Can Canadian Expats Enjoy The Most Tax Free Portfolio In the World?

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Horizon Canada just offered a swap based Canadian bond ETF, which will be trading on the Toronto stock exchange tomorrow.

http://www.horizonsetfs.com/pub/en/etfs/?etf=HBB&tab=overview

Horizon already offers a Canadian and U.S. swap-based stock ETF.  By coupling these equity indexes with this new bond offering, expats won’t have to pay capital gains taxes or dividend with-holding taxes. I explain how this works in my upcoming book, due this fall. 

I didn’t think the tax benefits of being an expatriate Canadian could get any better.  But they just did.

Incidentally, I already own Horizon’s two equity indexes in my personal portfolio.







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andrew hallam

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 (Wiley 2011) 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.

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62 Responses

  1. Micheal says:

    Has anyone used SCI for investments, are they a good company? These are their costs.

    Transparent and low costs

    Costings are identical for both Fusion and Elements

    ? Annual Administration Fee 150 GBP

    ? Annual Management Fee 1.5%

    ? Investment Fee approximately 0.17% per annum depending on
    strategy chosen

    Does the 1.5% annual management fee mean that if my investments make say 5% average, they will take 1.5% out of that? If so that is like almost 30% of my return. Seems to high. Am able to buy index funds through them. Are there other recommendations of a company I could go with? Should I just set up a account with a brokerage and buy index funds myself?

    Thanks

  2. John says:

    Michael

    Run! You are about to do something you will regret for the rest of your life! Forget the annual management fee, it will cost you about 10% in the first year, 7% the second year and 4% every year after that – and yes that comes out of what your fund makes!

    If you invested $10,000 dollar in the first year and the market made 0%, you would lose $1000 in fees alone! Next year you would be starting on $9,000. Buy index fund/ETFs or stick your money under your bed. Both options are better than SCI.

    Read Andrew’s book or ”Stocks for the long run”.

    • Nita Wagner says:

      John, How did you calculate these figures? The funds SCI recommended for Michael are Vanguard index linked ETF’s through a UK pension company.

  3. Micheal says:

    Thanks for the reply. Where does the 10%, 7%, and 4% come in?? It’s not listed anywhere on their page. I was going to invest in Vanguard Inex funds through them, but I’m thinking that’s not going to change anything is it? What about going the long term route like non registred mutual funds or GIC’s from a Canadian Bank?

    Mike

  4. Anze says:

    Lyxor and db X-trackers provide MSCI World index funds that are swap based and listed on the SGX. Their MERs are reasonable by Singapore standards at about .45%.

    Andrew would you recommend these for anyone looking for a single diversified equities holding that is based in SG?

    • They sound like good, viable options. I would just want to make sure they have high enough liquidity, which is the challenge faced by the SGX at the moment.

      • Anze says:

        Hi Andrew. They seem reasonable, I wonder if they are cross-listed on the European exchanges.

        Lyxor World 10US$ – bid / ask = 1.711 / 1.721
        DBXT MSWorld 10US$ – bid / ask = 4.440 / 4.460

        Anyways that is a really good reminder to always calculate the spread before purchasing anything.

  5. Jas says:

    @Andrew Hallam:
    Is it possible your opinion of these swap ETFs has changed over the years?

    see this old post on the couchpotato website:
    http://canadiancouchpotato.com/2011/06/08/swap-based-etfs-what-are-the-risks/

  6. Harold Shim says:

    Hi Andrew,

    Just wanted to congratulate you on your new book. Great read and I gathered some new advice since your first book. Since converting to your investing strategies my portfolio is finally growing steadily again and I am reassured that I’m not funding some broker’s holiday and retirement plans!

    Just as an aside, I fully understand that timing the market is a fruitless endeavour but looking at some of the graphs out there it seems like the markets are getting a little over exhuberant. I’m not suggesting running for the hills but do you think it would be a good time to be a little heavy in bonds right now? Especially the new Horizon Bond ETF!

    Thanks Harold

  7. David says:

    Dear Andrew,

    Thank you for sharing your experience and knowledge.

    I am a 25 year old Canadian just starting my teaching career (in Central Asia) and am interested in making my money work wisely. I dropped OHIP, and don’t own any property back home, to forego any Canadian taxes.

    This leaves me in the open waters of international employment however, and I see that DBS Vickers is an option for global nomads to invest their income without any tax penalty; is this true?

