Investment Options for Canadians
Canadian citizens can invest globally, but it's important to be aware of tax implications and opportunities.
If you remain a Canadian resident, you can continue to contribute to your RRSPs, RESPs, and TFSAs. For non-residents, contributions are no longer allowed to registered accounts. Harsh penalties can occur if you continue to contribute to these.
Holding Canadian real estate as a non-resident can have both tax and financial implications. Be mindful of capital gains tax on property sales, especially if you are taxed as a non-resident. You are able to own property as a non-resident and report rental income. Non-residents must file form NR6 on or before January 1 before your first rental payment is due. After CRA approves the form, the payer or agent (such as the property manager) must withhold non-resident tax of 25% on the gross rental income paid or credited to you. Failure to do so garners heavy interest and penalties.
Using platforms such as Wealthsimple, Moomoo, and my personal favorite TradeZero provides investing capabilities while abroad.
Investment Options for Americans
The U.S. tax system complicates overseas investments, so understanding the rules is vital.
Americans need to be cautious about investing in foreign mutual funds or ETFs because they could be considered PFICs (Passive Foreign Investment Companies), which are heavily taxed.
If you maintain residency in the U.S., you can contribute to tax-advantaged accounts like IRAs and 401(k)s. For digital nomads, Roth IRAs might be preferable as withdrawals are tax-free, giving flexibility while living abroad.
Platforms such as Revolut, Fidelity Cash Management Account, and Charles Schwab provide investing capabilities while abroad.
International Investments
Both Canadians and Americans can diversify their portfolios by investing in foreign stocks, bonds, cryptocurrency, or real estate. Find a tax-efficient structure and ensure you understand any double taxation rules that might apply in both your home and host countries.
Let me break down the main asset classes by risk, return, and what to think about.
Stocks
Stocks represent ownership in a company and offer potential for high returns but come with varying levels of risk. Market volatility, currency fluctuations, and economic factors can all impact stock prices. Diversification is key to mitigating these risks. Historically, stocks offer higher returns than other investment types, averaging 7 to 10% annually over the long term.
For digital nomads, consider low-cost index funds or ETFs for broad exposure, which can reduce risk. Look for global or emerging market stocks if you're interested in investments aligned with the regions you travel through.
Bonds
Bonds are loans made to corporations or governments that pay regular interest. They are generally less volatile than stocks and can offer a stable income stream. Lower risk than stocks, but bond prices can fluctuate with interest rates, and there is always a risk of default (though minimal with government bonds). Bonds typically yield lower returns than stocks, averaging around 2 to 5% depending on the type.
For digital nomads, consider international bond funds for currency diversification or government bonds from countries with stable economies. Bonds can add balance to your portfolio, offering a cushion during market downturns.
Real Estate
Real estate offers both income potential and capital appreciation, making it a favored investment for long-term wealth building. Property values can fluctuate, especially if located in volatile markets. Owning property abroad can also introduce legal and tax complexities. Returns vary by location and property type but can range from 5 to 20% or more with rental income and property appreciation.
For digital nomads, consider REITs (Real Estate Investment Trusts) for real estate exposure without the hassle of direct property ownership. If you're interested in direct ownership, research countries with favorable property rights for foreigners and manageable tax obligations.
Cryptocurrency
Cryptocurrency is a decentralized digital asset that has become popular for its high-return potential but is known for extreme volatility. High volatility, regulatory uncertainty, and security concerns. Cryptocurrencies are still an emerging asset class and are not without risk. Cryptocurrencies can offer significant returns but with equally high risk, making them suitable only for those with a high risk tolerance.
For digital nomads, allocate only a small portion of your portfolio to crypto due to its speculative nature. Use reputable wallets and platforms, and be mindful of tax reporting requirements for crypto gains in your h