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Why Synthetic ETFs Are Not Worth It

Synthetic ETFs have recently become very popular and a lot of people seem very keen saying that they are better than traditional ETFs but are they? In this video I will explain exactly what Synthetic ETFs are, how they work and how they are different to traditional ETFs... Then I'll tell you why so many people like them and THEN I'll explain why I think they're not actually worth it. Synthetic ETFs exist to theoretically reduce the cost of operations and to reduce the tax burden for investors. Specifically you get to avoid having to pay dividend tax AND you don't have to pay Dividend Withholding Tax to the US Government if you live outside the United States. And now that these synthetic ETFs are actually priced almost exactly the same as traditional replicating ones, they seem like a really great deal. Well the truth is that synthetic ETFs carry additional risks that most people fail to quantify. And those risks may be low, but they should be accounted for and the impact of those risks can be very material. The benefit is relatively low with 0.3% or less per year being the difference when it comes to dividend withholding tax on something like the S&P 500. For me personally the risks are not worth that marginal return increase but it really all depends on your own evaluation of these risks so make sure you do your own homework. 💵 INVESTING PLATFORMS I USE AND LIKE DISCLAIMER: Some of these links may be affiliate links. If you purchase a product or service using one of these links, I will receive a small commission from the seller. There will be no additional charge for you. DISCLAIMER: I am not a financial advisor and this is not a financial advice channel. All information is provided strictly for educational purposes. It does not take into account anybody's specific circumstances or situation. If you are making investment or other financial management decisions and require advice, please consult a suitably qualified licensed professional.