    I plan on teaching in many countries over the next decade or two and am eager to know if DBS Vickers is the optimal investment account that I can stick with as I work globally. Is it possible to open and maintain an account from Central Asia?

    In addition, I currently I have 25,000 CAD to my name in a regular TD account in Canada that I am unsure how to invest out of fear of incurring tax penalties and being flagged for whatever reason.

    Lastly, I would like to initially invest my income for 3-4 years, purchase a property back home for my parents, and then start my retirement plan. Do you see gold bullion coins as part of a good strategy for me?

    Thank you kindly, I really hope you have the time to help me out!

    David

  8. Asif says:

    I am a canadian living in Canada but love singapore. Is there anyway to invest in Singapore that is not stock or bond related?

  9. David says:

    Hi Andrew,

    After doing my homework I have figured out my problems explained above.

    However:

    Arun Nagratha, the CAD expat tax specialist whose youtube video you’ve linked to in the past, says that non-residents can declare non-resident status with their bank back in Canada and continue to invest in e-series for example without incurring capital gains tax.

    Is the difference between this option and opening up a Saxo account in Singapore one between paying dividend tax/not?

    What are the benefits of me going through Singapore as opposed to just declaring a non-resident bank account?

    Thank you so much,

    David

    • Neil G says:

      He addresses this in his book.

      But basically, what you said is true AT THE MOMENT. But who knows what tax laws will be 40 years from now. The rationale for having an retirement investments offshore (ie Singapore) seems to be one of precaution, in case things change, offshore tax laws are less likely to waver.

  10. Vig says:

    Hi All,
    As most Canadians probably know, the CAD is seriously skidding into the ditch. I missed that brief window last year to convert all CAD to USD. But that’s neither here nor there…

    Background: I’m a Cnd expat with a modest stash of CAD. I’ll soon move it into an offshore investment account. I plan to add to my portfolio of global diverse ETFs via the TSE. I don’t plan to return to Canada.

    My question — and maybe it’s been asked before: What effect will a faltering and possibly collapsing Canadian dollar have on a globally diversified portfolio of ETFs bought with Canadian money on the TSE? Is there any correlation between a weak CAD and the future value of a portfolio bought with Canadian money?
    Or — is it like shopping at the market? (i.e. The products (ETFs) are simply the products, inherently unaffected. Instead of buying lots of stuff with strong money (USD) you’re spending weak money (CAD) and so you buy a lot less stuff.)
    Hope that made sense.

    I’m all ears. Thanks folks ; )

    • Hi Vig,

      The currency you use to build a diversified portfolio means nothing. The entities you purchase are the only factors you should be concerned about. If you buy ETFs to cover the world, you aren’t hinged to any single currency…no matter which exchanges you buy the ETFs from.

      Cheers,
      Andrew

      • lucky mike says:

        Andrew – afraid you’re educating the ignorant here, but so I understand this currency issue correctly:-

        – I’ve just opened a trading account with Saxo Bank and want to invest in Vanguard ETFs – combination of global bonds, global stocks and US stocks. i’ll be investing in US$ but not on the US markets due to US tax concerns.

        – if I purchase the Vanguard ETFs on a Canadian/Australian/UK/European stock market, then i’ll have to actually make the purchase in CAD/AUD/GBP/Euro – yes?

        – my base currency is US$. however, i won’t suffer any currency effects on a US$ denominated Vanguard fund (eg US stocks ETF) purchased on the Canadian stock market because the US$/CAD movements will be reflected on both sides of the equation – ie if the CAD slips, then the CAD reported value of the fund increases so when i convert my holding back to US$ it equals out – yes?

        – and the same principle applies (obviously more complicated) for a global stocks tracker which will be in multiple base currencies?

        – but i will still be exposed to forex charges when converting my US$ to CAD/AUD/GBP or whatever (and eventually back again) – and i understand Saxo are pretty poor at exchange rates &/or exchange fees?

        difficult to explain in an email but hopefully you get the gist of my query.

        also, any recommendations on which stock market i should actually purchase the Vanguard funds on – I’m Australian in Dubai, but will probably end up in some cheap SEA country rather than eventually returning to Australia.

        many thx.

        • RogerK says:

          Hi Mike

          Yes you’re basically correct but I would suggest you open different currency accounts at Saxo (USD, GBP, Euro, etc.), as I believe they offer that option. That way they won’t be exchanging currencies every time you make a trade in a different currency as you’ll have a “cash” account, as they’re called, in that currency at the broker. I would then suggest using a lowcost online Forex broker to trade currency between your bank accounts to fund the individual accounts at Saxo. For example, you say you have USD so open a GBP bank account and change USD into GBP from your USD bank account to your GBP bank account and then send the GBP to Saxo.

