Here are my posts for the past two weeks:
A (U.S.) Penny for Your Thoughts
How Not to be Wrong
Building a Tolerance for Debt
“The Foundation of Financial Independence is a Paid-for Home”
Here are some short takes and some weekend reading:
The Reformed Broker has a very sensible take on the news that George Soros is betting against global stocks. No doubt Mr. Soros has high moral character, but if he were acting purely in his own self-interest, he would be best served by leaking this story shortly before buying out his short position and going long.
Robert McLister warns us about a mortgage broker scam where the broker offers cash-back to effectively lower your interest rate but gives too little cash for the claimed reduction in interest rate. This is closely related to cash-back mortgages that I analyzed years ago and created a calculator to compute the effective interest rate for a given amount of cash back.
The Blunt Bean Counter explains the tax implications of divorce when you own both a home and a cottage. Without proper planning, you could end up in a race to see who can use the capital gains exemption for principal residences. The stakes can be quite high.
Boomer and Echo compares Boomer’s family’s spending to that of Mr. Money Mustache, who is known to be very frugal.
Big Cajun Man says you should check on your automatic withdrawals and deposits periodically. He had a case where a bank mysteriously stopped moving his money.
My Own Advisor takes a peek into Kyle Prevost’s portfolio. It’s quite close to mine.
Million Dollar Journey has an update on Frugal Trader’s push to financial independence. As many people have found, being a millionaire doesn’t provide the same lifestyle it once did.
It is very important to audit all your bank transactions. Thanks for the inclusion this week, enjoy the glorious summer weekend.
ReplyDeleteI looked at the related post on your own portfolio. You comment that you try to keep your nonCanadian ETFs in your RRSP as much as possible. As you mention, you pay US withholding dividend tax on those ETFs in your TFSA, and you can't get that money back. But in a nonregistered account, couldn't you get a foreign tax credit for the US withholding dividend tax?
ReplyDeleteThe following is a question about ETFs. In Canada, there are no tax lots, but in the USA, there are. Tax lots are one reason that US domiciled ETFs are so tax efficient. When iShares gives authorized participants stocks, and in return gets ETF shares from authorized participants, iShares can choose to give stocks that were purchased at lower prices. This leaves stocks with higher prices in the ETF, and that results in lower capital gains when stocks have to be sold due to changes in the index.
Canadian domiciled ETFs don't have that tax advantage. Does that mean it's better to invest in a US domiciled ETF that holds American stocks, than in a Canadian domiciled ETF that holds US stocks? And what about nominally Canadian domiciled ETFs that own US listed ETFs?
@Anonymous: Good questions. Looked at in isolation, you're better off with U.S. stocks in a TFSA than a non-registered account because you save the capital gains taxes. But when your RRSP and TFSA are maxed out, the choices are more complex. Holding U.S. stocks in a non-registered account allows you to recapture the dividend withholding tax, but you still pay the tax. It's better to have Canadian stocks in the non-registered account and U.S. stocks in the RRSP (due to the favourable tax treatment of Canadian dividends). But if the RRSP can't hold all the U.S. stocks, a non-registered account is the next best choice (assuming the TFSA is full).
DeleteThere are a number of factors that make U.S. ETFs cheaper than Canadian ETFs. The most important reason is scale. Tax lots may well be another reason, but I don't think it's necessary to sort all this out. You can just look at tracking error, history of tax distributions to unit holders, and estimate the costs you'd incur handling your own currency exchanges. Any time I've looked at this, buying U.S.-listed ETFs has been the clear winner for me.
About your choice of US small cap value fund, I wonder if a nonVanguard choice may be better. A nonVanguard ETF can use tax lots to decreased unrealized cap gains in the ETF. The Vanguard ETF is a combination of ETF, along with Vanguard's SCV mutual fund. It is much more difficult for Vanguard's SCV mutual fund to use tax lots to decrease unrealized cap gains. Rick Ferri, in his book on ETFs, mentions this as a concern about Vanguard's SCV ETF.
Delete@Anonymous: Interesting. Does Ferri offer any estimates of the tax savings? I'd be willing to make a change for 5 bps, but not for 0.5 bps.
DeleteIt's just an offhand comment he makes in his book. The google abbreviated book has it, so you can find it on the net.
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