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I am completely new on investing and I am educating myself reading some books about finance but in the process to understand better the whole process, I'm very interested on buying index funds. So, I have the following doubts:

  1. I heard about this stock broker Vanguard, when investing in index funds; am I allowed to pick the companies where I want to buy from? I'm Canadian and I want to build a mixed portfolio with Canadian and US companies. Or is like mutual funds where I inject the money and they will diversify the money based on a plan of risk with an expensive MER?

  2. After the news about the Panama Papers, is it possible to establish an offshore company or opening an offshore account to perform operations of investments on buying and selling stocks in the name of these offshore companies or bank accounts?

  3. If yes to number three, the money earned from dividends in these offshore companies/accounts will be taxable in Canada? As far as I know having an offshore business is completely legal also because they will ask for information in order to avoid money laundry.

  4. I asked to my local bank account agent to invest in index funds but he tried to convince me to go through mutual funds with these tax free saving accounts. Practically, he didn't want to give me more information about it and he suggested me to make an appointment with Charles Schwab (I talked to other agents too). So that's why I want to do the things on my own. I saw tutorials about how to invest in Vanguard buying funds from US and Canadian market, but do I have to pay taxes from the capital gains at the end of the year?

Please, I hope finding a little bit of patience whilst I continue with my learning.

Thanks in advance.

  • Why are you interested in offshore? – Chris W. Rea May 13 '16 at 4:50
  • Truth is to make money and help others. As I heard an offshore company made whealthy people, wealthier! Poor people need to learn about their strategies. – Maximus Decimus May 13 '16 at 13:02
  • People in Canada need to learn more about Tax Free Savings Accounts. If one can't even maximize use of a TFSA, looking at alternatives may be erroneous, – Chris W. Rea May 13 '16 at 13:21
  • @ChrisW.Rea. The problem with the TFSA is the limit of contributions which is around 46 500$. I know that any dividend, interest or capital gains are not tax deductible. What it is not clear for me is if I surpass the limit on capital gains. For example I have the power to convert an investment of 15 000$ into 100 000$. Will I be notified by the Government to pay taxes for 1% each month until I withdraw the money or the limit is only applicable to my contributions? I talked with 3 agents and at least 2 of them were on the same answer. So there are some non-qualified agents. – Maximus Decimus May 15 '16 at 0:01
  • I've already got an answer about my previous comment. Taxes are applied only on over contributions and not on earnings from investments. But you're limited by the contribution room controlled by the Canada Revenue Agency. – Maximus Decimus May 15 '16 at 5:03
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when investing in index funds

Index fund as the name suggests invests in the same proportion of the stocks that make up the index. You can choose a Index Fund that tracks NYSE or S&P etc. You cannot select individual companies. Generally these are passively managed, i.e. just follow the index composition via automated algorithms resulting in lower Fund Manager costs.

is it possible to establish an offshore company

Yes it is possible and most large organization or High Net-worth individuals do this. Its expensive and complicated for ordinary individuals. One needs and army of International Tax Consultants / International Lawyers / etc

but do I have to pay taxes from the capital gains at the end of the year?

Yes Canada taxes on world wide income and you would have to pay taxes on gains in Canada. Note depending on your tax residency status in US, you may have to pay tax in US as well.

  • Thanks for you answer. Really appreciated. I wanna buy shares from some specific companies but I don't wanna be worried by the performance day by day. I just wanna buy and track the performance in the long term without so much risk. Can I do it on my own or do I need still a stock broker? I heard there is a service to buy shares and there is a commission only on each transaction, but cannot remember! – Maximus Decimus May 15 '16 at 0:06
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    If you want to buy individual shares on your own [i.e. pick items], you would need a stock broker / broker account. Generally the charges are per transaction, when you buy or sell. There are additional offering i.e. research reports that are free or charged depending on the broker you select. – Dheer May 15 '16 at 4:32
  • Just to mention, that I found recently that opening an offshore company it's not a big deal. You can do it without any consultant and even online. After some wire transfer to the lawyer company, you will receive a confirmation of you offshore company creation in the core business district in Panama. – Maximus Decimus May 16 '16 at 0:32
  • @MaximusDecimus humm. Be careful, the lawyer company can be Nigerian scam. Second just opening an offshore account does not mean you save taxes. You have to structure investments in specific way. – Dheer May 16 '16 at 1:06
  • Sorry I didn't mention it. I'm talking exclusively of Mossack Fonseca and you are right; it doesn't mean that someone can save taxes! – Maximus Decimus May 16 '16 at 1:12

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