new asset allocation

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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boglehead
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new asset allocation

Post by boglehead »

I am moving from the US. I have low 6 figures of USD cash in a taxable account to invest for retirement 20+ years away. I want 50%/50% stocks bonds global market cap weight for stocks (I may move to a Canadian stock market tilt of 20%-33% of equities once I am more established in Canada). I understand this is a conservative allocation but for now that is what I am comfortable with and I may need some of that money sooner (I don't want to do a bucket method so I am happy with my allocation). I have 4-5 months of cash.

I am thinking of doing the following three fund portfolio (all US listed (ETFs)
50% - BND - Vanguard US agg bond index ETF
25% - VTI - Vanguard Total US stock market ETF
25% - VXUS - Vanguard Total International

Questions:
1. In a taxable account would I be better off, regarding fees and taxes, to switch any or all of the funds to Canadian ETFs? Probably the one that makes the most sense to keep as USD is VTI. I am okay with keeping a lot of USD having in mind that I will be earning CAD going forward.
2. I plan on funding or at least transferring money from my USD account into a TFSA annually. Will Canadian ETFs after taxes and fees be better than US listed ETFs in a TFSA?
3. Should I be looking at going with a Canadian bond index? Or perhaps GIC ladder instead of a bond fund?
gobsmack
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Re: new asset allocation

Post by gobsmack »

boglehead wrote:1. In a taxable account would I be better off, regarding fees and taxes, to switch any or all of the funds to Canadian ETFs? Probably the one that makes the most sense to keep as USD is VTI. I am okay with keeping a lot of USD having in mind that I will be earning CAD going forward.
No. Since you have USD at hand, you are better off buying the US ETFs. Keep in mind that VXUS has a very small Canadian component to it (=~ 7%). As a result, some people prefer to replace it with IEFA+IEMG.
boglehead wrote:2. I plan on funding or at least transferring money from my USD account into a TFSA annually. Will Canadian ETFs after taxes and fees be better than US listed ETFs in a TFSA?
You may want to read about foreign withholding taxes.
boglehead wrote:3. Should I be looking at going with a Canadian bond index? Or perhaps GIC ladder instead of a bond fund?
In the long run, if you plan to retire in Canada, you may be better off with your FI component in CAD. This is the case because the gains on something like BND are likely to be small and, therefore, most of your returns would end up being dictate by currency fluctuation.
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always_learning
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Re: new asset allocation

Post by always_learning »

Are you a US citizen?
boglehead
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Re: new asset allocation

Post by boglehead »

always_learning wrote:Are you a US citizen?
I am US and Canadian citizen
boglehead
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Re: new asset allocation

Post by boglehead »

gobsmack wrote:
boglehead wrote:1. In a taxable account would I be better off, regarding fees and taxes, to switch any or all of the funds to Canadian ETFs? Probably the one that makes the most sense to keep as USD is VTI. I am okay with keeping a lot of USD having in mind that I will be earning CAD going forward.
No. Since you have USD at hand, you are better off buying the US ETFs. Keep in mind that VXUS has a very small Canadian component to it (=~ 7%). As a result, some people prefer to replace it with IEFA+IEMG.

Thank you. I like Vanguard and the simplicity of 1 fund over 2. So I think I will stick with VXUS and if I want to add more of a Canadian tilt even IEFA wouldn't be enough to really move the needle much so I could do it by adding an Canada ETF.
boglehead wrote:2. I plan on funding or at least transferring money from my USD account into a TFSA annually. Will Canadian ETFs after taxes and fees be better than US listed ETFs in a TFSA?
You may want to read about foreign withholding taxes.

I may have read their old article, this one was really helpful and laid out in easy to understand terms.
boglehead wrote:3. Should I be looking at going with a Canadian bond index? Or perhaps GIC ladder instead of a bond fund?
In the long run, if you plan to retire in Canada, you may be better off with your FI component in CAD. This is the case because the gains on something like BND are likely to be small and, therefore, most of your returns would end up being dictate by currency fluctuation.
At this point I am not sure so maybe I will keep things status quo until I get closer to figuring that out.
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always_learning
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Re: new asset allocation

Post by always_learning »

boglehead wrote:
always_learning wrote:Are you a US citizen?
I am US and Canadian citizen
Welcome to FWF! I'm also a US citizen living in Canada. If you were to open a Canadian non-registered account, avoid Canadian-based mutual funds and ETFs, as the IRS considers them passive foreign investment corporations. At tax time, you'd be looking at a lot of paperwork. For non-registered accounts, stick with US-listed ETFs.

Avoid TFSAs and RESPs, as the IRS won't give you any preferential tax treatment with them. RRSPs are fine.

If you've not seen it, finiki has a good article on Canadian-US investing diferences, including tax differences.

You can also search this forum for threads that address US citizens living and investing in Canada.

Cheers,
a_l
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Re: new asset allocation

Post by boglehead »

always_learning wrote:
boglehead wrote:
always_learning wrote:Are you a US citizen?
I am US and Canadian citizen
Welcome to FWF! I'm also a US citizen living in Canada. If you were to open a Canadian non-registered account, avoid Canadian-based mutual funds and ETFs, as the IRS considers them passive foreign investment corporations. At tax time, you'd be looking at a lot of paperwork. For non-registered accounts, stick with US-listed ETFs.

Avoid TFSAs and RESPs, as the IRS won't give you any preferential tax treatment with them. RRSPs are fine.

If you've not seen it, finiki has a good article on Canadian-US investing diferences, including tax differences.

You can also search this forum for threads that address US citizens living and investing in Canada.

Cheers,
a_l
Thank you for the great information especially about holding Canadian Mutual funds and ETFs in taxable accounts.

I don't fully understand why I should avoid TFSA and RESPs. Is it because they will be taxed by the US? If I put it into a taxable account then I will be taxed by Canada. In which case I could get the lower capital gains tax rate of the US of "0" for my income level. So wouldn't I still be better off with the TFSA and RESP?
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always_learning
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Re: new asset allocation

Post by always_learning »

boglehead wrote:
always_learning wrote:
boglehead wrote:
I am US and Canadian citizen
Welcome to FWF! I'm also a US citizen living in Canada. If you were to open a Canadian non-registered account, avoid Canadian-based mutual funds and ETFs, as the IRS considers them passive foreign investment corporations. At tax time, you'd be looking at a lot of paperwork. For non-registered accounts, stick with US-listed ETFs.

Avoid TFSAs and RESPs, as the IRS won't give you any preferential tax treatment with them. RRSPs are fine.

If you've not seen it, finiki has a good article on Canadian-US investing diferences, including tax differences.

You can also search this forum for threads that address US citizens living and investing in Canada.

Cheers,
a_l
Thank you for the great information especially about holding Canadian Mutual funds and ETFs in taxable accounts.

I don't fully understand why I should avoid TFSA and RESPs. Is it because they will be taxed by the US? If I put it into a taxable account then I will be taxed by Canada. In which case I could get the lower capital gains tax rate of the US of "0" for my income level. So wouldn't I still be better off with the TFSA and RESP?
If a TFSA is a better vehicle for you than an RRSP, then you may be right to go with a TFSA. It's my understanding that, even if you don't owe the US any taxes on income inside an RESP or TFSA, the filing requirements are onerous. Have a look at the paperwork described by Collins Barrow. And all those filing requirements are sure to change from one year to the next. I guess it's up to you to weigh the risk of misfiling/expense of accurately filing vs. the benefit of tax-free compounding. Those are the reasons I decided to steer clear of RESPs and TFSAs, but YMMV. Maybe talk to someone who, unlike me, is an income tax professional.
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