Every cloud – and stock market rout – has a silver lining


Is it the right time to invest in the stock market? The way things have unfolded makes me nervous.

Even after markets rallied this week, the S&P/TSX Composite Index is still down nearly 7% from its peak in early April, and the S&P 500 is down about 14% from its peak. January peak.

But here’s the thing: These losses have already happened. They are in the past. All other things being equal, stocks are actually worth more today than they were a few months ago. As Warren Buffett once said, “Whether it’s socks or stocks, I like to buy quality merchandise when it’s marked down.”

Of course, the markets could continue to fall in the short term, but it is also possible that they will rise. Nobody knows. All we know for sure is that historically, over the long term, stock markets have gone up. So if you’re diversifying and have a long-term horizon, now may be as good a time as any to invest.

The other day I bought 50 shares of Topaz Energy Corp. (TPZ) with a “market order”. At the time, the price was listed at $23 per share. However, my transaction history shows that I paid $23.03. It’s not the first time something like this has happened. Am I getting scammed?

Nothing bad happens. When you enter a market order for a stock, you are telling your broker to buy the stock at the best available price. However, this is not necessarily the same as the last trade price, which was $23 in the case of Topaz Energy. When you entered your market order, the lowest “ask” price – i.e. what a seller was willing to accept – had risen to $23.03, so this is the price at which your order has been “executed”.

These types of price changes are especially common with stocks that have relatively low trading volumes. To avoid surprises, research the auction and ask your broker for quotes before entering an order. If the highest bid is, say, $51.50 per share and the lowest ask is $51.55, a market order to buy would be executed at $51.55 (assuming that there are enough shares offered at that price to fill your order). A market sell order, on the other hand, would be executed at $51.50.

Another option is to use a “limit order” when buying (or selling) a stock. This allows you to specify the highest (or lowest) price you will accept. But in this case, you must be prepared that your order will not be filled if the price does not reach your target.

Is it possible to know if a particular stock is part of an exchange-traded fund? If so, how do we find out?

It’s actually quite easy. All ETFs publish a list of their holdings and the weighting percentages of each security. A quick way to find this information is to search the internet for the fund’s stock symbol followed by the letters ETF.

For example, suppose you were wondering which stocks are in the BMO Canadian Dividend ETF, whose ticker symbol is ZDV. If you search for “ZDV ETF” (without the quotes), one of the first results will be a link to the main ZDV page on the BMO Global Asset Management website.

Once you are on this page, scroll down and click on the “assets” tab. This will reveal the ETF’s top 10 holdings, all of which are household names such as Enbridge Inc. (ENB), BCE Inc. (BCE), TC Energy Corp. (TRP), Canadian National Railway Co. (CNR) and several major banks. . You can then expand the list to see all 51 farms. Other ETF companies present their fund portfolios in a similar fashion.

What are your thoughts on holding exchange-traded funds in registered accounts given what appears to be a higher volume of reinvested or “ghost” distributions recently? Over the past year, I have received notional distributions in my non-registered and registered accounts, but although I get the benefit of increasing my adjusted cost base in my non-registered account, I do not get any advantage in my registered accounts.

Increasing the adjusted cost base of an ETF in a non-registered account is only a “benefit” to the extent that it prevents you from paying more capital gains tax than necessary when you eventually sell your shares. However, there is no capital gains tax in registered accounts, so increasing the ETF’s ACB would provide no benefit. For this reason, you should feel comfortable holding ETFs in a Registered Retirement Savings Plan or a Tax-Free Savings Account, for example. In addition to receiving all investment income and capital gains tax-free, holding your ETFs in an RRSP or TFSA will simplify your bookkeeping. (In the case of RRSPs, income tax only comes into play when the money is withdrawn.)

Also keep in mind that 2021 was a particularly busy year for phantom distributions, as the stock market surge created many capital gains that ETFs distributed (on paper) to unitholders for tax purposes at the end of the year. However, given the rocky start to markets in 2022, I suspect we won’t see nearly the same volume of phantom distributions this year. To learn more about phantom distributions, read my recent column here. Print: Read my recent column at tgam.ca/clinic-phantom.

Email your questions to jheinzl@globeandmail.com. I am unable to respond to emails personally but I choose certain questions to answer in my column.

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