Tag: t1135

dollar cut in half

Kicking USD out of my retirement portfolio

RobH1 Comment

After much consideration, I’ve decided that holding USD-denominated assets during retirement is no longer a good idea. I have been struggling with this question for a while now.

There are a few reasons why I’ve reached this conclusion:

  • I no longer spend USD. I have two credit cards1 that allow me to avoid foreign exchange fees.
  • Complexity. The USD in my RRIF accounts needs to be converted periodically since withdrawals are in CAD. The USD in my non-registered account might eventually lead me to have to file a T1135, and I hate new tax wrinkles. And of course the USD funds add to the universe of funds I have to manage in all the accounts. Fewer is better!
  • Choice. Without USD in my portfolio, the universe of DIY brokers opens up2 and the number of accounts I have to have is also reduced34.

The fluctuating CAD/USD FX rate might be another reason, but that hasn’t really bothered me. In the long term, it’s reasonably stable.

So how to go about doing it, and what impacts will this have? Let’s take a look.

General considerations

So of course, the only real way to convert USD into CAD at Questrade is to use Norbert’s Gambit. Performing the Gambit is a multi-day activity:

  • Day 1: Sell the USD asset and buy DLR.U with the proceeds; make journaling request to convert DLR.U into DLR
  • Day 2: Wait for settlement of trades made on day 1
  • Day 3: Wait for journaling to complete
  • Day 4: Wait for journaling to complete
  • Day 5: Sell DLR and buy CAD-listed assets to replace what I sold on day 1

Each time I do this exercise, it makes me a little leery since

  • I have to pay $9.95 plus GST to journal the shares on Questrade (not a huge deal, but as you have read elsewhere on the blog, I am a cheapskate)
  • I’m out of the market for 3 days. I really hate being out of the market since big moves can happen over short periods of time. Of course, this cuts both ways; I could miss a big rally or a big meltdown as a result5.
  • I’m making a bet on favourable FX rates. FX rates don’t typically swing much in short periods of time, but since over 50% of my retirement portfolio is in USD I’m not willing to try to find the “right” time to make such a trade.

As a result, I’ve made the decision to

  • Sell off 1/6th of my USD portfolio every month for the next six months (or thereabouts). This will allow me to smooth out any FX speed bumps and limits how much of my portfolio is idle at any one time.
  • Take advantage of a free month of Questrade Plus6 and do a few journaling requests during this month and save a few bucks

While doing all of this, I’m trying to be mindful of my asset allocation targets which are (newly set as a result of my analysis at Are my portfolio’s asset allocation targets “correct”?)

  • 5% Cash
  • 15% Bonds
  • 23% Canadian Equity
  • 37% US Equity
  • 20% International Equity

I’ll try to start moving my portfolio to these new targets as I make this shift, but given the targets are brand new, I’m in no particular time constraints; I’m expecting the portfolio to slowly move from the old targets to the new ones, finally landing at some point later in 2026.

Kicking USD out of my RRIF accounts

Of the 5 RRIF accounts I have in the household (three for me, two for my spouse), only two of them have USD in it, and the USD portion is 100% invested in either AOA (an 80/20 all-in-one global equity fund) or ICSH (an ultra short-term bond fund that stands in for cash)

AOA can be replaced with XGRO but it’s not an exact replacement. AOA has almost no Canadian Equity content and a higher US Equity content than XGRO. This means that a one-to-one switch will cause my Canadian Equity content to increase and my US content to decrease. I’m expecting this will eventually cause me to need to replace some of my AOA with a pure play US Equity asset. I’ve chosen VFV since it mirrors the S&P 500, an index that won’t be adding the mega-IPOs any time soon 🙂

ICSH can be replaced with ZMMK since they are similar in nature, but I’m not going to do that. Why? Because I hold ZMMK in my non-registered account as a VPW cash cushion, I do make trades in ZMMK from time to time. I don’t want to end up in a situation where I’m selling ZMMK in my non registered account and buying it in my RRIF, since this could deprive me of possible (small) capital losses — CRA does not look kindly on trying to “artificially” generate capital losses in this way.

So after mulling it over a bit, I’ve decided to replace ICSH in my RRIF accounts with ZST. It’s a short term bond fund which is a bit riskier than ZMMK7, but I’m counting on it being cash-like for my purposes. Neither has been around all that long, but it appears they are pretty close on the performance front with a slight edge for ZST.

So when all is said and done, my RRIFs should have three holdings: XGRO (mostly), VFV (some), ZST (about 2.5% of overall portfolio),

Kicking USD out of my non-registered accounts

Here there are two holdings

  • ICSH in my VPW cash cushion account
  • SCHF, an international equity fund I’ve held for years and years

The ICSH replacement is easy — move it to ZMMK. I’ll do that all at once. It will mean a loss of over a percentage point in gains at the moment, but this is the price of simplicity, I guess.

