Should You Invest in Currency-Hedged ETFs? 

Great info. Thanks!!!

@Matt Bonnell - You're very welcome - thanks for watching :)

@Spencer Kelly - I'm glad you've been enjoying the videos - thanks for watching!

@Artem Sklyar - You're very welcome - thanks for watching! :)

@Lee Ann Ng - We're so glad you enjoyed the video - thanks for subscribing! :) For TFSAs, I tend to just hold Canadian-based ETFs, as unlike in an RRSP, the US-based ETFs don't reduce the withholding tax drag on foreign dividends in a TFSA (although, as you mentioned, US-based ETFs tend to have lower expense ratios). As Norbert's gambit still has a cost, converting your CAD to USD and purchasing US-based ETFs in your TFSA can still offset the lower ETF expenses for several years. With my clients' TFSAs (and my personal TFSAs), I generally just hold a mix of Canadian-based Canadian, U.S., international and emerging markets equity ETFs. For the U.S. equity allocation, I'm currently favouring the Vanguard U.S. Total Market Index ETF (VUN), as it's more diversified than an S&P 500 index tracking ETF. For DIYers, an easier approach would just be to hold a 100% equity ETF, like VEQT. Good luck!

@@JustinBenderCPM Late reply but thank you for this. Very helpful. Not sure if simple 2-3 fund portfolio is effective for a $1M plus portfolio in retirement but as we’re unwinding complicated holdings from a retiring advisor (who’s been helpful) for try at DIY I hope so. If PWL offered simple seminars (w/live QA sessions on investing for diff age groups or phases of life they’d prob be very popular just based on reputation for trust. We have read Dan’s book.

Is it not better to buy VSP since VSP is hedged? VFV and VSP have the same MER but VSP is hedged, right? Why did you end up buying VFV? Can u pl explain a little more? I am in the same situation now as i am looking to invest in either VFV or VSP, Quite a large amount

@@rajaseth2577 Justin explains it best. What I would say is you don’t want to bet against the American dollar. Plus if you have 10,000$ invested, dividends kick in, compound interest does its magic. The with holding tax will hardly be noticed,

@juntoalrizal - As unhedged foreign bonds can be volatile (and arguably, the main reason to own bonds is for portfolio stability), it's generally advisable to go with 100% currency-hedged foreign bonds.

@meemmjdn: You're very welcome! Gold is a confusing asset class when it comes to currency-hedging. Even though it transacts in U.S. dollars, it doesn't really have much exposure to the U.S. dollar (so by purchasing a currency-hedged gold ETF, you are gaining a long gold position and a short U.S. dollar position): www.moneysense.ca/columns/claymores-cgl-when-buying-gold-isnt-enough/ www.trustablegold.com/hedging-gold-investments-against-currency-risks

@D - PWL's Director of Research, Raymond Kerzerho, wrote about the issues with U.S. currency-hedged products awhile back (here's a summary): www.theglobeandmail.com/featured-reports/article-are-canadians-wasting-billions-on-currency-hedged-etfs/

@ActiveGG - Glad I could help provide some clarity on currency-hedged ETFs :) TFSAs are a great place to hold most investments (like equities), as long as you don't need the cash for many years.

@the_noble_lefty - The cost of FX conversion would be borne by the ETF investors (it would be factored into the net asset value per share over time), but Vanguard receives institutional rates, so it wouldn't be a significant cost.

@@JustinBenderCPM thank you

@Raja Seth - I've explained everything in the video - have you watched it yet?

@Chrissy Dieb - I'm glad you liked it! Most of the historical data indicated that a Swiss investor was generally better off hedging away their foreign equity currency exposure (from a risk perspective).

Justin Bender Thank you very much for your feedback!

@A P - Yes, the account type the ETF is held in doesn't impact the currency-hedging strategy. If you buy a currency-hedged ETF in a TFSA, you are not exposed to the underlying foreign currencies.

@@JustinBenderCPM Thank you. I’m thinking to purchase the following ETF: XIU, XSP 50% - XUS 50%, VEE, VA. What do you think? Any suggestions? I’m new to the ETF.

