Thanks for your reply peter - your post generated several very interesting comments/posts regarding ETFs and thoughts about a "value -tilted" strategy, as well as alerting me to some ETFs of which I have never heard.peter wrote:But they have Value in their names!
Quite a few people on this board have mentioned they index the US or ex-Canada in general by total market and only pursue value premiums in Canada. I haven't given up hope on VBR/VTV/VSS but do have a significant fraction VTI/VEA so my bets are at best half-baked. Shine asked how to tilt ETFs towards value, I think I answered at least the general direction.
I'm Selling Our Shares!
Re: I'm Selling Our Shares!
Re: I'm Selling Our Shares!
I'm not entirely sure if value stocks will still beat out growth stocks, because of all these value-tilted ETF's, fundamental and smart beta ETF's, perhaps the value premium has been efficiently removed.
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Re: I'm Selling Our Shares!
No, as Norm suggests, it's in the implementation. With an ETF you have liquidity considerations.
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Re: I'm Selling Our Shares!
The chart for ZLB on Globe Investor Gold is certainly seductive - this ETF could be fine ballast for one's portfolio.Skakespeare wrote...I'm not happy with the major Canadian dividend ETFs because they generally overweight financials.
My feeling at the moment is that the low-beta ETFs - particularly BMO Low Volatility Canadian Equity ETF - Equity - BMO Exchange Traded Funds (ETFs) - may be a better complement to the "a couple of banks etc." stock approach. But ZLB doesn't yet have a long track record
Re: I'm Selling Our Shares!
I used to hold ZLB in my RRSP. But recently reorganized my portfolio to have Canadian in my taxable account. When I did that, I checked the distributions for ZLB and found it has capital gains (presumably because it's not just a simple market cap weighted index) so I opted for XIC instead.
Re: I'm Selling Our Shares!
Funny what can be important to different people at different times. I choose ZLB over XIC because I thought XIC was overweight Financials/Energy (total nearly 60%) and I have plenty of exposure to those stocks (the usual suspects) elsewhere.Spudd wrote:I used to hold ZLB in my RRSP. But recently reorganized my portfolio to have Canadian in my taxable account. When I did that, I checked the distributions for ZLB and found it has capital gains (presumably because it's not just a simple market cap weighted index) so I opted for XIC instead.
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Re: I'm Selling Our Shares!
There’s no shame in migrating to low-cost index funds
NormR's take on this topic. Thanks for doing the write-up.
NormR's take on this topic. Thanks for doing the write-up.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
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Re: I'm Selling Our Shares!
Lots of good information here and an excellent article by Norm R re your decision to sell U.S. stocks Scott. I have never owned an index fund, but am going to start to educate myself more about them. I do all the investing in our family. DH always worked in Toronto while we lived in Hamilton at that time, so I looked after all the finances....he takes a look at everything on line and we discuss from time to time what we should do. However the other night I asked him what he would do if he was looking after all of the finances and his reply was that he would probably sell off a whole lot of what we hold....and this got me to thinking that maybe some changes should be made. We currently are retired and live off.... rrif income and cpp, small defined benefit and what is left after clawback on the OAS. We however do not have to touch the income from the non-registered accounts, so we are probably a lot like most of the DIY investors here.
I am currently settling my Mother's estate which I handled for years. Mom had a difficult time over the years and started with absolutely nothing...however when she passed she had more money than she could spend and all she wanted at the end was the benefit of being in a private accomodation with her own bathroom when and if she ever had to go into long term care, and her money provided that and more, but it was only for about 6 months, before she passed away.
The taxes and capital gains (not a bad problem to have) will be quite a substantial sum...however she had a Grandson who could inherit her RRIF and that saved the estate from adding that income to the final return.
I find that there is always so much more to learn, even when we think we are on the right track. I appreciate reading all the posts of wisdom and can take what I like and leave the rest. I must say that Scott's original post on this subject certainly gets one thinking more long term.
I am currently settling my Mother's estate which I handled for years. Mom had a difficult time over the years and started with absolutely nothing...however when she passed she had more money than she could spend and all she wanted at the end was the benefit of being in a private accomodation with her own bathroom when and if she ever had to go into long term care, and her money provided that and more, but it was only for about 6 months, before she passed away.
The taxes and capital gains (not a bad problem to have) will be quite a substantial sum...however she had a Grandson who could inherit her RRIF and that saved the estate from adding that income to the final return.
I find that there is always so much more to learn, even when we think we are on the right track. I appreciate reading all the posts of wisdom and can take what I like and leave the rest. I must say that Scott's original post on this subject certainly gets one thinking more long term.
Re: I'm Selling Our Shares!
lacrosse905 wrote:We however do not have to touch the income from the non-registered accounts, so we are probably a lot like most of the DIY investors here.
If the above statement be true, then I am the exception. If it were not for my non-registered accounts, my financial future would be far different then what I imagine....It would be ruined in its current form.
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Re: I'm Selling Our Shares!
A reader takes issue with the selection of the Vanguard FTSE All-World ex Canada ETF that might provide fodder for further discussion...
