The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: QyQ on February 18, 2019, 08:32:31 AM
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I'm canadian and I use XAW, VCN and ZAG Etfs in my portfolio.
Any ideas of improvements? Thanks
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Ah I mean, you can optimise a bit.
Example - replace half XAW.TO in your RRSP with VTI, which is US domiciled and hence in USD - means you don't lose 15% of your underlying dividends to the IRS. Replace the other half with XEF + some emerging market fund.
XAW is a wrapper ETF that just holds a load of other ETFs, and sometimes that isn't efficient. But it is not the end of the world.
Say you have $100k of XAW in an RRSP, and all of it is affected by this problem. It yields just over 2%. You'll be losing 15% of 2% = 0.3% (note that this is invisible to you; so actually the yield would be ~2.5% if not for the foreign tax). The MER is 0.2%.
If you moved that to VTI (or IVV, the iShares S&P one that is actually held by XAW) + XEF + whatever, you'd get 2.5% yield not 2.15%.
There are costs to making the switch - dealing fees, currency conversion fees (both ways - it has to come back) (though this can be mitigated by using Norbert's Gambit rather than a shitty broker exchange rate - you buy an interlisted stock or ETF, and 'journal' from one currency to the other - so you pay dealing fees not a poor exchange rate).
So then you put your US stuff in your RRSP, EAFE/emerging stuff in Canadian ETFs in your TFSA, and once all that's full the Canadian stuff goes unregistered (yay dividend tax credit).
Saves $300 a year on $100k, give or take. Edit: But, there is faff to get there! If your portfolio isn't that large, don't worry about it. You can always split it out later.
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First, thanks for your detailed response.
As I recently started investing, Im not quite sure I want to dig that much for a small % gain.
For a little background, im currently 26 years old, earning 52k/year, living alone with no kids. At the moment, im able to save around 35% of my income every paycheck, but I plan to bring that to 40-50% in the coming year. Currently have 31k in my brokeage account.
I found that CouchPotato investing has some great advices for canadian people, so I decided to go simple and buy these 3 ETFs.
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What would be a good proportion for each of these ETFs (XAW, VCN, ZAG)? Also, I own a canadian only mutual fund which is doing great for the last years (7-8%), only have 4.5k in there.
I feel like 10% bonds, 10% cash and 80% stocks is a great plan, but with times like this I might keep a bit more cash in hands.
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I simply do 20%/80% VCN/XAW.
XAW is mostly in RRSP & TFSA, VCN is in taxable (with a bit of XAW).
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Canada is 3-4% of global market cap. I wouldn't go anywhere close to 20% personally, especially not if everything is going either in a TFSA or RRSP.
The main thing is to make a (good!) plan and stick to it. If you want 10% Canada, cool. If you want 30%, cool. Just don't buy high and sell low in a panic during a correction.
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So beee, would you care to explain why you hold XAW into your RRSP and TFSA and VCN into another taxable account? Im getting started with the stock exchange and there is many things I dont quite understand yet.
Im currently holding XAW and VCN into my TFSA, and ZAG into my RRSP, plus I hold a good portion of cash into these two accounts. I decided to invest according to the averaging cost method, not going into it at one time. I do not own a taxable account yet since my funds arent so high that I need one.
Thanks for the tips
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Sorry for the late reply.
Canadian stocks have preferred tax treatment (dividends from them), that's why they're in a taxable account. RRSP and TFSA are full with XAW. And some XAW is in taxable too just to have 20/80 split overall.