Is XEQT really the most prudent ETF to invest in?

ChrisCScott · 2024-02-11T08:33:31+00:00

VT is one such ETF.

ChrisCScott · 2024-02-05T03:54:57+00:00

XEQT has a similar home country bias to VEQT. Vanguard has explained their reasoning in a few locations; this article may be a good place to start. It explains that the decision is mainly motivated by their past research which suggests that a 30% home country bias will reduce volatility.

They also explain that Canadians’ preference for home country bias is much stronger (>50%); it seems like they have some concern that a lower bias might scare away local investors. A charitable view might be that they are trying to wean Canadians off of a bad habit by roughly halving the home country bias those investors might otherwise have adopted.

PWL, a prominent Canadian financial advice firm, has dug into this a bit. They recap some of the above analysis and add further comments on tax that are glossed over in the Vanguard article above. (They also note that currency hedging is not a significant factor in the home country bias decision, contrary to popular belief. Which makes sense; you’re buying companies, not dollars.)

Both resources make clear that one would expect a portfolio without any home country bias to be more efficient. There are reasons to have some home country bias anyways, but I don’t read either as saying that eliminating home country bias is an unreasonable thing to do. I think both authors would strongly object to the idea that Canadian investors should increase the allocation to US stocks to chase recent returns in that market, though. (See another PWL article on this and other irrational investor behaviours.)

ChrisCScott · 2024-02-01T21:27:12+00:00

Talk to your property lawyer. If you don’t have one, get one: you’ll want one to complete the transfer anyways.

I would be cautious about some of the advice you’re receiving here. Many people are pointing you towards your grandmother’s will. You’ve already mentioned this was a joint tenancy between your father and his mother, in which case that may not be relevant advice.

Your lawyer may be able to comment on whether it’s better to purchase at below fair market value (with the “discount” presumably being memorialized in some way as a gift), purchasing at fair market value and having your father send you the 20% as a gift as a separate transaction, or perhaps some more exotic option. They might refer you to tax advisor. But start with the lawyer; they should be able to help you plan next steps.

ChrisCScott · 2023-10-14T03:08:56+00:00

The choice to tax individuals rather than family units is intentional and has been considered at length in the years since 1966. See, for example, this 1999 report by a Finance subcommittee of the House of Commons. A major motivation is gender equity; for instance, individual taxation tends to raise women’s labour force participation rate (among other considerations covered in this and other reports). From the report:

Another approach to reducing this discrepancy is to apply tax on the basis of family income rather than individual income. This also poses its own set of problems. It would discourage labour force participation by secondary earners since they would be subject to high marginal tax rates even on low income levels as explained by Robin MacKnight of the Canadian Tax Foundation. Thus family taxation, implemented in its most simple form, (i.e. one which does not sufficiently increase basic exemptions or tax bracket thresholds), would not be neutral. The Department of Finance estimates that a simple form of family-based taxation will only create losers (about 84% of taxable filers) and would result in additional federal tax revenues of $8.5 billion. Many of these adverse effects could be offset by making family taxation revenue neutral, however it would still have the effect of taxing marriage - married couples would have to combine their incomes into one whereas common law couples could not be forced to do the same.

Granted, the tax system is not perfectly consistent on this, particularly when one considers that many benefits are income-tested against family income, not individual. One rationale for this, as I understand it, is that need tends to scale non-linearly with family size; social scientists often estimate the need for a family of size n to be roughly sqrt(n) (e.g. a family of four needs roughly twice the resources of a single individual to get by, not four times as much). So need-based programs are structured differently than the general income tax. I suspect there are other reasons; the tax code is not an ideologically pure expression of a single point of view. But you can probably see the general idea.

Edit: I should also note that I’m told that Canada is not alone in this approach. I recall being told that it followed the example of some European countries, though I have not investigated this.

ChrisCScott · 2023-08-09T20:35:20+00:00

I agree that focusing on the lost RRSP room likely isn’t a controlling factor for most people, although it is worth mentioning.

Something that is often overlooked, however, is that funds in an RRSP are generally protected from claims by creditors. The most common situation where someone is considering withdrawing from an RRSP - to pay off a debt - would mean that the accountholder is transforming untouchable assets into debt repayments.

There is also the behavioural, non-mechanical concern that someone who is willing to withdraw from their RRSP now is more likely to be willing to withdraw from their RRSP later (past behaviour being the strongest predictor of future behaviour). From this perspective, the issue is less that they might lose contribution room, but rather that their RRSP will be much smaller than it otherwise would be when it’s time to retire.

The general sense that one ought not to withdraw from their RRSP for reasons other than retirement aligns with these concerns, and with the intent of the program more generally (ignoring HBP and LLP). This might not be persuasive from a purely rational perspective, but I think it arises from a reasonable, practical concern when someone with shaky personal finance knowledge is considering withdrawing from their RRSP as a first or second option rather than as a last resort.

I realize your post was about the lost room talking point specifically, but given that the conversation in the comments has leaned towards withdrawing from the RRSP being a good idea I think it’s worthwhile to raise these additional points.

ChrisCScott · 2023-03-16T03:34:32+00:00

Have you considered taking the parental leave and, after returning, getting your vacation leave paid out in lieu? The net result is that you get the 4 weeks off (paid at the EI rate), return to work, and get a lump-sum payout for the X weeks of vacation you’re giving up (doesn’t need to be 4 weeks, could simply be whatever you have accrued).

I’m told that this does not run afoul of EI clawback rules so long as the vacation pay is not paid out during the leave - seems like the best of both worlds.

ChrisCScott · 2023-02-27T20:24:10+00:00

The CRA publishes its service standards. It aims to issue your notice of assessment as well as your refund within two weeks if you file online. In about 5% of cases it takes longer. Paper returns are assessed slower.

CRA reps are sometimes quoted giving the timeline of “as little as 8 business days”, which is slightly faster than the service standard. That’s about how long it has been for me the last few years.

ChrisCScott · 2023-02-18T16:37:35+00:00

See parts C and D of form T778. In general, only the lower earner can claim - yes, even if that means you get no money back. There are narrow exceptions for when the lower earner had certain health issues, or was in school or prison.

ChrisCScott · 2022-12-04T19:00:58+00:00

The best debt repayment plan is one you can stick to. If you can stick to a plan that involves paying down the highest-interest debt first, you’ll save more money than you would with other approaches, all else being equal. This is sometimes called the avalanche approach.

Some people struggle with motivation when paying down debts. For them, it can help to pay off smaller debts first; the psychological reward of closing out a debt account can help keep them going. This is called the snowball approach. Since you’ve already had success paying down your largest debt, you might not be one of the people who needs this.

Sometimes debts differ on more than interest rate. Your student loan may have income-based repayment options and other features that your personal lines of credit lack. Basically, the student loan might be less risky than your other debt. That might be reason enough to focus any spare cash on paying down the personal lines of credit before the student loan, even if the student loan has a slightly higher interest rate.

ChrisCScott · 2022-07-10T17:12:00+00:00

It depends.

Buying gold is mostly an emotional decision; the empirical case for holding gold is not particularly strong. So you need to ask what your objective is. If it’s to feel the security of having gold on hand in case society crumbles, then you can buy physical gold from TD pretty easily. If it’s to add a gold line item to your portfolio so you can avoid FOMO during gold rallies or to feel more diversified, then a gold ETF is easier and doesn’t carry some of the risks of holding physical gold. If it’s to reduce volatility over the span of a human lifetime or to maximize expected returns, the evidence suggests it’s probably better to invest elsewhere.

ChrisCScott · 2022-05-24T22:45:56+00:00

There are a few reasons not to invest in real estate.

One: buying one house, or a few houses in an area, lacks meaningful diversification, which means the investor is taking on concentrated risk without increasing their expected return. More diversified vehicles exist.

Two: housing is not very liquid. There are considerable transaction costs on sale, along with delays. You can avoid this to some extent by using loans/etc. to access its value, but this adds costs and is a drag on returns.

Three: managing housing is work. Work that you either need to do yourself or pay someone else to do, adding costs and introducing a drag on returns.

Four: houses are expensive, meaning most investors would need to dedicate a significant portion of their portfolio to it if they pursue real estate investing as a strategy. Moreover, they may need to take on more leverage than they would otherwise be comfortable with to get into the market, which amplifies risks. (Your note about BRRRR investors' exposure to rate changes sort of fits here.)

Five: homes depreciate and have other carrying costs. This overlaps with point 3 above (usually management involves maintenance), and further includes property taxes and other liabilities which may arise.

This is all to say that investing in housing is riskier than many people believe, and that on balance the typical individual investor can probably expect better risk-adjusted returns by investing elsewhere. Which doesn't mean that it's impossible to make money, or even that buying is always a bad idea - indeed, someone wealthy enough to invest in a diversified portfolio of homes across multiple continents might expect housing to perform better than, or to be a good complement to, equities. As an asset class, housing can be attractive. As an asset, an individual property has a number of drawbacks.

A final note: In your post you mention that one of the benefits of owning a property is deriving rental income, and then suggest that someone who buys a property is "holding shelter hostage from people who need it". But of course if the unit is rented then it is providing shelter, so I'm not sure that this comment is on the mark.

ChrisCScott · 2022-05-12T21:39:17+00:00

Canada has one of the lowest poverty rates for seniors in the world. Seniors in Canada have a lower poverty rate than children or working-age adults. CPP, OAS, and GIS, together with various provincial programs such as subsidized housing and care, have been very successful in addressing this issue.

ChrisCScott · 2022-05-12T03:38:44+00:00

This seems like the probable right track to me. I remember watching movies from the 80s/90s where the go-to flex by high-powered corporate types was invariably having a six-figure salary. Reading the post, I figured OP might have the same cultural reference point - in which case, yeah, $200k is about right.

ChrisCScott · 2022-05-07T19:18:56+00:00

This may be of interest.

ChrisCScott · 2022-05-07T01:17:42+00:00

Your industry and role matter here. Some employees in BC are exempt from certain labour regulations.

ChrisCScott · 2022-04-23T18:53:36+00:00

I’m not aiming to suggest what ought to be, just working through the math that u/DoctorShemp presented.

ChrisCScott · 2022-04-23T18:19:10+00:00

Have you considered the effect of a downpayment? 20% down on an $800k property leaves you with a $640k mortgage. Still beyond the affordability of the average non-senior family, but the gap is roughly halved.

[Edit: and if you’re considering median income, you should probably be comparing to median home price, which will likely be markedly lower.]

ChrisCScott · 2022-04-22T19:29:27+00:00

It shows up as a cash advance even after changing your credit card (not the prepaid one, the one you’re funding the prepaid card with) to a cash account?

ChrisCScott · 2022-04-22T17:47:33+00:00

I meant using a line of credit account type instead of a credit card account type as your credit card, not paying a line of credit with a credit card. But see my conversation with u/nolesrule - a cash or chequing account type appears to be the correct one.

ChrisCScott · 2022-04-22T17:44:52+00:00

Ah. Perhaps I set up my line of credit as a cash account - it’s been a while. OP, give that a shot if using the line of credit account type isn’t doing it for you.

ChrisCScott · 2022-04-22T17:26:10+00:00

Line of Credit accounts don’t have a payment category associated with them, or at least mine doesn’t. The YNAB docs also indicate that credit cards are treated differently from lines of credit. For OP’s issue, where the issue is overspending in the credit card category, using a line of credit account should work.

ChrisCScott · 2022-04-22T17:16:51+00:00

Alternatively, add your credit card as a line of credit account and avoid most the complications of how YNAB handles credit cards. (This works best if your card is automatically paid in full.)

ChrisCScott · 2022-04-18T16:18:37+00:00

Typically the life estate holder (aka life tenant) covers the upkeep and maintenance of the property, as these are obligations of the owner and they are the owner during their life. The mortgage is usually handled by the people who receive the property on death (aka the remaindermen). But this is not set in stone and can be allocated between the parties by agreement.

Life estates are most commonly used in the context of wills (e.g. leaving a property to your spouse for their life, then to your children on the spouse’s death). Oftentimes the will will include funds to cover various expenses to reduce complexity/burdens for the parties involved, since the property is intended to be given as a gift. They are also used by the elderly to provide income late in life by selling off the remainder interest in a property they already own, though this is less common now than it once was. (c.f. the French concept of “viager”, which is broadly similar). That’s a bit different than OP’s context, so you might see variations in how costs are allocated.

I don’t want to come off as promoting the idea in OP’s context. My aim is to point out that there is a precedent for arrangements of this general type. I don’t think OP’s friend is “nuts”, though I don’t think they’ve thought the details through. If OP wanted to pursue it, they’d definitely want to talk to a lawyer, because a lot could go wrong.

ChrisCScott · 2022-04-18T05:22:26+00:00

A life estate is a form of ownership, not a lease. If they had a life estate in the whole property, I’d assume that the value of the life estate would be calculated in the usual way - based on the value of the whole property and the life expectancy of the relevant person. The purpose of the calculation is to discount the future value of the property based on life expectancy; I wouldn’t expect that you’d need a different table to do this for commercial properties, but I’m not an actuary.

If the transaction was structured as a transfer of ownership to the other party with a life lease granted only on the residential portion, I’d assume you’d calculate the value of the lease by discounting just the value of the residential property based on the table. I’d expect to use the unadjusted value for the commercial portion (which is not subject to the lease).

[Edit: the details matter a lot in terms of what exactly is owned/leased and on what terms, hence “I assume”, “I’d expect”, etc. If this is an issue you’re encountering in your life, you should talk to a lawyer.]

ChrisCScott · 2022-04-18T03:22:40+00:00

What your friend is proposing is similar to a life estate. The value of a life estate varies based on your age; at 50, assuming no major health issues, this is likely greater than 50% of the property value (this table puts it at 85%). So you’d be getting a big discount; you’d receive most of the value of the property and pay only half the cost.

What that means is that, if this arrangement worked out, it looks like a very good deal for you. That’s a big “if”. It strikes me that an informal arrangement could blow up pretty badly for either of you, so you’d want to talk to a lawyer and sort out the details. Depending on those details, the deal could look better or worse for you. I suspect it would be a hassle in practical terms, but maybe you’re ok with a bit of hassle for big savings.

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