          As Andrew says the underlying currency of the investment is what’s important, not the currency in which you purchase the investment as there’s always two sides to currency moves.

  11. Darien says:

    Hi Roger,

    You have got me thinking. I opened a Saxo $ account after reading Andrews book as well as a few others.
    I earn in dollars and have an HSBC dollar account. I transferred the cash and only paid a very small transfer fee.
    I then bought 3 funds. 2 equity ETFs I’m GBP and a Bond ETF in $.

    Was this the way to buy or should I have a GBP account on Saxo for when I add to my 2 GBP Equity funds?

    Your thoughts would be appreciated,
    Darien

    • RogerK says:

      Hi Darien

      Yes I think its useful to have different currency accounts at your broker to avoid all the exchnage fees every time they buy or sell an investment in a currency different from that of your account. Its certainly what I do and then I can control when I exchange funds and ensure its at the cheaper rates offered by the online Forex traders.

      I’d be very interested to hear Andrew’s or anyone else’s thoughts on this.

  12. Tricky Woo says:

    Not sure if this is still applicable but whatever you do DO NOT invest with SCI. I had a friend who dealt with a guy named Gavin Snook. She was new to the investment game, young teacher right out of college and he took her for a ride that she is still paying for today. This was 7 years ago. SCI is not a honorable company. They will sell you FPI products, which will eat away at all of your gains if you make any. These companies are going around the world and ripping international teachers off. Thank goodness Andrew is warning people of them. I hope we put them all out of business soon by warning everyone we know not to invest with these people. They make HUGE commissions on your money (investments…which really are not investments)

    Never buy anything from or deal with SCI. You will regret it for a long time after.

  13. shortrib says:

    Hi Andrew: Long term Canadian expat here, Netherlands resident, with investments at TD Waterhouse in Canada. TD has been applying non-resident withholding tax of 15% on income from my bond ETFs (ie. XBB and BIV). I understand I am liable for 15% NRWHT on dividend income, but I thought interest income was non-taxable for a Canadian non-resident? Seems a simple question but haven’t found anything on this. Do the brokerages simply lump all ETF distributions together (dividend and interest) I have not yet asked TD since they are normally clueless with non-resident tax questions. (I ask on this forum since I am considering the swap ETF alternatives, or switching to GIC’s.) Thanks for your help.

    • Hi Shortrib,

      You will pay a non-resident dividend witholding tax on Canadian domiciled bond income, no matter what. That said, if you want to avoid it, you could go with the Horizon swap based bond ETF. It reinvests all distributions–sort of. So you won’t pay tax. I trust you read the information on these products, so I don’t have to re-explain here. For you, they’re likely the best deal going.

      Cheers,
      Andrew

      • Petra says:

        Andrew, what happens if you have a non resident brokerage account with TD in Canada, and then return to Canada as a resident? Do you have to dispose of these investments or are they transferred to a regular brokerage account with TD?

        • Hi Petra,

          The account would just be classified as a resident’s account, from the moment you touch down. You have to tell them the precise date you landed of course.

          Cheers,
          Andrew

    • Petra Noseworthy says:

      Hi Shortrib, I have finally opened an investment account with TD Waterhouse in Canada. Do you need to file any type of tax return for income, or does TD apply the withhholding tax directly so that you are not required to file?

  14. shortrib says:

    Thanks, Andrew. That’s really helpful and your site is full of great info.

  15. Neilio says:

    Hey Andrew and gang,

    I’m a (Canadian) teacher in South Korea In the process of opening an account with TD Direct. When it comes to tax residency, I put “Canadian”, which got me thinking about the effects a person’s tax residency has on their investing life (present and future). What are the implications of my tax residency?

    Thanks

    Neil

    • Hi Neilio,

      Because you listed your residency as Canadian, they will eventually refuse your application at TD Direct International. When applying a second time, put your true offshore residence.

      Cheers,
      Andrew

      • Neilio says:

        To be clear, on the TD application form (that i haven’t sent out for approval yet) they distinguish 3 things: Nationality, Tax Residency, and Country of Residence.

        As it stands now I have

        Nationality: Canada
        Tax Residency: Canada
        Country of Residence: Korea

        I’m pretty positive I’m a non-resident of Canada based on my current ties back there.

        So to be clear, TD would reject me because of my tax residency is ‘Canada’?

