Currency Conversion Fees | International Equity ETFs
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- Опубликовано: 10 июл 2024
- In this video, Justin compares the growth of $10,000 invested in U.S.-listed and Canadian-listed international equity ETFs (IEFA and XEF) across various account types, and how the impact of currency conversion fees (i.e., FX fees) might impact your decision on which ETF to invest in.
The below topics are explained in this currency conversion fee tutorial:
0:00 Recap - Foreign Withholding Tax | International Equity ETFs
1:54 Currency conversion fees when buying and selling U.S.-listed and Canadian-listed international equity ETFs in RRSPs
2:45 Currency conversion fees when buying and selling U.S.-listed and Canadian-listed international equity ETFs in TFSAs
3:26 Currency conversion fees when buying and selling U.S.-listed and Canadian-listed international equity ETFs in non-registered accounts
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One can avoid Forex fees and use Norbert’s Gambit to convert (journal) CAD to USD or vice versa. The only cost is the bid ask spread which is a low spread
Another great explanation. This whole series is terrific.
@hbs - We're so glad you're enjoying the series!! There are so many more videos in the works, so keep an eye out for them :)
Great video.
Justin@Glad I took your suggestion and added VIU plus VEE to my TFSA two years ago. Currently the pair is out performing my North American ETF duo (VFV and XIC) in terms of yield.
@Niran Abraham - You never know which equity region is going to outperform in any given year, so I'm glad to hear you've prudently diversified your portfolio.
@@JustinBenderCPM
You and your PWL colleague Ben Felix get a lot of credit when It comes to my investment success. One of my day trading friend bought his first ETF when he saw the performance of my portfolio. The envious look on his face was priceless 😊
Showing numbers like this actually helps conceptualize the difference better, even more so than the old posts with Ludricous/Plaid models. The challenge is this works well for index funds, but it becomes harder when looking at value funds though because Canada doesn't really offer value ETFs, particularly Avantis or Dimensional, that PWL Ottawa supports. But that's a different audience.
Hi Justin, once again great video thanks!
I would like to point out that conversion fees are only necessary when buying and then selling, not every years. This could reduce the Canadian ETF advantage over a long holding period or even reverse the outcome.
Can’t wait to listen to your next video!
@Olivier Lapointe - You're very welcome! FYI - This analysis assumes there is only one conversion at the beginning of the measurement period and one at the end of the measurement period (not every year), so the outcome would not change.
Thanks for this video and all your other high quality content, Justin!
Like others, I also wonder if the 2% FX fee is necessary, when Norbert’s Gambit can be used instead. Then the fees are more likely to be on the order of $5-10, plus spreads (and perhaps some opportunity cost while your trades settle). In some of my recent conversions, I’ve found the conversion cost to be more like 20-25 bps, and I was converting smaller amounts than in your example ($10k).
In your experience, is correctly executing Norbert’s Gambit a difficulty for people (posing a risk of costly errors)?
@phizer80 - You're very welcome! Most novice DIY investors would be intimidated by Norbert's gambit. These are intro videos to steer them away from simply buying U.S.-listed ETFs because of the MER and cost savings. For more sophisticated investors, of course Norbert's gambit is an option for getting around the brokerages steep currency conversion fees.
Hi Justin, great information as always. I am just curious about the all in one ETF'S (XGRO for example) which seem to hold US ETF's within their particular fund (ITOT seems to be one). How does the withholding tax work in this scenario? Thanks.
@Wally Z - Whenever a Canadian-listed ETF holds a U.S.-listed U.S. equity ETF (or individual U.S. stocks), the 15% withholding tax would apply.
XGRO (a Canadian-listed ETF) holds ITOT (a U.S.-listed U.S. equity ETF), so the 15% U.S. withholding tax would apply.
@@JustinBenderCPM I don't think there are any other US ETF's in XGRO, but I don't think VGRO has any. Would it be worth it to switch, in your opinion?
Hi Justin. Is your website down? None of the blog posts are accessible since yesterday 😢
@Rifaz Razeek - Thank you for the heads-up - I've notified the website developer (hopefully it will be back up and running shortly).
Great video! Thanks. Does XGRO acutally hold ITOT? or is it really XUU? and does the same apply to emerging markets? IEMG or XEC?
@Brad Bajc - XGRO holds ITOT and IEMG (not XUU or XEC), but unfortunately, this doesn't get around the foreign withholding tax issues in RRSPs. XGRO is a Canadian-listed ETF that holds U.S.-listed ETFs, so the 15% U.S. foreign withholding tax still applies on dividends from the underlying ITOT and IEMG holdings.
@@JustinBenderCPM any idea why XGRO holds XEF and not IEFA? Thanks Justin.
@@Bradbajc - Great question! Similar to my comment above, if XGRO held IEFA (instead of XEF), XGRO investors would be subject to an additional layer of withholding tax in RRSPs, TFSAs, and non-registered accounts. This is because a Canadian-listed ETF (XGRO) is holding a U.S.-listed ETF (IEFA), and this would not be equivalent to you purchasing IEFA directly in your RRSP (where you could avoid the 15% U.S. withhholding tax).
So BlackRock's decision to hold XEF instead of IEFA in their asset allocation ETFs was a good one! :)
I'll chat about this concept more in my upcoming "All-Equity ETF" video.
@@JustinBenderCPM wowsers! Thanks for the info Justin. Appreciate it!
Thanks Justin for clarifying this important issue. I wonder however how ZBAL compares to XBAL in this matter given that both ETFs are Canadian listed but ZBAL holds only ETFs in Canadian currency as opposed to XBAL which holds some ETFs in US dollars. Thanks in advance.
@Andrew D. - Institutional investors (like BlackRock, the provider of iShares ETFs in Canada) are not subject to the same high currency conversion fees as retail investors (like us!), so it's very efficient for them to convert CAD to USD in order to buy the underlying U.S.-listed ETFs in XBAL, like ITOT and IEMG.
@@JustinBenderCPM Thanks very much Justin for educating us, have a great weekend.
@@Andrew21882 - You too! :)
Would you be able to do a video on bond ETFs in Canada? In the US it seems fairly simple as you can buy 1 click solutions. But in Canada, it seems so unnecessarily expensive to get any exposure past the Canadian border.
@mattbenz99 [Canadian Gambit] - After I've exhausted the equity ETF video series, I'll be shifting to the bond ETF side of things :)
@@JustinBenderCPM
Thank you!
Norbert's Gambit
@valveman12 - Never heard of it ;)
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@@JustinBenderCPM Hi Justin, excellent and educational content, as always! Do you have an instructional video for Norbert's Gambit using the Scotia iTrade platform?
@@JustinBenderCPM
Of course, you know about Norbert's Gambit.
I just thought I'd mention it...😁
@@Rational_Investor - I seem to recall not being able to perform the Norbert's gambit at Scotia iTRADE (as they instead offered "U.S.-Friendly" RRSPs (this may have changed since I initially released the Norbert's gambit videos though).
@@valveman12 - Haha, just kidding. For this series of videos, I was trying to get away from overwhelming new investors with Norbert's gambit (you can probably already tell the direction of the series is moving towards asset allocation ETFs, which in my opinion are the best option for most DIY investors).