Hedging Against Forex Moves? Don’t Waste Your Money

When I published my book, Millionaire Teacher, the Canadian exchange traded index funds providing exposure to the U.S. and foreign markets were all “currency hedged”

These were, by far, much better options than actively managed mutual funds, but the hedging created a drag on returns. 

Since then, Vanguard (followed by BMO) has offered some non currency hedged ETFs.

I write about their importance for the Globe and Mail…

internaxx special deal for andrew hallam readers

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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12 Responses

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  2. Rob says:

    For Canadians Dividend Ninja wrote a great post on withholding tax for people holding ETFs vastly more complicated than I ihought


  3. Colleen says:

    Whoa! There is alot of info in that article.

    Andrew I know for Canadians you suggest:

    VFV.TO (unhedged CAN ETF that tracks the S&P),

    VCE.TO (ETF to follow CAN equities),

    VEA (International equities) &

    VSB.TO (Canadian short term bond fund)

    With regards to that article what is the best way to allocate funds? I know starting out you don't think it makes that big of a difference (tax-wise) but if we are talking 500,000 to 1,000,000 I imagine there is an advantage to havings funds structured correctly.

    • Hi Colleen,

      Your question is very difficult to answer because you haven't indicated your age or your tolerance for risk.

      If it's risk tolerance you're considering, then here's a rule of thumb:

      If you won't have a pension, you could shoot for a bond allocation that's roughly equal to your age. For example, if you're 50, you may choose 40-50% of your money in VSB.To. If you're 30, you may choose 20-30% in VSB.to. If you won't have a pension, but your tolerance for risk is higher, you may want to allocate a proportion to bonds representing your age minus 20. For instance, a 40 year old may have 20% in bonds if her risk tolerance is higher.

      As for the remaining ETFs, you could split them evenly.

      If you do have a pension, you can afford to take higher risks, for the possibility of higher returns. If you are a teacher with a pension to look forward to (for example) you may opt for a proportion in bonds that's lower. But again, it's entirely dependent on your tolerance for risk.

      • Colleen says:

        Hi Andrew,

        My apologies, I should have stated with respect to the article on the dividend ninja website that is linked above in Rob's comment. I have read your book and understand my allocations. I am 36 and feel comfortable with having 30% of my funds in Bonds.

        After reading the article on withholding tax of dividends I think I figured out that I should not hold a fund like VEA in my TFSA or even my RRSP. While it might not be much with a small account I would think that with funds in the $500,000 plus range it would make a difference. Can you please have a read and tell me if you agree. There is a good summary in table 2 at the bottom of the article.



  4. Rahim says:

    Hi Andrew,

    Greetings from Montreal. Love your website and appreciate all of time you spend responding to your followers. I'm a big fan.

    I'm 33 years old, but only recently started to save for retirement because I've been busy paying back student loans and saving for my 1st home (using the Canadian Home Buyer's Plan). Until my loans are fully paid off (one more year), I'm putting $150 in index funds into my RRSP so that I can be a disciplined investor, despite having student loan debt lingering. Investment wise (taxable account), I participate in my companies Employee Stock Sharing Plan where my employer matches 50% of my contribution. I can put up to 6% of my salary (employer matches by adding 3%), but I've opted for 4% at the present time. Should I max out this contribution to 6%, or instead contribute to buying more index funds? I'm not sure where else I can get a 50% return on investing (hopefully the stock doesn't tank, but it's been quite stable over the years). Thoughts?

    Thanks in advance,


    • Hi Rahim,

      That sounds like a great deal. But lighten the load over time. When you are allowed to sell shares, do so to solidify the profit. The big risk comes when employers take advantage of such plans and wind up with a huge portion of their net worth in their company stock. Doing so puts them at risk on two fronts: 1. They are dependent on their company's health for their salary and 2. They are dependent on their company's health for much of their investments. Divest when you can and diversify.

      • Rahim says:

        Many thanks, Andrew! What you've said makes perfect sense.

        P.S. I just received your book in the mail last night and couldn't put it down!

  5. Leila says:

    Hi Andrew!
    Interesting post, as usual!
    I’m not sure if this is even relevant, but I want to make sure I’m not missing something:
    In Millionaire Teacher, you recommend TDB905, which is an Intn’l Stock Index that is Currency Neutral. For the US Stock Index, you recommend TDB902, which is the plain-jane version, even though it has a Currency Neutral option too. Should I then avoid the Intn’l Currency Neutral fund and opt for the regular one (TDB911)? Or is there a strategy here I’m not seeing? 🙂
    Ever a fan,

    • Hi Leila,

      Opt for the non currency hedged version when possible for all international/U.S. stock indexes. I should have insisted on that, in my book, rather than showing this inconsistency.



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