How to Buy Stocks in Canada?
What You Should Know
- You can buy stocks through stock brokerages and online trading platforms, or even through mobile apps.
- Most brokerages charge a per-trade commission, from $5 to $10 per trade, while some offer commission-free trading.
- You can buy stocks with a tax-advantaged account, such as a TFSA, RRSP, or RESP.
- With a market order, your order is executed at the current best market price, or you can set a maximum price you’re willing to buy at with a limit order.
- Low Commissions
- In-Depth Research
- Wide Variety of Investment Choices
Albert Einstein once said compound interest is the eighth wonder of the world. He was referring to how money can grow exponentially when left to sit in an investment, such as stocks, over a long period.
If you're new to investing, buying stocks may seem daunting. However, taking a few minutes to understand investing will reward you for the rest of your life. This step-by-step guide will outline the whole process, from opening an investment account to building a portfolio and rebalancing.
What are stocks?
The most important thing to understand when buying stocks is that you are buying a piece of a company. When you purchase shares of stock, you become a part-owner of the corporation. As a result, you can vote on future decisions about the company. You are entitled to a portion of the corporation's earnings as an owner. The company will either use the profits to pay you dividends or reinvest in the company - hopefully increasing the stock price.
Step One: Choose an Investment Account
There are two categories of investment accounts in Canada; non-registered and registered. You can think of the account as to where you buy and hold the stocks.
There are no tax benefits with a non-registered account. However, there are fewer rules to understand. Non-registered accounts should only be used if you have maximized your registered account contributions. Understanding registered accounts will significantly benefit you, especially as compounding takes effect over an extended timeframe.
The most popular types of registered accounts are Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), and now the First-Home Savings Account (FHSA). This section will help you compare the types of accounts to find the best one for your situation.
| TFSA | RRSP | FHSA | |
|---|---|---|---|
| Tax-Free Contributions | ❌ | ✅ | ✅ |
| Tax-Free Withdrawals | ✅ | ❌ | ✅ |
| Withdrawal Criteria | N/A | Retirement | Home Purchase |
| Contribution Limit |
| Lower of (annually):
|
|
Non-Registered Account
A non-registered investment account has the most flexibility. There are no deposit limitations or withdrawal penalties. Additionally, you can access margin loans to buy more stocks. While registered accounts do not enable this, you can simulate margin through a line of credit or leveraged Exchange Traded Funds (ETFs).
However, the account doesn't act as a tax shelter. There are no tax benefits on contributions or withdrawals. You must also pay capital gains tax whenever you sell a stock or rebalance. This is contrary to registered accounts, which offer tax-free growth.
Tax-Free Savings Account (TFSA)
You can think of the Tax-Free Savings Account as paying income taxes on deposits but not withdrawals. The TFSA shines on withdrawals. While your contributions receive no tax deductions, you can withdraw without paying any tax.
Many younger investors prefer the TFSA because they pay taxes in a lower income bracket. As their career progresses, and so does their income bracket, they will not need to pay the higher income tax rate on withdrawals. Additionally, there will be no taxes on transactions within your account. This means you can rebalance or take profits without worrying about triggering capital gains tax.
Registered Retirement Savings Account (RRSP)
The Registered Retirement Savings Plan is the opposite of the TFSA; you receive a tax deduction on deposits but must pay taxes on withdrawals. Similarly, there is tax-free compounding due to no taxes on transactions within your account. You can think of the RRSP as receiving a tax break on deposits but paying taxes on withdrawals.
Many investors in their peak earning years prioritize RRSP contributions because it lowers their income taxes. For example, someone earning $100,000 and contributing $10,000 to their RRSP would only be taxed on $90,000 of income.
Additionally, they can withdraw when they are retired and in a lower tax bracket. While you can make early withdrawals from your RRSP, you must pay income and withholding taxes. You will also not get this contribution room back.
Upon retirement, the RRSP is usually turned into a Registered Retirement Income Fund (RRIF). At this point, you can no longer make contributions and must withdraw a minimum amount each year. Additionally, you must pay taxes on withdrawals.
First Home Savings Account (FHSA)
The 2022 federal budget introduced the First Home Savings Account, which is expected to commence in 2023. The FHSA combines the best of an RRSP and TFSA. For example, you receive an income tax deduction on deposits and pay no taxes on withdrawals.
The catch is that the balance must be used to fund a home down payment within 15 years of opening the account. If you don't purchase a home in this timeframe, the account will be transferred into your RRSP without overcontributing.
