Dale Jackson

Personal Finance Columnist, Payback Time

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Donald Trump isn’t the first protagonist to rattle currency markets and he won’t be the last. That’s why it’s always important to create a currency hedge in your investment portfolio.   

Fluctuations in the Canadian dollar could have a profound impact on foreign holdings. While those holdings could involve different denominations, it’s really the U.S. dollar you need for international diversification because it is the global reserve currency. 

The degree, and instruments for a currency hedge is something you should discuss with a financial advisor.    

For Canadians, it also depends on where you want to spend your retirement. Snowbirds can take comfort in the ability to withdraw funds in U.S. dollars without having to worry about that day’s exchange rate.

You can hedge currencies through hedged versions of mutual or exchange-traded funds, or mutual funds where the portfolio manager has the ability to hedge.

You can also invest directly in U.S. stocks, and generate dividends in U.S. dollars through a U.S. dollar registered retirement savings plan.

Tax-free savings accounts could have a U.S. dollar component but U.S. funds must be converted back to Canadian when they are withdrawn to better track re-contribution allowances.  

A simpler way to hedge the Canadian dollar is by investing in resource-related stocks because the commodities they produce are priced in U.S. dollars.