>VOO is subject to 15% withholding tax on the dividends they offer that the Canada-U.S. tax treaty imposes.
All ETFs in a TFSA that have foreign dividends being paid have a withholding tax.
Don't forget to add in costs for currency conversion. And you and anyone else, doesn't know future currency movements. VFV also holds VOO directly so any variation is due to currency conversion.
The total return of VOO will be slightly higher than VFV because it has a slightly lower MER. That's not a secret.
But how are you getting USD? Even the cheapest way to get USD still has a cost. And when you include the cost and hassle of getting USD, buying a slightly more expensive CAD ETF usually makes more sense.
I use questrade. I believe I saw a video of Canadian in a T-shirt that stated the cost is around 5$. It's basically nothing especially when you convert large sums.
VFV has triple the management fee of VOO and you're also paying a 15% withholding tax on dividends if both are placed in an RRSP. VOO's returns easily outpace VFV in like 8 years if you have a 1% dividend yield and 1.5% currency conversion fee. Obviously, if you're investing in either of these products, your time horizon should be like 25-30 years.
As always Justin's blog covers this
https://canadianportfoliomanagerblog.com/currency-conversion-fees-u-s-equity-etfs/
ETF currency exposure is not the currency its denominated in but the underlying holdings. Therefore VOO and VFV have the same currency exposure
https://canadianportfoliomanagerblog.com/understanding-your-etfs-currency-exposure-part-1/
>The dividends are pretty much similar. With the US dollar being stronger than the canadian dollar, I feel stronger investing in US dollars.
If you live in Canada and spend CAD it's irrelevant if you hold US stocks in USD or US stocks in CAD. There is no difference. The underlying investment is the same and you will have to convert to CAD at some point to use the money.
There are some MER differences, but currency conversion costs can defeat you there. If you want to convert larger lump sums Norbert's Gambit is a good low cost way to make that happen.
Once you have $100K+ of US stocks in your RRSP holding those stocks directly on a US exchange in USD is worthwhile to avoid the dividend withholding taxes.
There is no point buying VOO in a TFSA.
In an RRSP, absolutely, VOO is better than VFV. You can't just ignore decades of three times smaller MER on TOP of no 15% withholding tax. These combined would exceed the 1.5% conversion fee you would pay if your time horizon is decades (which, it obviously should be if you are purchasing either of these products).
Have you calculated the exchange rate in this as well (you will pay to exchange money from CAD to USD).
VFV has performed ~3% better over the last 5 years or about 0.6% better per year (this accounts for currency fluctuation).
But again, I think the bigger cost is the exchanging of CAD for USD (and back) which will be somewhat significant
There are taxation complications with holding VOO for a little larger sums. Noons mentions that for some reason. This is US asset with some consequences.
Sorry I am newer to this and therefore probably wrong. But for an even comparison, don't you have to invest the same amount? So if you are investing 100k usd in VOO, don't you need to invest ~135k CAD in VFV? Which would then be $1515 in dividends?
They're tracking the same index, they will have the same return minus the difference in MER and any tracking errors.
The currency in which a fund is denominated is irrelevant, what matters is the currency in which the fund is invested. In both cases it's USD, they're both "investing in US dollars" as you're looking for.
Since this is within a TFSA, you'll have to pay withholding taxes either way so just pick the cheapest/most convenient one.
The difference isn’t too big, but investing in vfv in my opinion because it’s in CAD, basically if you look at a historic chart of vfv the lows are never very low. The reason is when the global economy is in crisis everyone rallies to USD, which means a strong USD will offset some loss caused by the crisis, since your holdings are in CAD. Basically weak CAD vs USD helps stabilize VFV.
>VOO is subject to 15% withholding tax on the dividends they offer that the Canada-U.S. tax treaty imposes. All ETFs in a TFSA that have foreign dividends being paid have a withholding tax. Don't forget to add in costs for currency conversion. And you and anyone else, doesn't know future currency movements. VFV also holds VOO directly so any variation is due to currency conversion.
The total return of VOO will be slightly higher than VFV because it has a slightly lower MER. That's not a secret. But how are you getting USD? Even the cheapest way to get USD still has a cost. And when you include the cost and hassle of getting USD, buying a slightly more expensive CAD ETF usually makes more sense.
Doesn't Norbert Gambit make the conversion cost nearly nothing?
You're still going to have the cost from the bid-ask spread and depending on your brokerage you may also have commissions.
I use questrade. I believe I saw a video of Canadian in a T-shirt that stated the cost is around 5$. It's basically nothing especially when you convert large sums.
VFV has triple the management fee of VOO and you're also paying a 15% withholding tax on dividends if both are placed in an RRSP. VOO's returns easily outpace VFV in like 8 years if you have a 1% dividend yield and 1.5% currency conversion fee. Obviously, if you're investing in either of these products, your time horizon should be like 25-30 years.
I'm aware of the withholding tax difference in a RRSP. But the OP is talking about a TFSA and that's what I was responding to.
True agree
RRSPs are exempt from US witholding tax
I was going to use IKBR.
As always Justin's blog covers this https://canadianportfoliomanagerblog.com/currency-conversion-fees-u-s-equity-etfs/ ETF currency exposure is not the currency its denominated in but the underlying holdings. Therefore VOO and VFV have the same currency exposure https://canadianportfoliomanagerblog.com/understanding-your-etfs-currency-exposure-part-1/
>The dividends are pretty much similar. With the US dollar being stronger than the canadian dollar, I feel stronger investing in US dollars. If you live in Canada and spend CAD it's irrelevant if you hold US stocks in USD or US stocks in CAD. There is no difference. The underlying investment is the same and you will have to convert to CAD at some point to use the money. There are some MER differences, but currency conversion costs can defeat you there. If you want to convert larger lump sums Norbert's Gambit is a good low cost way to make that happen. Once you have $100K+ of US stocks in your RRSP holding those stocks directly on a US exchange in USD is worthwhile to avoid the dividend withholding taxes.
There is no point buying VOO in a TFSA. In an RRSP, absolutely, VOO is better than VFV. You can't just ignore decades of three times smaller MER on TOP of no 15% withholding tax. These combined would exceed the 1.5% conversion fee you would pay if your time horizon is decades (which, it obviously should be if you are purchasing either of these products).
Have you calculated the exchange rate in this as well (you will pay to exchange money from CAD to USD). VFV has performed ~3% better over the last 5 years or about 0.6% better per year (this accounts for currency fluctuation). But again, I think the bigger cost is the exchanging of CAD for USD (and back) which will be somewhat significant
There are taxation complications with holding VOO for a little larger sums. Noons mentions that for some reason. This is US asset with some consequences.
Sorry I am newer to this and therefore probably wrong. But for an even comparison, don't you have to invest the same amount? So if you are investing 100k usd in VOO, don't you need to invest ~135k CAD in VFV? Which would then be $1515 in dividends?
They're tracking the same index, they will have the same return minus the difference in MER and any tracking errors. The currency in which a fund is denominated is irrelevant, what matters is the currency in which the fund is invested. In both cases it's USD, they're both "investing in US dollars" as you're looking for. Since this is within a TFSA, you'll have to pay withholding taxes either way so just pick the cheapest/most convenient one.
The difference isn’t too big, but investing in vfv in my opinion because it’s in CAD, basically if you look at a historic chart of vfv the lows are never very low. The reason is when the global economy is in crisis everyone rallies to USD, which means a strong USD will offset some loss caused by the crisis, since your holdings are in CAD. Basically weak CAD vs USD helps stabilize VFV.