Step Two: Research Stock Brokerages
Now that you understand the type of investment account you want to open, the next step is to open it at a stock brokerage. A stock brokerage is a platform you use to buy and sell stocks. Today, most brokerages operate online to provide affordable transactions. Below, you can find a list of Canada's most popular stock brokerages. We have a page comparing online trading platforms in Canada and another specifically comparing trading platforms for options trading.
| Account Minimum | Account Fees | Trading Costs | |
|---|---|---|---|
| Questrade | $1,000 | $24.95/quarter |
|
| Qtrade | $1,000 | $25/quarter |
|
| TD Direct Investing | N/A | $25/quarter |
|
| BMO Investorline | N/A | $25/quarter |
|
| Scotia iTrade | N/A | $25/quarter |
|
| Interactive Brokers | N/A | $10/quarter |
|
| Wealthsimple Trade | N/A | N/A |
|
| National Bank Direct Brokerage | N/A | $100/annually |
|
*Account fees are waived with a minimum balance ranging between $20,000 to $100,000.
- Low Commissions
- In-Depth Research
- Wide Variety of Investment Choices
Questrade
Questrade is a discount broker and dedicated investment platform. They allow you to invest in various assets from stocks to bonds to mutual funds and even FX and CFDs. Their user interface is considered one of the best in Canada and is often ranked number one.
While they don't offer real-time data for free, they have unlimited free snap-quotes (a single snapshot of the most recent prices) and have advanced data packages for more involved traders. They are great for active and passive investors, but because they are separate platforms, transfers to and from your accounts will take several business days.
Qtrade
Qtrade is a discount broker ranked the Best Online Broker of 2020 by The Globe and Mail. Similar to Questrade, they offer several investment options. They offer free real-time quotes, charts, research reports, and technical analysis. Stock trades commissions are fixed at $8.75, and no ECN fees are charged, which can be helpful for investors in lower-priced stocks.
In addition, they waive commissions for a list of 100 ETFs, which can make investing in smaller amounts or active trading more attractive on Qtrade's platform. They offer a free Investor Plus program for investors with over $500,000 in assets or who make over 150 trades per quarter that offer discounted commissions and dedicated phone support.
TD Direct Investing
TD Direct Investing can be a great option if you're a TD client. They offer free real-time market data as well as exclusive research reports while charging commissions that are competitive with those of discount brokers. They have a wide range of digital platforms with simple and intuitive designs for casual investors and professional layouts for active traders.
Their think-or-swim platform (powered by TD Ameritrade) is widely known in the US and can benefit any investor looking to trade in US equities and options. While they may not be the best option for small-time and passive investors, their platform provides significant advantages for active traders. If you plan on active trading, they have an Active Trader program that offers discounted commissions after reaching 150+ trades per quarter. However, if you are below this threshold, they charge $9.99 for all stock and ETF trades.
BMO InvestorLine
BMO InvestorLine is BMO's in-house direct investment platform. They offer a primary platform for casual investors with real-time quotes and a professional platform for active traders. Like TD Direct Investing, they do not provide free ETF trades and charge a flat commission on all stock and ETF trades. You can still buy and sell mutual funds for free but may have to pay additional fees depending on the situation.
If you have a significant amount to invest, you may qualify for their 5-Star Program that gives you free access to more detailed quotes, discounts on commissions, and exclusive support, research, and IPO access. If you already have an account at BMO, this could be a good option for you, but otherwise, BMO InvestorLine offers no advantages over other competing platforms.
Scotia iTrade
Scotia iTrade is Scotiabank's investment platform. Like TD Direct Investing and BMO InvestorLine, they offer a fully integrated service with advanced tools and research resources. They charge a fixed fee for stock and ETF trades.
If you're already a Scotiabank customer, Scotia iTrade lets you see and manage your investment and savings account from your Scotiabank dashboard and quickly transfer funds between accounts online.
In addition, if you have over $250,000 or $1,000,000 invested, you can access their Gold and Platinum iClub, which gives you priority service, discounted commissions, and access to their more advanced trading platform.
Interactive Brokers
Interactive Brokers is the go-to for high-frequency traders. They are an international brokerage platform that offers an advanced trading platform and some of the lowest commissions in the industry. In addition, they also have some of the lowest margin interest rates and programs like their Stock Yield Enhancement Program that shares with you the fees that other investors pay when they borrow your stocks.
Unlike other brokerages in Canada, they offer you an all-in-one platform to access a range of investments from stocks to futures to forex markets worldwide. However, their interface can be challenging for beginner investors.
