Expatriate Canadian Teacher in Dubai Could Get A $168,000 Bonus

dubai

 

Guest blog post by Adrian Juric

My decision to return back to international teaching was motivated by my unrepentant wanderlust. But it was also driven by my desire to take stronger measures toward saving for retirement.

I arrived at the American School of Dubai (ASD) in August of 2015. The retirement program offered at ASD is through Raymond James.   Teachers contribute 11.2% of their base salary (in $USD) and ASD matches that with an additional 18.2%.

On my second day at ASD I met with the superintendent to discuss whether or not I could invest my retirement funds on my own.  He said it wouldn’t be possible.  I resigned myself to that fact, and braced myself for the high cost funds that I knew Raymond James would invariably offer.

You can imagine my surprise, therefore, when I heard the opposite from Tim Hoffman, the Raymond James rep, during his first visit to ASD  in September.   He and I had been in contact via email at least six months before I arrived. I had been pressing him hard to see what Raymond James could offer that could match a balanced portfolio of index funds.  There was some ducking and weaving each time — “let’s talk more about that when you get here” — and some long radio silences.  I did not hold high hopes for being able to avoid costly funds.

When I got here, though, he said (after a half-hearted pitch for MFS Meridian Global Equity Fund, Franklin U.S. Opportunities Fund, Templeton Global Balanced Fund, etc., all with expense ratios of 2%) that the money was my own after all, and that I could, in fact, invest it elsewhere if I wanted.   I would just have to pay Raymond James a $40 USD wire transfer fee each time.   Overjoyed, I double-checked with the business office.   They said that it was my choice to make.

And the rest, as they say, is history.   I met with Tim to set up a transfer to my TD Waterhouse account.  The previous summer, I had set up a TD Waterhouse non resident account—which Canadians must open in person.

I called TD in Toronto to find out what will happen to the money once it arrives.   They said there would be a $17.50 CDN incoming transfer fee.   Additionally, they said that I would have to actually call them to allocate the money to the different funds in my portfolio, and that the charge for this phone transaction would be $43.00 Canadian.  When I expressed dismay at this, they said that this charge would likely be reduced to $9.99 because of my non-resident status. 

The funds have since arrived in my TD Waterhouse account. This way of doing things is not without its pitfalls. To limit costs, I plan to invest 4 times a year. A $40 USD wire fee charged by Raymond James costs $160 over the year. TD’s incoming wiring cost will total $70. Making 4 purchases per year will cost about $40 total.

All told, I will pay about $270 a year to make this happen. So why bother?

Over a 15 year duration, it would likely earn the equivalent of a $168,054 bonus. Over 20 years, it would save me $380,450. A young teacher, with a full career ahead, would save about $1.41 million more money over 30 years, by using such a method.

Assume that I invest $40,000 a year, including my employee match. With Raymond James’ international fund selections, I would pay about 2% per year in hidden, annual expense ratio charges. With a portfolio of index funds, I would pay about 0.1% per year. Note how I could pay an extra $270 per year, from international transfer fees, but still come out ahead with a lower cost portfolio of index funds.

 

 

Raymond James Funds

TD Waterhouse

Amount Invested Each year

$40,000

$40,000

Minus International Transfer Fees/Brokerage Costs

$0

$270

Amount That Gets Invested Annually

$40,000

$39,730

Assumed Annual Return Before Fees

8%

8%

Annual Fees On Funds

2%

0.1%

Annual Return After Fees

6%

7.9%

Portfolio Value After 15 Years

$986,901

$1,154,955

Portfolio Value After 20 Years

$1,559,709

$1,940,159

Portfolio Value After 30 Years

$3,352,069

$4,768,113

 

Editor’s addition

What funds should Adrian buy?

Adrian just needs to buy 3 investment funds. By doing so, he would have exposure to the Canadian stock and bond markets (his home markets) as well as global exposure.

For global stocks, Adrian could buy the iShares Cores MSCI All Country ex Canada ETF. It trades on the Toronto stock exchange, under the symbol, XAW. Its hidden costs are just 0.2 percent per year, yet it gives Adrian exposure to U.S. stocks, developed world international stocks and emerging market stocks.

For Canadian stock market exposure, he could buy the ultra low cost Vanguard FTSE Canada All Cap ETF. Its hidden expenses are a paltry 0.05 per cent per year.

For Canadian bond market exposure, he could buy Vanguard’s Canadian Short Term Bond Market ETF. Don’t let the name fool you. It’s comprised of short-term bonds that expire in less than 5 years. When one bond expires, the fund buys another bond.

