Expatriate Investors: Does It Matter Which Currency Your ETF Is Listed In?

 euro-dollar

 

It’s a common question. 

Does it matter what currency my ETF is listed in?

The short answer is no.  

But people get fooled by this.  Here’s an example.

Investors might look at two ETFs.  Assume that each ETF tracks the U.S. stock market.  But one of the ETFs is listed in USD, the other is listed in Australian dollars.  

The investor then looks at the performance result for each.  Investors could look at the iShares S&P 500 ETF (CSPX).  It trades on the UK market.  It’s listed in USD.  It gained 0.79 percent over the 12-month period ending April 30, 2016.

Investors then wonder whether the same ETF, listed on the Australian exchange, posts better returns. Over the same 12-month period, the iShares S&P 500 (IVV) lists a 12-month performance of 4.55 percent.

But don’t be fooled.  As long as their expense ratios are the same or similar, their performances will be identical. That’s because they both track the U.S. stock market, hence the U.S. dollar.

Again, the true gain or loss of the ETF is completely dependent on the stock market (and currency) of the underlying stock market(s) that the ETF tracks.

In the above example, the Australian dollar fell nearly 4 percent to the USD over this time period.  So, the ETF that’s listed in Australian dollars gives the illusion of making more money.  It didn’t.  Regardless of the listed currency, this was an investment in U.S. stocks.  It was also an investment in the U.S. dollar because it tracks an index called the S&P 500.  This index is made up only of U.S. stocks.  It would never be an investment in Australian dollars, even if the ETF were listed as such.

This leads to the questions I get about currency risk.  An investor from England, for example, might be interested in buying a UK stock market index (ETF).  If that ETF is listed in Euros, she may be concerned.  She may think that her performance will depend on the Euro.  But it doesn’t.  It’s an investment in British stocks and the British pound.  The listed price (in Euros) has no bearing on how the index performs.

If the British stock index stayed flat for the year, but the Euro fell 20 percent, her ETF would post a listed gain (in Euros) of 20 percent.  Did it gain that much?  No, it would have gained nothing if measured in British pounds.  By investing in a British stock market index (no matter what currency it was priced in) she wouldn’t be betting on the Euro at all.  She would be betting on the British pound.

I first posted this on May 11th.  Immediately after posting it, a reader asked a question.  I’ve pasted it here (and you can still see it as the post’s first comment):

“I invest mainly in VWRD through the London Stock Exchange. If the UK economy crashes, will my holdings be dramatically affected? Obviously this scenario would influence the UK currency.”

I’ll repeat what I wrote above.

The listed currency of the ETF has no bearing on its value.  A global stock index is invested in global stocks.  Almost every currency is represented in that index.  The UK pound would have no bearing on the index’s true value.

 If the UK pound dropped 90%, his world stock index would report a “gain” of hundreds of percentage points.  Again, the listed currency of the ETF has no bearing on the ETF’s value.  

Of course, if it’s an ETF that tracks the UK stock market, and it’s priced in pounds, then the listed currency price matters.  I’ll repeat this again:

The only thing that matters is the underlying currency (or currencies) that are represented by the ETFs holdings.

 

 Why choose one listed currency over another?

If you are paid in Euros, then buying ETFs that are listed in Euros makes sense.  If you are paid in Canadian dollars, then buying ETFs listed in Canadian dollars also makes sense.  Likewise, if you know you are retiring to a given country, buying ETFs listed in that currency makes a bit of sense­–but not for the reasons that you might think.

 

Remember, the listed currency of your ETFs is practically irrelevant.

But if you are retiring to France, and your ETFs are listed in Euros, then you won’t pay currency conversion spreads when you sell.  If I owned the same ETFs, listed in Euros, and I retired to Canada, I would pay a small currency conversion spread when I sell and convert to Canadian dollars.

Small.  Currency Conversion.  Spreads.  That’s it.  The movement of the currency wouldn’t mean a thing.

 

I’ll repeat that.  The movement of the currency that your ETFs are listed in won’t mean a thing.  

 

 







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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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102 Responses

  1. Gabe says:

    Thanks for the explanation. One other questions, however. I invest mainly in VWRD through the London Stock Exchange. If the UK economy crashes, will my holdings be dramatically affected? Obviously this scenario would influence the UK currency.

    • Hi Gabe,

      The listed currency is completely irrelevant. If you owned VWRD, you would own a global basket of currencies and markets because VWRD is a global stock market index with each country represented based on its global market capitalization. As such, it wouldn’t matter whether it was listed in UK pounds or Armenian Dram. That currency could fall through the floor. But as mentioned in the post, you aren’t investing in the currency that the ETF is listed in, unless that ETF tracks that country’s given stock market, and no other market.

      Andrew

  2. Steven says:

    Hi Andrew, perhaps not a directly related question but I wonder if you could elaborate on why you chose to hold the bond part of your portfolio in CAD (VSB.TO). It seems to me that as you will rebalance the equities part of your portfolio against the bond part, the expectation is that they will not both respond equally to market fluctuations (ie CAD dropping as global equities drop) . If the equity part is dominated by (for example) USD and Euros, wouldn’t you want the bond part to also be in these currencies?

  3. Hi Steven,

    I prefer my bond index to represent the currency in which I’ll be paying future bills, once I repatriate to Canada. But your rationale is more than solid.

    Cheers,
    Andrew

    • Chris says:

      Hi Andrew,

      I’m u.s citizen living the rest of my life in Europe. My account is in Vanguard in the US.

      US Total Market-40
      Total Int Market-30
      US total bond-30

      Like your situation, I want my bonds to represent the currency in which I’ll be paying future bills (in euros). Any advice how to do that with vanguard US?

    • Marie-Claude says:

      Hi Andrew,
      We are canadien expats in Dubai, we don’t know if we will go back in Canada in the future and we expect to stay in Dubai for at least 8 to 10 years. We want to use Saxo Bank platform. We don’t have the minimum of $100 000US for a multi currency account. We have $40,000CDN in Canada that we will invest first. We are paid in Dirhams and we want to invest 10,000 of them every month. Do you suggest a conversion of our CDN dollars in US and convert monthly our AED in US? Because we don’t have a multi currency account with Saxo Bank, what do you suggest to deal with the conversion and save the more fees as possible? I read in you book that Saxo takes lots of their money with those conversion fees.
      Thanks!

