How many movies have you seen that show the madness on the stock trading floor? The reality is, of course, that the stock market is a hot investment tool. And, people can and do make a lot of money by investing in stocks. But there is a lot to know about how to buy stocks.
If you know what you’re doing, and/or enlist the professional help of an advisor to guide your investments, the stock market is one of the most popular ways to invest your money — and hopefully, watch it grow.
Table of contents
- How to Invest Your Money
- The Best Ways To Invest Money In Canada
- What Is A Stock?
- Investing In Stocks
- How To Buy Stocks In Canada
- Which Stock Trading Site Is Best For Beginners?
- How To Buy Stocks For Beginners
- Buying Stocks: How To Get Started
- What Is An ETF?
- What Is The Difference Between An ETF vs. Mutual Fund?
- Which Is Better: An ETF Or Mutual Funds?
- Find A Broker
- How Can I Start Investing With Little Money?
- How Do You Buy Stocks Without A Broker?
- What Is A Discount Brokerage?
- Commonly Used Stock Market Terms
- What Types Of Stocks Can You Buy?
- What Are Common Sectors/Industries That You Can Buy Stocks In?
- Decide How Many Shares To Buy
- How To Diversify Your Stock Portfolio To Minimize Risk
How to Invest Your Money
Financial advisors work with you to invest your money for growth. It sounds simple enough. But it’s important to understand how to benefit from their expertise when considering how to invest your money in Canada.
Why Invest Your Money?
While most of us think about the value of investing, we think about how to make money. Earning money off of investments is most certainly a benefit. But there are several reasons to invest other than just saving and earning.
Shelter Your Income
Some investment vehicles are tax shelters. Therefore, the money you invest is deducted from your taxable income and thus, untaxed. These investments help keep more money in your pocket. And the more you can take advantage of opportunities to shelter your income, the more money you have to invest and potentially see growth. To clarify, investing your money is a double bonus: it reduces your current taxable income, which lowers your taxes each year. And this allows you to keep more of your money to save for the long term. It’s a win-win!
Setting financial objectives with your advisor is key to making sure the money you invest is working towards your personal financial goals — whether that’s starting a business, going on a vacation, or retiring. And by investing your money, you meet those goals more quickly by earning money off of your investments.
Make Money Off Of Your Money
Whether or not the money you invest is tax-sheltered, if you invest wisely, your managed funds will see a growth in returns. In other words, the more money you invest, the more that money earns! Your investment style determines how much growth you might see over a particular period of time. If you’re saving for a trip in three years, you might not want to risk losing that money on a higher-risk investment. However, if you’re saving for retirement (which may be a long way off), you may take on more risk for a greater return, since you have more time to recover if the markets falter.
Related Reading: How to Invest in Mutual Funds in Canada
The Best Ways To Invest Money In Canada
There are many options for investing your money. But deciding where is not exactly intuitive. The best investment vehicles for your needs change in any given year. And market health can change over time. The stock market can feel like one of the more volatile ways to invest. But a bit of knowledge and quality management goes a long way to helping your investment grow.
What Is A Stock?
Think of a stock as a share in a company. A company issues stocks to investors in exchange for a share of its business. As the business succeeds, your investments grow. Alternatively, if the company fails, the stocks take a hit. And that’s why it’s important to have a solid idea of where your investments are going.
So, what’s the best way to know if you’re invested in quality businesses that can help your money grow? Consult a knowledgeable person or use a reliable automatic system to manage your portfolio. That’s because taking ownership by doing your own research on companies empowers you to know you are getting solid advice and guidance.
Investing In Stocks
The cost of individual stocks varies on a day-to-day basis. However, the overall truth about the stock market is that it increases in value over time. And that’s what makes investing in the stock market a wise choice for long-term investment. So, choosing to invest in stable companies go a long way to helping you earn money over time.
How To Buy Stocks In Canada
You don’t need a lot of money to get started in the stock market. But you do need a little. Even $500 is enough capital to invest.
The ability to do your own investing has been a growing trend in Canada. And discount brokerages have increasingly been making their presence known in the market. Some people choose to go it alone while others enlist the help of financial advisors to guide them with their expertise.
