Or maybe you start by going down the Mr. Money Mustache rabbit hole and read all of the MMM blog posts and come to his post from 2011 on How to Make Money in the Stock Market<\/a> and learn about VTSAX’s cousin, VTI (the ETF version of VTSAX).<\/p>\n Before we dig in, I wanted to highlight that this post is long overdue and really a clarification post to another blogger out there (who shall not be named) who made a similar post but it was so so wrong.\u00a0 They were basically writing that the Canadian equivalent of VTSAX (which tracks the overall US stock market) was a ETF that tracks the overall Canadian stock market. Noooooo those are two totally different funds tracking two very different markets\/companies!!\u00a0 There is also a Reddit thread on this topic<\/a> which answers the question but there’s also a lot of other information out there which could steer you in the wrong direction.\u00a0 Thankfully, my friend Ryan over at Canadian FIRE also wrote a great post on this topic called Translating VTSAX for Canadians<\/a>. I was thrilled when I saw he had posted on this topic too and kept this in the draft area rather than give it a future scheduled posting date thinking there was no need to post this as this topic has now been covered properly.\u00a0 Then I thought, what the hell, I have this 80% done, just get it out to the world.\u00a0 So here goes.<\/p>\n All funds have an associated acronym to them and VTSAX stands for Vanguard Total Stock Market Index Fund Admiral Shares<\/a>.\u00a0 The intended purpose of this index fund is to track the performance of the entire US stock market.<\/p>\n Hold on.\u00a0 If this is already sounding a bit like a blur have no fear.\u00a0 If you’re thinking “What’s an ETF?” or “What’s an index fund?” let’s take a step back.\u00a0 If you need a refresher on different types of funds, head back to Part 6 of our Investing 101 Series<\/a>. This Investing 101 Series was geared for newbies to help get you comfortable with investing.<\/p>\n Ok, all clear now?\u00a0 Let’s move on.<\/p>\n VTSAX requires a minimum investment of $3,000, comes with a 0.04% expense ratio, and holds a mix of 3,640 different stocks with the top 10 of the largest holdings comprising 23.6%\u00a0of the net assets.<\/p>\n The 10 largest holdings (as of this writing) are:<\/p>\n While VTSAX provides a diversified portfolio thanks to its mix of 3,640 stocks, there are a few sectors that are more heavily present.\u00a0 You can likely guess which sectors simply based on the top 10 list above.\u00a0 As of 1\/31\/2021, 26.6% of the funds are in the tech sector with the other top sectors being 16.4% consumer discretionary, 14.0% health care, 13.3% industrials, and 10.4%\u00a0financials.<\/p>\n Since it’s inception in 1992, VTSAX has performed with an average annual return of 8.87%<\/a> (as of March 31, 2020).\u00a0 The fund’s Admiral Shares, the only one currently available to new investors, has returned an annual average of 7.82%<\/a> since its inception on November 13, 2000 (as of December 31, 2020).\u00a0 As noted above, VTSAX is designed to closely mimic the performance of the entire US stock market.\u00a0 It’s also important to remember that historical performance is no guarantee for future returns.<\/p>\n Moral of the story: VTSAX provides a broad diversification of US funds at a low cost.<\/p>\n Ok great.\u00a0 We like VTSAX for its low cost and it’s diversification.\u00a0 But when a Canadian tries to buy VTSAX they suddenly are at a standstill.\u00a0 There’s no such fund called VTSAX in Canada.<\/p>\n What are we to do?\u00a0 Let’s take a step back and ask a few questions:<\/p>\n Ok this is a bit murky.\u00a0 Where do we go from here?<\/p>\n Fear not.\u00a0 We’re here to show you how to purchase the closest thing to VTSAX in Canada.<\/p>\n The low cost brokerage companies in the US are Vanguard, Fidelity, and Charles Schwab.\u00a0 These brokerages offer thousands of their own products to their customers.\u00a0 So if you open a Vanguard account in the US, you then have access to VTSAX.\u00a0 Similarly, for Fidelity it’s FZROX<\/a> and for Schwab it’s SWTSX<\/a>.<\/p>\n In Canada, it’s a little bit different.\u00a0 You can access Vanguard products in Canada through a third-party financial advisor or an online brokerage account. So essentially, there is a middle man.\u00a0 We want to keep these fees as low as possible so we recommend using an online DIY brokerage account.\u00a0 The best DIY brokerage companies in Canada are Questrade<\/a> and Wealthsimple Trade<\/a>.\u00a0 These companies do not offer their own products, instead, they offer investment products from other companies, like Vanguard, iShares, etc. along with individual stocks.