  4. Laurence says:

    Andrew,
    What generates the need to invest in your “base” currency as you mention above with the bonds. How would that benefit you in the long run? If your Index Fund is in Euro, for example, who do you have to make a placement in European bonds, versus USD ones? How does one correlate to the need to have the other as a base currency?

    • Hi Lawrence,

      I’m sorry, could you clarify your question? I’m not sure what you mean.

      Andrew

      • Laurence says:

        Sorry for confusing you…. so we’re not entirely sure where we will retire but say we want to retire in Europe (one option). I’m not sure why the connection needs to be made with the place of retirement. For example, why would it be better to invest in a European bond EPF and not an Australian one prior to retirement if I want to retire in Europe? Does that clarify at all?

        • Laurence,

          If you choose to retire in Europe, but your sole bond allocation is in Australian dollars, then you will be paying future bills (bread, milk, cheese, petrol, etc) in Euros, but much of your income will be denominated in Aussie dollars. That makes little sense. If the Aussie dollar falls relative to global currencies, you’re in a lurch. Whereas, if you own a large denomination of Euros, and the Euro falls relative to global currencies, it wouldn’t matter one bit. You, after all, will be paying your bills in Euros anyway.

  5. Andrew says:

    Andrew,

    I put some research into investing after almost falling for the charms of a friends provident broker. Your website and book were a great start and I have already started by investing in Singapore on A35 and ES3. For the global shares I am looking at TSX:VXC but DBS Vickers will be charging me currency exchange fees every time I buy and sell. The 1.5% commission is a lot. I am British but do not know if that is where I will end up in retirement. However, there is a better chance of in Britain than in Canada. So really, if my understanding of the currency fx is correct then I should buy global etf in LSX and perhaps only have one conversion to GBP?

    Many thanks,

    Andrew

    • Hi Andrew,

      Standard Chartered’s brokerage (Singapore) will allow you to buy off the UK exchange. YI believe you will pay a 0.5% FX commission (it’s hidden, you won’t see it) but your money would then be denominated in pounds, making the exchange easier on your wallet when you sell. That said, realize that the commission spreads to buy and sell are very small, compared to any ongoing fees you would have paid on your total value each year, if you had invested with a firm like Friends Provident. My book will help you a great deal. Here’s the link: https://www.amazon.co.uk/Global-Expatriates-Guide-Investing-Millionaire/dp/1119020980

      Cheers,
      Andrew

      • Andrew says:

        Andrew,

        Many thanks for quick reply. I have purchased the book already but perhaps I missed the point about foreign currency. I think I was perhaps over estimating how much the rebalancing will cost me in fx fees each time. So there is no option for global stock ETF on the Singapore market if I want to keep all of my currency in SGD?

        Cheers,

        Andrew

  6. Conor O' Connor says:

    Hi Andrew,

    I would like to ask you when we all retire to our home countries or even return to them in the next few years to work, how do we avoid paying income tax on our profits and also capital gains tax implications on our investments. In some European countries this could be 41% tax and a 33% capital gain also. The problem may not manifest for many years but one could get a real surprise in 15 or 20 years. Any help would be much appreciated. Regards Conor

    • Conor,

      Only U.S. residents (and one country in Africa) tax its residents on worldwide income. In your situation, while teaching abroad, you could make millions of dollars in profits, sell the investments before repatriating, transfer that money to your home country bank account and legally not pay a stitch in taxes. To make you more comfortable, speak to an expatriate accounting specialist in your home country, or likely any accountant in your home country.

      Cheers,
      Andrew

  7. Diego says:

    Hi Andrew,
    In your book “The Global expatriates guide…”, in the chapter where you speak about Investing for European Expats, you always give examples where the portfolio has stocks/bonds bought in the UK exchange (which would be bought in GBP, right?). I, like Urko, am Spanish and I will retire in the Euro zone and not in the UK, but if I make my portfolio buying stocks/bonds in the London stock exchange, will I not constantly lose on exchange rates? In that case would it be better to create my portfolio from buying the same ETF’s in the Amsterdam or Frankfurt or Paris stock exchanges? What are the main bebefits of buying from the London stock exchange in comparison to buying from the other large exchanges in Europe (France, Germany, Holland)?

    Many thanks in advance!

    Diego

    • Hi Diego,

      As I mentioned in the article that you posted beneath, you would not keep losing money based on moving exchange rates–just the tiny spread, each time you sell and convert.
      But it’s cleaner (and will cost slightly less) if you can find ETFs denominated in the currency of your future bills. So, if you can find those ETFs, go for it. Just be sure you’re aware of their added risk if they are synthetic or swap based ETFs.

      New ETFs are coming available available all the time. This is a good thing.

      Cheers,
      Andrew

    • rick says:

      Diego, ishares has ETF’s on different european exchanges in EUR, USD and GBP. Essentially they are the same. Just pick the one you like. Be aware however that the UK does not have witholding taxes on dividends so that is a benefit that may offset investing in the ‘wrong’ currency.

      • Tito says:

        Hi, I am also Spanish and also found it a bit confusing when in the book you recommend Europeans to build their portfolio from the UK Market in pounds. I will also most likely retire in Europe and my future bills will be in Euros, like ‘most’ Europeans.
        Anyway, I followed your recommendations and built the Couch Potato Portfolio including a Global index in page 274 (Table 21.4), which holds bonds (IBGS), an international index (VWRL) and a European index (IMEU, IEUX or VEUR).

        I have always had this issue in mind, so thanks to Diego for bringing this up again.

        After a little research I’ve found that I can build the same portfolio entirely in Euros if I buy from the Amsterdam and/or Italian Stock Market. The results of my research are shown below.

        Where to buy the Couch Potato Portfolio in page 274 (Table 21.4) in Euros
        Amsterdam – All in euros (IBGS, IMEU, IEUX, VEUR, VWRL)
        Italy – IBGS, IMEU, IEUX
        UK – only IBGS (IEGS)

        I am not sure of all the implications of buying from Amsterdam, but I know that my brokerage charges 15€ when buying form the UK, 30€ from Amsterdam and 50€ from other markets (Italy, I guess).
        I also remember reading that the Amsterdam market is actually an American arm of the NYSE. Isn’t called NYSE Euronext Amsterdam?