        Thanks for helping me sort this out so i can get my money finally where it should be.

        Neil

        • Neilio,

          Your tax residency is Korea. If you put Canada, your application will get rejected. Resident Canadians are not allowed to invest in a capital gains free zone.

          Cheers,
          Andrew

          • Neilio says:

            Hmm, it threw me off why the application needed to distinguish between Country of Residence and Tax Residency… as it seems from your comments they should always be the same.

            On a side note, if my tax residency is South Korea, i should stop doing Canadian income taxes and submit Korean ones?

          • Neilio,

            If you reside in Korea, and you have no Canadian income, you should not be filing Canadian taxes.

            Cheers,
            Andrew

  16. RogerK says:

    Hi Neil

    The CRA has strict rules in determining “tax residency” so I would suggest looking at a very useful web site http://www.taxtips.ca. As Andrew says you may well qualify to be a “tax resident” of South Korea which could save you a lot of money in unnecessary tax payments and then you’d also qualify for a TD Direct account.

    Regards

  17. Neilio says:

    Heyo, a couple technical form questions if anyone can offer advice.

    I’ve been approved over at TD Direct Investing, and they just gave me a couple optional forms for me to send back to them if I want.

    1- NR301 “DECLARATION OF ELIGIBILITY FOR BENEFITS UNDER A TAX TREATY FOR A NON-RESIDENT TAXPAYER”

    2- “Declaration of eligibility for benefits under a tax treaty for a non-Canadian resident taxpayer”

    Are you familiar with these forms at all? I’m not sure if these forms are a good idea or not. Am I ‘exposing’ myself by using these forms? Am I better off trashing them?

    PS – i reside in Korea

  18. RogerK says:

    @ Neilio

    There’s no exposure by completing those forms, in fact its quite the opposite. It confirms to the CRA that you’re non-resident for tax purposes and, therefore, don’t have to file a Canadian tax return. You will, however, be subject to withholding tax on all dividends and capital gains generated, which in countries that have double taxation treaty with Canada, usually means the Canadian tax withheld is deductible against the foreign tax payable on your total income.

  19. Rob says:

    Hi Andrew,
    I recently read your new book (another great resource!) and am looking into buying some swap-based ETF’s more my portfolio. When looking into both Horizon’s HXS and HXT I noticed that there is a HXT and an HXT.U (same with the HXS and HXS.U). What is the main difference between these two funds? Thank you for your help.

  20. Michael says:

    Hi again Andrew, You’ve sometimes written about buying when stocks are dropping when bargains are available (I hope I interpreted that correctly). For you, would this be that time? My XIC stocks have lost about 10% in the last 5 months and I’m not being alarmist! Would a smart investor buy more at this point? How do I know when to make this decision as a rookieish investor?

    • Michael,

      Smart investors buy every month. They ask, “how is my portfolio now aligned? Does it meet its goal allocation?” Each month, different indexes to different things. If your U.S. index now comprises a smaller amount of your total allocation because it has dropped more than the rest, then yes, that’s the index to buy with this month’s savings.

      There is no speculation involved in this game Michael. As I mentioned in both of my books, your portfolio’s allocation should drive every decision.

  21. Adam Zargar says:

    Hi Andrew

    You say smart investors buy every month.
    I transfer money collected every 6 months only and only buy/rebalance then (so twice a year). That way i only pay transfer fees once a 6 month period. Is this not correct? Will it affect my long term pot?

    • Adam, you will likely be better off investing more frequently than that. But you do your math on what it’s costing you in transfer costs. I was actually responding to the notion of market timing–which plenty of people seem to lean towards.

  22. Abu Dhabi says:

    Hi Andrew,

    Love reading how one can make a good investment. Appreciate your ongoing comments and advise.

    Have been with FPI for 10 years still 10000 in the hole after the recession after an 50000 investment since 2005 – not happy but with them for another 15 years.

    How would you advise to invest with another financial institute while working in the in the UAE and able to cover my loss with FPI?

    • PM99 says:

      Hi Abu Dhabi,
      If you wish to invest in ETFs, you could open an account with TD Direct, Saxobank or Swissquote. I line in Dubai and have just made an application to open an account with Swissquote as I found it to be more convenient and cheaper for my desired way of investing. Ofcourse I am still new to this and have not invested in ETFs as yet but have been following ETF blogs for some time now and have read Andrew’s book which I should admit is an absolute gem. You could read it to get familiar with concepts of investing in ETFs. However in short, you would need an investment platform like the ones mentioned above (ofcourse if you are a US citizen you might have access to cheaper options), and could invest in a global/ regional bond ETF, world index ETF and can add an emerging market/ regional index ETF to diversify if required. The % allocation to each ETF would depend on your age and risk tolerance.