<\/p>\n So you open up a say Questrade<\/a> account (be it an RRSP, TFSA, RESP, non-registered, etc.), and then you now have access to select a Vanguard fund to invest in within that account.\u00a0 Questrade charges $0 to purchase ETFs which is definitely a nice feature.<\/p>\n Ok, now we’re able to tap into the world of Vanguard but with no VTSAX in sight what Vanguard product do you choose?<\/p>\n Looking at the list of Vanguard Index ETFs in Canada,<\/a> your first option is VCN<\/a> which is “FTSA Canada All Cap Index ETF”.\u00a0 While the “All Cap Index ETF” and its low MER of 0.06% may lead you to believe this is the Canadian equivalent of VTSAX, it is not.\u00a0 Instead, VCN is the index tracking 195 stocks within the Canadian market, not the US market.\u00a0 This is an entirely different product!\u00a0 This is what the original I post I read on this topic was trying to convey and oy vey no no these are very different funds.\u00a0 Not bashing this ETF, but it’s nowhere close to going to get you VTSAX if that’s what you’re looking for.\u00a0 Note that the Canadian market takes up a much smaller market share of the economy on a global level and the majority of the funds within VCN are Financials (31.9%), Energy (12.6%), Basic Materials (12.5%), and Tech (10.7%) (based off January 31, 2020) so I’d definitely recommend diversifying further if you’re looking to add VCN to your mix.<\/p>\n <\/p>\n You’ll have to scroll down nearly to the end of the equities portion of the list of funds to see VUN<\/a> which is “US Total Market Index ETF”.\u00a0 Let’s take a look.<\/p>\n Bing bing bing.<\/p>\n You’ll see that VUN holds 3,640 different holdings and its top 10 holdings match that of VTSAX and the sector weighting is the exact same.<\/p>\n It has a slightly higher MER of 0.16% compared to VCN at 0.06% and VTSAX in the states at 0.04% but sadly this is the price Canadians have to pay.\u00a0 Canadians have some of the highest expense ratios in the world.\u00a0 If I can stay under 0.25% in expense fees (aka MERs) in Canada I’m happy at this point (unfortunately).<\/p>\n The largest difference is that VUN is held in Canadian dollars, not US dollars which means VUN is not hedged against currency fluctuations.\u00a0 What this means is that if you buy VUN when the CAD is low and then the CAD goes up, you lose money.\u00a0 Vice versa if the CAD goes down compared to the USD.\u00a0 Another way of thinking about it is that you make money when the currency of your foreign investment goes up (in this case the USD compared to the CAD) and you lose money when the currency goes down.<\/p>\n Buying VUN is, from a currency risk perspective, the same as exchanging CAD to USD and then buying VTI directly (again, the ETF version of VTSAX).\u00a0 Your gains\/losses in CAD will be determined at the time of conversion of USD back to CAD when you sell the funds compared to the exchange rate you had when you originally changed CAD to USD at the time of purchase.\u00a0 So VUN reports the value of the US assets in Canadian dollars.<\/p>\n There are also CAD-hedged funds that protects you against currency fluctuations.\u00a0 Here you are purely following the performance of the holdings within the funds and do not take currency changes\/fluctuations into play.\u00a0 So it doesn’t matter that the USD\/CAD exchange rate was at the time of purchase vs the time of sale.\u00a0 Historically, funds that were hedged used to come with a higher fee.\u00a0 However, the CAD-hedged option VUS<\/a> which is “US Total Market Index ETF (CAD-hedged)” comes with the same 0.16% MER as VUN.\u00a0 So this can definitely be an attractive fund to select if you do not want any currency risk.\u00a0 However, there has been quite a bit of analysis done on this topic<\/a> outlying why you may not want to be currency hedged in Canada.<\/p>\n So the question of VUN or VUS comes down to personal preference.\u00a0 Do you want currency exposure or not?<\/p>\n It’s important to note that the US imposes foreign withholding tax for taxable accounts outside of the US which hold US companies. The additional tax consequence is 0.30% when a US company pays a dividend to non-residents worldwide.\u00a0 Note that this extra 0.30% tax is only<\/strong><\/span> on the dividends which typically are in the 1-2% area.\u00a0 So if the fund returns 8%, of which 6% is growth and 2% is dividends, you’d calculate a 0.30% hit on 2% not the full 8%.<\/p>\n However, the US and Canada currently have a tax treaty in place in that if you file a US Internal Revenue Service (IRS) Form W-8BEN, the rate is lowered to 15%.\u00a0 Again, this tax is only applied to dividends, not capital gains so some may argue that Canadians looking to invest in the US market should focus on growth stocks which tend to lave low\/no dividend payouts vs value stocks with higher dividends.