Has Scott been leading me astray?You are the second Globe and Mail columnist in two weeks to write glowingly of the Vanguard FTSE All-World ex Canada ETF. You like its low management fee, as anyone would, but you are also the second columnist not to address the fund's return. Surely you wouldn't recommend a fund that wasn't doing well, but how would anyone know? According to the fund website, it's not allowed to report returns during the fund's first year. Your column does not mention how new and unproven this fund is. Is that responsible advice for readers of varying investor sophistication? I doubt it.
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Re: I'm Selling Our Shares!
It's a fund of funds. The component parts are broadly owned and have a pretty good return history. It's not like you're investing in a black box! Although the returns can't be published -- by regulation by the way -- they could be fairly easily derived by the enterprising individual by looking at the underlying.NormR wrote:
Has Scott been leading me astray?
The bigger issue for me and one that i hadn't given any thought to is the taxation question where foreign withholding taxes are essentially lost due to the Canadian wrapper that has been placed on the fund. One respondent estimated that losing the deduction of foreign taxes paid could effectively increase the MER by 45 basis points. This is definitely worth investigating. No doubt, for sizable accounts, it is likely best to own the individual components in USD and claim the withholding taxes as foreign taxes paid, but that sort of defeats the simplicity factor of the single choice product.
One thing is for certain, if you base your perspectives largely on commentary that is generated in response to press articles you will most likely fall victim to persuasive individuals with a hidden agenda or others promoting their own views based on their own unique situations -- far from ideal IMO.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
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Re: I'm Selling Our Shares!
VT, with 4% Canadian, is a single-choice option I hold in my own accounts.No doubt, for sizable accounts, it is likely best to own the individual components in USD and claim the withholding taxes as foreign taxes paid, but that sort of defeats the simplicity factor of the single choice product.
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Re: I'm Selling Our Shares!
When you made this decision, I wonder if you gave any thought to making it even simpler by not investing in any US/international equities at all?scomac wrote:The bigger issue for me and one that i hadn't given any thought to
The loss of the DTC, increasing synchronization of world economies, along with the knowledge that any form of currency hedging has associated internal costs, means you have quite a bit of friction to overcome.
Why bother?
ltr
Re: I'm Selling Our Shares!
I'm sure there is a thread on the tax consequences of this sort of ETF, can someone post the link here?
Re: I'm Selling Our Shares!
That estimate is high by about a factor of 2. .45% is a reasonable estimate of US levied taxes but these are recoverable in taxable accounts. As I've posted several times US listed ETFs pay lower rates to foreign countries than those listed here. i would estimate these at 6-7% so figure around .2% lost at a 3% dividend yield.scomac wrote:The bigger issue for me and one that i hadn't given any thought to is the taxation question where foreign withholding taxes are essentially lost due to the Canadian wrapper that has been placed on the fund. One respondent estimated that losing the deduction of foreign taxes paid could effectively increase the MER by 45 basis points. This is definitely worth investigating. No doubt, for sizable accounts, it is likely best to own the individual components in USD and claim the withholding taxes as foreign taxes paid, but that sort of defeats the simplicity factor of the single choice product.
In your situation I'd just use 2 Canadian listed funds for foreign exposure. VUN for US and ZEA or XEF for EAFE. All foreign withholding is recovered in taxable through the foreign tax credit.
Re: I'm Selling Our Shares!
Here's a link to a recent Cdn Couch Potato article relevant to the withholding issue.
http://canadiancouchpotato.com/
The author concludes that its too early to tell whether the non-wrap structures will in fact succeed in being more efficient.
http://canadiancouchpotato.com/
The author concludes that its too early to tell whether the non-wrap structures will in fact succeed in being more efficient.
Re: I'm Selling Our Shares!
A more permanent link: Foreign Withholding Taxes in International Equity ETFsockham wrote:Here's a link to a recent Cdn Couch Potato article relevant to the withholding issue.
http://canadiancouchpotato.com/
The author concludes that its too early to tell whether the non-wrap structures will in fact succeed in being more efficient.
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Re: I'm Selling Our Shares!
Not for even a minute. That would be a leap step backwards IMO.like_to_retire wrote:When you made this decision, I wonder if you gave any thought to making it even simpler by not investing in any US/international equities at all?scomac wrote:The bigger issue for me and one that i hadn't given any thought to
While the DTC is currently very attractive, we don't know how this will play out over time. There's also evidence that depending upon one's pension income that CAD dividends could actually be negative if it results in clawback. An advantage, yes, but maybe no more than a wash depending upon circumstances.The loss of the DTC, increasing synchronization of world economies, along with the knowledge that any form of currency hedging has associated internal costs, means you have quite a bit of friction to overcome.
Why bother?
ltr
Economies may be synchronizing, but that doesn't mean that regional growth rates are going to remain similar going forward. The more pressing issue in my mind is that Canada is still largely an economy dependent upon natural resources and housing. That's a relatively narrow and historically volatile slice of the total economic pie particularly for those that are eschewing stock picking in favour of a more passive equity exposure approach. Focusing exclusively on Canadian stocks has been largely very rewarding over the last 15 years or so. Returns during the previous 15-20 year segment highly favoured those that maximized their foreign exposure due to not only currency effects, but to technological advancement, the bulk of which were foreign companies. To answer your question directly; why not?