  23. PM99 says:

    Hi Abu Dhabi,
    If you wish to invest in ETFs, you could open an account with TD Direct, Saxobank or Swissquote. I line in Dubai and have just made an application to open an account with Swissquote as I found it to be more convenient and cheaper for my desired way of investing. Ofcourse I am still new to this and have not invested in ETFs as yet but have been following ETF blogs for some time now and have read Andrew’s book which I should admit is an absolute gem. You could read it to get familiar with concepts of investing in ETFs. However in short, you would need an investment platform like the ones mentioned above (ofcourse if you are a US citizen you might have access to cheaper options), and could invest in a global/ regional bond ETF, world index ETF and can add an emerging market/ regional index ETF to diversify if required. The % allocation to each ETF would depend on your age and risk tolerance.

  24. Simone says:

    Hi Andrew, I sadly invested with Zurich Vista and after reading your book, decided to cut my losses (50%) and opened up a TD account when I was in Canada late last year. I am now looking at investing and buying swap based ETFs. From your book, I know that Horizons offers three (Canadian equities, bonds and US equities) and that swap based ETFs carry a greater risk (but are way better tax wise). When I was looking at the information regarding these ETFs on Horizon’s site, they note that, for example, the HXT has a “counterparty exposure of minus12.2%” and the HBB has minus 1.2% counterparty exposure. What do these percentages actually mean (forgive my ignorance). Also, any reason why the HBB has a swap and management fee, whereas the HXT only has a management fee? Finally, one last question, how can you tell that an ETF is swap based? I am looking for a Canadian domiciled swap based ETF that captures the international market, but not sure how to identify which ones are swap based.Thanks so much!

    • Hi Simone,

      So far, there isn’t a swap based international ETF trading on the Canadian market. But Vanguard Canada and iShares Canada offer a variety of international index funds. They are all physical ETFs. You’ll know that a fund is swap based when it says so in the fund’s prospectus. To my knowledge, Horizon is the only Canadian firm that offers these. As for the other questions you asked, they aren’t ignorant at all. In fact, I don’t have an answer. You could call Horizon’s and ask them. If you get clarification, perhaps you can let me know.

      Cheers,
      Andrew

  25. Steve says:

    Hi Andrew,
    Thank you so much for writing your two excellent books. You have helped a lot of people. I am an expat teaching in Singapore. I have duel citizenship (Canadian and British) and was wondering which nationality I should be leaning towards with regards to building a portfolio of ETF’s. If I am going the couch potato route, which nationality do you feel is in a more favourable position?

    • Hi Steve,

      I’m glad you found the books useful. As for your nationality, you have to consider where you plan to retire. Build the portfolio around that.

      Cheers,
      Andrew

  26. Steve says:

    We haven’t decided where we end up yet 🙂 but if I will pay 15% tax on my Canadian dividend earnings will the UK tax my dividends in a similar fashion?

  27. Steve says:

    Thank you Andrew 🙂

  28. Andrea says:

    Hi Andrew,
    I am about to create my portfolio using scotiabank itrade. I have a question though, and please forgive me if i sound like a newbie (I am one): when I go to buy an ETF (for example, HXS) i can only enter in a CDN in the market box, however i know that HXS is the US index. Am I meant to select CDN and it will still represent the US index?

  29. Kevin says:

    Hi Andrew,

    I just want to clarify some capital gains tax questions. I originally opened a DBS Vickers account. I later decided I would rather have my portfolio located in Canada. I currently reside in Singapore. Is it true to say that if I sell any of my ETFs, the capital gains will automatically be taxed 25% of 50% of the actual gains? I see the dividends taxed quarterly and receive the appropriate statements. But I feel like I might be regretting investing with TD Direct Investing rather than DBS Vickers where capital gains tax don’t exist. On the flip side, if I were to reside in Canada in the future and sell shares in DBS Vickers, I would be taxed by the Canadian government on capital gains. What tips do you have to pay the least amount of tax from capital gains?

