Is it better to hold U.S. stocks in U.S. dollars, or is it better to hold them in the Canadian equivalent in investment accounts?
The answer is that it doesn’t make any difference. The return is the same when adjusted for exchanges rates, fees and movement in the stock. The only difference is the timing of when you pay the fees.
So, the preference for one over the other is a currency hedge.
If you hold a U.S. stock in Canadian funds and the Canadian dollar strengthens, the Canadian equivalent of your holdings is worth less in U.S. terms. If the U.S. dollar rises, the Canadian equivalent is worth that much more.
If you travel back and forth frequently, or own U.S property and pay U.S. bills, that’s one reason to hold stocks in U.S. dollar.
You can sell shares and have the U.S. dollars deposited to a U.S. dollar account at your Canadian bank. That avoids exchange rates and conversion fees. Dividends can also be sent to a U.S. dollar account dollar-for-dollar.
If you want to read more, this Moneysense article offers a good explanation of the pros and cons of the decision. The Globe & Mail did a series a few years ago that looked at the issue from all angles – capital gains, tax implications. You can read them by starting here.