\u00a0 That’s a whole other topic of discussion beyond this post.<\/p>\n The US and Canada have a tax treaty for each other’s retirement accounts which is nice.\u00a0\u00a0For RRSPs, there is a tax agreement between Canada and the US that eliminates the 15% withholding tax on US dividends if you hold the funds within your RRSP in USD.\u00a0 Unfortunately, the US does not recognize the TFSA as a retirement account so US dividends within a TFSA are subject to the 15% withholding tax.\u00a0 Why?\u00a0 Who the eff knows.\u00a0 The TFSA was introduced over 10 years ago, yet the IRS has yet to update its ruling\/acknowledgment of this account.<\/p>\n This annoying nuance is also why I, as a dual US\/Canadian citizen, sadly do not have a TFSA open in my name.\u00a0 The tax complications of this account in the US apparently can cause major issues\/headaches for dual citizens because the US does not recognize the TFSA as a retirement account even though it’s essentially the Canadian equivalent of a Roth IRA which is a retirement account in the States.<\/p>\n Holding US stocks directly in an RRSP gets this preferential tax treatment (i.e. no additional 15% withholding tax), however, an ETF that holds underlying ETFs does not qualify for the tax exemption.\u00a0 What this means is that VUN and VUS are subject to the withholding tax within your RRSP as its a Canadian ETF holding US listings.<\/p>\n If you’re interested in learning more on this topic check out the following:<\/p>\n The workaround?\u00a0 This leads to the last fund to discuss on this post.<\/p>\n Hold VTI directly in your RRSP.<\/p>\n Like I’ve mentioned a few times already, VTI is the ETF version of VTSAX (which is an index fund).\u00a0 Holding VTI, in USD not CAD, within your RRSP is the workaround to not getting hit with the US withholding tax within your RRSP.<\/p>\n How do you buy a fund held in USD when your currency is CAD?<\/p>\n Enter Norbert’s Gambit<\/a>.<\/p>\n Norbert who? Confused yet?\u00a0 Essentially you buy the DLR.TO ETF in CAD.\u00a0 Then you send an email to your discount brokerage requesting to journal your DLR.TO position (which is held in CAD) to DLR.U.TO (which is held in USD). Note that you can place this request either though an email, over the phone, or online via their chat feature – email is definitely my preferred route.\u00a0 The representative should know exactly what to do. The process takes a few business days.\u00a0 Once you now hold DLR.U.TO (in USD), sell DLR.U.TO in the US market to cash.\u00a0 You now have USD instead of CAD and can buy VTI with your USD.<\/p>\n If this sounds way too complicated don’t fret.\u00a0 It really only takes up a few minutes of your time (spread out over the course of a few days).\u00a0 There’s really nothing wrong with sticking with VUN or VUS within your RRSP as well, you’ll just be subject to the US withholding tax which really is not the end of the world.\u00a0 At all.\u00a0 Or you can choose to invest in bonds in your RRSP if you want bonds in your asset allocation.\u00a0 Again, we’re going down another discussion which is beyond this post.<\/p>\n If you liked this article and want more content like this, please support this blog by sharing it.\u00a0 Not only does it help spread the FIRE, but it lets me know what content you find beneficial.\u00a0 Writing is NOT my strong suit and it honestly takes me hours to write each post so the more encouragement the better!\u00a0 Engaging in the comments below keeps me motivated.\u00a0 You can also support this blog by subscribing to receive emails anytime a new post is published.\u00a0 Thank you FImily!<\/p>\n We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.\u00a0 Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:<\/p>\n For anyone new to the FIRE movement, one of the recurring messages you’ve likely heard within members of the FI community is our affinity for …<\/p>\nWhat is VTSAX?<\/h2>\n
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VTSAX in Canada?<\/h2>\n
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Is It VCN?<\/h2>\n
![\"\"](\"https:\/\/i0.wp.com\/modernfimily.com\/wp-content\/uploads\/2021\/01\/Capture-1.jpg?resize=726%2C361&ssl=1\")
<\/p>\nMaybe VUN?<\/h2>\n
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<\/p>\nOr Maybe VUS For Currency Hedge?<\/h2>\n
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<\/p>\nUS Withholding Taxes<\/h2>\n
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The Golden ETF: VTI<\/h2>\n
![\"\"](\"https:\/\/i0.wp.com\/modernfimily.com\/wp-content\/uploads\/2021\/01\/Capture-5.jpg?resize=980%2C472&ssl=1\")
<\/p>\nThere We Have It<\/h2>\n
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Support This Blog<\/h2>\n
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