    Cheers,

    Kevin

    • Kevin,

      If your Canadian portfolio is set up as a non resident account, you could sell any portion (or all) of your portfolio at any time, and you would not be liable for any capital gains taxes. Sometimes, banks in Canada don’t let you set up non resident accounts. Other times, they may not deal with the account properly, when it comes to taxes. This is one reason why many Canadian expats prefer to keep their money in a jurisdiction like Singapore. That said, you don’t have to close your account in Canada if you can make 100% certain that you have set it up as a non resident account and that the account has ONLY your Singapore address linked to it.

      Cheers,
      Andrew

  30. Kevin says:

    Thanks Andrew. That is was I initially thought. I setup a non res account with TD 3 years ago. But I was having second thoughts because of something I read recently. This site http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html seems to clarify what taxes non residents of Canada are obligated to pay.

    Thanks again.

  31. Ian says:

    Hi Andrew,

    Great books by the way! I had a few interesting questions that I thought I would ask you. I’m a Canadian who has worked in Malaysia for the last five years. Subsequently, I am a non-resident of Canada. Due to the EPF retirement plan in Malaysia, I now have some money which I plan to invest in a trading account. In july, I will move to Indonesia so CIBC in Canada has denied my application to open a non-resident investors edge account because of their ties with Indonesia. Due you still consider DBS Vickers as the best bank for Canadians with non-resident status to invest with the intention of buying low cost ETF’s? Or is their another strategy/alternative bank that I should be considering instead in Singapore or elsewhere? I do realize that many international accounts have restrictions for expats living in Indonesia. Thanks for your time – very much appreciated. Cheers

  32. James says:

    As a Canadian teaching abroad, unsure of where I want to retire, and loving the synthetic ETFs offered through Horizon on the TSX, I am opening an account with TD Direct Investment (so easy to do!) in Luxembourg, transferring money from my US bank accounts (where our school pays us), and hoping to purchase ETFs like HSX.U with Horizon.

    If my research is correct, something like HSX.U through TD will give me near perfect exposure to the SP500, pay nearly 0 distributions (therefore nearly 0 withholding tax), keep my money in USD (also avoiding Fx fees) whilst keeping my money out of the NYSE (US inheritance taxes), and avoid capital gains tax (broker domiciled in Luxembourg). The fees at TD are very low and the fund costs also low.

    Although I almost started plugging money into WealthBar, I yearn for more control of my portfolio without (fingers crossed my logic and math are ok) paying more in fees than what WealthGap charges (very low, BTW, and a great plan B).

    TD Direct in Luxembourg fees are super low for trades on the TSX, NYSE, and LSE. Does anyone know of a HSX.U equivalent synthetic ETF on the LSE that trades in USD?

    Looking forward to building my couch-potatoe strategy with synthetic ETFs on the LSE and the TSX and paying almost 0 taxes for life. Too good to be true?

    • James,

      Did you read about these products in my book? I mentioned that Horizon’s products are backed by the National Bank of Canada. That’s still riskier than physical ETFs through Vanguard or iShares.

      You are asking to step further out on a limb to find another synthetic ETF by a different provider, yet you are likely unsure of the backer. A synthetic ETF doesn’t hold physical shares. You are literally taking the provider’s promise that they will give you the return to match the market it tracks. And if that firm gets into trouble? What then?

      Your upside is small. The downside is huge. That’s why many of the high end financial advisors (Mark Ikels, for example) won’t touch synthetic ETFs. By all means, stick with the Horizon S&P 500 ETF. It’s riskier, yes, but you know that it’s backer is solid. But an entire portfolio filled with synthetics, when all you gain is slight legal tax evasion on dividends? In my book, it’s not worth risking your entire portfolio.

      Cheers,
      Andrew

  33. Michael says:

    Hi again Andrew… I have two questions. when you have time.

    1) I’m still overseas for the foreseeable future. Right now my wife and I have old RRSP mutual funds (~$50,000) that we purchased in the years prior to going overseas and these have been managed by a broker for the last 13 years. The whole portfolio has gained very little and is also with so many different investment firms… Templeton, Front-Street Capital, Manualife, Mackenzie Universal. I’m so angry about my past ignorance. Anyway… as these funds are currently tax locked, do you have suggestions for what we should do with them now? I’d like to pull them away from the broker. I bank with TD in Canada.

    2) Our sons are now working age and are living in Canada. They bank with TD and CIBC. I want to encourage them to start saving now with low cost options when they’re in their early 20s . Are the funds you mentioned in your first book still the best ones (e-series/investor’s edge) or are there better, low-cost options available through either of these or other Canadian banks. I’ve also read about Tangerine but know little about it.

    As always… thanks Andrew!