amount just sitting there. Once it's in an ISA, it's a deposit and CIPF insurance does not apply.


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## humble_pie (Jun 7, 2009)

seh said:


> I think there is CIPF insurance for USD cash held in brokerage accounts.



great stuff! my bad, i misrepresented.

it was a freudian slip though, because i do not believe the CIPF is the kind of all-purpose saviour/rescuer fund that some seem to believe it is.

AFAIK the CIPF is not a separate "fund" that already exists per se, but is merely the collective ability of the brokerage industry to raise funds via special assessment to bail out one broker, here or there, that happens to fail.

in most stressed or failing cases, another financial institution will buy the failing broker before the worst happens. In other words, CIPF is a form of insurance against a rare worst case scenario, one in which no buyer appears that is willing to buy a collapsed brokerage.

what concerns me is not an isolated case here or there. The canadian brokerage industry, acting in concert, has handled such cases before. Clients have not lost their assets. 

what concerns me is a global or multi-national financial collapse, when so many institutions would go under that CIPF would no longer function or even exist.


.


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## james4beach (Nov 15, 2012)

humble_pie said:


> it was a freudian slip though, because i do not believe the CIPF is the kind of all-purpose saviour/rescuer fund that some seem to believe it is.


Absolutely true, and look no further than CIPF's own annual reports. Read through them and you will see they are still working on claims from many years ago! It can take several years... maybe over 10 years... to get all your money back after a brokerage failure.

In most brokerage failures, your assets are simply transferred to a new brokerage. That's assuming your assets actually existed at the brokerage. This is a reason you should never leave cash amounts sitting around in a brokerage... that cash does NOT exist. It will have to be recovered from CIPF insurance.

As will any securities that the broker didn't actually have.

CIPF insurance is good to have but I seriously hope I never have to make a claim.


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## AltaRed (Jun 8, 2009)

Thought we had this discussion before. In regular (non-margin) accounts and registered accounts, the 'street name' assets are Segregated (non-reg) or in a trust? account (registered). In discount brokerages, unless there is embezzlement in the back office and a failure of internal controls, I don't see how things can go off the rails. 

I have/had less faith in full service brokerages when the front office (of UCS) had 'control' of accounts and in many cases, discretionary authority to trade. Discretionary authority was a key weak link (maybe still is).

Added: I understand cash on account is a free for all. For example, Scotia iTrade's Cash Optimizer accounts (not their regular Cash accounts) pay interest for both USD and CAD on account, but they obviously invest that in their operations to make a return on those funds.


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## james4beach (Nov 15, 2012)

The cash is never segregated. And for securities, yes they may be segregated but this doesn't offer you the protection you might think.

This is described right in CIPF's web site FAQ where they spell out that, when brokerages are dividing up assets after a failure, everyone shares in the shortfall (if there is one). That means that even if your securities are segregated, you are not protected from losses. - https://www.cipf.ca/Public/FAQs.aspx



> 26. My account statement from my broker shows that the securities in my account are held in segregation. Will those securities be returned to me in the event of the insolvency of the broker?
> 
> Not necessarily. It is possible that those securities will not be available to be returned to you if the broker becomes insolvent. The particular circumstances of insolvencies can vary widely. For example, one of the laws that may apply to an insolvency of an investment dealer in Canada is Part XII of the Bankruptcy and Insolvency Act (Canada). If Part XII applies, all client cash and securities held by the insolvent firm for its clients at the time of bankruptcy, other than customer name securities (registered in the customer’s name), would be included in a single “customer pool”. *Any “shortfall” of client cash or securities would be allocated proportionately from the customer pool across all clients after payment of bankruptcy administration costs.*


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## john.cray (Dec 7, 2016)

A quick update: The YTM of SHV (iShares Short Treasury Bond ETF) has raised to 0.97% (or 0.82% after MER). Not too shabby

https://www.ishares.com/us/products/239466/ishares-short-treasury-bond-etf


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## james4beach (Nov 15, 2012)

Yes that's pretty good, and SHV is ultra-safe


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## seh (Nov 10, 2014)

How about parking USD at one of the Western Canada Credit Unions where the deposit insurance does cover USD cash and GICs, and where the provincial governments do back the (crown corporation) deposit insurance corporations (I think that would be Saskatchewan, Alberta, and B.C.)? Probably not as safe as SHV, but no requirement submit T1135 Foreign Holdings to CRA.


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## john.cray (Dec 7, 2016)

Another update after another Fed increase. SHV has a YTM of 1.09% now. Pretty compelling.


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## humble_pie (Jun 7, 2009)

^^

US short-term rates are rising. RBC USD MMF yielding something like 1.05%, said my end-of-may calc. Somebody told me that CIBC has a USD MMF yielding 1.04%.

yes it's compelling, until one stops to consider that USD/CAD is slipping ...


