Herman Ye

Investing can be a wild ride. Endless ups and downs. Bulls and bears. Both thrilling and crushing. As investors, we tend to focus on the crushing part. And there's nothing more crushing than permanent loss, the inability to get back what we once had. The math makes recovering from investment loss much more difficult than most think. A common misconception is that a 10% loss can be recovered with a 10% gain. This is not the case. Let's demonstrate with an example. Sarah's Comeback Sarah is a big fan of XYZ company. They have an earnings call coming up and Sarah thinks the company's going to announce a big pop in sales. To participate in the prosperity, she buys $100 in shares.  The call happens and it turns out XYZ had a bad quarter. Sales were lower than expected and the stock takes a hit, dropping 10%. Sarah's shares are now worth $90.  Some time passes and XYZ's sales are starting to catch up to expectations. Investors begin buying and X

Buy low, sell high. The oldest mantra in investing. Simple enough, right? Not quite. 

Exchange-Traded Funds (ETFs) are exploding in popularity. Driven by the rise of passive investing, the industry is not only getting bigger but more innovative. ETFs used to simply hold a basket of stocks, now we have ETFs that hold other ETFs! How Do They Work? Classic ETFs hold securities to replicate an index. ETFs of ETFs takes it up a notch. Instead of holding stocks or bonds directly, they hold other ETFs. A fund of funds. Take for example  XEQT , iShares' Core Equity ETF. It doesn't own any stocks directly. Instead it holds 4 ETFs that between them own thousands of stocks. What's The Point? Diversification and convenience. XEQT allows you to own a global portfolio within a single fund. It holds a Canadian (XIC), US (ITOT), International (XEF) and Emerging Markets (IEMG) ETF, all wrapped up in a neat package. Previously to get this level of exposure, you would have to combine and juggle multiple ETFs yourself. What you gain in connivence, you pay for

It's important to diversify globally. This is especially true for us up north. Canada only has a handful of public companies and these companies span very few sectors (finance and natural resources). Investing overseas does comes a cost. Taxes . Today we discuss foreign withholding tax and how we can properly manage it. What is Foreign Withholding Tax?  These are taxes for dividends paid by foreign companies to Canadians. The tax is withheld from your dividends behind the scenes so are often overlooked. A major oversight as they can put a heavy drag on performance if not managed. How Much Are These Taxes? The amount varies by country, typically ranging between 15% and 25%. Are These Taxes Recoverable? If the tax occurs in your non-registered account then you'll receive a tax credit that you can apply against your income. For dividends paid to your registered accounts (TFSA, RRSP, etc.), the tax is unrecoverable. How Can I Reduce My Taxes? Tax consequences