Wealthsimple Trade
Wealthsimple Trade is the new kid on the block and is backed by Wealthsimple, a leading robo-advisor platform. They are Canada's version of Robinhood (a US discount broker). They offer a mobile-first interface that offers no-commission trading on Canadian stock exchanges.
Their integration with Wealthsimple Cash and Wealthsimple Invest makes them an all-in-one platform for guided and self-directed investing and savings. For now, they only offer stock and ETF trading. A few stocks may not be available on the platform.
While Wealthsimple offers USD accounts now, they cost $10/ month. Additionally, there is a large conversion fee to switch between CAD and USD in the platform. They are constantly developing, so stay tuned for new changes.
National Bank Direct Brokerage
National Bank Direct Brokerage is the online brokerage arm of the National Bank of Canada. National Bank is one of Canada's big six lenders, and the only one to offer commission-free trading.
National Bank Direct Brokerage offers a range of investment products including stocks, ETFs, mutual funds, GICs, and bonds. They also have an advanced trading platform called Market-Q that is only available to clients who make more than 10 trades per month with a balance over $1,000. As you make more trades, you qualify for free pricing on their premium platforms.
Step Three: Understanding Investment Styles
There is no best investment style for everyone. Some investors prefer to actively trade on a computer, while others want to spend little time managing their funds. Your investment style may also affect the brokerage and the type of account you select.
For example, a technical trader may prefer a non-registered account with Interactive Brokers. This will give them access to margin and a platform designed for their trading style. Consequently, a passive investor saving for retirement may prefer a robo-advisor and an RRSP.
You can even combine investment styles by allocating a percentage of your portfolio to different strategies. For example, you may decide to invest 80% in passive ETFs and try out different approaches with the remaining 20%. While it comes down to your preferences, this section will explain the most popular investment styles.
Value Investing
Value investing is an investment style that involves buying stocks that are undervalued by the market and holding them for the long term. Value investors believe that the market overreacts to news and events in the short term, resulting in prices that do not reflect a company's actual value.
Value investors will look at various factors to find these companies, including price-to-earnings ratios, price-to-book ratios, and dividend yields. They will also look at a company's management team, earnings history, and balance sheet. Some well-known value investors include Warren Buffett, Benjamin Graham, and Seth Klarman.
Passive Investing
Passive investing is an investment style that involves buying and holding a basket of investments, such as an index fund, for the long term. Passive investors believe it is impossible to beat the market long-term. As a result, they try to match the market's return by investing in a low-cost index fund.
Index funds track a specific market index, such as the S&P 500. They are designed to give investors the same return as the index they track. Some well-known passive investors include Jack Bogle and Burton Malkiel.
Active Investing
Active investing is an investment style that involves taking a more hands-on approach to investing. Active investors attempt to beat the market by picking individual stocks, timing their purchases, and actively managing their portfolios.
To be a successful active investor, you need to have a good understanding of the markets and the ability to do your research. You also need to be comfortable with taking on more risk. Some well-known active investors include Peter Lynch and Joel Greenblatt.
Momentum Investing
Momentum investing is an investment style that involves buying stocks that are experiencing an upward trend and selling them when the direction starts to reverse. Momentum investors believe that prices tend to move in predictable cycles and that it is possible to profit from them.
To find momentum stocks, investors will look at factors such as price momentum, earnings momentum, and relative strength. They will also look at technical indicators, such as moving averages and the relative strength index. Some well-known momentum investors include William O'Neil and Ken Fisher.
Growth Investing
Growth investing is an investment style that involves buying stocks that are expected to experience above-average growth. Growth investors are willing to pay a premium for these stocks in the hope that they will generate outsized returns.
Investors will look at revenue growth, earnings growth, and analyst ratings to find growth stocks. They will also look at a company's competitive advantages and business model. Some well-known growth investors include Phil Fisher and Peter Lynch.
Growth at a Reasonable Price (GARP) Stocks
Growth at a reasonable price (GARP) stocks are a type of growth stock that offer both strong growth prospects and attractive valuations. GARP stocks are often undervalued by the market and have the potential to generate outsized returns.
Investors will look for companies with solid growth prospects trading at reasonable valuations to find GARP stocks. They will also look for companies with sound fundamentals and a history of consistent earnings growth. Some well-known investors who focus on GARP stocks include Warren Buffett and Peter Lynch.
Technical Analysis
Technical analysis is a type of stock analysis that looks at past price patterns to predict future movements. Technical analysts believe that prices move in cycles and that these cycles can be identified and used to make investment decisions.
