Is now a good time to invest in the stock market? The way things have been going makes me nervous.
Even after markets rallied this week, the S&P/TSX Composite Index is still down nearly 7 per cent from its record high in early April, and the S&P 500 is down about 14 per cent from its January peak.
But here’s the thing: Those losses have already happened. They are in the past. All else being equal, stocks are actually a better value today than they were a few months ago. As Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Sure, markets could continue to fall in the short run, but it’s also possible they could rise. Nobody knows. All we know for sure is that historically, over the long run, stock markets have risen. So, if you diversify 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 quoted at $23 a 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 ripped off?
Nothing nefarious is going on. When you enter a market order for a stock, you’re telling your broker to buy the shares at the best available price. However, this is not necessarily the same as the last trade price, which was $23 in Topaz Energy’s case. When you entered your market order, evidently the lowest “ask” price – that is, what a seller was willing to accept – had risen to $23.03, so that is the price at which your order was “filled.”
These sorts of price changes are especially common with stocks that have relatively low trading volumes. To avoid surprises, look up the bid and ask for quotes from your broker before you enter an order. If the highest bid is, say, $51.50 a share and the lowest ask is $51.55, a market buy order would be executed at $51.55 (assuming there are enough shares on offer at that price to fill your order). A market sell order, on the other hand, would be filled at $51.50.
Another option is to use a “limit order” when you buy (or sell) a stock. This lets you specify the highest (or lowest) price you will accept. But in that case, you have to be prepared that your order might not get filled if the price doesn’t hit your target.
Is it possible to know whether a particular stock is included in an exchange-traded fund? If so, how does one go about finding out?
It’s actually pretty easy. All ETFs publish a list of their holdings and the percentage weights of each security. A quick way to find this information is to do an internet search for the fund’s ticker symbol followed by the letters ETF.
For instance, say you’re wondering which stocks are in the BMO Canadian Dividend ETF, which has the symbol ZDV. If you search “ZDV ETF” (without the quotation marks), one of the first results will be a link to the main page for ZDV on the website of BMO Global Asset Management.
Once you’re on that page, scroll down and click on the “holdings” tab. This will reveal the ETF’s top 10 holdings, which are all familiar names such as Enbridge Inc. (ENB), BCE Inc. (BCE), TC Energy Corp. (TRP), Canadian National Railway Co. (CNR) and several large banks. You can then expand the list to see all 51 holdings. Other ETF companies present their fund holdings in similar ways.
What are your thoughts on holding exchange-traded funds in registered accounts given what appears to be a higher volume of reinvested or “phantom” distributions recently? In the past year I have received phantom distributions in my non-registered and registered accounts, but while I get the benefit of increasing my adjusted cost base in my non-registered account, I get no benefit at all 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 units. However, there are no capital gains taxes in registered accounts, so raising the ACB of the ETF would not provide any benefit. For that reason, you should feel comfortable holding ETFs in a registered retirement savings plan or 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 money is withdrawn.)
Also keep in mind that 2021 was an especially busy year for phantom distributions, because surging stock markets created a lot of capital gains that ETFs distributed (on paper) to unitholders for tax purposes at the end of the year. Given the rough start for markets in 2022, however, I suspect we won’t see nearly the same volume of phantom distributions this year. For more on phantom distributions, read my recent column here. Print: read my recent column at tgam.ca/clinic-phantom.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
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John Heinzl