Buying Stocks: Discount Brokerage
In today’s world, we are fortunate to have access to a wealth of highly respected online brokerages that can help you invest your money. An online or discount brokerage (also known as a self-directed account) is appealing to a wide range of investors. That’s because their trading fees are quite low, making them an affordable alternative for investors.
An online broker allows you to build an account and use that account to invest in high- or low-risk investments. That depends on your own personal preference and risk tolerance. This type of investing is all DIY, which is great if you have a solid grasp of what you’re doing, or you invest in lower-risk options. And while you can most certainly pick higher-risk stocks, you may not want to DIY unless you have a solid understanding of the market,
Examples of discount brokerages include Questrade, Qtrade, TD Direct Investing, Interactive Brokers and Scotia iTrade.
Buying Stocks: Robo Advisor
A robo advisor is a newer, automated investment technology. It is a great tool for a newer investor or someone who wants to be more hands-off at managing their investment portfolios. Robo advisors are a lower-cost option because you don’t have the expertise of a specific advisor. To clarify, they are an intelligent tool that takes the guesswork and stress out of managing investments. With a robo advisor, you input your investment style and preferences, and the amount you want to invest. Then, a portfolio is automatically built for you. The software then regularly and automatically balances and calibrates your portfolio to adjust it to be the most potentially lucrative for the investor.
Buying Stocks: Investment Advisor
The role of an investment advisor is to help make recommendations on quality investments. In addition, advisors analyze securities, such as mutual funds, stocks and bonds. Typically, investment advisors are fee-based and work with you to build a portfolio of investments best suited to your financial situation, as well as your long- and short-term financial goals.
Buying Stocks: Financial Advisor
A financial advisor is there to give you advice on how to manage your money. They are well-versed in the market and give advice on savings, investment and insurance tools you need and should invest in. While they do know about the market and can make investment recommendations, they are less specialized in investments than an investment advisor. Still, they are a great resource for your overall financial strategy.
Related Reading: 5 Best Money Market ETFs in Canada
Which Stock Trading Site Is Best For Beginners?
If you’re new to investing in the stock market, TD Direct Investing is user-friendly and offers a host of support and information. It offers the ability to learn more about investing, through webinars, courses and quizzes. In addition, it heavily encourages new investors to benefit from their expertise.
TD Direct Investing is all about educating investors to master the stock market on their own. For new investors, the user-friendly site helps make the unknown world of stock investing more tangible, understandable and easier to master. There is certainly comfort in knowing you’re doing it right and getting the most out of your investments.
How To Buy Stocks For Beginners
You’ve decided to invest in the stock market. Fantastic! Now what?
Buying Stocks: How To Get Started
It is vital to understand the difference in the types of stocks in which you can invest. Even if you go the automated route to manage your investments, you still need to understand where your money is going.
What Is An ETF?
Exchange-Traded Funds (ETFs) are traded similarly to a stock. However, instead of a particular company, an ETF is a collection of securities traded together on the stock market. An ETF contains different types of investments, including bonds and commodities.
The benefit of an ETF is that is comprised of established companies spread out across market sectors. This makes ETFs a diversified investment that is somewhat insulated from market fluctuations. The nature of ETFs makes it a good tool for investors to get into the market. They are similar to mutual funds. But ETFs can be purchased at a fraction of the cost. This makes them appealing to newer or more humble investors.
There are over 700 ETFs available to Canadians. It can be a challenge to wade through to them to know which one(s) to put your hard-earned money into.
What Is The Difference Between An ETF vs. Mutual Fund?
In Canada, investment in ETFs are beginning to outpace sales of mutual friends. The two investment tools have many similarities but have some key differences. Most notably, while an ETF tends to track large indexes, like the S&P 500, mutual funds are more actively managed. While they may track an index, typically mutual funds are more hands on, with active participation by an advisor to make sure your portfolio earns more.
Because advisors don’t typically manage ETFs, they are more affordable investment tools. In addition, ETFs have tax advantages over mutual funds. Where mutual funds involve more trades, and thus, more tax implications. ETFs tend to involve more stability and less trading. And this means fewer tax implications for the investor.
