Canadian Dollar Hedged ETFs

I like these...

Canadian Dollar Hedged ETFs.

These allow me to invest in the US stock market without having to worry about the exchange rate. Plus hedged ETFs on average earn about 0.5% more than unhedged ETFs.

Currency hedging reduces the effect of exchange rate fluctuations on international investments, making it very useful for Canadians to invest in American stocks and/or bonds.

Let's pretend you want to invest $1000 in American stocks, but the Canadian-American dollar exchange rate changes over time. So if your stocks go up by 20%, but the Canadian dollar goes up in value by 20%, how much money have you made when you measure it in Canadian dollars?

Well $1000 CDN of unhedged stocks... x 1.2, but then x 0.8... = $960.

 But if you buy $1000 CDN worth of hedged stocks then the math works like this: $1000 x 1.2 = $1200.

See the huge difference?

Now often it won't be as dramatic as that. I am using an extreme example in which the Canadian dollar goes up in value by 20%... which is known to happen usually about once per decade whenever oil prices skyrocket and the Canadian dollar ends up going up thanks to the value of oil.

Choosing an unhedged ETF can allow you to gain from beneficial currency changes, but you also carry the risk of the negative effects of currency price changes.

So there are pros and cons to using unhedged stocks, but for me it isn't worth it. I would rather hedge my bets and then not have to worry about it.

After all a war could break out in the Middle East literally at any time and the Canadian dollar could go up 20 to 30% because of it. Seriously, do some research. The Canadian dollar and the price of oil always goes up whenever there is a war in the Middle East.

And do you really want the value of your investments to be dictated by whether there is currently a war happening in Iraq, Iran, Saudi Arabia, etc??? It isn't worth the risk.

Plus unhedged stocks usually end up being worth more anyway. So you might as well buy the hedged version.