Author Topic: Canadians - What percentage do you invest outside of Canada?  (Read 4721 times)

c-kat

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Canadians - What percentage do you invest outside of Canada?
« on: October 22, 2014, 09:22:31 PM »
Hello,

My current index allocation is:

Bonds 15%
Gold 5%
Canadian Index 50%
US Index 20%
International Index 10%

I've recently read that Canadian investors tend to have too much of a home bias and that at least half your portfolio should be invested outside of Canada, especially because the TSX is very focused on a few sectors. I feel 50% would be too much for me, especially because of currency risk and tax implications. If you don't mind sharing, how much of your portfolio do you have invested in US and International Indexes and what do you think of my allocation? 

I'm considering increasing the US to 30% which would bring my equity portion to 40% Canadian, 30 % US and 10% international.

Thanks :)


FI40

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #1 on: October 22, 2014, 10:03:59 PM »
I am
30.1% short term bonds/cash
23.3% Canada index
23.3% US index
23.3% Developed markets ex. NA index

...so similar to the Global Couch Potato portfolio on CCP. I consider this a strong home country bias (Canadian market is like 4% of world by market cap I believe) which is partly due to patriotism and partly tax considerations. I don't like that we're so focused on our financial and oil/gas sectors, but that's our country, what can you do.

The currency thing I'm not worried about - I'll happily own a basket of currencies in addition to ours, especially because I sometimes buy things from other countries and sometimes travel. If you are worried it's risky...what risk are you worried about, a highly appreciated CAD? That would be a great scenario for all of us early retirees with heavy CAD-biased portfolios and looking to travel. I worry more about the risk of CAD depreciating.

I weight the US and Developed indices the same because they have a similar market cap I believe.

Yeah you weight Canadian equities pretty heavily but maybe that's right for you, and it's nice to see you're not considering a drastic change. I have a personal policy where I only can change my allocation if I think it's the right thing to do for at least 2 months first. If I haven't changed my mind at all during that 2 months, then I make the change. I did make two changes in the last couple years.

blue mutant

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #2 on: October 22, 2014, 11:10:31 PM »
I'm at :
 
50% US Index
25% CDN Index
25% Bonds

Tried to work away from homerism you described.

Druid

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #3 on: October 22, 2014, 11:17:56 PM »
I heard somewhere that Canadians either have really low capital gains on their own national stock or they get to write off most of the income. How does this work?

szucsgf

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #4 on: October 23, 2014, 05:27:48 AM »
I heard somewhere that Canadians either have really low capital gains on their own national stock or they get to write off most of the income. How does this work?
Canadians get a Dividend Tax Credit on Dividends from Canadian companies. I believe that's what you're referring to?

http://turbotax.intuit.ca/tax-resources/tax-investment/federal-dividend-tax-credit-in-canada.jsp

But this doesn't matter if you're using registered accounts like RRSP or TFSA.

In terms of foreign currency risk: diversification is the key. Having exposure to foreign currencies via international investments is another source of diversification that should improve your risk adjusted returns on average.

I find it easy to avoid home bias myself. Canada is such a small part of the world stock market. I'm roughly

20 bonds
10 Canadian stocks
25 US
25 International developed
10 Emerging markets
10 Alternatives
« Last Edit: October 23, 2014, 06:33:35 AM by szucsgf »

fb132

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #5 on: October 23, 2014, 06:19:22 AM »
20% CDN Index
20% International
20% US Index
60% Bonds

Ottawa

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #6 on: October 23, 2014, 06:51:27 AM »
US Equity   35.0%
CAD Equity   20.0%
International   10.0%
Bond High Yield (US)   10.0%
REIT (CAD)                5.0%
Emerging Markets   5.0%
Preferred Shares (CAD)   5.0%
Bond Short (CAD)   5.0%
Bond Short Ladder (CAD)  5.0%

c-kat

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #7 on: October 23, 2014, 06:57:53 AM »
Thanks for the replies!  What currency do you hold your US and International funds in?  I bought VTI in US dollars but I bought two vanguard international ETFs on the Canadian exchange - one is VEE (emerging markets) and I think the other is VDU - its developed countries ex-north America.

One thing Ive struggled is where to put my international holdings. For tax reasons they are better in an RRSP, but I have little RRSP room and lots of TFSA room, so I'll have no choice but to put anything I add to my US index into my TFSA. I have no interest in using a non-registered account, when I have TFSA room left and they might raising the limit to double what it is now. Since its only the dividend I would get taxed on and only at 15%, I don't see the benefit of using the non-registered over a TFSA, since I'd be taxed on the capital gain in the non-registered. Am I missing something?

c-kat

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #8 on: October 23, 2014, 07:02:51 AM »
I am
30.1% short term bonds/cash
23.3% Canada index
23.3% US index
23.3% Developed markets ex. NA index

The currency thing I'm not worried about - I'll happily own a basket of currencies in addition to ours, especially because I sometimes buy things from other countries and sometimes travel. If you are worried it's risky...what risk are you worried about, a highly appreciated CAD? That would be a great scenario for all of us early retirees with heavy CAD-biased portfolios and looking to travel. I worry more about the risk of CAD depreciating.