The SCHF sale is a bit like selling 6 months of RRIF payments all at once, which will attract a capital gain. I’m ok with that, but I’d prefer to avoid more capital gains for the rest of the year (I didn’t budget for that when I tried to work out my likely tax bill for 2026). Since selling SCHF is actually helpful in getting my new asset allocation targets right, I don’t need to replace it with another International Equity fund. My calculations tell me that I’ll probably need to replace it with a Canadian Equity fund. Here I’ve chosen to use VCN since it uses a different index provider8 and would be considered different from my other non-registered Canadian equity funds, namely XIC and HXT9. Buying VCN and selling it in subsequent months to fund my retirement salary should result in minimal capital gains for the remainder of the year.

So when all is said and done, the VPW cash cushion account should be 100% ZMMK and the other non registered account will be 100% CAD-listed ETFs, mostly tied up in Canadian Equity.

You’ll be able to see my progress in my next instalment of What’s in my retirement portfolio (May 2026) which I should have ready at the end of this month!

  1. Rogers Mastercard and Wealthsimple Visa, as detailed in What are the best credit cards? ↩︎
  2. e.g. Wealthsimple does not currently (June 2026) support USD RRIF accounts. ↩︎
  3. e.g. QTrade USD accounts are always separated from CAD accounts. So instead of 4 RRIF accounts, I could have 8 at QTrade. Painful. ↩︎
  4. I guess that’s actually a “reduce complexity” argument. Don’t tell anybody. ↩︎
  5. https://www.bogleheads.org/forum/viewtopic.php?t=370885 shows me that my fears are unfounded. It’s practically a normal distribution. ↩︎
  6. A subscription service offered by Questrade to give you free journaling. And other things I don’t really care about. ↩︎
  7. Average duration is longer, which makes its price more sensitive to changes in the overall interest rate environment. ↩︎
  8. FTSE Canada all cap rather than S&P/TSX for the others ↩︎
  9. And therefore avoids CRA’s superficial loss rules ↩︎

close up view of colorful liquids in laboratory glasswares

Are my portfolio’s asset allocation targets “correct”?

RobH1 Comment

A key aspect of my investment philosophy is to have targets for each of the asset classes I invest in. Because I like to keep things simple, my asset classes are rather broad1:

  • Cash, which includes ultra-short-term bonds (bonds with durations measured in days, not years)
  • Bonds2, which means corporate and government bonds from multiple geographies with various and assorted durations
  • Canadian Equity: Canadian stocks
  • US Equity: US Stocks
  • International Equity: Stocks that don’t sit in North America

The targets I’ve used for a few years now are

  • 5% Cash
  • 15% Bonds
  • 20% Canadian Equity
  • 36% US Equity
  • 24% International Equity

But where did those target numbers come from?

The easy answer is that they are based on the target number of the Canadian 80/20 fund I use in my retirement portfolio, namely XGRO, one of my ETF all-stars. XGRO’s makeup is actually

  • 20% Bonds
  • 20% Canadian Equity
  • 36% US Equity
  • 24% International Equity

The immediately obvious difference between XGRO and my target is the presence of “Cash” in my target, something XGRO doesn’t have3. “Cash” was a recent arrival to the portfolio, a decision I took to accommodate the presence of a Cash Cushion in my portfolio. The Cash Cushion is an integral part of my chosen decumulation strategy, VPW. So rather than keep the Cash Cushion as something set apart from my asset allocation model, I chose to create a new asset to track. 5% was a small and round number, and is about 2x the value of the Cash Cushion today.

That 5% is almost all invested in ultra-short term bond funds so perhaps you could also argue that I never stopped holding 20% bonds in my portfolio4; I just segmented that category a bit more precisely.

But why 20% bonds? Shouldn’t a retiree have a greater portion of bonds to protect against market downturns5? Habit, I suppose. I’ve held 20% bonds for decades now, since well before I retired. I don’t see any reason to change that now. I’m hoping my retirement will go on for decades, and so having a good chunk of equity is a good way to make sure my portfolio returns outpace inflation and offer some protection against outliving my money.

So 80% equity it is; but are the allocations between Canada, the US and International markets the right allocations? Like I said, I basically picked the equity targets to match what the percentage allocations are in XGRO. If I look a bit further at the other *GRO funds (TGRO, VGRO, ZGRO), I find that XGRO is a bit of an outlier with respect to International Equity allocation:

ETF% CAD% US% Int’l
XGRO (Blackrock)203624
TGRO (TD)626.735.617.8
VGRO (Vanguard)253520
ZGRO (BMO)204020
Average for all22.936.720.4

This tells me a few things

  • My US allocation target of 36% is justified by looking across multiple funds
  • My International Equity target is probably too high if I rely on the wisdom of (small) crowds.

Since I like dealing with round numbers, a case could certainly be made for my targets to instead look like

  • 23% Canadian Equity
  • 37% US Equity
  • 20% International Equity

Using these targets and looking at my current holdings would require me to move about 3% of my International equity holdings into Canadian equity.

I can control my equity allocations in normal monthly transactions, somewhat — since a good chunk of my retirement salary is funded by selling non-registered assets, I get to choose (somewhat) what equity class to liquidate. Here’s the problem I see — my International Equity component in my non-registered account is SCHF, which trades in USD. Liquidating SCHF is possible. but the small problem with SCHF is that it’s denominated in USD, and thanks to my current credit card lineup, I don’t have a way (or need) to spend USD natively anymore.

