The Canadian dollar continues to move up against the loonie, taking a leap past $1.04 (U.S.) today. The overvaluation is really becoming rather extreme based on benchmarks like purchasing power parity.
Historically, such overvaluation tends to reverse over time. So I have been shifting Canadian cash into U.S. dollars recently, and plan to do more as the loonie goes higher. I’m not just looking to make gains on the currency over the longer run — my allocation to foreign assets has been under target, so this is also a step toward enhancing diversification. And I might need some U.S. dollars for a visit to the U.S. someday.
Where to park U.S. dollars while contemplating and/or waiting for investment opportunities? Blogger Divestor had a good post on this about a month ago. After doing some exhaustive research, he came up with 3 relatively low-risk short-term bond ETFs – all from Vanguard. Their annual expenses are 0.12% to 0.15%, and portfolio durations range from 1.8 to 2.8 (so they roll over into higher rates relatively fast).
• Vanguard Short-Term Corporate Bond (VCSH), yield to maturity > 2%
• Vanguard Short-Term Bond (BSV), yield to maturity > 1%
• Vanguard Short-Term Government Bond (VGSH), yield to maturity > 0.5%