Investment Strategy for Canadian SWEs Circulates

The strategy's heavy 70% weighting in VFV reflects a strong bet on the continued outperformance of the U.S. market. Over the last decade, the S&P 500 has significantly outperformed international developed markets, although historical cycles show periods where international stocks have led. VFV, or Vanguard S&P 500 Index ETF, tracks the 500 largest U.S. public companies and has a low management expense ratio (MER) of 0.09%. Its counterpart, VIU (Vanguard FTSE Developed All Cap ex North America Index ETF), offers exposure to developed markets like Japan, the UK, France, and Germany with an MER of 0.22%. Utilizing a TFSA for this strategy has specific tax implications. While capital gains are tax-free, dividends from U.S. stocks held within a TFSA are subject to a 15% withholding tax by the IRS. This tax is non-recoverable for the Canadian investor. In contrast, the Canada-U.S. tax treaty recognizes the RRSP as a retirement account, making it exempt from the 15% withholding tax on U.S. dividends. This makes the RRSP a potentially more tax-efficient vehicle for holding U.S. dividend-paying equities compared to a TFSA. For a 2026 graduate, the cumulative TFSA contribution room, assuming they were at least 18 in 2009, would be $109,000. The annual limit for 2026 is $7,000. High-income software engineers often prioritize maximizing their RRSP contributions to reduce their significant taxable income. An RRSP contribution is tax-deductible, which is a primary advantage for those in higher tax brackets. The TFSA is then often used for investments with high growth potential to maximize tax-free gains.