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I have about $70,000 to invest, but when I look at charts of the Canadian and U.S. indexes they are all at or near record highs. Would it be better to wait for a pullback before investing?

There are at least two problems with waiting for a pullback.

First, nobody knows when it will happen or how big it will be. Markets could rise another 20 per cent, for example, and then fall 10 per cent – the technical definition of a “correction.” But you’d still be buying at levels that are much higher than today.

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The second problem is that, when a pullback arrives – now or later – you might not have the stomach to invest because you’ll be worried that the sell-off will continue.

Keep in mind, too, that stock indexes being near record highs does not necessarily signal that a correction is around the corner. For every strategist who says stocks are overvalued, there is another strategist forecasting continued gains in 2021 and 2022 as the economy rebounds strongly once the pandemic is under control.

Anyone who is being honest will tell you they don’t know where the market is heading in the short run. There are too many variables – interest rates, earnings, the pandemic, geopolitics, economic growth, valuations, the madness of crowds – to consider. But one thing we do know is that markets have risen over the long run.

Reflecting the market’s general upward trend, studies have shown that investing a lump sum usually outperforms the gradual approach of dollar-cost averaging. With that in mind, you may want to put the odds in your favour by deploying your cash now and focusing on what you can control, such as buying high-quality stocks or exchange-traded funds, keeping your costs low, staying diversified and resisting the urge to trade. Those things – not the ability to time your entry point perfectly – will have more impact on your returns over the long.

I hold Berkshire Hathaway Inc. (BRK.B) in my tax-free savings account. I purchased the shares when the Canadian dollar was trading at 93 US cents during the financial crisis of 2008. Now that our dollar is trading at more than 81 US cents, what are the tax implications if I withdraw the shares from my TFSA?

There are no tax implications – TFSA withdrawals are tax-free. The exchange rate in effect when you purchased BRK.B is therefore irrelevant, as is the price you paid for the shares.

What is relevant, however, is the exchange rate at the time you withdraw the shares from your TFSA. Your broker will apply its in-house exchange rate to calculate the value, in Canadian dollars, of the withdrawal; the amount will be added to your TFSA contribution room on Jan. 1 of the year following the withdrawal. The dollar value of the withdrawal will also be the new cost base of the shares, which you will use to determine your capital gain or loss when you eventually sell.

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How do I calculate a capital gain or loss on a U.S. stock held in a non-registered account?

You must convert both the purchase cost and sale proceeds to Canadian dollars, using exchange rates in effect at the time of each transaction. For example, say you bought 100 shares of Johnson & Johnson at US$50 each in May, 2011, when the Canadian dollar traded at US$1.03. The cost, in Canadian dollars, would be about $4,854 (5,000/1.03). If you sold the shares recently at US$160 when the loonie was at 80 US cents, your proceeds, again in Canadian dollars, would be $20,000 (16,000/0.8). Your capital gain would therefore be $15,146 ($20,000 minus $4,854), less any commissions paid on the purchase and sale.

Are there any tax-free savings accounts that can handle a dividend reinvestment plan? I can’t find one.

There are two types of dividend reinvestment plans. Traditional or “true” DRIPs are available only to investors who register their shares directly with the company’s transfer agent. These DRIPs let you purchase fractions of shares, which means every penny of your dividend is reinvested. However, traditional DRIPs are not available for TFSAs, registered retirement savings plans or other registered accounts.

The other type of plan is a “synthetic” DRIP operated by a broker. These plans do not require you to register your shares with the transfer agent – the shares are held by the broker on your behalf as a “beneficial shareholder” – and are available for all types of accounts, including TFSAs, RRSPs and registered retirement income funds. The downside is that these plans typically allow purchases of whole shares only, which means a portion of the dividend will be paid in cash. I don’t consider that a deal breaker, however. You can always buy a low-cost index mutual fund that you can use to regularly “soak up” the residual cash that accumulates in your account. That way, all of your money will be reinvested.

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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