@@dorsia4167 - Check out my videos on one-ticket asset allocation ETFs. In my opinion, these are the best ETFs available to DIY investors (especially beginners :)

@ Junior TJ - I like the composition of my model ETF portfolios better (cheaper and more diversified). What brought you to this allocation?

@@JustinBenderCPM I came to this allocation by watching your "understanding etf series" I researched each etf in your videos and I found the allocation of VFV, XIU, XEF and ZAG perform better and have a greater return than your allocation of 20% fixed income 80% equities. Or 40%/60%.

@@juniortj9428 - Be careful not to base your investment decisions on past performance. Overweighting U.S. equities over the past decade would have resulted in higher performance (but a decade ago, no investor wanted to invest in U.S. equities, as they had performed so poorly over the previous decade). An investor could also invest 100% of their portfolio going forward into a U.S. equity ETF (like VFV), and have a higher past return than your portfolio or any of my model portfolios ... but you can't spend past returns.

@@JustinBenderCPM Thank you for your feedback. Do you think investing has become more complicated with a lot of ETFs on the market?

@@juniortj9428 - I think too much product choice can certainly be a roadblock for most investors. But if they only consider the most broadly-diversified and low-cost ETFs available, there are only really around 20 individual ETFs that fit this description (most of these are included in the Canadian Portfolio Manager Model ETF Portfolios): www.canadianportfoliomanagerblog.com/model-etf-portfolios/ Or they could make their investing life even easier by opting for one of the Vanguard or iShares Asset Allocation ETFs.

@Jordan Gaidola - If the USD immediately depreciated from 1.30 to 1.00 relative to the CAD (for a decrease of ~23%), your holding of VFV would decrease by ~23% (so your $1,000,000 would decrease to $770,000).

@@JustinBenderCPM thank you for your respond I appreciate it , -23% decrease in US dollar , wouldn’t that be a 30 % increase in the cad making a 1 million investment turn to 700k -30% , does it affect the decrease of the USA dollar or the increase in the CAD dollar.

@@Mike_32 - If you had $1,000,000 CAD, the the current FX rate was 1.30, then it would currently be worth $769,231 USD ($1,000,000 CAD / 1.30). If the US dollar depreciated to 1.00 CAD, your $769,231 USD would now be worth $769,231 CAD (for a loss in CAD of 23.08%).

@@JustinBenderCPM thank you I appreciate it!

@Tribu Kahu - ~80% of VUN is made up of the companies in VFV, so the two ETFs are expected to have similar performance over the long-term. However, VUN is slightly more diversified, so I usually opt for it over VFV in portfolios. If there are no tax implications for you of making a switch, you could certainly consider doing so.

@Justin & Shannon Bender Thank you so much sir..

@Justin & Shannon Bender I am planning to transfer my RRSP from RBC to Wealthsimple..Any advice on which ETF is best for at least 20 years? I already have Xeqt and VUN in my TFSA..Thank you so much..

@EngleHump - When I ran the back-tested analysis, I found that for investors with only 20% of their portfolio allocated to stocks (i.e., extremely conservative), hedging away the currency risk tended to reduce the standard deviation of the overall portfolio in most time periods. However, these currency-hedged conservative portfolios would have still lost slightly more during the financial crisis and the global pandemic than an unhedged portfolio.

@@JustinBenderCPM Thanks for the clarification. Very useful information in your blogs. Cheers !

@Jen McConnell - ETFs do not become overvalued - it's the underlying asset classes the ETF holds that can become overvalued (but this is the same issue if you're buying mutual funds or individual securities). For example, some consider U.S. stocks to be overvalued (U.S. stocks are the overvalued "asset class" in this example). But you can buy the individual U.S. stocks directly, through a mutual fund, or through an ETF (it's not the security structure that is overvalued, it's the specific asset class).

@@JustinBenderCPM I understand - thank you for clarifying the misinformation out there. Maybe I just misunderstood some articles. Appreciate it nonetheless!

@Fast Eddie - Is there a particular word or phrase that you're stuck on (or that a quick Google search can't shed some light on)?