Shlomi Steve Levy was interviewed by Susan Goldberg for an article which appeared in Advisor.ca. In the article, Susan asks Shlomi about how Canadians who own US real estate should react to the drop in the value of the Canadian dollar.
How to Keep Ahead of a Plunging Dollar
Susan Goldberg, Advisor.ca
January 18, 2016
Have you seen the price of chicken these days?” asks Sybil Verch, founder of Victoria, B.C.-based Willow Wealth Management. “Eight dollars for two tiny chicken breasts? My husband and son are fishermen. And with the price of gasoline down, it doesn’t cost much to send them out in the boat. I think we’ll be eating fish rather than chicken for a while.”
With the Canadian dollar at its lowest since 2003 — reaching 68.22 cents US on January 18 — Canadians are feeling the pinch at the grocery store and beyond. Experts predict the loonie will slide further before it rises: David Doyle, of Macquarie Capital Markets Canada Limited suggests it could go as low as US$0.59.
So what can Canadian consumers and investors do to stretch our shrinking dollar?
Verch suggests making strategic spending choices at stores: fish over chicken, carrots over asparagus. Use coupons, buy on sale, opt for generics and buy groceries and supplies in bulk, both to save cash and as a hedge against our dollar going lower. In fact, P.E.I. farmers are expecting their potato sales to go up, because Canadian veggies should be less expensive than imported ones, notes Canadian Grocer.
Tracy Wray, a certified cash flow specialist and advisor with Bloom Financial in Brandon, Man., suggests shopping local whenever possible, including online, where it can be too easy to forget that a US$100 gift bought on a U.S. site will cost more like $140. FLARE has rounded up Canadian online retailers here. Although overall buying power is down, says Sal Guatieri, senior economist and director of economic research at BMO Capital Markets in Toronto, when the loonie is below US$0.85, it tends to be cheaper to buy in Canada.
Buying local also helps Canadian retailers and businesses, who are struggling with increased costs. Karyn Climans, owner of Tail Wags Helmet Covers in Toronto, must source much of her raw material from the U.S. and Asia. “My fabric costs have gone from $11 to $18 per metre and my vinyl packaging has doubled in price over the last two years,” she says. “[But] I can’t charge more for my products because Canadians are feeling the squeeze. We’ll keep trying to reduce business costs in other ways, but it’s becoming increasingly difficult to make a profit even though overall sales have grown.”
As well as buying local, it also makes sense to travel local. “If you’ve ever wanted to see a different part of Canada, now is probably as good a time as any,” says Guatieri. Gas is cheap: take a road trip. If you’re hankering to go further afield, he says, think about Mexico, Australia or New Zealand, or even Europe, where our dollar will go further. If you’re hell-bent on travelling to the States, Verch suggests taking advantage of hotel, airline and rental-car loyalty points. Explore private rentals, which may offer lower prices and kitchen facilities to offset the costs of restaurant meals.
Better yet, says Quebec lawyer Shlomi Steve Levy, partner at Altro Levy LLP, which specializes in cross-border issues, rent from a Canadian who owns a condo in Florida or Arizona, and pay in Canadian dollars.
Those lucky enough to have bought property in the United States during the last economic downturn now have several profitable options, says Levy. Many snowbirds who bought Florida condos at par a decade ago are now selling, taking advantage not only of their properties’ increased value but also the premium on converting greenbacks to Canadian currency. Many others are renting out their properties (perhaps to those who just sold?), taking advantage of the extra income to offset the decreased value of their loonies. Still others are refinancing, and then repatriating money back to Canada, with no tax payable on the exchange. Still others are hedging their bets by downgrading: selling property worth $700,000 or $800,000 and buying something for half that price.
However you manage to stretch a dollar further, the point is to ensure there’s enough cash flow to keep investing, says Wray. She’s currently putting most of her clients into hedged investments to protect against currency fluctuations. Verch suggests dollar-cost averaging as another strategy to ride out fluctuations. Sit down with your advisor, she says, and have a look at your overall U.S. exposure. “If you have adequate US exposure, consider adding Canadian investments. Oil and gas and are cheap today — but don’t get greedy.”
The important thing, say both advisors, is to take the emotion out of the loonie’s roller coaster ride. Work with an advisor to rebalance and reallocate as necessary. Focus on your long-term goals. Stick with your long-term plan.
“It’s boring advice, but it works,” says Verch. “These are short-term fluctuations, but the winners are the long-term thinkers. We’ll get through this. We always do.”