Canadian investing for Americans

clifp

clifp

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Joined
Oct 27, 2006
Messages
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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?
 
clifp said:
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?
Click to expand...
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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clifp said:
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?
Click to expand...

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.
 
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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photoguy said:
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.
Click to expand...

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
 
Thanks Mead you are the best and oh the Canadian couch potato is perfect.
 
photoguy said:
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.
Click to expand...

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.
 
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.
 
Also, taxation on investment income is different than in the US. For example, there is only one type of capital gains.
 
clifp said:
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?
Click to expand...
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.
 
6miths said:
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
Click to expand...

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?

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.
Click to expand...

That was my inclination as well.


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.
Click to expand...

Yeah moving back to Canada for healthcare is one of my backup plans.
 
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?
 
tmm99 said:
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?
Click to expand...

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
 
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.

Sent from my SAMSUNG-SGH-I337 using Early Retirement Forum mobile app
 
Vanguard and others offer index ETFs that trade on the TSX. A Canadian can also buy any ETF trading on the NYSE. Mutual funds are another matter. You are pretty much limited to those offered by Canadian firms. Most Cdn MFs have high MERs, TD e-funds have some of the lowest.

If you are investing small amounts (like a 25 yo might do) buying MFs commission free might be smarter than paying $10 - $29 per trade to buy ETFs.

While it is unlikely to apply to a 25 yo, owning large amounts of US companies (or US ETFs) on the NYSE can put you in the position of owing US estate tax. Yes there are high NW limits to when it applies but tax rules are subject to change at the whim of politicians.

Research the TFSA. It may be the investment of choice for low income 25 yo.
 
Rick_Head said:
Vanguard and others offer index ETFs that trade on the TSX. A Canadian can also buy any ETF trading on the NYSE. Mutual funds are another matter. You are pretty much limited to those offered by Canadian firms. Most Cdn MFs have high MERs, TD e-funds have some of the lowest.

If you are investing small amounts (like a 25 yo might do) buying MFs commission free might be smarter than paying $10 - $29 per trade to buy ETFs.

While it is unlikely to apply to a 25 yo, owning large amounts of US companies (or US ETFs) on the NYSE can put you in the position of owing US estate tax. Yes there are high NW limits to when it applies but tax rules are subject to change at the whim of politicians.

Research the TFSA. It may be the investment of choice for low income 25 yo.
Click to expand...

I agree. Your friend's DD first needs to start LBHM, pay down consumer debt, don't accumulate any more, then start investing on a small scale. Assuming she is in a low tax bracket, the TFSA is where she should begin. This has been around since 2009 and for the first couple of years, the annual contribution room was $5K; it has since gone up to $5.5K. If she has never put money into a TFSA she now has a cumulative contribution room of $36,500. Those savings can be invested in a broad range of products and returns will never be taxed. At her age she should put some money in equities and should also have some liquid emergency funds. I recommend that she open a TD Waterhouse account and purchase some TD e-funds.

Disclaimer: I do have some TD e-funds in my own TFSA, including a Canadian index fund (TDB900) and an investment account (TDB8150) which pays 1.5%. There are no commissions to buy or sell TD e-funds within a TD Waterhouse account.
 
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Owing mutual funds and stocks across borders introduced international taxation concerns and tax treaties. There are usually restriction for non-residents buying from brokers and investment companies. So a Canadian should buy their investments through a Canadian broker, bank or investment firm. They will have access to the same sorts of investments as Americans. There may also be restriction under Canadian law about owing foreign funds...there are in the US (PFIC rules) and in the UK (HMRC reporting funds regulations)

The situation is particularly complex for US citizens where ownership of foreign mutual funds is to be absolutely avoided as they are Passive Foreign Investment Corporations (PFIC) and taxed at high rates. For US citizens living outside the US this can get them into a Catch 22 situation if the country where they live also restricts the ownership of foreign funds by it's residents....like the UK does. The US citizen resident in the UK cannot efficiently invest in any mutual funds at all. They are limited to a few US ETFs that HMRC recognizes and individual stocks.
 
photoguy said:
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?
Click to expand...

VUN is a relatively new incarnation and most of my VTI was purchased before it was in existence. I also had USD from working overseas for a few years and didn't want to convert it to CAD.

TD does have the lowest MER index funds, known as efunds. They don't push them as they obviously don't make much money on them.
 
6miths said:
VUN is a relatively new incarnation and most of my VTI was purchased before it was in existence. I also had USD from working overseas for a few years and didn't want to convert it to CAD.

TD does have the lowest MER index funds, known as efunds. They don't push them as they obviously don't make much money on them.
Click to expand...

The other advantage of VTI is that if you hold in your RRSP, there's no withholding tax due to the US/Canada tax treaty. VUN in an RRSP would be subject to 15% withholding tax on distributions.
 
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