Adrian is in his mid 40s. Here’s how his portfolio could look:

Allocation Of His Total Portfolio

ETF

Expense ratio

40%

Vanguard’s Canadian Short Term Bond Market ETF.

0.10%

30%

Vanguard’s FTSE Canada All Cap Index ETF

0.05%

30%

iShares Cores MSCI All Country ex Canada ETF.  

0.20%

Sources: Vanguard Canada; iShares Canada

It’s also worth noting that ETF fund costs continue to drop. Index fund investors are smart. As such, the competition to keep dropping costs is fierce.

If you are reading this post, one year after its publication date, odds are that the costs of these funds would have dropped further.

 

 

 

 





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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31 Responses

  1. sebastien says:

    good day,
    i have read you guide to expat book, and i believe i understand the rinciple of the three portfolios as well of course of the great benefits of the low fees. What i do not understand is why it is a good thing to have an exposure on your home market and which should it be if, like me, you have married someone from a different country!

    could you maybe be point out where in the book it is explained or maybe another of your posts???

    • Sebastien,

      In the book, I asked readers to consider the country’s currency from which they will pay their future expenses. Where will you retire? If you don’t know, keep the money global. If you think you will retire in the UK, have a UK bias to the portfolio.

      • Peter says:

        Hi Andrew,

        Just finished reading your excellent book. Just to take you up on your last point; I am also married to someone from another country and am unsure of where we will retire (Irish and American couple). We may or may not retire in one of our home countries. I would probably lean towards somewhere in Europe at the moment.

        You advise keeping our money global. With a three way split in a regular portfolio of X Country Stocks, X Country Bonds and Global stocks, how would this split be changed to keep our money global?
        Euro Index Stocks/Global Index Stocks/Euro Bond index?

  2. Raghu says:

    Hi Andrew-

    Given numerous choices among index ETF’s, does one need to look at total asset value in the ETF to determine liquidity? For instance, I see some Vanguard/ishares ETF’s with 50-100 million only and wonder if it’s an issue?

    Secondly, what is your opinion on equal weighting index ETF’s and smart beta ETF’s like RAFI? I believe there is an entire body of literature arguing market cap weighting has it’s flaws with high concentration risks while Vanguard I think countered that smart beta is like active investing. I felt equal weighting esp. on large caps like S&P 500 etc. had its merits.

    Thanks,
    Raghu.

  3. Raghu says:

    Hi Andrew-

    Awaiting your reply on my above Q…I’m a Canadian expat based out of SG.

    On my second Q on smart beta, you have addressed that in your excellent book but I don’t believe I saw a mention on equal weighting ETF.

    First question on ETF liquidity pls elaborate. I did read somewhere it’s better to invest with ETF’s>100 million assets.

    • Hi Raghu,

      Equal weighted and fundamental index funds have some impressive backtested results. But I prefer capitalisation weighted index funds for my personal portfolio. Backtests are fine. But forward realities don’t always jive with backtested studies.

      As for liquidity, I prefer to invest with Vanguard’s TSX listed ETFs. All of them have more than enough liquidity.

      Cheers,
      Andrew

  4. Raghu says:

    Thanks so much Andrew. To be a bit more specific 2 further questions please:

    1) I wish to have a small cap and value bias in my global stock portion for maybe total 10%. ETF’s I found in London exchange are SPDR MSCI small cap ( ZPRS, 2013 launch, $52M assets) and Ishares MSCI world value factor (IWVL, 2014 launch, $70M assets). Should I have liquidity concerns with these , if yes I could not find alternatives in UK/Canada/HK exchanges. Per your input avoiding US exchanges.

    2) It is said real estate does not correlate with stocks and bonds and is a good asset to add for diversification via global REIT ETF….thoughts on the same?

    Thanks Andrew!
    Raghu.

    • Hi Raghu,

      The liquidity for those funds will likely be low. They haven’t attracted many assets yet. Global REITs are fine. Go for it. But keep the allocation to 10% or less.

      Cheers,
      Andrew

      • Raghu says:

        Hi Andrew-

        I have set-up my portfolio based on the excellent recommendations in your book, thank you so much.

        I have done some further analysis on real estate and my summary is physical real estate is the safest way for ordinary investors to add leverage and hence magnify returns without the risks of margin calls. Therefore, even a 4% rental yield in Singapore becomes effectively a 12-14% return investment because 80% is borrowed on the mortgage.

        I would very much prefer a REIT to owning physical property with tenancy headaches and lack of diversification. But am I correct in above analysis that your net return will be much higher to say an S&P 500?