I don't engage in currency hedging, in fact I view additional currency exposures as beneficial in a country so heavily dependent upon imports.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: I'm Selling Our Shares!
That's basically the way I went using VUN and XEF. Only one place I had room for these two ETF's though and that was in the RRSP. The taxable equity portfolio is 100% allocated to over thirty Canadian dividend growth stocks.gsp_ wrote:
In your situation I'd just use 2 Canadian listed funds for foreign exposure. VUN for US and ZEA or XEF for EAFE. All foreign withholding is recovered in taxable through the foreign tax credit.
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Re: I'm Selling Our Shares!
Can you provide an example? By clawback, you're referring to OAS correct?scomac wrote: While the DTC is currently very attractive, we don't know how this will play out over time. There's also evidence that depending upon one's pension income that CAD dividends could actually be negative if it results in clawback. An advantage, yes, but maybe no more than a wash depending upon circumstances.
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Re: I'm Selling Our Shares!
Depending upon one's level of pension income dividends from a taxable account could result in a clawback of OAS/GIS benefits as a result of the gross-up of dividend income in calculating the applicable DTC. The dividend income is grossed-up by a factor of 1.3 and this sum is added to your taxable amount. That could be sufficient to push and individual into clawback territory or increase the level of clawback. At that point in time, eligible Canadian dividends become less desirable that other sources of investment income due to tax treatment. While these issues can be mitigated for couples due to pension splitting, it could become a concern of a single survivor without the splitting benefit.pullingpitch wrote:Can you provide an example? By clawback, you're referring to OAS correct?scomac wrote: While the DTC is currently very attractive, we don't know how this will play out over time. There's also evidence that depending upon one's pension income that CAD dividends could actually be negative if it results in clawback. An advantage, yes, but maybe no more than a wash depending upon circumstances.
Lastly, we don't know what tax policy is going to be 30 or 40 years down the road. If the trend to place tax burden upon the individual continues, then we may ultimately see an elimination of preferential treatment of dividends in favour of maintaining or even increasing capital gains exemptions. This is already under way.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: I'm Selling Our Shares!
Although I gave up on individual US stocks in favor of ETFs a few years ago, I always wondered how in the hell did Scott manage to find so many winners among the thousands upon thousands of available US stocks.scomac wrote: Check out the last seven years worth of What did you buy; what might you buy threads and I'm pretty sure that many of the various picks I had over the years will be written about in reasonable detail.
Gonna miss those picks.
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Re: I'm Selling Our Shares!
It was quite simple really. All that was required was a once in a generation stock market crash and a little bit of dumb luck!schmuck wrote: Although I gave up on individual US stocks in favor of ETFs a few years ago, I always wondered how in the hell did Scott manage to find so many winners among the thousands upon thousands of available US stocks.
Gonna miss those picks.
Of course the downside of dumb luck is the lengthy list of those that didn't turn out...
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: I'm Selling Our Shares!
I raised this issue in a thread some time ago. Both Norbert and ltr demonstrated to me by an example that even with an increased clawback as a result of the gross up, you still paid less tax with the dividend income compared to interest income.scomac wrote: The dividend income is grossed-up by a factor of 1.3 and this sum is added to your taxable amount. That could be sufficient to push and individual into clawback territory or increase the level of clawback. At that point in time, eligible Canadian dividends become less desirable that other sources of investment income due to tax treatment.
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Re: I'm Selling Our Shares!
I was under that assumption as well. There was no response with a specific example, so I played around with the investment income calculator over at taxtips.ca and found that in some circumstances it can be more tax efficient to have capital gains amounts rather than Canadian dividends amounts (eligible or non-eligible) when the taxpayer is in a limited window within the boundaries of the OAS clawback zone.CROCKD wrote:I raised this issue in a thread some time ago. Both Norbert and ltr demonstrated to me by an example that even with an increased clawback as a result of the gross up, you still paid less tax with the dividend income compared to interest income.scomac wrote: The dividend income is grossed-up by a factor of 1.3 and this sum is added to your taxable amount. That could be sufficient to push and individual into clawback territory or increase the level of clawback. At that point in time, eligible Canadian dividends become less desirable that other sources of investment income due to tax treatment.
Here are two scenarios that show this:
1.
Tax year = 2014
Year of birth = 1945
Province = ON
OAS Amount = 6700
Capital Gains Amount = 30000
Other Income Amount = 50000
Taxes payable including OAS clawback = 15877
2.
Tax year = 2014
Year of birth = 1945
Province = ON
OAS Amount = 6700
Canadian Eligible Dividends Amount = 30000
Other Income Amount = 50000
Taxes payable including OAS clawback = 18260
For interest income amounts, which receive no preferential treatment, I believe it will always be more tax efficient to have those same amounts as Canadian dividend amounts instead, regardless of OAS clawback.