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## AltaRed (Jun 8, 2009)

john.cray said:


> Another update after another Fed increase. SHV has a YTM of 1.09% now. Pretty compelling.


https://www.ishares.com/us/products/239466/ishares-short-treasury-bond-etf

That 1.09% is before MER of 15bp and is not necessarily YTM... It is an average yield. The current distribution yield is 0.6% and SEC yield is 0.87%. Not sure I understand the difference but I would only count the money I get in my pocket, i.e. 0.6% The latest Fed bump will increase that slightly in a few months time (average duration 0.43 yrs)


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## humble_pie (Jun 7, 2009)

... but how do you know for sure that one is receiving only 0.6% ... i mean, one would have to own it oneself, then check the yield oneself.

what i found when i set out to look at these products a couple months ago is that different data bases were showing wildly disparate returns. The one i picked was said to be yielding from the .60s to the .90s. The broker's own quote system was showing 2 different current yields, depending on which feed one was picking up.

i bought the RBC fund as a pig-in-a-poke, planning to calculate for myself what the thing was actually paying out at the end of the first month. Knowing that i'd accept whatever the distribution turned out to be with good will.

at the end of that first month, danged if the MMF didn't pay out at the annualized rate of .92%! meanwhile some data bases kept grinding on with a reported current yield that was 30 basis points below.

i was so surprised by the dbase discrepancies that the following month i checked again. Same story. Yield as actual cash paid to me had risen to around .97% but some data bases were showing 30 basis pts below ... following month same story again. The realio trulio yield as of the end of may was 1.05%, however the dbases were saying ...

fin du compte: US short term rates are rising, it's fairly easy to find an instrument paying north of 1%. This is a bottom-up, not a top-down view.


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## AltaRed (Jun 8, 2009)

I'd suggest the Blackrock iShares site would be the accurate one, no? FWIW, the current yield of 0.6% is based on the current distribution annualized (which is what it says). Next month it could be slightly more or less just like montly distributions from bond ETFs often vary month to month as well.


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## james4beach (Nov 15, 2012)

Distribution yield is meaningless.

Are we talking about SHV? Yes, visit iShares US
https://www.ishares.com/us/products/239466/ishares-short-treasury-bond-etf

Average yield is 1.09%
Expenses are 0.15% (the Americans don't use the term MER)

Expected yield is therefore 1.09 - 0.15 = *0.94%*

So if you want 0.94% yield on USD with zero risk, SHV is the way to go.
Alternatively you can go with Pimco MINT with 1.96% ytm - 0.35% fee = *1.61%*
But this one comes with active management risk and corporate risk. If the corporate/commercial paper market implodes, this one will fall.

Personally I'd take the 0.94% in SHV at zero risk, unless the US Treasury defaults.
(It will not ever default).


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## seh (Nov 10, 2014)

I'm with AltaRed in that I only count the money I get in my pocket. iShares web site shows latest monthly distribution of $0.056184. If it remains the same for 12 months, that's $0.674208 per year. Divide that by the current share price of $110.28 and it comes to 0.61%. Why would someone conclude you're getting a higher yield? Am I missing something?


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## AltaRed (Jun 8, 2009)

seh said:


> I'm with AltaRed in that I only count the money I get in my pocket. iShares web site shows latest monthly distribution of $0.056184. If it remains the same for 12 months, that's $0.674208 per year. Divide that by the current share price of $110.28 and it comes to 0.61%. Why would someone conclude you're getting a higher yield? Am I missing something?


Average yield (which includes YTW for callable bonds) is meaningless on a ST fund (duration 0.43 yrs). Assets are constantly shuffling in and out of this ETF making every yield measure only valid for today (or a month at most). Just keep watching the distributions for the next 6-12 months (is going up slightly with 3 recent Fed increases).

Look at total return performance for 1, 3, 5 and 10 yrs. Only the 10 year one breaks 0.5% and that is beause of the 2007 influence before the face plant in interest rates.

Added: I just looked at 10 years of monthly distributions. Strong through 2007 and then fell precipitously through 2008. Continued very low, sometimes zero, until signs of movement in late 2016. June 2017's distribution of 0.056184 is the highest it has been this year and since March 2009. So distribution annualized has improved to 0.6% annualized from about 0.4% annualized early this year. We shall see what transpires going forward but because duration is so short, no one really knows where it is going.


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## james4beach (Nov 15, 2012)

seh said:


> I'm with AltaRed in that I only count the money I get in my pocket. iShares web site shows latest monthly distribution of $0.056184. If it remains the same for 12 months, that's $0.674208 per year. Divide that by the current share price of $110.28 and it comes to 0.61%. Why would someone conclude you're getting a higher yield? Am I missing something?


This is not the correct way to look at fixed income ETF yields.

SHV holds t-bill securities. The last distributions will not stay the same; since yields on t-bills have gone up, new distributions will be higher.

Looking at yield to maturity or average yield is the correct way to estimate yield of a bond ETF.

Another way for SHV is to simply pull up charts of the relevant t-bills (of same average maturity) and see what the current market rates are.


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## john.cray (Dec 7, 2016)

james4beach said:


> This is not the correct way to look at fixed income ETF yields.
> 
> SHV holds t-bill securities. The last distributions will not stay the same; since yields on t-bills have gone up, new distributions will be higher.
> 
> ...



Did you mean https://www.treasury.gov/resource-c...interest-rates/Pages/TextView.aspx?data=yield ?
According to the above the 6 month bill pays 1.13% as of today.

James your feedback is always very informative and this topic has come up multiple times so maybe it would be helpful to explain the difference between Yield to Maturity and Current Yield again for those of us that need some clarification?

For what is worth I found https://www.youtube.com/watch?v=pfhjJ00IuW4 to be a good lesson (the whole series is pretty good). My understanding is that if you only look at the current yield you are ignoring the capital gain/loss of the change in price of the bond as compared to its par value that you will realize at maturity date. YTM also calculates the compounding effect of the interest. Would you say that those two are the main factors that contribute to the difference in 0.60% or so in its current distribution and the 1.10% (or 0.95% after MER) of advertised YTM?

I also have been asking myself this question considering investing in SHV. Am I really going to get 0.95% as return at the end of a 5-6 month holding period or is it only going to be 0.60? From everything I've learned only YTM is the metric I should care about since it's forward looking.

