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Canadian investing for Americans
Old 01-07-2015, 05:39 PM   #1
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Canadian investing for Americans

A friend of mine moved to the US many years ago from Canada and recently became a US citizen. Her 25 year old daughter still lives in BC, and she will be visiting for a couple of weeks.

Her DD is like many 25 years old not good with money and has lots of credit card debt, but she is making progress.

Anyway, the plan is at somepoint for the 3 of us to to talk money management skills..

The forum is so US focused that I have only vague ideas about the differences between the countries.

He is what I think I know.
Real estate in BC is pretty expensive especially Vancouver proper
Mortgage interest isn't deductible
The CCP works pretty much like social security.
The Registered Retirement Saving Plans are like IRA but I have no idea about the differences.
Lot of Canadian companies pay decent dividend both banks, and oil/resource companies.
Health care costs are much lower

Here is what I don't know anything about the mechanics of investing.
Can Canadians buy Vanguard index funds?
Are American brokerage firms like Schwab, Fidelity, Ameritrade available?

Other important differences I should know?
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Old 01-07-2015, 06:20 PM   #2
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Quote:
Originally Posted by clifp View Post
Here is what I don't know anything about the mechanics of investing.
Can Canadians buy Vanguard index funds?
Are American brokerage firms like Schwab, Fidelity, Ameritrade available?

Other important differences I should know?
I am not Canadian.
Yes, Canadians can invest in index funds.
A broker might be Investing at TD ”‚ TD Wealth
or www.vanguardcanada.ca

A forum might be Financial Wisdom Forum | Where investors meet for financial education and empowerment
A Canadian investing wiki: finiki, the Canadian financial wiki
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Old 01-07-2015, 06:30 PM   #3
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Quote:
Originally Posted by clifp View Post
A friend of mine moved to the US many years ago from Canada and recently became a US citizen. Her 25 year old daughter still lives in BC, and she will be visiting for a couple of weeks.

Her DD is like many 25 years old not good with money and has lots of credit card debt, but she is making progress.

Anyway, the plan is at somepoint for the 3 of us to to talk money management skills..

The forum is so US focused that I have only vague ideas about the differences between the countries.

He is what I think I know.
Real estate in BC is pretty expensive especially Vancouver proper True, the average price of a detached SFH in Vancouver is now over $1m. Other areas in BC are cheaper though.
Mortgage interest isn't deductible It depends. Mortgage interest on a principal residence is not tax deductible, and the maximum amortization is 25 years if you want CMHC coverage. However, there is no capital gains tax on the sale of a principal residence.
The CCP works pretty much like social security. I don't know what CCP is. CPP is the Canada Pension Plan, related to employment contributions. OAS is Old Age Security. Detailed information is available in plain English on Government of Canada websites.
The Registered Retirement Saving Plans are like IRA but I have no idea about the differences. Broadly similar. Again, check Government websites, also taxtips.ca
Lot of Canadian companies pay decent dividend both banks, and oil/resource companies. Check the Canadian Dividend Investor blog
Health care costs are much lower Yes, thank goodness! BC residents pay a healthcare premium. Current rates are available at the BC Medical Services Plan website.

Here is what I don't know anything about the mechanics of investing.
Can Canadians buy Vanguard index funds? Yes, Vanguard established a Canadian division a few years ago. Some of the funds are a little different to those in the US.
Are American brokerage firms like Schwab, Fidelity, Ameritrade available? i don't believe Schwab and Fidelity operate in Canada, but I am open to correction. TD Ameritrade is actually a subsidiary of TD Canada Trust (the TD stands for Toronto Dominion).

Other important differences I should know?
Where does one start?
Canadian banks tend to be national in scope and the best known ones are the "big six". They are pretty stable.
Your young friend should know about TFSAs (tax free savings accounts), which are like Roths.
There are a couple of Canadian financial forums worth a look. I will go and hunt for some links.
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Old 01-07-2015, 06:36 PM   #4
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I haven't been a resident of canada for some time now but I'm interested in this topic as well since my relatives often ask for advice. Some of my own questions that I'll add are:

- What are typical asset allocation percentages for Canada/US/International? One resource (Model Portfolios | Canadian Couch Potato) suggests canadian equity as low as 20% but I haven't seen any studies that explore this in depth.

- What is the general wisdom regarding hedged equity funds for Canadians?