        Then ‘Rick’ says: UK does not have withholding taxes on dividends, does that mean that Amsterdam does? What does that exactly mean btw?

        My guess my question is, is it worth rebuilding my portfolio so I can have it all in the currency that I am going to pay my bills in the future (Euros) or is it ok if I continue investing in pounds even though I am not retiring in the UK?

        Many thanks in advance for all your comments

      • Diego says:

        Hi Andrew and Rick,

        Thanks for the info. Very useful. I have not thought of that factor (withholding taxes). Researching I actually found that it might not be 0% tax in the UK any more…I still need to research a bit further. Check this website for UK tax dividends:
        http://monevator.com/how-uk-dividends-are-taxed/

        What do you make of it. Only the first 5000GBP is tax free? Not that much!

  8. Wolfgan Price says:

    But if you live in the US then it matters if the ETF is listed in Australian Dollars, because when you bring back the investment into US dollars there will be an extra benefit or loss from the currency exchange

    • Wolfgan, there will only be a 1% (or so) currency spread hit to do what you are suggesting. You will not gain or lose money based on where the USD or the Aussie dollar floated on a currency exchange if (for example) you own a U.S. stock ETF, trading in Aussie dollars. You would lose 1% to make the switch. That’s it.

      On another note, if you are a resident of the United States, you should be able to open a U.S. based account with Vanguard.If you are a resident of the United States, the IRS also won’t take kindly to you having an offshore account. They will insist that you declare it on U.S. tax forms. And you will be taxed a far higher than normal rate on all capital gains, whether those gains are “realized” or not.
      A green card holding resident gets taxed like a U.S. citizen.

      Cheers,
      Andrew

  9. Rudy SMT says:

    Hi Andrew,

    Great article and thanks for explaining the impact of currency on foreign ETFs.

    When investing abroad, not only with ETFs but also real estate or stocks there is a double risk of gains or losses
    .
    Usually, when the main index of a country rises, the currency follow. So an investor would book double gains from the stock itself or real estate and currency gains. The opposite applaies with the result in massive losses.

    However, if you invest for the long run, 14 years+, the currency risk get neutralized by the natural currency’s cycle.

  10. Marie-Claude says:

    Hi Andrew,
    We are canadien expats in Dubai, we don’t know if we will go back in Canada in the future and we expect to stay in Dubai for at least 8 to 10 years. We want to use Saxo Bank platform. We don’t have the minimum of $100 000US for a multi currency account. We have $40,000CDN in Canada that we will invest first. We are paid in Dirhams and we want to invest 10,000 of them every month. Do you suggest a conversion of our CDN dollars in US and convert monthly our AED in US? Because we don’t have a multi currency account with Saxo Bank, what do you suggest to deal with the conversion and save the more fees as possible? I read in you book that Saxo takes lots of their money with those conversion fees. We have to choose a currency for our trading account. CDN? USD? AED?
    Thanks!

    • Marie-Claude,

      You don’t need a multi-currency account. To invest with Saxo, all you need is $10,000 USD equivalent to start. Send your Canadian dollars to that account. Buy Canadian listed ETFs (as I suggested in my book) from their brokerage. They trade in Canadian dollars, so you won’t need to convert currencies. Keep it in Canadian.

      Saxo’s 0.5% currency spread is competitive. I didn’t think it was. But almost every other currency exchange system has something sneaky that adds an extra cost above the spot rate. That’s just the price of doing business. When you add fresh money, you could let Saxo convert your money into Canadian dollars. Then buy the Canadian dollar listed ETFs.

      Cheers,
      Andrew

      • Marie-Claude says:

        Thank you Andrew.I am so glad I discovered your book. Because of you, I feel more confident to invest money.
        Do you think we should reevaluate the option TD International Luxembourg or we should go with Saxo without looking back? We will do 12 purchases per year.
        Cheers!

  11. ilse says:

    Hi Andrew and anyone else who’d like to jump in: I’ve read both books but clearly need to do so again as there’s so much I don’t get yet. I have spent a lot of time on this website but Rome was not built in a day, so please bear with me as I’m taking a shortcut and asking here:-) I’m a South African living and working in Luxembourg. When I left Vietnam last year, I dumped my savings in my existent NYSE account (through e-trade). Since everything in my home country has become junk and the currency will go that way too by December, according to most economists, I have no intention of ever setting foot there again, let alone retire there. So for my couch potato portfolio I am only interested USD and Euro investments even though I’ll probably (semi) retire in Bali, hopefully in 4 years, if I can get in! As I’m 47 yrs old, my spread will be 45% bond index, 55% global stock market index.
    Question:
    1. As I already have an etrade account, I guess I should just use that to buy a global stock market index?
    But I have more that 60K, which would make my estate eligible for tax.
    So I should move the rest to Luxembourg?
    2. As I reside in Lux, can I buy directly through Vanguard or would I have to use TD?
    For the bond index part of my portfolio, Should I be looking at a Euro gov bond index fund?

    Thanks a stack

  12. David Harris says:

    Hi Andrew,

    We are paid in USD and have been taking advantage of the currency spread between US and CND dollars by sending funds to our CIBC account each month. I just opened an account with TD Global and will be transferring a large sum to our account there. I am assuming that I should keep my investments in CDN dollar bonds and stocks on the assumption that as the CDN dollar strengthens (which it will do given historical patterns). I am also assuming that buying USD denominated investments would just reverse the currency exchange that I have already incurred. Is my thinking correct?

  13. Ben says:

    “Small. Currency conversion. Spreads. That’s it.” Haha, hilarious. Loud and clear…thanks!

  14. Joseph says:

    Hi Andrew

    What would be the currency you suggest opening an account in if I’m British, but work in Indonesia, am paid in Indonesian Rupiah and have no intent on retiring to the UK? Would operating in USD and buying British stock exchange ETFs such as those that are FTSE 100 which are registered in USD. Would that be the safest thing to do if I’m intending on always staying abroad?

    • Joseph,

      As I outlined in this article, the currency with which your ETFs are listed makes no difference.

      Andrew

      • Joseph says:

        I was just wondering that if I’m paid in IDR, am British but have no intent on retiring to to the UK should I open my account in USD and buy in USD to keep things broadly international?