Sigh. Actually, there’s really no good reason for me to hold *any* USD assets in my non-registered accounts. USD assets are now, for me

  • Difficult to spend as USD
  • Problematic because they are counted against my “foreign income”, per CRA’s T1135; hold too much foreign income, and you have to file additional paperwork at tax time. I hate paperwork.

So, in conclusion,

  • I think I will shift my asset allocations slightly, tilting a bit towards Canadian Equity at the expense of International Equity; this will take time as I draw down SCHF from my non-registered portfolio
  • I will get rid of USD-denominated assets from my non-registered accounts. This will start with reversing the decision I took about a year ago when I went with a majority of ICSH in my Cash Cushion.
  1. 5 categories could easily morph into 20 if you were particular about things. For example, bonds could be split by geography, and/or by duration and/or by bond quality. The US and Canadian equity categories could be split into sectors and/or company size. The international equity categories could be split by region, country, sector, company size. The possibilities are endless, and so could the number of assets you actually hold to meet them. I don’t claim that my 5 are the right ones for you, but I’ve used them for quite a while now. ↩︎
  2. For the longest time, and for many earlier posts, I refer to this segment as “Income”. This made some sense in the days where I didn’t track “Cash” as a distinct category. But it’s time to move on. What lives here are bonds, and only bonds. ↩︎
  3. Of course, all ETFs hold some portion of cash, it’s pretty much unavoidable as you shift assets, collect dividends and so on. I don’t worry about this sort of thing; my assumption is that the ETF manager is doing their job and adhering to their published targets. That MER has to be worth something, right? ↩︎
  4. Questrade (my primary broker) doesn’t offer high interest savings accounts; at my previous broker (QTrade) this cash cushion really was cash held in a high interest savings account. ↩︎
  5. And there will always be market downturns. SORR is a common acronym thrown around; it stands for “Sequence of Returns Risk”. Basically this is the admission that there will be market downturns during retirement; SORR is the risk that those downturns happen really early in retirement and blow up your well-crafted plan because you are forced to sell into a down market. My mitigation strategy concerning SORR? I can always find a job if things got really bad… ↩︎
  6. The reason TGRO’s numbers aren’t round is because the other *GRO funds hold 80% equity while TGRO holds 90% equity. I’ve scaled TGRO’s holdings accordingly. ↩︎
dollar cut in half

Another quarter, another gambit

RobHLeave a comment

Every quarter, I convert some of my USD to CAD using Norbert’s Gambit. A good chunk of my retirement holdings are in USD, but since I spend in CAD, I need a cheap way to convert. I’ve been tracking my actual costs using Questrade’s platform for the past year. You can read about that over here.

Anyway, over the past year, the conversion has been effective. I have never paid the usual FX rates charged by Questrade (1.5% over the spot rate). My most recent conversion was the most expensive one to date, and that was a rate 0.7% over the going rate on the day I started the process. On three other occasions, I actually made out better than the spot rate, but that was because the foreign exchange rate moved in my favour in between the purchase and the sale.

My need for US cash has evaporated now that I have a no-FX fee credit card. (You can read about what cards I’m using over here.) So this makes me wonder if it’s time to get rid of the majority of my US holdings. Note this doesn’t mean that I will stop investing in US equities — that would be unwise — it just means I will stop holding assets denominated in US dollars.

The are downsides to holding USD-denominated assets, of course:

  • It adds complexity to the portfolio. AOA is the US equivalent of XGRO; both are 80/20 asset allocation ETFs. But because AOA is a US ETF, it holds a paltry amount of Canadian Equity, and I have to make up that difference elsewhere by holding pure Canadian Equity ETFs like HXT or XIC.
  • If you hold too much USD (or any foreign property) in non-registered accounts, you’ll be obliged to file a T1135 with CRA1.
  • It may limit the universe of online brokers you can deal with. Wealthsimple, for example, does not currently support USD RRIF accounts.
  • Foreign exchange can work for or against you. It’s another variable that can impact your returns. I’m not convinced this is a downside, but it does make tracking things like ACB in a non-registered account a little more tedious.

    One big hesitation I have about converting all my USD holdings would be the time I’d have to be out of the market while the Gambit runs its course. As you can see in from my tracking, each conversion means I’m not invested in AOA for 3-4 trading days. I just hate that idea. I also hate the idea of converting at a time when the CAD<->USD exchange rate is perhaps not optimal. (A low Canadian dollar would be a good thing for me in this case.)

    One place I sort of like having the USD assets is in my cash cushion, especially since US interest rates are quite a bit higher than Canadian rates. (I track current rates over at HISA and short-term bond table (Canada & US)).

    So perhaps I just need to craft a plan where I make more aggressive conversions over a fixed time frame. x% every month, with a deadline. This helps mitigate the “time out of market” and “exchange rate” issues. Crafting the plan with fixed milestones also takes emotion out of the equation; if I set a series of future transactions, then all I have to do is press the button mechanically.

    More to come on that.

    1. If your cost base exceeds $100,000 CAD ↩︎