July 2, 2022

I’ve been following your mannequin Yield Hog Dividend Development Portfolio for a number of years, however solely now do I’ve the cash to take a position. I’m contemplating a few of the shares in your portfolio comparable to Enbridge Inc. (ENB), BCE Inc. (BCE), Telus Corp. (T), Fortis Inc. (FTS) and Emera Inc. (EMA). Nonetheless, they’re all buying and selling at or close to all-time highs. Ought to I be ready for a greater entry level to spend money on these shares?

The issue with “ready for a greater entry level” is that it’d by no means come. If the shares you’re watching proceed to rise, you’ll must pay extra for them, not much less. What’s extra, whilst you’re ready for costs to say no, you’ll miss out on the enticing dividends these firms pay.

The truth that a inventory is buying and selling at or close to a file excessive doesn’t, in and of itself, inform you something about the place the value is heading subsequent. But many traders tie themselves into knots as a result of their largest concern is that they are going to purchase proper earlier than a pullback and “lose cash” on paper.

However would that basically be such a giant deal? If in case you have a protracted investing horizon – which you must if you’re contemplating shares – a short-term drop in a inventory value ought to matter little to you. Your purpose as an investor must be to establish strong firms with rising revenues, earnings and dividends that may reward you over the long term – say 5 years or extra. Because the outdated saying goes, it’s time out there, not market timing, that builds wealth.

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So, as a substitute of making an attempt to select your entry factors completely – which no person can do persistently – I counsel you give attention to constructing a well-diversified portfolio, protecting your prices low and reinvesting your dividends to take advantage of compounding. These are issues you possibly can management. As a substitute for proudly owning particular person shares, you could want to take into account index exchange-traded funds. ETFs will provide you with instantaneous diversification and assist to restrict the remorse and anxiousness that some traders expertise when a person firm they personal falls in value.

In a latest column, you mentioned that when shares have dropped in worth and they’re transferred to a tax-free financial savings account, the investor can’t declare a loss for tax functions. What a few scenario the place shares which have gained in worth are transferred to a TFSA? Will capital beneficial properties taxes be prevented in such conditions?

No. Capital beneficial properties taxes nonetheless apply once you switch a profitable inventory from a non-registered account to a TFSA (or some other registered account). The CRA considers this a deemed disposition, and the tax therapy is identical as when you had offered the shares.

This would possibly strike some traders as unfair. In spite of everything, when you switch dropping shares to a registered account the capital loss is denied for tax functions. Equally, when you promote a dropping inventory and also you – or an individual affiliated with you comparable to a partner or an organization managed by you or your partner – repurchase the identical inventory inside 30 days (earlier than or after the sale date) it’s thought of a “superficial loss” and can’t be used for tax functions.

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Sadly, the foundations are totally different for capital beneficial properties.

As a weblog publish on adjustedcostbase.ca explains: “In the event you promote shares and understand a capital acquire, however instantly repurchase the shares, are you able to name this a ‘superficial acquire’ and defer the capital acquire? The reply is not any: you can not defer the capital acquire and there’s no such factor as a ‘superficial acquire.’ The capital acquire is taxable instantly within the present tax 12 months, even when the shares are repurchased inside 30 days.”

I’m about to return into a reasonably large sum of cash, a portion of which I plan to donate to charity. To donate in essentially the most tax environment friendly means potential, I’m pondering of donating shares I already personal which have a considerable capital acquire. Can I instantly purchase extra shares of the identical firm or do I’ve to attend 30 days?

Once you donate listed securities which have appreciated in worth, you win in 3 ways. First, you get the satisfaction from serving to a very good trigger. Second, you keep away from capital beneficial properties tax. Third, you obtain a charitable donation receipt for the market worth of the securities. The one loser is the Canada Income Company, which will get much less tax income.

After you donate your securities, you’re free to repurchase shares of the identical firm. There isn’t any want to attend 30 days. The 30-day ready interval solely applies if you’re promoting shares for a capital loss and need to repurchase them with out violating the superficial loss rule.

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E-mail your inquiries to [email protected]. I’m not in a position to reply personally to e-mails however I select sure inquiries to reply in my column.

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