        I only wonder because you say that if you’re paid in Euros then buy ETFs in Euros…I’m paid in IDR though so wondering what’s best.

        • Joseph,

          The currency that the ETF is listed in makes no difference.

          If you are paid in Euros, you would buy ETFs in Euros only to avoid the very small currency spread that you would have to pay if you were paid in UK pounds (or any other currency) then converted UK pounds to Euros to buy your ETFs. Other than that tiny spread, each time you make a transaction, the listed currency of the ETF makes no difference.

          Cheers,
          Andrew

  15. Tito says:

    Andrew, could you give us an example of couch potato portfolio with ETFs listed only in Euros? My portfolio is the one you recommend for Europeans in page 274 but all the ETFs are in GBP, which means that the day I retire in Italy or Spain I will have to convert my money to Euros. (I also had to convert CNY to GBP to buy my ETFs). Many thanks

  16. James Gregory says:

    Generally etfs with higher volume have lower spreads. Im looking at an etf with a usd and gbp version (LSE SEMS and IEMS), same underlying fund, but the usd version has 8100 volume vs 100 volume for the gbp version. I wonder if the gbp version has higher spreads? Or can market makers somehow buy the usd version and then sell the gbp version? I might try getting electronic quotes when the market opens and experiment.

  17. Henry Filth says:

    Currency does make a difference.

    At some point you retire, and at that point you will have to return some assets back to your “home” currency to pay for things in the place that you call “home”.

    You will have ongoing expenses in the place that you live. They will be paid in your “home” currency.

    At this point, currency becomes important.

    Best not to be at the mercy of the exchange rate at that time.

    • Henry,

      I think you might need to read the article more carefully. The listed currency isn’t the same as the currency the investment is exposed to. A Canadian stock market ETF, for example, that’s listed in USD on the U.S. market is not an investment in USD. Its only exposure is to the Canadian dollar and market, despite its list currency.

      Cheers,
      Andrew

      • Henry Filth says:

        Hi Andrew,

        It’s exposed to the Canadian dollar, and to the US dollar, surely.

        You have to manage that currency risk in two timeframes. Firstly in terms of the investment itself, and secondly in terms of the US dollar vs your “home” currency.

        Assuming, of course, that your “home” currency isn’t the US dollar.

        Kind Regards,
        Henry

        • No Henry, that isn’t correct. Your only exposure in the above scenario would be to the Canadian dollar. There would be a currency risk for an American, in the above scenario, but not to a Canadian.

          Cheers,
          Andrew

  18. dono says:

    Hi Andrew,

    First thank you for everything. Thanks to you I feel confident in investing in the market for the 1st time. I bought and read both your books and attended your seminar in Dubai. Before starting for good I have a couple of questions and I hope you can give me advise before I start putting money down. We are a Canadian couple living and working in the UAE and we are in our early 40s. We are not planning to go back to Canada at least for the next 10 years, even more if possible and will most probably retire in Spain or North Africa. We’ve just opened a joint account with TDDI. My questions:
    1. As we have some passive income from property rental, we’re considering the following allocation and I hope you could help us out on whether we should change anything:
    VUN – US Total Market – 40%
    VDU – Total Int Market ex-US – 35%
    VSB – Canada short-term bond – 25%

    2. Trading with TD is expensive. The cost is €14.95 per trade. Should we consider trading only every 2 or 3 months to save on the trading costs? Or the dollar-cost averaging works better with monthly deposits?
    3. For rebalancing, we’re planning to deposit $ in the lagging ETF for each deposit to bring it back to the original allocation. Can this continuous rebalancing work or do we definitely need to fully rebalance once a year?
    4. I also understood from your books and comments that the best way for us is to convert the AED into CAD and send only CAD to TD for trading. Is this right?
    5. Final question, I don’t think we can automatically reinvest dividends using these ETFs. What’s the best way to go around this and maximize the investment?

    Thanks in advance Andrew, I hope you’ll be able to clarify this to us beginners so we can start on the right track. What you do is really a noble thing.

    • Hi Dono,

      I think your plan looks excellent.

      1. This portfolio looks solid
      2. Keep your trading costs below 1%. That means never buying an ETF with less than 1,500 Euros at a time. By all means, you could invest larger sums once per quarter.
      3. Yes, your rebalancing plan looks solid. You won’t need to manually rebalance, unless the markets really take a crash. At that point, manually rebalance at the end of the year if needed.
      4. Yes, you can get a better deal this way, versus letting TD Direct International convert your money.
      5. Cash will accumulate in your account from dividends. When it does, just invest it with your cash savings. If you want to take slightly higher risks, and have all dividends reinvested for free, you can do so with a couple of swap based ETFs. See my expat book, pages 231-232.

      Cheers,
      Andrew

      • dono says:

        Many thanks Andrew for your reply, very encouraging. One last question: I was planning to use VSB for my bond portion of the allocation. However when I look at VGB (Vanguard Australian Government Bond Index ETF) and its 3 year performance (6.28%) compared to 2.5% for VSB, VGB looks definitely more enticing. For us, Canadian expats, does it make a difference buying VGB out of the Australian Exchange, or buying from TSX has some benefits unknown to us? Thanks in advance.

        • toony says:

          Dono,
          VGB is in AUD so you would need to convert currency – extra expenses/steps, especially when rebalancing.

          NEVER invest based on past performance – cardinal investment sin!!! Setting yourself up to fail – ie buying high and selling low instead of buy low/sell high!

          VUN/VDU/VSB – is an outstanding 3-fund portfolio – stick with it 🙂

      • Dono says:

        Hi Andrew,

        Following up on your recommendation, I’ve built the following portfolio:
        VUN – US Total Market – 40%
        VDU – Total Int Market ex-US – 35%
        VSB – Canada short-term bond – 25%

        However I notice that I don’t have any exposure on Emerging markets. Should I:
        a) add an ETF like VEE (FTSE Emerging Markets All Cap Index ETF), or
        b) save on transaction costs and replace the VUN-VDU combination with a global Equity ETF such as VXC (FTSE Global All Cap ex Canada Index ETF ), or
        c) stick with my original allocation?

        Again thanks a million and merry Christmas.

        • Hi Dono,

          With VXC you would have fewer moving parts, and you would have an emerging market component within that. Rebalancing would be easier (as would purchases) with fewer moving parts.