Technical investors will use charts and indicators to identify trends and trading opportunities. Technical indicators are mathematical formulas that are used to identify trends. Some well-known technical analysts include Martin Pring and John Murphy.
Step Four: Research Types of Investments
Your investment style will influence the types of assets you invest in. For example, passive investors prefer low-fee ETFs, while technical traders may prefer bonds or individual stocks. You even can “hire” an active investor by buying a Mutual Fund or actively managed ETF.
Be sure to compare the management fees of your investments. For example, a 2% annual fee can significantly affect your long-term returns - especially if the fund manager can't outperform a passive index. A fee below 0.2% is ideal, whereas you should be cautious with expenses above 1%.
Most funds have a management fee and a management expense ratio (MER). The MER shows the total annual fee you pay while holding the fund, while the management fee just shows the portion going to the fund manager. As a result, the MER will always be higher and is the more important number.
Exchange-Traded Funds (ETFs)
An exchange-traded fund (ETF) is a basket of securities that tracks an index. For example, Vanguard's S&P 500 Index ($VFV) mirrors the S&P 500 index return. By purchasing this ETF, you're investing in Apple, Microsoft, Amazon, Tesla, Google, and more.
ETFs are traded on stock exchanges and can be bought and sold like stocks. ETFs are a popular choice for passive investors because they offer broad exposure to an entire market or sector at a low cost. For example, you can purchase a REIT to invest in the real estate market.
The most popular ETF companies in Canada are Blackrock, Vanguard, and Fidelity.
Mutual Funds
A mutual fund is a type of investment that pools money from many investors and invests it in a portfolio of assets. Mutual funds are managed by professional money managers who attempt to generate returns for investors.
Mutual funds are a popular choice for active investors because they offer access to professionally managed portfolios. However, mutual funds come with higher fees than ETFs. In addition, some mutual funds charge a load fee which is an additional expense when you buy or sell the fund's shares.
Individual Stocks
An individual stock is a type of investment representing ownership in a single company. Individual stocks can be bought and sold on stock exchanges.
Individual stocks are a popular choice for active investors because they offer the potential for high returns. However, individual stocks are also riskier than ETFs and mutual funds.
Bonds
A bond is a type of debt security that pays periodic interest payments. Governments and corporations typically issue bonds to raise capital.
Bonds are popular for investors who want to earn income from their investments. However, bonds are subject to interest rate risk, meaning they can lose value if interest rates rise. Bonds with further maturity dates are more impacted by interest rate changes.
Step Five: Building an Investment Portfolio
Now that you know the different types of stocks, it's time to start building your investment portfolio. When constructing a portfolio, there are a few things you need to consider:
Investment Goals
- What are you trying to achieve with your investments?
- Are you looking to generate income, grow your wealth, or protect your capital?
Risk Tolerance
- How much risk are you willing to take on?
- Are you comfortable with volatile stocks or prefer stable, blue chip companies?
Time Horizon
- How long are you planning on holding your investments?
- Are you investing for the short term or the long term?
Investment Budget
- How much money do you have to invest?
- Are you able to purchase many different stocks or diversify through an ETF?
Once you understand your investment goals, risk tolerance, and time horizon, you can start to build your portfolio. A good starting point is to allocate a percentage of your portfolio to your preferred investment styles and asset types. Over time, your investments will deviate from their percentage goal.
At least once per year, rebalance your portfolio by taking profits from your investments that increased and use that money to buy more of the underperformers. You can also use new contributions to buy more of the diminished stocks. Your goal should be to bring your investments back to their desired weighting.
Tip: Four Ways to Reduce Risk
Diversify your portfolio:
Invest in various stocks, sectors, and industries. This will minimize exposure to any particular stock or sector.Invest in blue chip stocks:
These are large, well-established companies with a history of consistent earnings growth. They tend to be less volatile than smaller, more speculative companies and offer investors a measure of safety.Invest for the long term:
The longer you hold your investments, the more time they have to recover from any short-term setbacks.Dollar cost average:
Invest a fixed amount of money at regular intervals, regardless of the price.
Step Six: How to Buy Stocks in Canada
At this point, you've opened an investment account at a brokerage, selected an investment style and developed a portfolio. The next step is to begin buying stocks and investing in your portfolio. After logging into your brokerage account, you can easily buy stocks using four easy steps.
- First, you need to search for the stock in your brokerage platform. You can do this by either typing the company name or ticker symbol.
- Next, decide how many shares you want to buy.
