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Cardinal Point Wealth Management Featured in ETF.com

September 26, 2019 By Cardinal Point Wealth

Terry Ritchie, Director of Cross-Border Wealth Services, and Matt Carvalho, CIO, recently sat down with Lara Crigger at ETF.com and discussed some of the tricky aspects of moving abroad.

Terry-Matt-Cardinal-Point-Wealth

When your expenses are in a different currency from your income, currency hedges and dollar-cost-averaging are normal ways to deal with uncertainties in global markets.

But there are also many other financial issues to consider, such as immigration and social security:

“You can’t just cross the border and say, ‘I live here now; I’m going to work here and get free health care’. There’s a process,”, says Ritchie and points out that the job of financial planners is to take a big-picture view. For tax and financial regulatory reasons, you may have to change some of the ETFs or mutual funds held via 401(k)s – or else face some onerous tax implications and heavy paperwork.

It all has to be part of a comprehensive financial plan, catered to the specific individuals moving and their conditions.

Read more at ETF.com

Filed Under: Articles Tagged With: Cross-Border Financial Advisor, cross-border financial planning, ETF.com

Is the Stock Market too Concentrated?

August 8, 2018 By Cardinal Point Wealth

It probably doesn’t come as a surprise that Amazon, Netflix, Microsoft, Apple, Alphabet and Facebook have been some of the best performing stocks in the first half of this year. But what may be surprising is that those six stocks made up 98% of the S&P 500 Index returns for the first half of 2018 according to a recent CNBC article1!

Many headlines over the last year have pointed out just how large these tech giants have grown For the first time since 20002, the tech sector now represents 25% of the S&P 500. When viewed another way, the market capitalization- the amount investors have deemed the companies are worth of the top (largest) five companies is approximately equal to the bottom (smallest) 282 companies in the S&P 500, as illustrated by the amazing pie chart below created by Michael Batnick of Ritholtz Wealth Management3.

 

Weight of top 5 companies in S&P 500 versus bottom 282 companies

cross border

 

In other words, the bottom 56% of the S&P 500 has the same market capitalization as the top 1%. That’s a lot of companies. Those 282 listed include many household names such as Chipotle, Kohl’s, Clorox and H&R Block, all of which are multi billion-dollar firms on their own. Which begs the question, is it typical for a handful of the largest companies to dominate an index?

It turns out that historically it’s not uncommon for the largest companies to represent an enormous percentage of the index. Today the largest 10 companies represent a little over 20% of the large cap space  That’s right about the average we’ve seen over the last few decades, and significantly lower than it was in the 1960s, according to a recent study by Travis Fairchild at O’Shaughnessy Asset Management4. This study also found that on average, about 6-7 of the top 10 names fall out of the top 10 within the following decade, suggesting that many of the current top ten companies will be replaced in the next ten years.

This phenomenon isn’t limited to just the U.S. According to Benjamin Felix of PWLCapital, through July 13th of this year, 75% of the S&P/TSX return came from just 10 of its 246 stocks, led by Suncor Energy, Toronto-Dominion Bank and Shopify5. This may lead you to ask, is there anything I should be doing as an investor to take advantage of this?

First off you should note that well diversified portfolios likely hold all the names mentioned in this piece; Amazon, Apple, TD, etc. are some of the largest holdings for most North American investors. But investing a portfolio solely in those largest companies has two pitfalls- undue concentration of risk and missed opportunities in other areas of the market.

The first pitfall of investing solely in individual names – even some of those red-hot tech stocks, came home to roost at the end of July. Both Facebook and Twitter reported earnings which fell short of market expectations. On July 26th, the day after their quarterly earnings announcement, Facebook fell by a whopping 19%, erasing $120 Billion USD in value! This amount is greater than the entire value of large companies like GE, Nike or Starbucks. A day later, following Twitter’s earnings announcement, that stock also fell 19%. Twitter had been one of the best performing stocks over the previous year prior to that announcement.

While these companies are included in most major stock market indexes, the performance of any individual company is going to be relatively small in comparison to the entire index- for example the S&P 500 was basically flat on July 26th, even with Facebook falling dramatically. But if you owned them individually- they would likely represent a far greater percentage of your overall assets.

Another major downside of only holding those largest of companies is missing out on large potential gains elsewhere. Small companies outperformed their large cap counterparts in the U.S. and Canada significantly over the second quarter of this year. And academic research shows that historically small companies have outperformed their large counterparts over decades6. Yet for the average investor, it’s difficult to not want to go all in on the large gains you’ve recently seen on familiar companies you likely interact with every day.