          Merry Christmas!

          • Dono says:

            Thank you Andrew.
            1. I checked VXC and found that it holds stocks via underlying ETFs rather than direct holding. Wouldn’t that make it tax-inefficient as I’ll have to pay higher withholding taxes?
            2. I’m also wondering whether the move from 3 fund portfolio (VUN/VDU/VSB) to only VXC/VSB really that beneficial on the long run as I’ll only be saving on the transaction costs (14.95 Euros with TDDI). What would you recommend for your asset allocation?
            Your advise is highly appreciated as always.

          • Hi Dono,

            VXC would not be a tax disadvantage. As for transaction costs, I think it’s more than that. The rebalancing is simpler. That’s why I recommend it.

            Cheers,
            Andrew

          • Shawn Pernasilici says:

            Hi Andrew,

            I’m a Canadian working in Dubai and have been following your discussion with Dono about your recommendations of an easy to balance portfolio like VXC/VCN/VSB.

            Do you favour that portfolio over the swap-based HXS/HXT/HBB coupled with an international index like VDU? Do the pros of easy rebalancing outweigh the savings from the swap-based funds from the dividend withholding taxes?

            I also would like to inquire about the possibility of you visiting my school here to give us some advice if possible!

  19. Joel says:

    Hi Andrew, I learned an incredible amount from your first book and have just cracked into the second on my Kindle. Thank you for the time and effort that you put into them both.

    I have also begun the process of registering for a TD International Direct Investment account.

    My question is this: I currently bank with TD in Canada, and would likely have my accounts there linked with my new Direct Investment account. That said, I am an expat living in Eastern Europe, who is paid in Euros. That said to “get” my Euros to my TD account, I use transferwise to send the money and deal with the exchange rate as it is.

    I am unsure of future plans in 5 years, let alone retirement, but there is a decent chance I would end up in Canada.

    That said: How would you break down my portfolio between CAN/EUR funds?

    Thanks so much.

    • Hi Joel,

      The two brokerages aren’t really connected. You can’t really easily move money from one to the next. Keep your money in the Luxembourg account. It’s easy to manage. When you repatriate, you can pay a transfer fee to TD Waterhouse in Canada (as you could to any other Canadian brokerage) and have the ETFs transferred.

      As for the question about Canadian/Euro ETFs, I’m not sure what you mean. I listed ETFs for Canadians in my expat book. They are all listed in Canadian dollars.

      Cheers,
      Andrew

  20. Mike says:

    Hello Andrew,

    I read both of your books and liked them a lot!I have a few questions if you can help.First i was looking for the best broker to buy ETFs and i am thinking about Keytrade bank Luxembourg or TD direct invest International,which one do you think is the best choice and why?I planned to invest 100k euros.
    Second question i am not really sure about what bonds should i get,what do you recommend for a European resident?I have decided to buy accumulative ETFs because i wouldnt be paying yearly tax for dividens and the fees to redistribute and buy new ETFs or bonds.I plan to rebalance the portfolio once year with buying the asset which dropped,what are thoughts about that?

    Kind regards,

    Mike

  21. Robert says:

    Hi Andrew

    Finished reading your second book – thank you so much for writing it!!

    I am British expat and so just wanted to clarify –

    If I invested in the S & P 500 in pounds and U.S. Stocks increased by say 20% but the British pound also increased by 30% I would actually see an decrease in the value of stock in pounds. So when rebalancing (or in my case purchasing), even though the stock has increased in value I would still potentially be buying more of it because of the cost of the British pound?

    And this is also why it is recommended to invest a higher percentage in the British stock market/bonds so that currency fluctuations have less effect?

    Also, this will also be why International stock seems relatively expensive in pounds at the moment?

    Thanks very much

  22. Nicklas Kingo says:

    Hi Andrew,

    I’ve read your first book three times and currently making my way through your second one. I’m a Danish citizen and I’m having trouble picking the right index funds. The Danish brokers will only allow me to trade Vanguard ETF’s, not the regular index funds you refer to usually, but there’s plenty of European index funds with similar fees. Would you recommend me go with Vanguard ETF’s or go with Danish/European index funds with fees similar to Vanguard’s? I’m keen to stay with Danish brokers since I know for sure I’ll only get taxed in one country, right?

    Thanks for your awesome books and articles,

    Nicklas

  23. Dean says:

    Hi Andrew,

    Thank you for your book and information on this website.

    I’m getting very close to investing on my own but haven’t mastered this concept of currency exchange.

    In order to help me visualize I back tested VWRD and VWRL over a few different periods and indeed saw exactly what you’ve explained, the return was the same other than an approixmate 1% currency exchange difference.

    In the article above in the section “Why choose one listed currency over another?” you suggest to purchase funds listed in the currency of your salary (my salary is in pounds). Yet in your book on page 239 (Investing for British Expats) and in your article How British Expatriates Can Invest Using Index Funds in Singapore your recommend VWRD instead of VWRL. Why not invest in VWRL and save that 1% conversion cost?

    Also in the article above doesn’t the comment to Laurence on May 17, 2016 at 10:55 pm contradict the article itself. Why would the Aussie currency movement down lose more than the approximate 1% conversion spread? Is it because in this scenario it presumes aussies dollars are used to invest in an aussie investment (bonds) so the sole investment centers around the aussie dollar performance?

    Many thanks.

    Cheers,

    Dean

    • Hi Dean,

      You asked this:

      “Yet in your book on page 239 (Investing for British Expats) and in your article How British Expatriates Can Invest Using Index Funds in Singapore your recommend VWRD instead of VWRL. Why not invest in VWRL and save that 1% conversion cost?”

      I didn’t assume a specific earned currency (salary) in the above example. If investors earn money in one currency, then super, if their ETF is denominated in that currency, that’s the one to pick.

      Cheers,
      Andrew

    • Dean,

      I looked back at Lawrence question. My response didn’t have to do with what currency the bond was listed in. It had to do with what currency he’ll be paying future bills in. An Aussie bond is in Aussie dollars, whether its list price is Aussie dollars, Euros or USD. If he were going to retire in Australia, I recommended that he use an ETF that was made up of Aussie bonds. If that ETF were listed in a different currency (none exist, fortunately) then he would pay about a 1% currency spread when he converted to Aussie dollars. But that’s it. In this case, the ETF would represent the Aussie bond market. That’s the currency he would be required to pay his future bills in, if he were retiring to Australia.