        Lastly, are any financial institutions offering leverage on broad index ETF’s like S&P 500 or Vanguard Total Stock index etc. without margin calls? Surely there should be a distinction between needing 3-day margin call on individual securities and broad market indexes?

        Thanks Andrew,
        Raghu.

  5. Raghu says:

    Hi Andrew- Look forward to hearing your thoughts on above please. Please feel free to let me know if this does not make sense.

    Thanks,
    Raghu.

  6. Jason says:

    Andrew/Adrian,

    When ASD gives 18.2% + 11.2% to Raymond James (RJ) each month, where does RJ hold the money for the quarter until you transfer it out to your own Canadian account? I am American, would RJ transfer the money quarterly to my US based Vanguard account, our would I have RJ transfer the money to my US based bank – allowing me to invest the amount from my bank into my own Vanguard account?

    Sorry is that is confusing!!

    Jason

  7. Kaitlyn says:

    Hi Andrew,

    I just opened a TD international account. I live in HK currently and plan on moving back to Canada for retirement eventually.

    I’m a bit confused about the multi-currency accounts. Before I thought I had to convert my HKD into CAD before purchasing Canadian indexes and bonds. But with the multi-currency account am I able to purchase Canadian bonds and indexes in HKD (thereby avoiding a currency conversion fee) and then when I sell the indexes prior to moving back to Canada, cash them out in CAD?

    I’m new to investing so I don’t know how everything works yet.

    Thanks!

    • Hi Kaitlyn,

      You’re better off building a portfolio of ETFs off the Canadian exchange. You’ll need to convert to Canadian dollars to do it. But it also makes things easier when you repatriate because you’ll have much larger sums then, and you won’t need to convert to a different currency. Did you read my expat book? My model portfolios are in there. https://www.amazon.com/Global-Expatriates-Guide-Investing-Millionaire/dp/1119020980

      Cheers,
      Andrew

      • Kaitlyn says:

        Hi Andrew,

        Thanks for you amazingly quick reply!

        I’ve read all 3 of your books 🙂 They’re really good by the way, I just regret not starting sooner. I’m trying to figure out which model to go with. I was thinking of diversifying between Canadian bonds, a Canadian ETF and an International ETF. If I remember correctly, I think you were saying that if you’re just starting out, it’s a good idea to buy one first and then when you make your next contribution, buy the other ones so you don’t need to pay 3 trading fees up front. I am 28 and have about $30,000 CAD to invest right now, which one would you suggest me invest in first and do you have any other suggestions?

        Thanks so much!

        • Hi Kaitlyn,

          You already have plenty of start up money, so buy all three funds now. For each month that follows, add more money to each subsequent ETF to keep trading costs down.

          Cheers,
          Andrew

  8. Thoby says:

    Which countries stock exchange should I invest in as a Canadian UAE expat NOT planning to retire home?
    Considerations:
    – I earn dirhams, which are pegged to the $US and inexpensive to exchange
    – I would like to avoid costly currency exchanges
    – Opening a TD Internation account, unless persuaded otherwise
    – Read the expat book and entirely loved it!

    • Thoby,

      I mentioned the exchanges and the products that I recommend in the expat book. Delve back in!

      Cheers,
      Andrew

    • Mark Zoril says:

      Thoby, you can typically convert your dirham to USD using a transfer agent in the UAE. Their costs, from what my clients tell me, are very reasonable. They will transfer your USD directly to your TD – Internexx – account as well. Once there, you can purchase a few low-cost Vanguard or iShares ETF’s that trade right on the London Stock Exchange in USD. When you trade on Internexx, you just need to select the right ETF and the right market to execute the trade. So if you want to hold ETF’s in USD this is the process you will use. Otherwise, you would convert your dirham to pounds in the UAE before your transfer and you can buy in pounds on the London Stock Exchange.

      Cheers

      • Dono says:

        Re Zoril – I’m in the same situation as Thoby but I’m investing on TSX. I convert my AED to CAD using a local exchange and transfer directly to Internexx to buy CAD denominated Vanguard ETFs as suggested by Andrew. Which approach would you recommend (mine or the one you recommended to Thoby)? BTW I’m still uncertain on my retirement place.

        • Mark Zoril says:

          Hello Dono. If you want to invest in Canada, your process is correct. You can get a worldwide portfolio in the TSE that will be in Canadian Dollars. I really don’t know if it matters all that much whether or not you buy in CAD or whether or not.you buy in USD on the LSE. Hard to know how your life will unfold. If you buy in Canadian dollars and need to convert later because you live somewhere else in the world you can deal with that at that time. Make sense? Frankly, either is probably fine. The key is to save money using low-cost investments.