If outperforming were as easy as picking the recent winners and calling it a day, active fund managers would have a far better track record than they currently do. But as we’ll explore in a future blog, the record of both U.S. and Canadian active stock managers is poor, supporting the idea that it’s extremely difficult to outsmart the market and predict in advance who the winners of tomorrow will be.

Like the Apples or TDs of today, or the IBMs or Blackberrys of the past, a few large high-flying companies will often garner the headlines. Yet the key to reaching your financial goals is not the fool’s errand of trying to guess what the wonder company of tomorrow will be, but in keeping a well-diversified portfolio that will own all the companies that may provide that growth.

By Matthew Carvalho, Chief Investment Officer

1Just three stocks are responsible for most of the market’s gain this year, CNBC, Jul 10, 2018
https://www.cnbc.com/2018/07/10/amazon-netflix-and-microsoft-hold-most-of-the-markets-gain-in-2018.html

2S&P 500 Hits Tech-Heavy Milestone Last Seen With Dot-Com Bubble, Bloomberg, Feb 28, 2018
https://www.bloomberg.com/news/articles/2018-02-28/s-p-500-hits-tech-heavy-milestone-last-seen-amid-dot-com-bubble

3@michaelbatnick tweet, July 18, 2018
https://twitter.com/michaelbatnick/status/1019680856837849090/photo/1

4@tbfairchild tweet, Jun 6, 2018
https://twitter.com/tbfairchild/status/1004375185179529217

5@benjaminwfelix tweet, July 13, 2018
https://twitter.com/benjaminwfelix/status/1017869943226937345/photo/1

6 Common risk factors in the returns on stocks and bond, Journal of Financial Economics 1993, Fama and French

Filed Under: Articles Tagged With: canada us cross border tax, Cross-Border Financial Advisor, cross-border wealth management

U.S. Citizens Living in Canada: Know Your Key U.S. Tax Forms and Responsibilities

February 17, 2016 By Cardinal Point Wealth

TaxQuestionsOver the years, many articles have been written reminding U.S. citizens living in Canada to file a U.S. 1040 tax return annually, in addition to the FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR). While the U.S. 1040 and FBAR are key documents most U.S. expats must complete, there are other U.S. tax filings that unfortunately and all too often, are missed or not filed properly.

Many of these missed tax filings relate to U.S. citizens living in Canada who own an interest in Canadian companies or unlimited liability corporations, Canadian partnerships, Canadian trusts, RESPs and TFSAs, or even owners of Canadian-traded mutual funds or exchange-traded funds (ETFs) held in a non-retirement account.

Here are seven key forms, often missed by U.S. tax filers living in Canada, that you should be aware of:

Form 8858: Information return of U.S. persons with respect to foreign disregarded entities
A U.S. person who directly, indirectly or constructively owns a foreign disregarded entity (FDE) must file this form. An FDE is an entity that is not created or organized in the United States and that is disregarded as an entity separate from its owner for U.S. tax purposes. For example, a single member unlimited liability company in Canada that is owned by a U.S. person would trigger filing this form.

Form 8865: Return of U.S. persons with respect to certain foreign partnerships
This form must be filed by a U.S. person who owned more than a 50% interest in a foreign partnership during the year or owned at least a 10% interest if the partnership was controlled by U.S. persons owning a 10% or greater interest. A U.S. person also has a filing requirement if he or she contributed property in exchange for a partnership interest if that person directly, indirectly or constructively owns at least a 10% interest, or the value of the property contributed exceeds $100,000.

Form 5471: Information return of U.S. persons with respect to certain foreign corporations
This form is filed by any U.S. person who is more than a 10% direct or indirect shareholder in a foreign corporation. It is also required for any U.S. shareholder in a controlled foreign corporation (CFC), which broadly speaking is a foreign corporation, more than 50% of which is owned by U.S. persons. A U.S. citizen or resident who is an officer or director of a foreign corporation may also have a filing requirement if he or she acquired stock in a foreign corporation. For example, if you or your business owns a corporation in Canada, then you will want to file this form; the penalty for not filing can be as high as $50,000.

Form 926: Filing requirement for U.S. transferors of property to a foreign corporation
Any U.S. person who transfers property to a foreign corporation and owns more than 10% of the stock, or any amount of stock if cash transferred is more than $100,000, must file this form with his or her U.S. tax return. This form would apply if, for example, a U.S. person were to contribute cash in exchange for stock to form a wholly owned foreign corporation.

Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
A foreign trust with a U.S. owner, which can sometimes include foreign pension plans, Registered Education Savings Plans (RESPs) and, depending on how you might interpret the IRS Regulations, Tax-Free Savings Accounts (TFSAs), must file this form independently with the IRS by March 15 following the year to which it relates. Additionally, if a distribution or other payment is received from the trust, Form 3520 may be required (and should be filed with the taxpayer’s tax return). Failure to file these forms subjects the U.S. owner to an initial penalty equal to the greater of $10,000 or 5% of the gross value of the trust assets considered owned by the U.S. person at the close of the tax year.

Form 8621: Information return by a shareholder of a passive foreign investment company or qualified electing fund
This form is for reporting any interest in an overseas “passive” corporation (50% or more of its assets produce passive income or 75% of its income is passive). This type of investment comes with other issues, such as whether to make a mark-to-market or qualified electing fund election, and subsequently how income and gains are taxed. As we discussed in a previous article, even owning shares in a Canadian mutual fund or ETF could trigger filing this form.

Form 8938: Statement of foreign financial assets
A U.S. person must file Form 8938 if he or she has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold. Some assets are not required to be separately listed if they have already been reported on one of the forms listed previously, such as the 8891, 3520 or 5471. Starting with 2013, U.S. entities will be required to file this form as well as individuals.

As a U.S. tax filer, it is very important that you fully disclose all of your worldwide financial interests to your U.S. tax preparer, so that they have a complete understanding of your financial affairs and can properly address all of your U.S. tax filing obligations. Failure to file the above mentioned U.S. tax forms can lead to substantial non-compliance penalties. Furthermore, make sure you always work with a qualified preparer such as a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the IRS who has a complete understanding of Canadian and U.S. tax laws and has experience servicing U.S. citizens living in Canada. At Cardinal Point, we specialize in assisting U.S. citizens living in Canada with their complex cross-border tax filings and financial planning challenges.

Filed Under: Articles Tagged With: Americans living in Canada, Cross-Border Estate Planning, Cross-Border Financial Advisor, Cross-border tax planning, Tax Free Savings Account

Cross-Border Financial Advisors Are in Demand

November 29, 2011 By Cardinal Point Wealth

This article emphasizes the need to review financial planning and investment matters with a team well-versed in cross-border issues prior to any move, as a lack of proper planning can often result in higher taxation, poor estate planning and enhanced risk. It can be hard to identify an advisor who is qualified to offer financial advice on both sides of the border. The best strategy is to employ an advisory team that has the ability, platform and knowledge to manage assets in Canada and the U.S. under one cohesive strategy. A successful strategy requires in-depth knowledge of Canadian and U.S. tax systems and collaboration between cross-border professionals (financial advisors, CPAs, attorneys, etc.).

Filed Under: Articles, Canada-U.S. Financial Planning Articles, Cross-border Tax Planning, Investment Management Articles, news Tagged With: Canada-U.S. financial planning, Cross-Border Financial Advisor, Cross-border tax planning, Investment Management

Canadian Expat Network Profile of Jeff Sheldon

June 14, 2011 By Cardinal Point Wealth

This profile of Cardinal Point’s Jeff Sheldon on the Canadian Expat Network (CEN) talks about his transition to the U.S. and his role in starting a multi-office, cross-border financial planning firm. He also discusses how the firm is uniquely positioned to understand the Canadian mindset and cater to those specific financial planning and investment management challenges.

Filed Under: Cross-Border Wealth Management, interviews, press release Tagged With: Cross-Border Financial Advisor, cross-border wealth management, Jeff Sheldon

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"Cardinal Point" is the brand under which the dedicated professionals within the independent Cardinal Point Group of Companies collaborate to provide financial and investment advisory, risk management, financial planning and tax services to selected clients. Cardinal Point comprises two legally separate companies: Cardinal Point Wealth Management Partners, LLC, a U.S. registered investment advisor and Cardinal Point Capital Management ULC is a U.S. registered investment advisor and a registered portfolio manager in Canada (ON, QC, MB, SK, NS, NB, AB, BC). Advisory services are only offered to clients or prospective clients where the independent Cardinal Point firms and its representatives are properly registered or exempt from registration. Each firm enters into client engagements independently. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.