      Cheers,
      Andrew

      Cheers,
      Andrew

  24. Nicolas McMillan says:

    Hi Andrew,
    UK expat been in Abu Dhabi and fending off the blood suckers for about 8 years and saving cash instead. However I’ve always been in the knowledge that I was probably missing a trick and not actually investing. Your 2 books were a godsend.
    Anyhow got a TD account up and running and to start I’ve gone for 10k GBP each of SAAA VRWD VHYL SGLN.
    I plan to add about 20k gbp GBP a year for as long as I’m here. I can also add a lump sum of about 100k gbp once I’ve gained more confidence. I’m 45, I’ll probably retire to the UK eventually. At the moment it’s probably slightly different to your recommendations as it’s quite international but then I’m quite negative on the implications for Brexit! But does it look alright?! Thanks so much!
    Cheers
    Nick

    • Indira says:

      where did you open your TD account?. I also live in Abu Dhabi

      • Nicolas McMillan says:

        Hi Indra,
        I did it online, it’s was pretty easy only hassle was getting my passport certified. Reed smith in al reem did it for 50dhs. I did wonder about saxo as they have an office in the city but ease of use and the multi currency account swung it for TD. So far the experience has been good they’re telephone support particularly. Good luck with whatever you do!

  25. Dean says:

    Thank you very much for taking time to reply Andrew, it’s much appreciated.

    Please go ahead and delete this reply. I just wanted to say thank you.

  26. Conor says:

    Hi Andrew,
    I have been investing now for about 6 month with TD and went for a couch potato type set up. IBGS,VHYL,VEUR & VERL. Today my portfolio profit dropped by over 1000 Euros. Should I now buy more of the same ETF s as they are lower in price or should I have taken profit of the 1000 last week and bought say more Bonds(IBGS) to do an early rebalance so to speak?

    Thank you very much for all your advice and information to date.

    Cheers

    Conor

    • Hi Conor,

      Here are the important rules of investing:

      1. Invest as soon as you have the money
      2. Ignore market fluctuations
      3. Buy the lagging index when you have the money.
      4. Rebalance your portfolio (if needed) once a year.

      Cheers,
      Andrew

  27. Conor says:

    Hi Andrew,
    Thank you for the swift and candid reply, I stick to your advice.

    Cheers,

    Conor

  28. Conor says:

    Hi Andrew,
    Can I ask you if you think my ETF choices are solid (they are all in Euro land)?

    Thanks again for your understanding and advice, much appreciated.

    Cheers,

    Conor

    • Conor,

      I would have to look them all up. I don’t have time to do that. You could though.
      Tell me what each of them represents, in terms of holdings. Show me their expense ratios. If one of them is a bond ETF, make sure the maturity periods are short.

      I wrote a book called The Global Expatriates Guide To Investing. That might help you. There are model portfolios within it. http://bit.ly/globalexpat

      Cheers,
      Andrew

  29. Index says:

    Hi Andrew,

    I really enjoyed your book and set up a couch potato portfolio. Included in my portfolio are two bond funds totalling 35%:
    IGLO – 25%
    CORP – 10%
    I am a 45 year old Brit currently living in UAE married to a 40 year old Lebanese. Not sure where we will retire – UK seems unlikely, somewhere in Europe perhaps more likely but really not sure yet.
    What do you think about about these two bond funds?
    Are there any better options out there?
    I noted your comments in your book about short dated bonds.

    Regards – Index

  30. stephen bourne says:

    Hi Andrew, first of all thank you so much for this eye-opening experience I am having over the past 2 months after having bought both your books and extensive searching done on the net.
    I am a 44 year old Dutchmen living in Abu Dhabi and have decided despite the higher cost to embark on this journey through AES international.
    Based on previous mail contacts with them and my investment intention ( 36K euro’s lump sum and 2K euro’s monthly (euro-cost-averaging) for as long as it takes, I am being offered a Black Rock Managed Portfolio with a risk band leaning towards Growth at a cost of 1.75% annually. I am planning soon to meet them personally and discuss further details. Any thoughts on this fund would be greatly appreciated.
    Cheers
    Stephen

    • Hi Stephen,

      Is it a single, diversified fund with an expense ratio of 1.75%? It probably isn’t.
      Please send me the link to the fund and the breakdown of how AES will charge you.

      Cheers,
      Andrew

    • Joy Aquino says:

      Hi Stephen,

      That’s great to hear you are keen on our Index Account. Just to clarify things: –

      1. The total cost does total 1.75% – this figure includes the dealing fees, custody, advice/service fee and the portfolio fee.
      2. The portfolio fee is 0.50% and is made up of BlackRock iShares. The portfolio has a choice of 250 transparent, low-cost ETF and index funds investing in over 7,500 underlying securities.

      You are right that our Index Account is more expensive than a pure Execution Only account such as IG, Saxo & Internaxx. However, it is designed for clients exactly like you who would like to invest via a lump sum and regular contribution to a managed portfolio of ETFs along with access to on-going financial planning material and behavioural investment philosophies. We hope the trade-off of our professional financial planning approach will produce better long term results than clients who choose to always do it alone as explained in our investment code here: –

      https://www.aesinternational.com/about-us/our-investment-code

      All in all our objective is to take clients through 3 distinct levels of wealth (Foundation, Evolution and Premier) with a Total Expense Ratio (TER) of under 1.75%. This ensures that investment costs are reduced and returns improved.

      I hope this helps – any questions – please just shout.

      • Hi Joy and Stephen,

        Joy wrote:

        “The portfolio has a choice of 250 transparent, low-cost ETF and index funds investing in over 7,500 underlying securities.”

        I want to clarify something. Joy, please correct me if I’m wrong.

        Stephen, Joy is showing you that the fund management team for this particular product had the option of choosing between 250 ETFs. But these ETFs aren’t yours to choose from. They are simply the ETFs that the fund manager had to choose from, to put this all-in-one portfolio together.

        Joy, if I’m right on this assumption, it might be best not to give clients this information. It’s confusing and irrelevant. Something like, “Each portfolio is made up of different, diversified low cost ETFs (index funds)” would suffice. That might be a clearer way to explain it, without the added complexity of the “7,500 underlying securities” part as well. Most readers won’t know what securities are, so it opens up other layers of confusion..