Cheers,
JC


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## AltaRed (Jun 8, 2009)

john.cray said:


> I also have been asking myself this question considering investing in SHV. Am I really going to get 0.95% as return at the end of a 5-6 month holding period or is it only going to be 0.60? From everything I've learned only YTM is the metric I should care about since it's forward looking.


I think SHV is a bit of a different animal simply because it has an average duration and maturity of about 0.42-0.43 years with the longest Treasury Bill being 1 year in length. SHV is really going to respond quickly to changes in Tbill yields. Thus having throught this through abit more since my prior posts, I am more inclined to agree with James that Average Yield (less ER) may be a better indicator BUT you will have to hold for awhile, e.g. 0.43 years, to get that yield. Essentially you are at the mercy of movements in Treasury Bill movements


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## seh (Nov 10, 2014)

How about parking US funds in recently introduced BMO ETF: ZTS.U? It's also US T-Bonds, but not as ultra short as SHV - average duration is 2.77 yrs., so it gets a slightly higher 1.28% yield or 1.59% YTM. Canadian domiciled, so no requirement to report on CRA T1135 form. Thinly traded for now, but market makers are posting a bid/ask, so it appears you can get in/out anytime. Any thoughts?


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## john.cray (Dec 7, 2016)

A quick update at the end of July. I've been keeping an eye on SHV and today it shows YTM to 1.17% which corresponds to 1.02% after MER return. Weighted average maturity is 0.40 years or less than 5 months. Not too shabby I'd say. In addition to that USDCAD has dropped significantly so buying SHV could result (in my case, and probably others) in capital loss of the cash and establishing a lower cost basis for the SHV. That of course is if I've learned my lesson from previous discussions.

The T1135 form though is still something one has to fill in as noted above if the conditions are met.

Cheers,
JC


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## humble_pie (Jun 7, 2009)

john cray, your messages - conditional tense "could" etc - indicate that you haven't bought your block of greenbacks yet.

think how much money you're saving! almost every day the eagle drops a few more basis points vs HRH the queen of canada. 

i'm content with my roybank USD mmf. I need the USD to help cover short US puts, so whatever the exchange rate i have to keep the greenbacks around. But in that first month of holding i was tempted, as USD soared north of 1.34, to convert. It would have been 3% gain in 30 days ...


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## john.cray (Dec 7, 2016)

humble_pie said:


> john cray, your messages - conditional tense "could" etc - indicate that you haven't bought your block of greenbacks yet.
> 
> think how much money you're saving! almost every day the eagle drops a few more basis points vs HRH the queen of canada.
> 
> i'm content with my roybank USD mmf. I need the USD to help cover short US puts, so whatever the exchange rate i have to keep the greenbacks around. But in that first month of holding i was tempted, as USD soared north of 1.34, to convert. It would have been 3% gain in 30 days ...


@humble_pie, I apologize if my wording gave the wrong impression. Let me clarify. I do have USD cash sitting in a 0.25% Scotia iTrade Cash Optimizer account doing nothing. I have an ACB of about 1.30 CAD per USD. So my reasoning was about buying SHV with that cash, and realizing a 5 cents on the dollar currency capital loss (due to deemed disposition) as well as establishing a 1.25 ACB for the SHV holding, while at same time earning 1% interest instead of 0.25%. Again all of this if my understanding is correct of how to keep a proper ACB of USD cash and USD traded ETFs.

Now why do I keep USD around you might ask - a few reasons:
1. I have earned it in USD so nothing to convert
2. I want to keep USD for currency diversification
3. I want to eventually purchase VTI with it when I see a certain correction in US equities

I am guilty of a minor market-timing violation! 

Please feel free to poke holes in my approach.

Regards,
JC


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## AltaRed (Jun 8, 2009)

Your reasons are logical to crystallize your 'forex loss' but remember to avoid selling SHV and putting the money back into a 'deposit' within 30 days (superficial loss). 

I would not be trying to make a few dollars (gather capital loss) that way. You have to put it into context with the impact it has on your overall portfolio). If it is barely a second decimal point, why bother?

As an aside, do you realize you could put your USD into DYN400 at Scotia iTrade and get 0.4%? That is what I do in my iTrade Cash account. Similarly, I use DYN500 for my CAD cash. I no longer hold a Cash Optimizer account.


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## seh (Nov 10, 2014)

*iTrade?*



AltaRed said:


> Your reasons are logical to crystallize your 'forex loss' but remember to avoid selling SHV and putting the money back into a 'deposit' within 30 days (superficial loss).
> 
> I would not be trying to make a few dollars (gather capital loss) that way. You have to put it into context with the impact it has on your overall portfolio). If it is barely a second decimal point, why bother?
> 
> As an aside, do you realize you could put your USD into DYN400 at Scotia iTrade and get 0.4%? That is what I do in my iTrade Cash account. Similarly, I use DYN500 for my CAD cash. I no longer hold a Cash Optimizer account.




How about iTrade's 1 yr. USD GIC (Scotiabank) currently at 1.45%? I realize that's getting away from our "parking in the short term", but if you can live with 25% of your cash always being max. 3 months maturity, buy quarterly 1 yr. GIC's, with 1/4 of your cash.

I also realize it's not CDIC insured, but I figure if any of the big 5 can't pay a matured GIC, we've all got bigger problems!


