I recently received an email asking if my ETF recommendations from our free eBook are still the same.  Specifically, do I still recommend purchasing USA-listed ETFs to get exposure to the American and international markets.

Before I get to why I have adjusted things slightly, I want to be clear that the main takeaway you should get from this article is to just keep passively investing in low-fee index investments. (ETFs are currently the best way to do this – but robo advisors are the easiest.  See our Wealthsimple Review here for more information.)  Far too often investors get bogged down in the minutiae about .02% difference in MER fees, or withholding taxes on dividends in a registered account versus non-registered account.  Understanding this stuff and geeking out about it is all fine and good if you’re a personal finance nerd like yours truly.  If on the other hand you find conversations like that boring, just follow the subtitle of our eBook and Keep It Simple!  The model portfolios I suggested within the book are still great and I would be just fine if I kept things exactly how they are.  PLEASE, do not get too distracted by the finer points, just worry about saving as much as you can and throwing it into passive investments.  Saving/investing as early as possible, with as much as possible, will be a far bigger factor in your eventual nest egg than the choice of what S&P 500 ETF you should be throwing money into.

With that caveat…

In the book I wrote:

The Canadian dollar cannot possibly stay at this equilibrium long-term. Due to our recent economic performance, and the slump the USA has been in, our dollar (CAD) has been artificially high for the last few years. This has meant that for much of my investing life, the Canadian dollar has been at par with the USD. As a history/business teacher I can say with a fair degree of certainty that this can’t be the case for much longer. Canada’s resource-driven economy will fall back to Earth, and the power of the USA machine will come back. These investments allow me to take advantage of this currency movement.

While my hope is that you are impressed by the accuracy of this prediction, I should mention that saying something will likely return to a historical average when it is at an all-time high isn’t exactly Nostradamus-level stuff.  I’m not big on speculating (hence the whole couch potato investing approach), but I just felt there was no way, when you look at the size of our respective economies, that the Canadian dollar was going to stay as high as the USD.  Obviously it has sunk substantially since I penned the first copy of our eBook, and consequently, my investment is probably worth about 25% more than if I had invested in the same index, using Canadian dollars and a Canada-listed ETF.

Change Is Good

Sorting Out Canadian-listed ETFs vs USA-listed ETFsMy other reason at the time for using some US-listed ETFs was that the fees for the equivalent ETFs in Canada were much higher.   This factor has radically changed since I wrote the book (even though my overall approach hasn’t changed at all).  With Vanguard, Blackrock/iShares, and BMO competing to offer the cheapest ETFs on the Canadian market, we’ve seen MER fees steadily decline to the point where they aren’t that far off their American counterparts.  We’ll get into this comparison in just a second.

What Is the Difference Between a US-listed S&P 500 ETF and a Canadian-listed S&P 500 ETF?

There are a few small differences in these products, but again, for the vast majority of folks reading this article, the point that needs to be highlighted is that they are much more similar than different.

For example, two ETFs that track the S&P 500 index have the exact same underlying investments.  The BMP S&P 500 ETF (ZSP) will put your money into the exact same companies, in the exact same percentages, that the Charles Schwab S&P 500 index (SWPPX) will in the USA.  Putting your money in either ETF means that ultimately you end up with identical slices of the largest 500 companies in the USA at any given time.  If you think about what that means, you’re likely to come to the conclusion that whether you buy the BMO ETF on the Toronto Stock Exchange (TSE) or the Schwab ETF on the New York Stock Exchange (NYSE), they are going to do almost the exact same thing in your account. (Casual investors, you have permission to stop reading now, and just go purchase some units of either product ASAP).

Related: 12 Tips For Understanding ETFs

The main difference between the two example ETFs I used is that the BMO offering would be purchased in Canadian Dollars and Schwab ETF would have to be bought using American Dollars.  If you’re a Canadian resident earning your paycheque in Canadian Dollars, and likely to be paying for your day-to-day life in Canadian Dollars, whatever the conversion rate is into American Dollars will obviously affect how much money you eventually end up with (not to mention the fee your brokerage will charge for converting the money).  From everything I’ve read, the long-term average of the CAD relative to the USD should be somewhere in the $.80-.85 range.  Unless we see our dollar skyrocket past parity again I would no longer bother with US-listed ETFs for my dull, boring, vanilla investing portfolio.

Related: My Top Seven ETFs for Young Canadian Investors

MER Fees and the New Canadian ETFs

Here’s the deal, it used to be if you wanted exposure within your portfolio to the US and international stock market the cheapest place to do that (by far) was the New York Stock Exchange.  Even if you had to eat a bit of a currency exchange fee, the long-term drag on your investments still made if worth it to buy your ETFs from the US guys.  Here’s how we stack up these days:

S&P 500 ETFs

BMO (ZSP).13%
iShares (XUS).11%
Vanguard Canada (VFV).13%
Vanguard USA (VOO).05%


S&P Total US Market ETFs

iShares (XUU).10%
Vanguard Canada (VUN).15%
Vanguard USA (VTI).05%


(Note: VUN & VTI have slightly different ways of tracking the USA stock market than XUU does due to slightly different indexes being used.  This is almost irrelevant as the returns will be extremely closely correlated)

Full International Exposure

BMO (ZEA).25%
iShares (IMI).21%
Vanguard Canada (VXC).25%
Vanguard USA (VT).17%


(Note: VXC is not exactly the same as IMI or ZEA, and might be more comparable to XAW – but is the closest thing Vanguard Canada has to a complete international ETF).

All of this to say that it doesn’t really matter who you go with at this point, all three of Canada’s main index-ETF providers are very competitive with each other, and their US counterparts.

Withholding Taxes

Now, if you want to get extremely technical (to the point you will likely know more about Canadian-listed US-equity ETFs than the people that sell them) check out our great infographic on where to put ETFs for maximum utility in both your RRSP and TFSA.  Long story short, you used to gain a bit of an added advantage by holding US-listed ETFs when it came to taxation on the dividends due to international tax considerations.  The point is basically moot!  Keep your US exposure in your RRSP (like we talked about in the free eBook)


To answer the email’s initial question: yes, I do buy different ETFs now to track the same indexes I did before.  I buy the equivalent ETFs from the Toronto Stock Exchange in Canadian dollars through my Questrade account – where I can buy them for $0 in transaction fees.  Once again, I just want to reiterate not to get too tied up in comparing all of this stuff.  Just Keep It Simple and select one ETF for your Canadian exposure, one ETF for your USA exposure, one ETF for your international exposure, and one ETF for bond exposure.  If you want to get even simpler, you can combine your USA and international ETFs, and have an entire portfolio consisting of three ETFs (re-balancing every so often) that will outperform almost every single Canadian mutual fund and individual investor over the long term!