Is Norbert's Gambit Worth the Risk in 2024

What is Norbert's Gambit?

Norbert's Gambit refers to a method of exchanging CAD for USD minus the hefty conversion fees. The method bears the name of Canadian investor Norbert Schlenker, who pioneered a method to sidestep foreign exchange fees. The practice generally involves using stocks that trade in both currencies. Shares are bought in one currency and sold in another using discount brokerages.

Using Norbert's Gambit to exchange CAD for USD

Here are some simple steps to use Norbert's Gambit, as suggested in an article by Forbes Advisor:

1. Open an account with a discount brokerage that allows you to buy and sell shares cheaply.
2. Buy shares of a USD Currency ETF.
3. Journal your shares to the currency you wish to exchange for. Here, journaling means changing the currency of your shares.
4. Once journaled, your shares can be traded in the required currency and will reflect on your brokerage account once the trade settles.
5. You can then withdraw the currency and complete the process without paying any foreign exchange fee.

When to use Norbert's Gambit?

Savings from using Norbert's Gambit are only visible when converting larger sums of money. When dealing with smaller amounts, the savings are marginal, and a conventional foreign exchange service may prove to be more efficient. A conventional currency exchange is also preferable where time is of the essence. Converting through the Norbert's Gambit method takes close to a week, while conventional exchanges are settled within a day.

Is Norbert's Gambit worth the risk?

While the prospect of saving money on currency exchanges can seem appealing at first, there are still risks and a higher barrier of entry that keeps Norbit's Gambit out of reach for most Canadians. These include:

Lack of Accessibility:

One of the primary issues with Norbert's Gambit is its limited accessibility. This strategy is unavailable to all investors, as it typically requires access to dual-listed securities on Canadian and U.S. stock exchanges. For investors with portfolios consisting of assets that do not meet these criteria, implementing Norbert's Gambit may not be feasible, making it an impractical option for a significant portion of the investing population.

Complexity and Execution Risks:

Norbert's Gambit involves a series of intricate steps that demand a high level of understanding of financial markets and trading procedures. Investors need to buy and sell specific securities in a precise sequence to execute the Gambit successfully. The complexity of the process increases the risk of errors, and even a tiny mistake could lead to financial losses. Norbert's Gambit might pose more risks than benefits for investors lacking the necessary expertise or those who prefer a straightforward investment approach.

Market Fluctuations:

Currency exchange rates are subject to constant fluctuations due to various economic factors, geopolitical events, and market sentiment. Engaging in Norbert's Gambit exposes investors to the risk of adverse currency movements between the initiation and completion of the Gambit. These fluctuations can erode any potential cost savings, and investors may find themselves with a less favorable exchange rate than anticipated, ultimately diminishing the strategy's effectiveness.

Transaction Costs:

While the primary goal of Norbert's Gambit is to minimize currency conversion costs, the strategy is not without its own set of expenses. Investors may incur transaction costs associated with buying and selling the necessary securities and potential bid-ask spreads. These costs could offset the perceived advantages of using Norbert's Gambit, making it a less attractive option for cost-conscious investors.

Currency exchange with Remitbee

Norbert's Gambit requires some understanding of the money market and the risks that come with it. A more convenient and more straightforward way to exchange money is Remitbee's currency exchange service.

• Inexpensive: ZERO fees and the best rates for every currency exchange
• Safe: Rest assured, your money is always in safe hands
• Transparent: With live updates of exchange rates and No hidden fees.

Conclusion

While Norbert's Gambit can be a valuable tool for some investors seeking to minimize currency conversion costs, weighing the potential risks and complexities associated with the strategy is crucial. The lack of accessibility, execution risks, and susceptibility to market fluctuations are all factors that limit Norbert's Gambit to seasoned investors.

It is wise to carefully evaluate your risk tolerance and financial knowledge or consider other alternatives like Remitbee for affordable currency exchanges.