        Stephen, securities are stocks. Each ETF is made up of different stocks. That’s why a portfolio, such as the one proposed by Joy, would represent many different stocks and many different global markets.

        Stephen, should you invest in this product?

        I’ll ask you four questions. If you answer yes to at least 2 of them, you should invest in this ETF. If you answer no to question #3 and at least 2 other questions then you are better off investing on your own, in a lower cost DIY portfolio of ETFs.

        1. Have you thrown up more than once, as a result of excessive alcohol?
        2. Have you ever smoked more than 1 cigarette?
        3. Would you be afraid if you had $1 million in the stock market, it dropped by 50%, and all the news media said it wouldn’t recover?
        4. Do you eat processed or deep fried foods more than once a week?

        I’m a bit of a freak. I answer no to all of those questions. That’s why I invest in a low cost DIY portfolio of ETFs.

        As a DIY investor, I would easily outperform this portfolio over time. But I’m not normal, in this respect. I’m impervious to peer pressure, the media, and fears of market movements (perhaps I was dropped on my head as a kid).

        You would likely beat me in many of life’s endeavours. But if you are normal, you would likely under-perform this portfolio offered by AES. Take a good, hard look at those questions I asked. They reveal a lot about your discipline and your imperviousness to market news (especially question 3).

        I hope this helps.
        Andrew

        • stephen bourne says:

          Hi Andrew my answer to question1,2 and 4 is a resounding yes (that’s a fact) 🙂
          I would not know how to honestly answer question 4 since I do not have a 1million$, but I get your point just like in your book on this particular subject, however reading about most of your DIY followers on your blog I wonder if they all would have said no to all those questions. I guess most of us want to believe we have the Ninja characteristics when it comes to investing but the reality might be different. Thanks to you and Joy for your reply and looking forward to your feedback on my other posts
          Cheers Stephen

          • You’re welcome Stephen. If I have time, I’ll answer your other questions. But if you read my book, understand the fees of the AES platform, have decided that you can/cannot harness your emotions, you’ll likely already have your answers.

            Cheers,
            Andrew

        • stephen bourne says:

          not sure if previous reply was sent. so once again:

          so thank you Andrew and Joy for your replies
          I would have to answer questions 1,2 and 4 with yes ( fact!)
          question 4 is a trickier one since I do not have 1 Million$ but I get your point! Just wonder if most of the DIY readers here would have answered no to all those questions. My point is that I guess we might think we have the Ninja qualities to invest but the reality might be different.
          Once again thanks for your input and looking forward for your insights to my other posts.
          Cheers Stephen

  31. stephen bourne says:

    Correction on previous msg… its my intention to go for the risk band leaning towards Growth. just to clarify
    Stephen

  32. stephen bourne says:

    hi Andrew thanks for your swift reply: this is the link to a pdf file i received:

    https://drive.google.com/file/d/0B2RH1-TPpY2JNWJKLVZvTUE3S0E/view?usp=sharing_eidl&invite=CK2plNIP&ts=58198757
    would like to share the following msg had with one of their advisors with you and fellow readers:

    “The “robo-adviser” solution which Stuart Ritchie alluded to back in June is what we are now calling the Index Account i.e. the proposal I sent through last week. This is a solution which we have created which bring down the fees to an all inclusive 1.75% per annum and allow you to invest onto a managed ETF portfolio for the future.

    There is no £125 account management fee and no £50 dealing fee. The account is simple, flexible and you can begin with as little as $10,000.

    Andrew Hallam is a brilliant writer and his books provide excellent pointers for beginner investors. With that said, we recommend against investors setting up on their own because in our experience, most people do not have the knowledge, time and experience to manage a portfolio. The areas that we find most people struggle with, due to inexperience and normal human bias are below:

    1. Managing and adapting your asset allocation over time
    2. Not being swayed by the plethora of market information regarding feared corrections and general mis-information
    3. Which ETF’s are you going to use?
    4. How to correctly incorporate bonds into your investment strategy, and not just end up with pure equity – like exposure

    Index funds and ETF’s are the right way to go but if used in the wrong way can be dangerous.
    The Index Account from AES is flexible, low-cost, has no penalties and uses risk rated ETF portfolios to invest your money. It strips away the unnecessary costs and complications of investing, giving your wealth the best environment in which to grow. You are free to contribute and withdraw whenever suits you, remember the most effective way of growing your wealth is to consistently save!

    The account is charged in one simple, annual fee which covers all costs and includes the following services:

    – Safe custody from a UK nominee company
    – All dealing and trading costs
    – Set up, ongoing and exit administration
    – Access to our internal team whenever you have any queries
    – The underlying cost of the investment portfolio
    – An online valuation portal allowing you to check your progress

    The overall running cost of this solution is 1.75% per year, split down and charged quarterly. This account is something which you can leave to work without worrying about.

    The account is purposefully very simple and straightforward using a pre-selected portfolio of ETFs to keep your costs low and give you the diversification you need.

    There are no tie-ins, lock-ins, hidden fees or exit penalties. It is simply a very sensible and cost efficient way to invest for your future for as long as you see fit.

  33. stephen bourne says:

    Hi Andrew, sorry for my enthousiastic overlapping copy paste information. so whats your take on this robo-advisor fund?
    stephen.

  34. stephen bourne says:

    Hi Andrew, whilst digging for more info on this new (for me at least) service Robo-advisor i came a cross these links:
    http://www.advisoryhq.com/articles/best-robo-advisors-comparison-reviews-ranking/
    https://investorjunkie.com/35919/robo-advisors/
    -So how do this service compares to the DIY on one hand and the Financial advisor on the other hand?
    -Are they only for americans or are there Robo services for (european) expats as well?
    – from a cost effective standpoint are they the way to go for example “newbies” like me?
    I read that you will dicsuss this topic in your 2nd edition book Millionaire teacher (which I will be ordering again). but perhaps you can give a brief comment?

    greetings Stephen

    • Hi Stephen,

      Roboadvisors don’t typically provide financial advice. A few do, such as WealthBar for Canadians, but most don’t.
      I can’t recall your nationality. But I think you are an expat. As an expat, if you used a roboadvisor based in the UK (for example, assuming you are from there) you would have to pay UK capital gains taxes. Ah, I just noticed that you are Dutch…there are a lot of threads up there 🙂

      Most of the roboadvisors in the world are in the U.S. As a non-American, you can’t invest with them, nor should you want to, for taxable purposes.