Which Is Better: An ETF Or Mutual Funds?
Which investment option makes more sense for your business is entirely dependant on your risk tolerance, investment amount and goals. For a more laid-back investor who wants less to follow and be concerned about, an ETF is a safer investment. But if you want to invest in more niche market segments, a mutual fund is more likely to get you there. That makes mutual funds, theoretically, a more diversified option for your investments compared to an ETF. Both, however, provide a good way to invest your money in multiple sectors, industries and stocks compared to buying individual stocks. And this makes them both a good investment for a well-rounded portfolio.
Find A Broker
In Canada, you can only buy stocks with the help of a broker. You open a brokerage account and your broker invests your funds on your behalf. You can visit a brokerage or seek one out online. There are lots of great options for online brokerages. One of the most popular is Questrade.
How Can I Start Investing With Little Money?
You don’t need a lot of money to invest in the stock market. In fact, $5 is enough to get started by buying a single share. But ideally, you have much more money than that so that to generate a return on your investment. You won’t make much off of $5. However, it’s better to have some money invested than none at all.
How Do You Buy Stocks Without A Broker?
It is possible, but not easy, to buy stocks in Canada without a broker. Large, established companies may allow you to buy a stock from them without a broker. To do that, you buy their stock through a direct stock purchase plan (DSPP). The DSPP allows single, low-level investors a chance to buy stock in a company they otherwise might not gain access to.
Regardless of how much, or how, you invest your money in the stock market, it remains one of the most popular investment vehicles for a good reason. It is a way to bank on and piggyback off of the success of businesses and corporations, as well as the overall health of the stock market, and Canadian economy.
What Is A Discount Brokerage?
These types of brokerages allow you to trade with little or no assistance from a broker. You receive no advice, planning or other investment services. But you are legally able to buy and sell stocks. This is a great option for people well versed in the world of investment and feel confident going at it alone. But, for an average investor, you get what you pay for.
Commonly Used Stock Market Terms
Revenue growth – The increase (or decrease) in value in a company’s sales numbers over a specified period.
Historical price – A measure of value based on the original cost of the asset versus its current value.
Earnings per share – A company’s profit, divided by the number of common shares owned by shareholders.
Price/earnings ratio – The ratio of a company’s share price against the company’s earnings per share.
Dividend – A distribution of profits paid out by the company to shareholders who own dividend stocks.
Related Reading: Top 10 Retirement Planning Tips for Canadians
What Types Of Stocks Can You Buy?
There are many different types of stocks available for purchase in Canada.
The majority of stocks issued to investors are common stocks. These types of stocks represent ownership in the company and a claim to dividends if they payout. If you own common stocks, you get a vote for each share you own towards electing the board members who make decisions on behalf of the company
These types of shares also represent ownership in a company. But they do not come with the same voting rights as common stocks. Preferred stocks include fixed dividend payments in perpetuity, as opposed to common stocks that fluctuate in payments. If a company liquidates, preferred stocks are paid out before common stocks. They also benefit from the possibility the company buys back the stocks, at a premium, if the organization so chooses.
What Are Common Sectors/Industries That You Can Buy Stocks In?
The following are the most common sectors in which Canadian can buy stocks:
- Consumer discretionary
- Information technology
- Consumer staples
Decide How Many Shares To Buy
When deciding how many shares to buy, first decide how much you are willing to invest. How many stocks you buy is entirely dependant on your investment and the chosen stock. So if you plan to invest $5,000 and want to invest in 100 stocks, you buy 500 stocks.
How To Diversify Your Stock Portfolio To Minimize Risk
The best way to mitigate risk is to have a number of stocks across a number of different sectors. For example, don’t put all of your money in the financial market. By investing in stocks across a broad spectrum of markets, negative effects on one market won’t destroy your entire portfolio. Therefore, it’s always important to make sure you are protected in the event of a turn in the market.
The stock market is a hot investment tool. And, people can and do make a lot of money by investing in stocks. But make sure you understand how to buy stocks and the implications. Talking to a professional helps ensure you have a balanced portfolio with some protection from the inevitable ups and downs of the stock market.
Read More: How to Find and Choose an Insurance Broker