Yes, if the Canadian dollar appreciated, I would loose money. That's the risk I worry about.  But you make a good point about opposite risk.

Yeah you weight Canadian equities pretty heavily but maybe that's right for you, and it's nice to see you're not considering a drastic change. I have a personal policy where I only can change my allocation if I think it's the right thing to do for at least 2 months first. If I haven't changed my mind at all during that 2 months, then I make the change. I did make two changes in the last couple years.

Yeah, I have a hard time sticking to a weighting because I can see benefits of different approaches.

szucsgf

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #9 on: October 23, 2014, 08:21:04 AM »
Thanks for the replies!  What currency do you hold your US and International funds in?  I bought VTI in US dollars but I bought two vanguard international ETFs on the Canadian exchange - one is VEE (emerging markets) and I think the other is VDU - its developed countries ex-north America.

One thing Ive struggled is where to put my international holdings. For tax reasons they are better in an RRSP, but I have little RRSP room and lots of TFSA room, so I'll have no choice but to put anything I add to my US index into my TFSA. I have no interest in using a non-registered account, when I have TFSA room left and they might raising the limit to double what it is now. Since its only the dividend I would get taxed on and only at 15%, I don't see the benefit of using the non-registered over a TFSA, since I'd be taxed on the capital gain in the non-registered. Am I missing something?
This probably says everything you need:

http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/

FI40

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #10 on: October 23, 2014, 11:11:12 AM »
Thanks for the replies!  What currency do you hold your US and International funds in?  I bought VTI in US dollars but I bought two vanguard international ETFs on the Canadian exchange - one is VEE (emerging markets) and I think the other is VDU - its developed countries ex-north America.

One thing Ive struggled is where to put my international holdings. For tax reasons they are better in an RRSP, but I have little RRSP room and lots of TFSA room, so I'll have no choice but to put anything I add to my US index into my TFSA. I have no interest in using a non-registered account, when I have TFSA room left and they might raising the limit to double what it is now. Since its only the dividend I would get taxed on and only at 15%, I don't see the benefit of using the non-registered over a TFSA, since I'd be taxed on the capital gain in the non-registered. Am I missing something?

I have the Canadian domiciled VFV and VDU, mainly because after doing the Norbert's Gambit a few times I was just annoyed with the process and wanted something simpler. I figured the difference in cost/tax is pretty low especially in taxable accounts.
Turns out my retirement accounts are filled up with the bond portion of my portfolio, so obviously I keep all the equities in a taxable account.

Kaspian

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #11 on: October 23, 2014, 12:07:16 PM »
20% CDN Index
20% International
20% US Index
60% Bonds

...Which adds up to 120%?  :)

The above is likely the very same as mine.  ...A proper Canadian Couch Potato:

20% CDN Index
20% International Index
20% US Index
40% Canadian Bonds

smilla

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #12 on: October 23, 2014, 07:50:27 PM »
I have a personal policy where I only can change my allocation if I think it's the right thing to do for at least 2 months first. If I haven't changed my mind at all during that 2 months, then I make the change. I did make two changes in the last couple years.

Good advice F140, I will have to make it a part of my investment policy.

I am in the process of rebalancing (by buying, not selling) and when I am finished in January my AA will be:
10% bonds
25% Canadian equity
25% US equity
20% International - developed 
20% International - emerging

fb132

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #13 on: October 24, 2014, 05:38:02 AM »
20% CDN Index
20% International
20% US Index
60% Bonds

...Which adds up to 120%?  :)

The above is likely the very same as mine.  ...A proper Canadian Couch Potato:

20% CDN Index
20% International Index
20% US Index
40% Canadian Bonds
Oops, I meant 40% bonds :p thank you for pointing it out

YoungInvestor

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #14 on: October 25, 2014, 02:14:45 PM »
The dollar is kind of low, but if it rises I'd probably switch my tfsa to USD and keep the rest canadian.

fb132

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Re: Canadians - What percentage do you invest outside of Canada?
« Reply #15 on: October 25, 2014, 03:47:55 PM »
The dollar is kind of low, but if it rises I'd probably switch my tfsa to USD and keep the rest canadian.
Unless the US get another recession, the loonie will continue to lose some ground.