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But, what about home buying?
 
 

That’s the thought I had after reading a question submitted by an impressive 26-year-old newsletter reader who has saved $200,000. “Do you suggest using a financial advisor who charges 1 per cent annually to manage the money, or using a roboadviser like Wealthsimple?” he asked.
 
 

My suggestion if I had to pick between the two would be a roboadviser, but that’s getting ahead of things. Given that we’re in Canada, where real estate rules, I have to wonder if this 26-year-old plans to buy a home in the next five years. If so, then all or most of that $200,000 would likely go toward a down payment.
 
 

This brings us to the ever-hazy difference between saving and investing. Someone with down payment money for a home purchase within five years is a saver and thus best served with a high interest savings account. Investing is ideally for money you won’t need for six to 10 years or more. The longer you stay invested, the more likely it is unavoidable periodic downturns will be nicely offset by the good times.
 
 

With that lecture dispensed with, let’s get to investing that $200,000. The issue with paying 1 per cent fees to an adviser is that it’s hard to see where the value would be. In the 2020s, it’s not enough for an adviser to justify fees with portfolio management only. Financial planning is the usual add-on, but 26-year-olds have limited need for this service. Young adults who do want to talk to a planner are better off setting up a session or two with a fee-for-service planner charging a flat fee.
 
 
 

A roboadviser, with fees typically in the 0.4 to 0.5 per cent range, is a more economical fit for investors who want help managing a portfolio. And now for a third option: open a digital investing account and just buy an asset allocation exchange-traded fund. If this 26-year-old were investing for the long term, an asset allocation ETF with 80 per cent of its assets in stocks and 20 per cent in bonds would work well. Pretty much all the big ETF providers offer this type of growth fund, as well as more and less aggressive mixes.
 
 

With a zero-commission broker, the portfolio management cost of investing with an asset allocation ETF is zero. That just leaves the cost of owning these ETFs, which is about 0.2 to 0.35 per cent. These fees are taken off the top by ETF companies, which report net returns to their clients. Investors don’t pay them directly.
 
 

A final note about ETF fees – they apply as well to robo-adviser portfolios, which make extensive use of ETFs. If an adviser puts you in an ETF or mutual fund, fees for those products apply as well as the adviser’s own fee.
 
 
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Mortgages, American-style
 
A look at whether the 30-year mortgages available in the U.S. market would work in Canada, where most borrowers take mortgage terms of one to five years, max. No rate drama with a 30-year term, but think of the buyer’s regret if you lock in when rates are high.
 
The high cost of e-books
 
Ottawa librarians on why the wait is so long to receive an electronic copy of the most popular books – more than a year in one particular case. They blame publishers of e-books, which can cost up to six times more than a print edition for a library.
 
What not to talk about on a first date
 
Personal finance guy Ramit Sethi says he finds talking money on the first date to be “a little nerdy.”
 
The Birkin bag knock-off
 
All about how third-party sellers on Walmart’s website have offered a knock-off of the Birkin handbag, a status symbol that in extreme cases can cost hundreds of thousands of dollars, for about $115.
 
 
 
 

 
 
 
 
Question
 
We recently discovered that TFSAs are a contentious issue with the American government and something they have been fighting to tax for some time now. My wife was born in the U.S. and so the financial ramifications of this could be considerable. What would you recommend if she chooses to close her TFSA account completely?
 
Rob
 
Here’s an extensive answer to this question from Terry Ritchie, vice-president, private wealth manager and partner at Cardinal Point Wealth Management: “Under U.S. tax rules, TFSAs held by Americans in Canada are not recognized as tax-exempt by the IRS. Therefore, any accrued earnings would need to be picked up on your U.S. tax return (IRS Form 1040) on an annual basis. Further, you would be obligated to include this on your foreign reporting requirements – FinCEN 114 and perhaps IRS Form 8938 – depending on your U.S. tax filing status and threshold amounts of foreign accounts held outside the U.S.
Some practitioners also advocate that Americans in Canada that hold TFSAs should also file IRS Form 3520 and 3520-A, as the IRS might consider your TFSA to be a foreign trust. Recent IRS Revenue Procedures (2020-17) provided some relief for Canadian RDSPs and RESPs, but did not specifically provide relief for TFSAs. However, an outstanding cross-border tax attorney, Max Reed with Polaris Tax in Vancouver, has commented on this issue which you can find here.
If you have failed to include the accrued income and reporting on your U.S. tax return and the necessary foreign reporting, you might consider either amending your tax returns for the last few years or discussing your situation with a professional cross-border tax specialist to determine if a voluntary disclosure with the IRS would be necessary.
If the amount of accrued earnings and activity are not significant within your TFSA, the additional U.S. tax exposure might not be that significant. However, you’ll need to work with a cross-border tax preparer to determine any exposure and related penalties.
If you did choose to collapse the TFSA, there would be no Canadian tax result. However, you would have to pick up any investment income and related capital gains (or losses) upon the sale of the holdings within the TFSA.”
 
 

Do you have a question or comment for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
 
 

 
 
 

A multiyear chart showing how various types of investments have performed on a year-by-year basis going back to 2009.