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## john.cray (Dec 7, 2016)

AltaRed said:


> Your reasons are logical to crystallize your 'forex loss' but remember to avoid selling SHV and putting the money back into a 'deposit' within 30 days (superficial loss).
> 
> I would not be trying to make a few dollars (gather capital loss) that way. You have to put it into context with the impact it has on your overall portfolio). If it is barely a second decimal point, why bother?
> 
> As an aside, do you realize you could put your USD into DYN400 at Scotia iTrade and get 0.4%? That is what I do in my iTrade Cash account. Similarly, I use DYN500 for my CAD cash. I no longer hold a Cash Optimizer account.


Hello AltaRed. You're right, the capital loss realization is not my primary reason at all. It just happened to work in my favour for the time being since USDCAD dropped. I was mostly trying to optimize the interest rate of my cash "optimizer" account by completely moving away from it. I know that the forex loss/gain will be temporary until I completely convert the USD to CAD or purchase something in USD until then I just keep kicking the can down the road.

Thanks for mentioning DYN400. I briefly looked at those in the past but couldn't quite figure out which ones of their series I am allowed to purchase directly as an individual investor and not as an advisor. Do you know if regular folks qualify for any of their other series with higher interest?

AltaRed, from what I understand, the advantages of using those investment savings accounts vs SHV are as follows (please correct or amend):
1. No purchase fee due to being traded as mutual funds, no other fees at purchase/sell time either
2. In the case of Scotia iTrade (DYN) fund traded in iTrade account - no minimum holding periods
3. No need to change the USD cash ACB due to the cash staying in the same form - savings account
4. No need to worry about T1135, since USD is in Canada
5. No bonds backing, thus principal is guaranteed but not insured by CDIC, just like every other USD savings account in Canada

In other words if I move the money from the Cash Optimizer to a DYN series fund it would be more or less the same except for the difference in interest ratio?

I've never purchased mutual funds (or those ISA's traded as such) so not sure what happens to the interest - do I get it in cash or do they give me back units? In any case I still need to keep adding the interest at BoC's rate back to my USD cash pile to keep proper ACB, correct?

Thanks for your time.

Regards,
JC


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## john.cray (Dec 7, 2016)

seh said:


> How about iTrade's 1 yr. USD GIC (Scotiabank) currently at 1.45%? I realize that's getting away from our "parking in the short term", but if you can live with 25% of your cash always being max. 3 months maturity, buy quarterly 1 yr. GIC's, with 1/4 of your cash.
> 
> I also realize it's not CDIC insured, but I figure if any of the big 5 can't pay a matured GIC, we've all got bigger problems!


No USD account will be CDIC insured, so nothing to lose there. The GIC is an alternative indeed but I guess in my case I would prefer the lower yield just so I retain high liquidity. All in the name of being able to use the money at the time of a correction.

Thanks for the suggestion though!


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## AltaRed (Jun 8, 2009)

To your 5 points, yes, to the first 4. As regards 5, I imagine Hollis Bank is no better or worse than any other USD savings account in Canada. 


> In other words if I move the money from the Cash Optimizer to a DYN series fund it would be more or less the same except for the difference in interest ratio?
> 
> I've never purchased mutual funds (or those ISA's traded as such) so not sure what happens to the interest - do I get it in cash or do they give me back units? In any case I still need to keep adding the interest at BoC's rate back to my USD cash pile to keep proper ACB, correct?


Pretty much the same except for difference in interest rate. DYN400 is somewhat like a money market mutual fund in that it has a settlement date of T+1. In Scotia iTrade, you can pick whether you want your distributions in cash, or re-invested in additional units. Just as well have them re-invest your distributions in additional units in this case. You stlil technically have to keep track of CAD equivalent ACB in either case. But you only need to calculate that once a year using the BoC's annual average forex rate.

Example: You buy 1000 units of DYN400 @ $10. At the end of the month, you will see a re-investment of interest (about $3.30 or so) into an additional 0.330 units of DYN400. Your holdings next month are 1000.33 units. Rinse and repeat. After the end of the year, take all those re-invested distributions, multiply it by the average forex rate for the year and voila.... the change in ACB in CAD terms.

Added: You use the mutual fund tab in iTrade to purchase DYN400, not the equities or fixed income tab.


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## john.cray (Dec 7, 2016)

AltaRed said:


> To your 5 points, yes, to the first 4. As regards 5, I imagine Hollis Bank is no better or worse than any other USD savings account in Canada.
> 
> Pretty much the same except for difference in interest rate. DYN400 is somewhat like a money market mutual fund in that it has a settlement date of T+1. In Scotia iTrade, you can pick whether you want your distributions in cash, or re-invested in additional units. Just as well have them re-invest your distributions in additional units in this case. You stlil technically have to keep track of CAD equivalent ACB in either case. But you only need to calculate that once a year using the BoC's annual average forex rate.
> 
> ...


Thanks, it makes sense. In this case you're right that by the time I make up my mind if I should buy SHV or not I might as well move them to an ISA.

Now, what I can't quite figure out is if I should buy the BNS: or DYN: prefixed names. Also not sure which series I qualify for. According to https://ads.scotiabank.com/ADS/Download/888/en



> 1. Series A: BNS : DYN1350 (A) or Hollis : DYN400 (A) == 0.45%
> 2. Series E: BNS : DYN1326 (E) or Hollis : DYN470 (E) == 0.60%
> 3. Series F: BNS : DYN1351 (F) or Hollis : DYN450 (F) == 0.70%


When I try to enter either the E of F series (BNS: or Hollis: ) to get the higher interest it says that I can't buy them online.



