As a Canadian investor, how to buy US dollars the right way

If you started looking around for the right place to invest your money, you probably noticed that the Canadian market is far from being the best egg nest. According to Morningstar, the Canadian benchmark index (TSX Composite), we are ranking ourselves at the 25th position when competing for the best 5 year returns from 2013 to 2018 with a disappointing 5.08% return.

If you had to guess from any country, which one do you think has the best returns? Yup, you guessed it, the US! You could pick any of the 5 main indexes available and you would still beat the Canadian market with 5 years returns ranging from 11.79% up to a whopping 16.12% return on your money.

I know what you are thinking: “Awesome, I’ll go ahead and move my money to a US index and make so much money!”. Well hold on, I have a pro tip for you that will save you from doing a costly mistake.

Where’s the caveat?

If you are getting payed in USD, you’re fine. Go ahead and start investing to make millions. This post doesn’t concern you. If you are like me and getting payed in pretty Canadian loonies, you’ll want to pay close attention to the following info I got for you.

If you want to exchange Canadian dollars to US dollars, we all know about the exchange rate. As of writing this, 1 USD = 1.28 CAD. This rate changes everyday based on tons of everyday events. Most people are familiar with this concept, although, if you try to exchange let’s say 5000$ CAD to USD via most banks or brokers, in theory, you should end up with about $3899 USD – around 1.5% to 2% of something called “exchange fees”. Those fees can add up quickly, and they apply both ways: CAD to USD, then USD to CAD. That means you would pay about 200$ in fees for a roundtrip of exchanges. Overtime, these fees can become annoying, reducing even more your buying power when investing to the US.

What can we do about it? I’m glad you asked.

Norbert’s Gambit

Norbert Schlenker, a smart guy created a strategy that became popular in 2001 to exchange Canadian dollars for a very cheap flat fee, therefore helping to exchange larger transactions without having to give up on a percentage of the amount. This strategy got commonly known as Norbert’s Gambit.

The concept is simple. He created two ETFs. The first one is DLR.TO, exchanged in Canadian dollars and the second one is DLR.U.TO, exchanged in US dollars. Their value movements reflect the exchange rate between the USD and CAD. When you want to exchange your money, using a brokerage account, you would buy the amount needed of DLR.TO in CAD, then you would ask the brokerage company to do a journal process, which is typically free. In this process you would request them to journal your purchased DLR.TO into DLR.U.TO. This will take a couple of days to be processed. Then you would sell all your DLR.U.TO shares, which will be sold in USD. The only fees you will encounter will be the standard buying and selling transaction fees of your brokerage account. Certain types of online brokerage account services even offer free ETF purchases. In which case, you would only have to pay the selling transaction fees. To exchange USD back to CAD, you would simply do the same process, but in the opposite direction, buying DLR.U.TO, journaling them to DLR.TO, then selling them in CAD. A roundtrip for this would cost around 10$ instead of 200$ for an exchange of 5000$ CAD to USD, then back to CAD.

There is a very useful website I found that helps calculate the exact steps you will need to do in order to exchange between CAD and USD using the Norbert’s Gambit strategy:


Index returns source: