The Canadian in America – Investment Planning

Investing in the US

There are several differences between Canada and the US when it comes to investing your money. Unfortunately, for most making the transition to the US , they are unaware of these differences and end up making some costly mistakes or paying too much. This is typically the result of an over zealous broker, a smooth talking mutual fund salesman or variable annuity provider. Following are some of the things you need to consider before investing your hard-earned dollars in the US:

INVESTMENT EXPENSES - The US is the most inexpensive place in the world to invest, far below the expenses seen in Canada . Brokerage fees, commission rates, mutual fund expenses and the advent of index funds and exchange-traded funds have reduced investment expenses far more in the US than in Canada . With some of these discount brokerage firms and mutual fund companies beginning to move into Canada , reduced investing expenses are on their way up there as well. The most insidious thing about these fees is most investors don't even know they are paying them unless you look at the prospectus sent to you (most don't). Most mutual funds in Canada typically have a 2 - 3.5% expense ratio compared to an average 0.25% - 1.0% in the US . In addition, there is a much larger selection of low-cost mutual funds in the US with expense ratios as low as 0.09%.

TAX-PREFERENCE INVESTMENTS - There are several tax-preference investment alternatives available in the US that are not available in Canada . They include:

	Municipal Bonds - If you purchase bonds issued by the municipal governments in your state of residency, the interest is both federal and state tax-free (if applicable). As expected, the interest rates on the tax-free bonds are typically lower than fully taxable bonds because of their tax-free status. Interest from municipal bonds purchased from outside your state of residency are tax-free federally, but taxable on your state return (if applicable).
	Federal US Obligations - The interest from US government bonds, T-bills, etc. is tax-free at the state level (if applicable) but still taxable at the federal level.
	Exempt Money Market - Another alternative is to purchase an exempt money market. These are money market mutual funds that only invest in federal or municipal government bonds that will provide the tax benefits as outlined above.
	Annuities - You make a contribution to an annuity on a one-time or on-going basis and the earnings grow tax-deferred. When you are eligible to make withdrawals, your initial contribution is returned tax-free and the earnings are all taxed as ordinary income. You should seek counsel before entering these annuities as they can lock you in for some time and typically have high expenses associated with them.
	Roth IRA - As a result of the 1997 Taxpayer Relief Act, a new individual retirement account became available in the US . If you have earned income, you are eligible to make a contribution to this account, invest it and it grows tax-free (versus tax-deferred). This may be a wonderful alternative for you depending on your unique circumstances (see the Independence Planning section for more details).

MONEY MARKET "SWEEP" - Dividends or interest payments, maturing bonds or the sale of an investment results in cash in your account. In Canada , this cash sits in a savings type account earning "savings" account interest rates unless you choose to invest the cash in a money market mutual fund. These money market funds in Canada typically have a deferred sales charge and/or a high management expense ratio. In the US , any cash in your account is typically "swept" on a daily basis into a money market mutual fund automatically. The nice thing is these are low cost funds that allow you to take money out at any time penalty-free. As a result, you earn the higher money market rate starting the same day your cash hits the account versus a savings account rate, which can be 1 - 2% less.

MUTUAL FUNDS - Some investors in Canada have researched and become familiar with the different mutual fund families in Canada such as Altamira , MacKenzie, AIM, Royal Funds, etc. In the US , however, no such funds exist. The question then becomes "Which mutual fund families should I use in the US ?" Vanguard? Dimensional Fund Advisors? There are in excess of 10,000 mutual funds you can select from but "Which mutual fund is right for your unique circumstances?" We can provide assistance in this area.

Investment Planning
	Keeping Accounts in Canada - the complications of doing so.
	Setting Up Accounts in the US - how/where should you do it?
	Moving Investments to the US - obstacles & difficulties.
	Investing in the US - a lot cheaper than Canada.
	Foreign Tax Credit Planning - get back some of the taxes you paid to Canada.
	Our Investment Approach/Philosophy