> The Fund Symbol entered may be invalid or is not available for online order entry. Please re-enter the Fund Symbol or select Symbol Search to find the correct symbol. For assistance, please contact Scotia iTRADE at 1-888-872-3388 or your Investment Executive.


I see the E series has a $100,000 minimum initial purchase but F series has no such limitation. Is it really series A that's my only option? I tried opening a chat with iTrade representative but it crashed and now cannot be open.

Cheers,
JC


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## AltaRed (Jun 8, 2009)

You cannot buy F series (that has zero trailer). That can be bought only through the advisory channel. DIY retail investors are stuck with Series A (or E I suppose with enough money)

I have always bought the DYN series out of habit for the past 10? years. DYN was originally part of the Dundee organization which became partially owned by Scotia, and now is issued by Hollis Bank which is owned wholly by Scotia.


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## john.cray (Dec 7, 2016)

AltaRed said:


> You cannot buy F series (that has zero trailer). That can be bought only through the advisory channel. DIY retail investors are stuck with Series A (or E I suppose with enough money)
> 
> I have always bought the DYN series out of habit for the past 10? years. DYN was originally part of the Dundee organization which became partially owned by Scotia, and now is issued by Hollis Bank which is owned wholly by Scotia.


Thanks for that clarification. Then I guess it wouldn't matter if it's DYN1326 (E) or Hollis : DYN470 (E).

Cheers


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## seh (Nov 10, 2014)

*E Series*



john.cray said:


> Thanks for that clarification. Then I guess it wouldn't matter if it's DYN1326 (E) or Hollis : DYN470 (E).
> 
> Cheers


FYI, the E series (with the extra 0.15% yield) does indeed require the $100k initial purchase, but you don't have to maintain the $100k balance. You can draw down the balance to any amount (above zero), and the higher E series yield will remain on the full amount of the lower (below $100k) balance.


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## john.cray (Dec 7, 2016)

seh said:


> FYI, the E series (with the extra 0.15% yield) does indeed require the $100k initial purchase, but you don't have to maintain the $100k balance. You can draw down the balance to any amount (above zero), and the higher E series yield will remain on the full amount of the lower (below $100k) balance.


That is very good piece of information seh. Thank you for that. I appreciate your input.

Do you hold DYN1326 or any other E series? I tried to send an email to Scotia iTrade to ask them a few questions about those but haven't received any answer yet. Are there any restrictions for retail investors similar to the F series or I can just buy it?


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## seh (Nov 10, 2014)

*E Series*



john.cray said:


> That is very good piece of information seh. Thank you for that. I appreciate your input.
> 
> Do you hold DYN1326 or any other E series? I tried to send an email to Scotia iTrade to ask them a few questions about those but haven't received any answer yet. Are there any restrictions for retail investors similar to the F series or I can just buy it?


I own/have owned both the BNS & DYN E series on the CDN$ side. No restrictions. Just enter the correct fund number, and the minimum $100k initial purchase amount, click "buy", and the order goes through.


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## john.cray (Dec 7, 2016)

seh said:


> I own/have owned both the BNS & DYN E series on the CDN$ side. No restrictions. Just enter the correct fund number, and the minimum $100k initial purchase amount, click "buy", and the order goes through.


Thank you. You came back faster than iTrade themselves 

What is the difference between BNS and Hollis? Historically different providers now both Scotia? Any reason to go one or the other whatsoever ?


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## AltaRed (Jun 8, 2009)

Hollis is a wholly owned subsidiary of Scotiabank as I have previously mentioned. Nothing more complicated than that. Take your pick. Hollis is a separate member of CDIC though that makes no difference in this case (USD).


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## seh (Nov 10, 2014)

*E Series*



john.cray said:


> Thank you. You came back faster than iTrade themselves
> 
> What is the difference between BNS and Hollis? Historically different providers now both Scotia? Any reason to go one or the other whatsoever ?


On the USD side, no difference that I know of. If on the CDN side, even in the same iTrade account, they each get their own, separate CDIC coverage. Say you have $130k and don't want to go over the CDIC limit. Buy $130k of the DYN E series, wait till it settles, then withdraw $100k, and buy the BNS E series. Voila - $130k of CDIC coverage.


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## john.cray (Dec 7, 2016)

seh said:


> On the USD side, no difference that I know of. If on the CDN side, even in the same iTrade account, they each get their own, separate CDIC coverage. Say you have $130k and don't want to go over the CDIC limit. Buy $130k of the DYN E series, wait till it settles, then withdraw $100k, and buy the BNS E series. Voila - $130k of CDIC coverage.


Got it. 100K insurance per institution limit increase!

Thanks for the information seh and AltaRed. Might settle down with one of these due to the simplicity vs buying SHV.


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## john.cray (Dec 7, 2016)

Just placed a transaction in the Mutual Funds tab for one of those ISA funds. Still doesn't show up in my holdings but I think it takes 1 day to finalize.

I selected to reinvest dividends which, come to think of, is the same as capitalizing the interest in the Cash Optimizer. I do keep track of the CAD equivalent of the received interest every month when I receive it using the BoC rate of that date when I am paid. Cash Optimizer or ISA it wouldn't make a difference in this case. I know I am allowed to use an average rate for the year for the income type but I prefer the more accurate method.

AltaRed et al, thanks for bringing the ISA topic back up and clarifying that it's equivalent to the Cash Optimizer but pays a bit better.

Regards,
JC


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## AltaRed (Jun 8, 2009)

john.cray said:


> Just placed a transaction in the Mutual Funds tab for one of those ISA funds. Still doesn't show up in my holdings but I think it takes 1 day to finalize.