Regarding mortgages, I think one important difference is that there is no such thing as a 30 year fixed loan which obviously exposes the holder to interest rate risk.
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Old 01-07-2015, 06:46 PM   #5
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Government websites

RRSPs and related plans

The Tax-Free Savings Account

Canada Pension Plan (CPP) - Service Canada

Old Age Security pension - Service Canada
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Old 01-07-2015, 06:48 PM   #6
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Health insurance in BC

Medical Services Plan Home Page
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Old 01-07-2015, 06:53 PM   #7
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Home ownership

https://www.cmhc-schl.gc.ca/en/co/bu...hostst_004.cfm

Buying your first home: Three steps to successful mortgage shopping

http://www.chpc.biz/6-canadian-metros.html
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Old 01-07-2015, 07:02 PM   #8
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Banks and brokerages (not an exhaustive list)

4 Canadian banks on Top 10 list of world's strongest - Business - CBC News

Investing at TD ”‚ TD Wealth

http://www.scotiabank.com/itrade/en/0,,3527,00.html

https://www.vanguardcanada.ca/individual/portal.htm

Fidelity Canada- Public -Fidelity.ca homepage

Note that mutual fund fees in Canada are among the highest in the world. Index investing makes sense. Also, brokerages such as TDW have their own low cost funds.
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Old 01-07-2015, 07:03 PM   #9
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Forums and blogs

ca.dividendinvestor.com/: Canadian Dividend Stocks

Financial Wisdom Forum | Where investors meet for financial education and empowerment

Canadian Money Forum

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Old 01-07-2015, 07:05 PM   #10
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+1 on 2 of my favorite sites (both mentioned above):

Model Portfolios | Canadian Couch Potato (mentioned by photoguy)
Low MER funds / model portfolios.

TaxTips.ca - The Facts on Tax for Canadians (mentioned by Meadbh)
An excellent site with information & calculators.

Also, for some indepth articles, i like:
http://www.thebluntbeancounter.com/
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Old 01-07-2015, 07:14 PM   #11
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Originally Posted by photoguy View Post
I haven't been a resident of canada for some time now but I'm interested in this topic as well since my relatives often ask for advice. Some of my own questions that I'll add are:

- What are typical asset allocation percentages for Canada/US/International? One resource (Model Portfolios | Canadian Couch Potato) suggests canadian equity as low as 20% but I haven't seen any studies that explore this in depth.

- What is the general wisdom regarding hedged equity funds for Canadians?

Regarding mortgages, I think one important difference is that there is no such thing as a 30 year fixed loan which obviously exposes the holder to interest rate risk.
I can't answer your question about typical asset allocation, because that depends on the investor's risk profile. Generally there is a balance between global diversification and currency risk. Canada's economy is driven by commodities, energy and finance (and energy isn't doing too well right now).

You are correct regarding mortgages. The longest term is 10 years and the commonest is 5, after which the mortgage must be renegotiated. IIRC, the longest amortization for which insurance is available is 25 years. Together with the non tax deductibility of residential mortgage interest, all these factors make it a good idea to pay off your home mortgage ASAP. There is a Smith manoeuvre which can make home mortgage interest tax deductible, but it's complicated.

http://www.smithman.net
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Old 01-07-2015, 07:28 PM   #12
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Thanks Mead you are the best and oh the Canadian couch potato is perfect.
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Old 01-07-2015, 07:28 PM   #13
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Quote:
Originally Posted by photoguy View Post
I haven't been a resident of canada for some time now but I'm interested in this topic as well since my relatives often ask for advice. Some of my own questions that I'll add are:

- What are typical asset allocation percentages for Canada/US/International? One resource (Model Portfolios | Canadian Couch Potato) suggests canadian equity as low as 20% but I haven't seen any studies that explore this in depth.

- What is the general wisdom regarding hedged equity funds for Canadians?

Regarding mortgages, I think one important difference is that there is no such thing as a 30 year fixed loan which obviously exposes the holder to interest rate risk.
The Canadian Couch Potato is the go to site for Index Investing in Canada. Home bias in equities in Canada can get pretty volatile as the TSE (Toronto Stock Exchange) is dominated by Resources and Financials. Canada is also a relatively small market and so it is not unusual to be diversified out of it. VTI is by far my largest single holding. It became easier to diversify a few years ago when the government removed foreign content restrictions on retirement accounts. Mutual fund fees in Canada are the highest in the world and thankfully Vanguard arrived a few years ago and offers a good selection of index ETFs at the usual rock bottom MERs. There are both hedged and unhedged versions of US and international equity funds. The trend is to go unhedged as hedging is a drag on returns. RRSP (IRA equivalent, up to about 24K annually or 18% of income) is exempt from US withholding taxes while the TFSA (Roth equivalent - 5.5K annually) is not. TFSA is much more flexible on withdrawls and does not affect various benefits

While it is true that there are no longterm fixed mortgages (I'm not sure on the longest term - 5 years?), historically the lowest cost route has been short term or variable rate loans.