      If you find a roboadvisor in a capital gains free jurisdiction, that should be the kind of firm that interests you. As of yet, I don’t think one exists.
      This brings us back to AES International. It might be the closest thing you get to a robo-advisory platform, although it would also come with some advice services tossed in. It’s located in a capital gains free zone so you wouldn’t have to worry about paying capital gains taxes on your growth.

      I hope this helps.
      If you have time, could you do me a favour? Would you mind posting a review of my book on Amazon? https://www.amazon.co.uk/Global-Expatriates-Guide-Investing-Millionaire/dp/1119020980/ref=sr_1_1?ie=UTF8&qid=1478166679&sr=8-1&keywords=global+expatriates+guide+to+investing

      Thanks!
      Andrew

      • stephen bourne says:

        Hi Andrew, I just gave both your books a 5 star review….. Indeed AES uses Blackrock for their Index Account which last year took over Robo-advisor: Future Advisor http://fortune.com/2015/08/26/blackrock-robo-advisor-acquisition/
        Perhaps in the near future I might consider a fulltime DIY option, for now I guess AES international is more viable for me.
        Once again thank you very much for your wisdom
        cheers Stephen
        p.s any info on dates and location for your talk in the MENA region?

  35. Index says:

    Andrew,
    Thanks for your reply.
    If I read your book correctly the bond recommendation for global nomad was SAAA (page 239).
    Instead, I chose IGLO and CORP which look to be similar to SAAA in terms of the Weighted Average Maturity and they are also geographically diversified – but I liked the slightly better yields.
    I could not find any short maturity global bond funds except for high yield e.g. HYLD but I am a bit wary of their credit worthiness. There seem to be plenty of short maturity USD bond funds but I don’t plan to go live in the US.
    So I’m a bit puzzled. Stick with what I have? Or use high yield and / or USD funds? Or are there some other short maturity bond funds out there that I haven’t seen?
    Please help! The rest of my portfolio is 40% VWRD, 15% VHYD, 10% IDWP.
    Regards – Index

    • Hi Index,

      This portfolio would be fine. Just remember that yesterday’s yields won’t be tomorrow’s yields. When looking at those two bond ETFs, pick one based on today’s expense ratio instead of yesterday’s yield. Yields won’t be constant.

      Cheers,
      Andrew

  36. Lazy Singaporean says:

    Hi Andrew,

    I have also written a post that explains why the currency of our investments does not matter. Please do take a look too: http://lazysingaporean.blogspot.sg/2016/10/why-currency-of-your-investments-does.html.

    Lazy Singaporean

  37. Sarah says:

    Hi Andrew,
    I am an American expat living and planning to retire in Israel (with earnings and savings primarily in Israeli shekel). I started opening an Interactive Brokers account, selecting ILS as my base currency. Was this a mistake? Which portfolio from your book do you recommend I use if I am not moving back to the states? I am not sure if there are any ILS based bond etfs, so does this mean I should buy bonds directly in my country or convert my money and invest in a USD based bond (as well as stock) index?

  38. Adam says:

    Andrew, thanks for the books, great reads, I have set up my TD Direct account and invested as follows; VUKE, VWRD, ISHS FTSE Gilt on a 32.5%, 32.5% and 35% allocation. I have two questions;

    1) does TD Direct do auto-investment of dividends? If not, is it better to re-invest dividends once per year or quarterly as they are paid?
    2) Re-balancing- how often should this be done, once per year? Or when opportunities present, e.g if the FTSE dips 15% I should move some of my bond allocation into stocks?
    Thanks

  39. Joe says:

    Hi Andrew,

    I am based in HK and paid in HKD. I have a 15% allocation to 2805.HK, 55% VWRD and 30% IAAA.

    I chose 2805 as based in HKD and gives exposure to some Asian emerging markets however should I really be looking for exposure to a global emerging market ETF?

    All advice is appreciated.

    Thanks.

  40. Lim says:

    Hi Andrew,
    I am a singaporean working in Canada at the moment, and i was wondering if i should invest in Canada index?
    As opposed to sending the money back to Singapore and buying the index in Singapore?

  41. Steve says:

    Hi Andrew – the comments section of your blog is an excellent source of information, as is your book. Thank you!

    Regarding your response to Dean’s question below on October 30, 2016 at 2:20 pm.

    “Hi Dean,

    You asked this:

    “Yet in your book on page 239 (Investing for British Expats) and in your article How British Expatriates Can Invest Using Index Funds in Singapore your recommend VWRD instead of VWRL. Why not invest in VWRL and save that 1% conversion cost?”

    I didn’t assume a specific earned currency (salary) in the above example. If investors earn money in one currency, then super, if their ETF is denominated in that currency, that’s the one to pick.

    Cheers,
    Andrew”

    I believe in your book, you assume that the person in the example earns in Singapore dollars and then converts to pounds in his Saxo Capital account. In such a scenario, I believe it would make sense to invest in VWRL rather than VWRD.

    If you also think this is correct, perhaps you could change it in the next print, as this definitely confused me and I went trawling through the comments to find clarification.

    Cheers,

    Steve

  42. steve says:

    Hi Andrew – the comments section of your blog is an excellent source of information, as is your book. Thank you!

    Regarding your response to Dean’s question below on October 30, 2016 at 2:20 pm.

    “Hi Dean,

    You asked this:

    “Yet in your book on page 239 (Investing for British Expats) and in your article How British Expatriates Can Invest Using Index Funds in Singapore your recommend VWRD instead of VWRL. Why not invest in VWRL and save that 1% conversion cost?”

    I didn’t assume a specific earned currency (salary) in the above example. If investors earn money in one currency, then super, if their ETF is denominated in that currency, that’s the one to pick.

    Cheers,
    Andrew”

  43. steve says:

    And just out of curiosity, is there any reason in particular that you recommend the FTSE Gilts UK 0-5 (IGLS) in your book rather than Vanguard UK Government Bond (VGOV) which has a lower expense ratio?

    Thanks in advance!

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