How To Start Trading Stocks Canada – In this article you will learn everything you need to know to start investing in stocks and how to buy stocks in Canada.
If you want to dip your toes into do-it-yourself (DIY) investing, online brokerage is the way to go. With low-cost options like Questrade and QTrade Direct Investing now available to Canadians, there’s never been a lower barrier to entry – and a better time – to get started.
How To Start Trading Stocks Canada
You no longer have to put up with high commission fees and clunky trading interfaces. The process of investing and buying stocks in Canada is as simple as registering and funding your brokerage account online.
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If the idea of building long-term wealth through investing appeals to you, here’s a step-by-step process on how to buy stocks in Canada:
A broker is simply an organization that acts as an intermediary between you (the investor) and the stock market. Online brokerage allows you to buy stocks from anywhere with internet access, including the comfort of your own home.
As a DIY investor, my personal preference is to use the simpler and lower cost option. I don’t prefer to use the online brokerage of big banks as their fees are high. The only argument I can see for using this is the convenience factor, like if you already have a bank account. As a financially conscious investor, I prefer to avoid high transaction costs that affect my bottom line by understanding the fine print and complicated trading interfaces.
During the account setup, you will be asked what type of account you want to open. The most common types of investment accounts you can set up are TFSAs, RRSPs, and non-registered accounts. Consider the following rules when deciding which type of account to open:
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You can initiate a link between your investment account and your bank account either from the brokerage side or the bank side.
Once this is set up, you can easily transfer money from your broker account online. Note that if you are opening a TFSA account, these movement contributions and withdrawals are against your contribution limits.
You can also set up automatic recurring deposits in your investment account, allowing you to buy stocks on a regular basis. Known as dollar cost averaging, this technique is a powerful investment strategy for growing your nest egg.
But before you rush out to buy the hottest stocks, you should first decide which investment strategy best suits your personal needs. It is important to invest with a plan in mind so that you buy based on logic rather than emotion.
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The goal of an index investor is to build a diversified index portfolio by purchasing ETFs that passively track market indexes with low management fees.
Also known as couch potato investing due to its passive nature, this strategy has gained popularity over the years and I personally use and recommend it.
I love this strategy because of how simple yet powerful it is. There are many ways to do this, but my favorite has to be the “single fund solutions” (aka all-in-one ETFs) created by Vanguard, BlackRock and BMO. They allow you to build a balanced portfolio by buying just one ETF.
This is a passive approach that requires minimal time investment and does not involve individual stock selection or constant market monitoring. You can set it and forget it.
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That’s why index investing is a great option for investors who want to live their lives and benefit from the returns of the overall market. I recommend this approach for most DIY investors.
Dividend investors focus on selecting stocks with a track record of maintaining or increasing dividend payments over the long term.
A dividend is a regular payment made by a company to its shareholders and represents the shareholders’ share of the company’s profits.
One of the biggest appeals to dividend investors is the stable and consistent nature of income generated by stock dividends. This makes it easier to manage cash flow because instead of selling shares to withdraw capital, dividend investors can simply hold the underlying shares and withdraw cash from dividends. Another option is to reinvest dividends through a Dividend Reinvestment Plan (DRIP).
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Dividend investing can also offer Canada’s best tax benefits. For example, if you are retired and your only taxable income comes from qualified dividends, using the dividend tax credit can reduce your federal and state taxes on the first $60,000 of dividend income to nearly $0!
A growth investor’s focus is to invest in small, growing companies that are poised for above-average growth. Investors believe these companies have yet to reach their full potential, but show plenty of promise for success.
These companies reinvest their profits back into the business instead of paying dividends. This is to accelerate their growth rate and capital growth potential (stock growth).
Hopefully, these incremental stocks will show impressive returns as they develop and become successful. On the other hand, the promise of growth does not equate to actual growth, and the business may still fail.
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The goal of a value investor is to buy undervalued stocks based on an analysis of their fundamentals and intrinsic book value. Warren Buffett is probably the most famous investor who uses a value investing strategy.
The premise of value investing is to buy stocks that are below their “true” value. For example, recent negative news can cause a temporary drop in stock prices. Value investors will see this as an agreement on the stock’s “true” value and will buy if the company’s fundamental analysis remains sound. Consider buying something when it’s on sale as a value investment.
Any particular method of picking stocks will require a lot of research. If you are not willing to spend time and energy, I recommend going with an index investment strategy. It is a simple and effective strategy that offers diversification benefits and favorable risk-adjusted expected returns.
That doesn’t mean you can’t try your hand at stock picking. Who doesn’t want to shop at another Apple? However, as a non-professional, I personally see this as gambling and make sure I never invest more than I can afford to lose. Make sure you are prepared to deal with volatility and risk of loss if you decide to buy individual stocks.
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If you are interested in learning more advanced investment strategies, see how you can possibly beat the market returns.
Now that you’ve decided on a strategy that suits your financial situation and risk tolerance, it’s time to buy stocks in your investment account.
The stock market is open weekdays from 9:30am to 4:00pm EST, excluding holidays. You can trade with online brokers during these times.
The actual process of buying stocks is as simple as finding the stock indicator symbol, selecting the quantity and price to buy, and waiting for your order to be executed on the exchange.
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For example, if you use Questrade, here’s an overview of how to buy stocks on the Questrade Edge platform.
When you buy stocks, you may find something that must be bought in US dollars, known as US-listed stocks. You can either have Questrade convert the CAD for you (2% fee) or use a trick called Norbert’s Gambit to lower your foreign exchange fees (less than 0.2%).
All savvy investors should have a basic understanding of the key investment principles outlined below. Trust me, you want to make sure you know these terms, especially if you’re new to investing.
All this investment talk may sound promising, but you may wonder why so many people value investing so much. Why is it so profitable to invest? Is it worth the risk when I can keep my money safe in a bank account?
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1) The Return Power Compounding “Interest is the eighth wonder of the world. Whoever understands wins. Those who do not pay the price.” – Albert Einstein
A compounded return is one that allows you to cover your investment, as your profits give you more profit and
The result is an exponential combination of effects that really shows its benefits on the road. When your capital gains and dividends make your portfolio worth more than the initial investment itself.
As mentioned earlier, investing in stocks is as simple as buying a globally diversified ETF. Strategies like index investing (“couch potatoes”) require much less time and maintenance once you’ve set up your brokerage accounts and automatic deposits. While nothing is completely passive, index investing is about as passive as it gets.
By buying and holding stocks, you are making your money work for you instead of the other way around.
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