- Third, you need to choose an order type.
- Finally, click purchase and wait for your order to complete. Note that Canadian and US exchanges are only open weekdays from 9:30am to 4pm eastern time.
However, there are various bank holidays throughout the year. If you place an order on the weekend, the order will execute on the following business day at the market open.
Tip: Market vs. Limit Orders
You can choose from market or limit orders when you buy a stock. With a market order, you specify the number of shares you want to purchase and the order is executed at the current best market price. For example, if XYZ stock is trading at $10 per share and you place a market order for 100 shares, your total cost will be $1,000.
With a limit order, you specify the number of shares you want to buy and the maximum price you're willing to pay. Your order will not be completed if the stock price never falls to your limit.
For example, if XYZ stock is trading at $10 per share and you place a limit order for 100 shares with a limit price of $9.50, your order will only be executed if the stock price falls to $9.50 or below.
Limit orders give you more control over the price you pay for a stock, but there is no guarantee that your order will be executed. Market orders are more likely to complete quickly, but you may pay more than you want.
How To Buy US Stocks
If you want to buy US stocks from Canada, you must open a brokerage account with a Canadian broker that offers US trading. Not all Canadian brokers provide this service, so check first.
Once you have opened an account, you can buy US stocks in the same way you would buy Canadian stocks. The main difference is that you must convert your Canadian dollars into US dollars before placing your trade. There may be a conversion fee with your broker.
How To Buy Tesla Stock
- Ticker: $TSLA
- Stock Exchange: NASDAQ
Tesla is a company that designs, manufactures, and sells electric cars and solar roofs. Founded in 2003, Tesla has since grown to become one of the most well-known and valuable car companies in the world.
Tesla's first car was the Roadster, an all-electric sports car that could go from 0 to 60 mph in 3.7 seconds and had a range of 245 miles on a single charge. The company has since released several other models, including the Model S, Model X, and Model 3.
By searching Tesla’s ticker symbol in your brokerage, you can easily buy Tesla’s stock from the NASDAQ exchange.
How To Buy Apple Stock
- Ticker: $AAPL
- Stock Exchange: NASDAQ
Apple designs, manufactures and sells consumer electronics, computer software, and online services. Founded in 1976, Apple is the world's second largest public company.
Apple's products include the iPhone, iPad, MacBook, and Apple Watch. The company also owns the App Store, iTunes Store, and Apple Music.
By searching Apple’s ticker symbol in your brokerage, you can easily buy Apple’s stock from the NASDAQ exchange.
How To Buy Amazon Stock
- Ticker: $AMZN
- Stock Exchange: NASDAQ
Amazon is a company that designs and sells consumer electronics, computer software, books, and online services. Founded in 1994, Amazon is the world's largest online retailer.
Amazon's products include the Kindle, Fire TV Stick, and Echo Dot. The company also owns Amazon Prime, which offers members free two-day shipping on millions of products.
Amazon's stock ticker is $AMZN. You can easily buy Amazon's stock using any major brokerage.
Step Seven: Review Your Portfolio Regularly
Once you've started investing, monitoring your progress and ensuring your portfolio is on track to meet your investment goals is essential. Review your portfolio at least once a year or whenever you approach significant changes in your life. For example, if you want to use investments to buy a house soon, you may want to lower your risk. To review your portfolio:
Step One
Start by looking at your asset allocation. Make sure you're still allocated in line with your risk tolerance and investment goals. If not, make changes to get back on track.
Step Two
Next, look at the performance of each investment. Are any underperforming? Are any about to go ex-dividend (meaning you won't receive the next dividend payment)? Should you sell them and invest the money elsewhere?
Step Three
Finally, review your investment costs. Are you paying too much in fees? Are there cheaper alternatives available?
Step Four
Over time, your asset allocation will become unbalanced as some investments outperform others. You will need to rebalance your portfolio to keep your asset allocation aligned with your original targets. This involves selling some of your winners and buying more of your losers.
For example, if you start with a 50/50 split between stocks and bonds and the stock market goes up while your bonds decrease, your portfolio will be out of balance. You would need to sell some of your stocks and use the money to buy more bonds.
Rebalancing is essential because it helps you stay diversified and reduces your risk. It also forces you to buy low and sell high, a fundamental principle of successful investing.
The Bottom Line
Once you have an investment plan, it's essential to stick to it. The stock market can be volatile; making impulsive decisions when prices rise or fall is easy. However, if you stick to your plan and invest for the long term, you will be well on your way to achieving your investment goals.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
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