          • Hi Mark and Dono,

            Here’s the big advantage to buying off the Canadian exchange.
            First, don’t think of it as an investment in Canadian dollars. It might not be. For example, a global stock index bought off the Canadian exchange isn’t an investment in CAD, despite being priced as such. A S&P 500 index bought off the Canadian stock market isn’t an investment in CAD. It’s an investment in USD, despite the fact that it’s priced in CAD. Please see this for a further explanation. https://andrewhallam.com/2016/05/expatriate-investors-does-it-matter-which-currency-your-etf-is-listed-in/

            Your biggest advantage to using the TSX, however, is the available of Canadian stock market indexes and Canadian bond market indexes. If you do want to retire in Canada, one day, having exposure to your home country market (the London market can’t offer you this) will provide you with less exposure to foreign currency risk.

            That’s why, for Canadians, it makes more sense to buy off the TSX. As for currency spreads, when you buy and/or sell, they amount to peanuts, compared to the bigger picture Mark is talking about when he says the key is to save money using low-cost investments.

            Cheers,
            Andrew

  9. Simon Halliday says:

    Hi Andrew. I recently read your book and also was at your talk at Park House English School in Doha. I will be working at ASD in August. As in your post I will have to use either Raymond James or something called the investment centre. I am not keen on this and want to build a portfolio of index linked funds instead using Saxo or one of the other brokers on your book. What are my options in this case ?

    • Mark Zoril says:

      Simon, you have to ask ASD if they will let you “do your own thing” with the money. If they will, then you can send your money to your brokerage and invest as you wish. If they won’t, then you are stuck with the program options your school will allow. If you are stuck, you could ask if you can take the money out of the choices provided by the school after a year or so. I know that another school that is allowing their employees to do this. After a year, they can transfer the funds out of RJ to their own low-cost brokerage. So, you have to ask and see what they say.

      Cheers

    • jonathan@travelhackingteachers.com says:

      Hi Simon,

      I’m also starting at ASD in August. Let me know if you want to chat about index funds.

      See you in the fall,

      Jonathan
      http://www.travelhackingteachers.com

  10. Dono says:

    Well explained. Many thanks guys, you’re awesome.

  11. Scott G says:

    Hi Andrew,

    Currently I’m 26 years old and I’ve just read both of your books, and am looking to getting into investing now. I have inquired about opening an account with DVS Vickers, but I now see that my current bank, RBC, has direct investing options.

    I teach in China but I’m still a Canadian citizen. I do this for the healthcare benefits, and actually with my education credits I’d be losing money on tax returns now if I became a non-resident. Also Canada and China have a tax agreement where I do not get double-taxed, I’d only pay the difference if my Chinese tax rate was lower than the Canadian one.

    Anyway, I wonder if sheltering my funds overseas with Vickers is more advantageous for me than investing through RBC? Through RBC I could take advantage of RRSP’s and TFSA’s and direct cash investing since I’m still a Canadian citizen.

    I honestly just don’t know what the tax implications of either choice would be.

    Thank you so much for any help you can give me, and for everything you’re doing to educate the world.

    • Mark Zoril says:

      Hi Scott. I think you are confusing residency with citizenship. If you are living in China, you are no longer a resident of Canada. You are still a citizen of Canada, just no longer a resident. As such, you would not fund an RRSP or other investments specific to Canada. However, you can use your DBS account to buy ETF’s that trade on the Canadian market. Of course, I am not an overseas Canadian so I might be missing something here. Maybe other Canadians can comment.

      • Scott G says:

        Hi Mark,

        Thanks for the reply. I still have citizenship though and residency in Canada. While I reside in China for 10 months of the year, my residence is still actually Canada for tax purposes.

        I can rather easily declare non-residency for tax purposes and avoid paying Canadian taxes, but this means I have to give up my drivers licence, health card etc. until I decide to become a resident again (takes a few months of living in Canada to get it back).

        As it is I’d prefer not to give up these rights, and actually right now it’s not as beneficial for me to (or maybe even possible) as I am starting a distance Masters degree and receiving OSAP for it.

        Afterwards non-residency will be possible, but I guess what I’m wondering is if it is even worth it to go through an offshore broker, or if using a domestic broker (RBC Direct Investing) and taking advantage of Canada’s TFSA and RRSP portfolios would be more lucrative for me over the next 30 years than sheltering my money outside of the country.

  12. Scott G says:

    Andrew,

    Great to hear from you. Thank you for your advice!

    Scott

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