Medical costs are lower and quite a bit more predictable - you can find the complete fee schedule for most (all?) provinces on the web. Generally, medical care is covered by taxes plus in some provinces, above some income thresholds a small premium. IMHO, good coverage for catastrophic medical problems makes retirement planning much easier.
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Old 01-07-2015, 07:34 PM   #14
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Meadbh says 10 years and I'll go with that. Haven't had a mortgage for a while and was always 6 months or 1 year when I did. 30 year amortization periods were recently outlawed as they were felt to be contributing to high residential real estate prices in some markets - Vancouver, Calgary, Toronto. I'm under the impression that mortgages are different in Canada - no points for instance.
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Old 01-07-2015, 07:45 PM   #15
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Also, taxation on investment income is different than in the US. For example, there is only one type of capital gains.
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Old 01-08-2015, 03:32 AM   #16
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Quote:
Originally Posted by clifp View Post
A friend of mine moved to the US many years ago from Canada and recently became a US citizen. Her 25 year old daughter still lives in BC, and she will be visiting for a couple of weeks.

Her DD is like many 25 years old not good with money and has lots of credit card debt, but she is making progress.

Anyway, the plan is at somepoint for the 3 of us to to talk money management skills..

The forum is so US focused that I have only vague ideas about the differences between the countries.

He is what I think I know.
Real estate in BC is pretty expensive especially Vancouver proper
Mortgage interest isn't deductible
The CCP works pretty much like social security.
The Registered Retirement Saving Plans are like IRA but I have no idea about the differences.
Lot of Canadian companies pay decent dividend both banks, and oil/resource companies.
Health care costs are much lower

Here is what I don't know anything about the mechanics of investing.
Can Canadians buy Vanguard index funds?
Are American brokerage firms like Schwab, Fidelity, Ameritrade available?

Other important differences I should know?
TSFAs are (or were when I was there) much better than Roths! I agree with all of your observations.

Check out MoneySense magazine: MoneySense - Canada's personal finance website
for the Canadian Couch Potato and Financial Webring (find the link on this site: Canadian Financial Links | Canadian Capitalist ), which also has a link to The Stingy Investor.
I think that gummy has all of his very large financial education web site archived on Financial Webring. He is a retired retired Canadian math professor.

The Canadian economy is basically an extractive economy; they produce oil and gas and minerals--and trees. I had a Canadian index fund for a while until I noticed that it just tracked the Vanguard energy index fund.

Canadian banks are much better than US banks. They survived 2008 very well because they were not deregulated like ours were. They couldn't get away with stupid stuff.

Real estate in BC is unbelievably high. I can't imagine buying property there. Alberta is too, but is beginning to soften at the moment. Both are bubbles, it looks to me, but I know nothing about real estate. I rely on an REIT index in the US.

Today, I own Suncor, Canadian Oilsands, Spectra Energy, Enbridge and TransCanada Pipeline. I think they are real bargains today, but I am going to have to wait for them to recover. Still, they produce good dividends while I am waiting. But I might die waiting. Stick with funds.

If memory serves, TD Canada Trust has the lowest cost mutual funds in Canadistan. ING may be worth investigating as well, but that is a guess.
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Old 01-08-2015, 10:00 AM   #17
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Originally Posted by 6miths View Post
The Canadian Couch Potato is the go to site for Index Investing in Canada. Home bias in equities in Canada can get pretty volatile as the TSE (Toronto Stock Exchange) is dominated by Resources and Financials. Canada is also a relatively small market and so it is not unusual to be diversified out of it. VTI is by far my largest single holding
Thanks for your comments.

Did you choose VTI (Vanguard total US market) over VUN (CAD$ version of the US total market) due to lower expense ratio? are there other advantages/disadvantages to buying the US version of the fund directly?

Quote:
There are both hedged and unhedged versions of US and international equity funds. The trend is to go unhedged as hedging is a drag on returns.
That was my inclination as well.


Quote:
Medical costs are lower and quite a bit more predictable - you can find the complete fee schedule for most (all?) provinces on the web. Generally, medical care is covered by taxes plus in some provinces, above some income thresholds a small premium. IMHO, good coverage for catastrophic medical problems makes retirement planning much easier.
Yeah moving back to Canada for healthcare is one of my backup plans.
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Old 01-08-2015, 12:04 PM   #18
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Can someone clarify this for me? People living in Canada cannot buy American index funds. They can buy ETF versions of the same index funds. Is that right?
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Old 01-08-2015, 12:30 PM   #19
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Can someone clarify this for me? People living in Canada cannot buy American index funds. They can buy ETF versions of the same index funds. Is that right?
AFAIK there is nothing to stop a US based company like Vanguard from offering index funds through their Canadian division. Thus far, they have not chosen to do so. Different market, different product. Fewer economies of scale.

There are Canadian index funds, such as TD efunds and IShares, and I don't think those would be automatically available in the US either.

Index Quote - The Globe and Mail
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Old 01-08-2015, 12:41 PM   #20
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Meadbh, I thought the US Patriot act had something to do with that also. Not as many Canadian's wanted to subject themselves to that legislation. Probably ties right into your comments about market size.

This was just water cooler talk. No facts to back it with.

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