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The U.S. dollar is down 22% against the Canadian dollar so far this year. Many investors fear it will keep falling. If you knew the U.S. dollar would keep falling, the best strategy would be to sell all of your U.S. stocks and buy them back when the dollar stabilizes. However, you don’t know where the U.S./Canada exchange rate is going next — you never do.

Wall Street stocks give you opportunities that just aren’t available in Canada

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iShares FTSE/Xinhua China 25 Index Fund, $46.35, symbol FXI on New York (Shares outstanding: 218.6 million; Market cap: $10.1 billion), is an exchange-traded fund (ETF) that aims to track the FTSE/Xinhua China 25 Index. This index is made up of the 25 largest and most liquid Chinese stocks. All of the securities in the index trade on the Hong Kong exchange. As well, some trade as ADRs on the New York exchange. The fund’s top holdings are China Mobile, 9.3%; China Construction Bank, 9.1%; China Life Insurance, 8.4%; Industrial & Commercial Bank of China, 7.3%; Bank of China, 6.1%; China Merchants Bank, 4.4%; China Shenhua Energy Co., 4.2%; Ping An Insurance Group, 4.2%, CNOOC Ltd., 4.0% and PetroChina, 4.0%. The fund’s industry breakdown is as follows: Financials, 47.0%; Telecommunications, 16.7%; Basic Materials, 12.2%; Oil and Gas, 11.8%; Industrials, 9.3%; Utilities, 1.9%; and Consumer Services, 1.1%....

If you need steady income and want to hold bond funds, we advise you to focus on those with short-term maturity dates (see below for more on bond funds). That’s because bonds with shorter terms face a lower risk from interest-rate increases. You should also avoid funds that take part in any kind of speculative trading.

This bond ETF offers high quality at low cost

The iShares Canadian Short Bond Index Fund (symbol XSB on Toronto) is a bond exchange-traded fund (ETF) that’s a long-time recommendation of our Canadian Wealth Advisor newsletter. The fund cuts risk by avoiding speculative trading and emphasizing government bonds.

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ISHARES CDN LARGECAP 60 INDEX FUND $16.46 (Toronto symbol XIU; buy or sell through a broker) (units split 4-for-1 in August 2008) is a good, low-fee way to buy the top stocks and income trusts on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets. Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, the index holds a few we wouldn’t include, such as Yellow Pages Income Fund. The index’s top holdings are: Royal Bank, 8.2%; Suncor Energy, 5.9%; TD Bank, 5.7%; Bank of Nova Scotia, 5.0%; EnCana, 4.8%; Barrick Gold, 4.1%;Canadian Natural Resources, 3.9%; Manulife, 3.5%; Research in Motion, 3.2%; Potash Corp., 3.1%; Goldcorp, 3.1%; Bank of Montreal, 2.9%; CN Railway, 2.6%; and CIBC, 2.5%....

ISHARES MCSI CANADA INDEX FUND $24.64 (New York symbol EWC; buy or sell through brokers) is like a market-cap-based index fund, but its managers tinker with the index-fund formula in order to try and improve performance. They do this using their proprietary Morgan Stanley Capital International Canada Index. The fund has an MER of 0.52%. If you want to own a Canadian index fund, you should buy the iShares CDN LargeCap 60. You’ll pay about a third of the management fees. We don’t recommend iShares MCSI Canada Index.

ISHARES DIVIDEND INDEX FUND $17.74 (Toronto symbol XDV; buy or sell through a broker) holds the 30 highest-yielding Canadian stocks based on dividend growth, yield and average payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. iShares Dividend Index Fund has a yield of 4.0%. Top holdings are National Bank, 8.9%; Bank of Montreal, 8.0%; CIBC, 7.2%; TD Bank, 6.3%; IGM Financial, 5.0%; Bank of Nova Scotia, 5.0%; Royal Bank, 4.9%; Manitoba Telecom, 4.6%; TMX Group, 3.6%; Sun Life, 3.2%; Power Financial, 3.2%; Telus, 3.1%; and Russel Metals, 2.8%. iShares Dividend Index Fund is a buy.

While ETFs won’t protect you from the three costliest mistakes an investor can make, they may have a worthwhile place in your portfolio. Unlike many other innovations, ETFs don’t load you up with heavy management fees, or tie you down with heavy redemption charges if you decide to get out of them. Instead, they give you a lower-cost and more flexible and convenient alternative to mutual funds. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell them, but you will quickly make these back because of the low management fees....

Because of today’s low interest rates, we generally advise against investing in bonds. This is especially so in light of the rise in inflation that may come from high levels of government spending and the expansion of the money supply. That rise in inflation will push up interest rates over time. This will hurt bonds, since their prices generally move in the opposite direction as interest rates. A: iShares Barclays TIPS Bond ETF, $103.04, symbol TIP on New York (Units outstanding: 161.6 million; Market cap: $16.7 billion), invests in the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index. There are 29 securities in the underlying index. The fund began trading on New York in December 2003 at $101.84 per unit....

iShares CDN Gold Sector Index Fund, $21.57, symbol XGD on Toronto (Shares outstanding: 54.5 million; Market cap: $1.2 billion), aims to replicate the performance of the S&P/TSX Global Gold Index. The fund currently holds 28 stocks. The S&P/TSX Global Gold Index is made up of Canadian and non-Canadian gold stocks that S&P selects using its industrial classifications and guidelines. The fund’s MER is capped at 0.55%. The fund’s top ten holdings are Barrick Gold at 17.7%; Goldcorp, 16.0%; Newmont Mining, 11.8%; Kinross Gold, 8.1%; AngloGold Ashanti (ADR), 7.8%; Agnico-Eagle Mines, 5.5%; Gold Fields (ADR), 5.2%; Yamana Gold, 4.2%; Lihir Gold (ADR), 3.3%; and Randgold Resources (ADR), 2.4% If you want to own a gold fund, iShares CDN Gold Sector Index Fund is okay to hold....

ISHARES CDN REIT SECTOR INDEX FUND $10.16 (Toronto symbol XRE; buy or sell through a broker) holds the 11 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of this index’s value. RioCan REIT makes up 24.9% of the index’s total value; H&R REIT, 14.7%; Canadian REIT, 11.5%; Boardwalk REIT, 10.3%; Calloway REIT, 8.5%; Canadian Apartment Properties REIT, 6.6%; Primaris Retail REIT, 6.1%; Cominar REIT, 5.3%; Chartwell Seniors Housing REIT, 4.6%; Extendicare REIT, 3.8%; and InnVest REIT, 2.0%. iShares CDN REIT yields 8.3%. Its expenses are 0.55% of its assets....