I am already 42, so I'm late to the planning for retirement game, but I'm trying to get things taken care of now. I've already taken care of any debts, and have a good 6+ months of emergency savings, and have deferred all the taxes I can with registered accounts.The level of knowledge I have I'm just wanting to stick to a index-balanced strategy. However, I have a few circumstances that are making me wonder if I'm doing the right thing.
The most important is I am a US citizen, living in Canada. I've lived here now for 5 years, and am working towards citizenship. However, I don't know if I will be here indefinitely, and if I would retire here. Interestingly, I get paid in USD, which I currently benefit from because the exchange rate is good. I've learned how to do Norbert's Gambit to convert USD->CAD at a good price.
If I lived in the US, I would use Vanguard, and build a balanced portfolio with their index funds, but because I am outside of the US, I can't technically use them (yes, I know that some people maintain a US address so they can do this). There is a Canadian Vanguard, but because I am a US citizen, there is this annoying thing that the US does called a PFIC (Passive Foreign Investment Company) which makes life hell for taxes. Basically, my tax adviser has convinced me to just invest in US domiciled holdings, and to do that I am wanting to get ETFs and build a simple Index-based strategy for retirement.
I've already got 60k USD in a US Fidelity account (traditional and roth IRAs) that is currently balanced between US Bond index (35%), US Stock index (36%) and International Stock index (30%). I saw that Vanguard now recommends an international bond index as well, so I was going to balance these holdings better by using Questrade to buy equivalent iShares ETFs in the non-registered account (12.9% international bonds (IAGG), 27.7% US bonds (IUSB), 35.6% US Stocks (ITOT), and 23.8% (IXUS) international stocks). This all seems to be a reasonable strategy, based on what I've been reading here. I can't get the Vanguard Canadian instruments, because they are PFIC, so I'm going with the ETF strategy, picking ones that are US-based. However, I'm very interested to know if I'm doing something really wrong here. I've got about 80k CAD and 30k USD to build this portfolio with at the moment.
Because I get paid in USD, I can just buy these ETFs in USD, and not convert to CAD first, and then buy them. When they get sold, I can also settle in USD as well. This seems like a good strategy because I dont pay currency conversion, although if I end up staying and retiring in Canada, I would need to convert it at some point... So I'm left with a currency speculation question - would it be better to convert all of that to CAD now, while the exchange rate is really good (USD/CAD is at 1.3478), or is it better to keep it in USD for the long run? I've read somewhere suggesting that you can manage long-term currency risk by matching the currency denomination of your investments with the currency in which you expect to incur the bulk of your future expenses, which would suggest that I should convert it now.
Another confusion I have is if I should invest in some Canadian index (it would still need to be domiciled in the US though), such as EWC (iShares MSCI Canada ETF) or HEWC (iShares Currency Hedged MSCI Canada ETF)? I have an international index in the plan, but is there some benefit in specifically investing in the country that I am living in?
Thanks!
The most important is I am a US citizen, living in Canada. I've lived here now for 5 years, and am working towards citizenship. However, I don't know if I will be here indefinitely, and if I would retire here. Interestingly, I get paid in USD, which I currently benefit from because the exchange rate is good. I've learned how to do Norbert's Gambit to convert USD->CAD at a good price.
If I lived in the US, I would use Vanguard, and build a balanced portfolio with their index funds, but because I am outside of the US, I can't technically use them (yes, I know that some people maintain a US address so they can do this). There is a Canadian Vanguard, but because I am a US citizen, there is this annoying thing that the US does called a PFIC (Passive Foreign Investment Company) which makes life hell for taxes. Basically, my tax adviser has convinced me to just invest in US domiciled holdings, and to do that I am wanting to get ETFs and build a simple Index-based strategy for retirement.
I've already got 60k USD in a US Fidelity account (traditional and roth IRAs) that is currently balanced between US Bond index (35%), US Stock index (36%) and International Stock index (30%). I saw that Vanguard now recommends an international bond index as well, so I was going to balance these holdings better by using Questrade to buy equivalent iShares ETFs in the non-registered account (12.9% international bonds (IAGG), 27.7% US bonds (IUSB), 35.6% US Stocks (ITOT), and 23.8% (IXUS) international stocks). This all seems to be a reasonable strategy, based on what I've been reading here. I can't get the Vanguard Canadian instruments, because they are PFIC, so I'm going with the ETF strategy, picking ones that are US-based. However, I'm very interested to know if I'm doing something really wrong here. I've got about 80k CAD and 30k USD to build this portfolio with at the moment.
Because I get paid in USD, I can just buy these ETFs in USD, and not convert to CAD first, and then buy them. When they get sold, I can also settle in USD as well. This seems like a good strategy because I dont pay currency conversion, although if I end up staying and retiring in Canada, I would need to convert it at some point... So I'm left with a currency speculation question - would it be better to convert all of that to CAD now, while the exchange rate is really good (USD/CAD is at 1.3478), or is it better to keep it in USD for the long run? I've read somewhere suggesting that you can manage long-term currency risk by matching the currency denomination of your investments with the currency in which you expect to incur the bulk of your future expenses, which would suggest that I should convert it now.
Another confusion I have is if I should invest in some Canadian index (it would still need to be domiciled in the US though), such as EWC (iShares MSCI Canada ETF) or HEWC (iShares Currency Hedged MSCI Canada ETF)? I have an international index in the plan, but is there some benefit in specifically investing in the country that I am living in?
Thanks!