It is T+1 to settle. So today is buy 'day' meaning it will show 'contracted' today..... and it may not show 'filled' and in your holdings until Friday morning, simply because the purchase does not 'close' until COB on Thursday.


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## james4beach (Nov 15, 2012)

I think there was a question in this thread that I didn't answer: what is the difference between yield to maturity, and distribution yield?

The distribution yield is backwards looking: either considering the last distribution, or last year of distributions, vs current share price. Using this makes sense when you expect that distributions will stay constant. Yield to maturity is forward looking, a measure of the current yield of the bond portfolio. This is generally what should be used for all bond funds and ETFs.

For the short term bond funds (like SHV and MINT), you really need to look at the forward looking one. Simply because interest rates have changed! SHV is approximately exposed to 6 month bonds. The yield on 6 month bonds went way up in the last few months. So the backward looking (distribution yield) is meaningless: you want to know what the bond portfolio yields NOW after the rate changes have happened. For short term bond funds, the yield to maturity (or average yield) is a very good estimate of the return you will achieve going forward.

SHV yields 0.99% after fees, and is 90% US Treasury-backed paper. For others reading this thread who feel more adventurous, MINT is worth looking into as well. It's composed of riskier commercial paper, has possibility of slight losses, but is still cash-like and liquid. It yields 1.68% after fees which is considerably higher than other USD cash options. Definitely riskier though.

By the way, remember that the DYNxx ISAs in USD don't have CDIC insurance, because they're not in CAD currency. The vehicles are fine; I use DYN1300 myself.


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## Brainer (Oct 8, 2015)

James:

First off, let me say I follow many of your threads/posts and have enormous respect for your opinions. I'm already using some of it to make more money, so thanks.

In this, case, I'm not clear from where you're getting those performance figures. When I look at Blackrock's actual page
https://www.blackrock.com/investing/products/239466/
and click on the dropdown menu to select july 31, 2017 end date, I get 0.45% return for 1 year. (Blackrock defines 1 year here as TTM).

When I look at the composition of the underlying investments, I see many of them have Yield to maturity of above 1%, so are you anticipating this yield for near future, cause I'm not seeing where you're getting this number as a more current yield.

When I tried to get monthly numbers from 3rd party websites, I got numbers ranging all over the map, so I didn't trust them.

Thanks

Brainer




james4beach said:


> I think there was a question in this thread that I didn't answer: what is the difference between yield to maturity, and distribution yield?
> 
> The distribution yield is backwards looking: either considering the last distribution, or last year of distributions, vs current share price. Using this makes sense when you expect that distributions will stay constant. Yield to maturity is forward looking, a measure of the current yield of the bond portfolio. This is generally what should be used for all bond funds and ETFs.
> 
> ...


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## james4beach (Nov 15, 2012)

I'm looking at the Blackrock page which shows yield to maturity or 'average yield' of the portfolio. This shows what the fixed income securities are currently earning, going forward.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I'm looking at the Blackrock page which shows yield to maturity or 'average yield' of the portfolio. This shows what the fixed income securities are currently earning, going forward.


But that one does not include fees or expenses. Subtract out .15 from the 1.13 and you get 0.98% net to the investor. The SEC yield is more accurate in this particular case.

Brainer: The 0.45% you are mentioning is Total Return for the ETF. That includes income yield plus capital appreciation. In this case, there has been a capital loss over the past 12 months.....so combine a capital loss with trailing yield and you get 0.45%. 

In most cases, Total Return is the more important metric but this ETF has such a short duration, SEC yield (or Average Yield minus MER) is probably the better metric...especially if one continues to hold the ETF and not trade in and out of it.


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## Brainer (Oct 8, 2015)

Okay...thanks. So what caused the capital loss a while back? And whatever caused that, if it was interest-rate related, couldn't it happen again easily?


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## AltaRed (Jun 8, 2009)

Brainer said:


> Okay...thanks. So what caused the capital loss a while back? And whatever caused that, if it was interest-rate related, couldn't it happen again easily?


Go to http://www.marketwatch.com/investing/fund/shv/charts and click on the 1 yr chart to see price volatility. Play with the 6 month and YTD charts too for another perspective. Price will be sensitive to both the perceived direction of interest rates and actual changes by the Fed in short term rates. The election of Trump a year ago resulted in the market "perceiving" Trump would stimulate the economy with tax breaks and dismantling of some of the financial regulatory oversight...... that would then result in the US Fed bumping up short term interest rates. If that is the case, investors are less likely to want to be holding on to existing short term Treasury Bills, hoping instead that new T-bills with higher rates would be issued. That drives the market value of existing T-bills down. Hence the unit price of SHV will decline...and did from about 110.40 a year ago to 110.30 currently... That would be a capital loss of 10 cents...and thus weighs negatively on one year Total Return.

SHV market price will always bounce around depending on perception and actual interest rate changes on T-bills. It is what you have to live with.


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## Brainer (Oct 8, 2015)

As usual, you both provide excellent explanations. Thanks, that makes things much more clear.


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## james4beach (Nov 15, 2012)

I agree with AltaRed. Yes, you must subtract expenses from the yield.


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## seh (Nov 10, 2014)

*Hollis vs. Scotiabank HISA*



AltaRed said:


> Hollis is a wholly owned subsidiary of Scotiabank as I have previously mentioned. Nothing more complicated than that. Take your pick. Hollis is a separate member of CDIC though that makes no difference in this case (USD).


