If you only invest in Canada you suffer from a home country bias. In countries with a well-balanced securities market that may not be a problem. Canada is not such a market. It is disproportionately weighted to banks and energy companies. Adding foreign content provides a diversification benefit. You can purchase exchange traded funds like the Vanguard 500 Index Fund (VFV) here in Canada, but the US version (VOO) is even cheaper. Its asset charge is 0.04% rather than 0.08%.

Foreign exchange rates can be expensive and the cost isn’t apparent. Exchange dealers quote two conversion rates schedules: the bid and the ask. The ask is how much you pay the dealer for a currency and the bid how much the dealer will pay you. The ask is always a little higher and the difference is the dealer’s profit, or the bid-ask spread. The spot price, what’s usually quoted in the press, is the price without the spread. The difference between the ask and the spot is the conversion cost.

Norbert’s gambit lets you convert money at the spot price for the cost of two trades. Here’s how it works for converting Canadian dollars to US. Find a stock that trades in both Canada and the US. Buy the stock on the Canadian market for Canadian dollars then sell it on the US market for US dollars. The relative price is invariably the spot price. If it’s not, there’s an opportunity to make a riskless profit by buying in the cheap market and selling in the expensive one.

The illustration shows the cost difference between your brokers exchange and Norbert’s gambit.