Becoming an Indexer

[Apex1]

Here's how I would approach indexing if I were in Apex's situation.....

Equities:
Canadian index fund with lowest MER 30%
US index fund with lowest MER 30%
International index fund with lowest MER 30%
Other 10% (fun portfolio of individual stocks directly invested)

Would you or anyone be able to advise me on how best to execute the desired above equity allocation from my current equity allocation?

Current Allocation (unrealized capital gains, % of taxable account)

Canadian (58% total)

XFN - ishares canadian financials (+125k, 25%)
TD Bank (+190k, 8%)
Suncor Energy (+55k, 18%)
Canadian Index (0, 2%)

US (42% total)

Berkshire (+90k, 18%)
Nike (+90k, 5%)
Exxon Mobil (+29k, 3.5%)
Home Depot (+16k, 1%)
S/P 500 (+5k, 14%)

So currently, I have a total of 660k unrealized capital gains and no carry-over losses from previous years. Just sell all current holdings, pay the approx 165k capital gains tax and allocate to the desired target AA?

 

[Meadbh]

So currently, I have a total of 660k unrealized capital gains and no carry-over losses from previous years. Just sell all current holdings, pay the approx 165k capital gains tax and allocate to the desired target AA?

Ouch! That is a tough one. High exit costs there. I would do it gradually over several years. I would probably start with the financials or TD Bank, since you are overweighted in that sector. I would also talk to a representative from your chosen fund to see if there is anything that can be transferred in kind.

 

[Animorph]

For the large individual stock positions, I'd take the hit in order to get the diversity and safety of an index fund. Been there, done that. But you'll want to watch your tax situation to ensure you're not jumping into another tax bracket or whatever. In my case, I actually increased my capital gains by a lot once I realized I was past the point where all my exemptions and deductions had been fully phased out. After that, my capital gains were taxed at the pure 15% rate again instead of the effective 20% or so while the phaseouts were in effect.

That leaves just XFN and S&P 500 I think. You can count them as part of your Canadian index fund and your U.S. index fund and sell them as it makes sense.

 

[galeno]

Wife and I are also non-USAmericans. We choose to invest via the USA because it's the cheapest venue for us.

We pay a 30% upfront US-NRA tax on all dividends and interest income with the exception of interest on USA FDIC insured bank accounts and anything "offshore".

Thus, our bonds are USA offshore while our equities and cash are USA onshore. As a Canadian, you only have to pay a 5-10% US-NRA tax because Canada has a tax treaty with the USA while our country does not.

 

[galeno]

Being Canadian, I believe you have access to "offshore" Vanguard Ireland funds. We cannot get into them because our country is not a member of the UK Commonwealth. I believe Canadians are.

 

[Meadbh]

Being Canadian, Apex1 has access to Vanguard funds here in Canada as of a year or two ago. No offshore investment required. However, they are not quite the bargain that they are in the US.

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

 

[Apex1]

Wife and I are also non-USAmericans. We choose to invest via the USA because it's the cheapest venue for us.

We pay a 30% upfront US-NRA tax on all dividends and interest income with the exception of interest on USA FDIC insured bank accounts and anything "offshore".

Thus, our bonds are USA offshore while our equities and cash are USA onshore. As a Canadian, you only have to pay a 5-10% US-NRA tax because Canada has a tax treaty with the USA while our country does not.

I have never considered investing offshore. I am skeptical that it would be allowed/ effective in my canadian professional corporation where over 90% of my investable assets are....... but thanks, you never know, and I will discuss with my accountant.