An update that I just found out - Hollis USED TO BE a wholly owned subsidiary of Scotiabank, but has been bought by Industrial Alliance (TSX: IAG). So, when buying the HISA in USD ( i.e. no CDIC coverage), you have to decide based on perceived credit worthiness alone.


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## AltaRed (Jun 8, 2009)

HollisWealth was bought by IAG from Scotia, but does that include Hollis Bank? Is this link stale then? https://ads.scotiabank.com/ADS/Download/236/en

Added: Maybe this provides insight http://www.advisor.ca/news/industry-news/ia-financial-acquires-holliswealth-from-scotia-221368 Per


> The transaction is subject to regulatory approvals and is expected to close in calendar Q3 2017.


 Deal may not have closed yet.


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## Brainer (Oct 8, 2015)

AltaRed:

I know I'm going back a few weeks to this older post of yours, but your breadth of knowledge is so wide, I can't resist asking for some clarification. 

I understand the below paragraph, but doesn't your description of a $USD T-bond fund also mean that there is a mitigating factor? Namely doesn't the fund manager in a short-term bond fund add more current t-bonds to the portfolio, (since it's a short-term fund) and in a rising rate environment, raise the yield, to some extent? So while the NAV of the ETF is dropping, the yield may be rising (albeit with some delay as the fund manager plays catch up)? Or am I off here?

Thanks






AltaRed said:


> Go to http://www.marketwatch.com/investing/fund/shv/charts and click on the 1 yr chart to see price volatility. Play with the 6 month and YTD charts too for another perspective. Price will be sensitive to both the perceived direction of interest rates and actual changes by the Fed in short term rates. The election of Trump a year ago resulted in the market "perceiving" Trump would stimulate the economy with tax breaks and dismantling of some of the financial regulatory oversight...... that would then result in the US Fed bumping up short term interest rates. If that is the case, investors are less likely to want to be holding on to existing short term Treasury Bills, hoping instead that new T-bills with higher rates would be issued. That drives the market value of existing T-bills down. Hence the unit price of SHV will decline...and did from about 110.40 a year ago to 110.30 currently... That would be a capital loss of 10 cents...and thus weighs negatively on one year Total Return.
> 
> SHV market price will always bounce around depending on perception and actual interest rate changes on T-bills. It is what you have to live with.


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## AltaRed (Jun 8, 2009)

You've got it. There is just a lag as newer T-bills at higher yields replace the older (less desirable) maturing ones. The lag is essentially the duration of the ETF. 

One just needs to be cognizant that changes (increases) in short term (Fed overnight/commercial paper) rates will depress NAV/market price of the ETF for a finite time until the ETF can catch up with its turnover. The opposite is true with decreasing short term rates.


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## Brainer (Oct 8, 2015)

Thanks Alta. Once again. And I hope to be thanking you many more times in the long-term.


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## james4beach (Nov 15, 2012)

Maybe we can update this thread for 2019 ... how are people parking USD cash these days?

The ISAs are easy but TDB8152 only pays 1.70%
iShares SHV (t-bill fund) has yield to maturity 2.31%, less 0.15% expenses = 2.16% net yield

Are there any other good options? SHV still looks like the best one to me, despite the trade fee and slight fluctuation in share price


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## agent99 (Sep 11, 2013)

We park about US$8000 in a non-interest paying US$ bank account in January. Then spend most of it on restaurants, golf, etc over next 3 months. Not getting 1.7% or 2.3% really makes little difference. But we may look at getting an interest paying US$ account in US (Harris Bank) or keep some in BMOIL HISA and transfer a portion each month (to pay CC bills). 

For gas and groceries this year, we have been keeping cash in C$ HISA at BMOIL and transferring that once a month to pay Scotia Momentum CC bills. That way, we get 1.6% on cash balance plus another 1.7% cashback from Scotia on money spent,


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## humble_pie (Jun 7, 2009)

if you have a big chunk, royal bank's premium USD money market fund pays the highest yield.

evidently this fund is taxed favourably as well. Part of the interest paid flows as capital gains/return of capital. 

this factoid is helping confirm to me what i've long believed about most index funds & ETFs. They are not holding the exact list of holdings which regulators are permitting them to publish as "holdings" at all. 

as their prospectuses properly state, they are holding an unknown inventory of securities that includes some of the publicly-declared securities, some other securities that are loaned out to hedge funds, plus an assortment of derivatives, swap contracts, futures, forward contracts & options designed to synthetically mimic an index or a profile.

it's the synthetic holdings that create all those end-of-year phantom distributions, as fund managers seek to reconcile derivative performance with actual performance of the alleged index or holdings list.


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## james4beach (Nov 15, 2012)

I have some spare USD and also expect USD expenses over the coming 1-3 years (including taxes unfortunately) so I looked around for a way to store it.

I bought MINT, the Pimco short maturity actively managed fund. It's like a "premium money market fund" as they hold money market securities. With a yield to maturity of 2.55 and expense ratio 0.42, I expect to see a *2.1% yield* after fees.

The next best choice would have been TDB8152 at 1.7% yield. That would definitely be safer, but I guess I got greedy.


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## moneyscribe (Jul 10, 2019)

Not sure if your balance is large enough to warrant sending money to another broker, but TDDI offers TDB8152 which currently pays 1.70%.


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## john.cray (Dec 7, 2016)

james4beach said:


> I have some spare USD and also expect USD expenses over the coming 1-3 years (including taxes unfortunately) so I looked around for a way to store it.
> 
> I bought MINT, the Pimco short maturity actively managed fund. It's like a "premium money market fund" as they hold money market securities. With a yield to maturity of 2.55 and expense ratio 0.42, I expect to see a *2.1% yield* after fees.
> 
> The next best choice would have been TDB8152 at 1.7% yield. That would definitely be safer, but I guess I got greedy.


Similarly ISAs BNS: DYN6001 or ADSB: DYN5001 will give you:


```
$0 - $99,999: 1.65%
$100,000 - Unlimited: 1.80%
```
as per https://ads.scotiabank.com/ADS/Download/980/en.


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## humble_pie (Jun 7, 2009)

RBC's regular USD MMF is still out in front as the yield leader i think ... 2.40%

symbol is RBF961. Other brokers than RBC might require a minimum hold period, i believe the TD's is 60 days

RBC also has a premium USD MMF which yields higher but there's a high threshhold. The one i mentioned, RBF961, is the regular money market fund w low threshhold.


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## james4beach (Nov 15, 2012)

humble_pie said:


> RBC's regular USD MMF is still out in front as the yield leader i think ... 2.40%
> 
> symbol is RBF961. Other brokers than RBC might require a minimum hold period, i believe the TD's is 60 days


Unfortunately I can't pull up a quote or create an order for that symbol at TDDI. Is there some trick to doing that?


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## AltaRed (Jun 8, 2009)

TDDI may not allow purchase of those RBC funds. Brokerages do protect their own offerings in many cases.


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## Eclectic12 (Oct 20, 2010)

Not sure if it is still the case but IIRC, if the brokerage does offer more than their in-house HISA MF then usually the in-house one has no buy/sell fees and no holding period where the other ones may have all three.



Cheers


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## AltaRed (Jun 8, 2009)

I don't think there are buy/sell fees but there will most likely be a 90 day hold fee so they can capture one trailer fee.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Unfortunately I can't pull up a quote or create an order for that symbol at TDDI. Is there some trick to doing that?




you're right, TD isn't allowing RBF961. As others have mentioned, this has to be one of those anti-competitor moves on their part, the same way they block purchases of PSA the high-yielding ETF on toronto stock exchange.

tch! you might recall there was at least one thread last year discussing these unfortunate blockages, as brokers attempt to corral their clients into their own house savings funds. Rob Carrick had an article about the practice, he said TD & roybank were the most draconian offenders in this respect.

to add insult to injury, the big green seems to be allowing purchases of premium MMF from blocked companies to go through. It's only the smaller minimum threshhold MMFs that are being blocked. 


that pimco MINT ETF you outlined above does look like the best bet for higher yield in US instruments, if you're sure that it's holding only very short-term paper so that its NAV/market value doesn't move much.

i imagine MINT escaped the big green's blocking eye because pimco bills MINT as a "bond fund" rather than a "money market fund." Still, if an investor would have pay a commish every time he buys a small tranche or redeems a small tranche of MINT, those in-&-out trades could add up to significant $$ costs over the course of a year.

what can one do when one "can't fight city hall"


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## james4beach (Nov 15, 2012)

Too bad TD doesn't allow RBF961. I guess I'll stick with MINT for at least a while (since I already paid $9.99 for the privilege). It is indeed a bond fund and the price fluctuates. Not a constant-NAV money market fund.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Too bad TD doesn't allow RBF961. I guess I'll stick with MINT for at least a while (since I already paid $9.99 for the privilege). It is indeed a bond fund and the price fluctuates. Not a constant-NAV money market fund.




i'm glad to have this opportunity to correct a very minor point about why the big green doesn't support RBF USD MMF 961.

i'm told the restriction is because this is an "F" series fund that was designed for investors who are clients of licensed advisors. The MER is low - therefore the yield "appears" to be high - because such client will also be paying another fee directly to an advisor. The final net yield for this royal bank MMF, after paying both sets of fees, will be very comparable to TD's in-house offering which, at the time this conversation first began, was hovering around 1.60-1.70% (probably lower now.)

i'm told that TD does not support any "advisor" class fund. It does support 3rd party funds that are often called "investor" class, or even "e" class, but these usually have the higher MERs.

the RBF website is not clear about the above mentioned fees for "F" funds & i was also influenced by the RBF premium USD money market fund, which does have one of the highest yields in canada, which TD does support ... but which has a minimum purchase threshhold of 100k.

what all this boils down to is that jas4's MINT is probably the highest yielding depot for USD cash, provided the investor understands what's involved & is prepared to pay the commissions to buy & also to sell, as jas explains above. 

other than MINT, the various broker in-house HISA type brands are looking OK to me. Amounts north of 100k could consider the RBF premium USD MMF.


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## james4beach (Nov 15, 2012)

Comparison of today's rates, if anyone else is storing USD cash. (Using TDDI brokerage and its limitations)

TDB8152 : sadly, the yield has come way down. TD currently shows 1.45%
SHV : a high quality t-bill ETF, very stable price, with yield to maturity less fees = 1.6%
MINT : commercial paper ETF, some price volatility, yield to maturity less fees = 1.8%

No trade fees on TDB8152, but ETFs have standard commissions. That can make a big difference in what you'd choose. Also note that SHV & MINT have a 15% withholding tax, as discussed in this other thread.

These yields aren't too different. US t-bill interest rates started plummeting in the last couple of months. I'm worried these are headed back down to zero


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## jargey3000 (Jan 25, 2011)

doh! thanks james


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## humble_pie (Jun 7, 2009)

probably the best USD HISA deal these days is tangerine's offer of 2.75%, good for 6 months

snagging one of these is a whole different ball game though


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