As a Canadian resident, there are several convincing reasons to consider investing in stocks. Investing in stocks helps you save money more efficiently. In addition, it also offers an opportunity to participate in the growth of the Canada Stock market. By purchasing shares, you become a partial owner and can benefit from potential capital appreciation and dividend payments. Today, I will be clearing your doubt about How to buy stocks in Canada.
Moreover, investing in stocks offers a way to diversify your investment portfolio, which lowers the risk involved and also increases the potential for higher returns.
1. What are Stocks?
Stocks represent ownership shares in a company, granting investors certain rights and potential returns. When you buy stocks of any organization or company, You become partial owners of that particular company which allows you to participate in losses and profits.
2. How to Buy Stocks in Canada?
Earlier, Investing in Stocks was so hectic process but now investing is just away from few clicks. To retire at an early age, It’s important to do investing, and investing in Stocks is the best way to start with. I will help you to get there, Just follow the steps given below to successfully open your account.
2.1 Open Brokerage Account
To start investing in the stock market, one should have a brokerage account. Hiring a stock broker or Financial Advisor will be expensive as they will charge high fees. So, We will be going for Online Brokerage Account.
The best way to invest in Canada is through an online brokerage account, granting you easy access to the market via mobile phones, laptops, or other electronic devices. In addition, this convenient approach enables investors to stay connected and make transactions anytime, anywhere, enhancing their investment experience. Some reputed platforms with low brokerage fees are
- WealthSimple –
If you are a beginner in investing field, then WealthSimple is the best option for you. This platform has no minimum balance criteria, no maintenance fees, and no trading commissions.
You can also run WealthSimple on both mobile and desktop appliances. There are some disadvantages of using WealthSimple you can’t buy mutual funds and bonds and have a limited number of stock exchanges.
- Questrade –
Wealthsimple does not charge any account maintenance fees, but users are required to pay a trading fee. The trading fee varies between $4.95 and $9.95, depending on the specific transaction.
2.2 Fund an Investment Account
Once you’ve picked the investing platform, it’s time to choose and put money into an investment account. Now is the opportunity for you to move ahead and start your investing journey. You have the freedom to select an investment account that aligns with your conditions and investment goals.
To open an investment account, a Person should be a Canadian Citizen and should be 18 years or above. The Canadian system categorized investment accounts into two Registered and Non-Registered.
2.2.1 Registered Investment Accounts
These accounts are regulated under the terms & conditions of the Canadian Government. This account allows Canadian citizens to take benefits of tax deferral or tax savings but has limitations on withdrawal and deposit amounts.
The following list comprises the registered investment accounts with the highest number of subscribers
Tax-Free Saving Account (TFSA)
TFSA is the most popular and used investment account among Canadians as there is no need to pay taxes on dividends or profit got by selling stocks.
This retirement account is so flexible account that makes best for short-term and long-term investment goals. TFSA account comes with a drawback too i.e. You can’t hold more than $6,500 in your account.
Registered Retirement Saving Plan (RRSP)
This retirement savings account is just like TFSA but less flexible as it allows one to contribute just 18% of last year’s earned income and has a maximum cap of $29,210. RRSP is ideal for long-term investment goals or the one having high incomes.
Registered Education Saving Plan (RESP)
RESP especially helps the parent to save for a child’s higher education. The Beneficiary can be exempted from charging tax if they lie under a lower tax bracket.
2.2.2 Non – Registered Investment Accounts
These accounts operate independently without being subject to government rules and regulations. It means You can transact large amounts too. Mainly daily traders use this type of account so that the government can’t penalize them. This investment account is categorized into two Margin and Cash accounts.
- Cash Accounts
It is an investment account whose income is taxable if you earn profit by selling the stocks or dividends.
- Margin Accounts
A margin account is a cash account that enables investors to borrow money from brokerage firms and repay it after making a profit. In addition, this account is mainly used by traders having years and years of experience.
2.3 Research and Pick Your Stocks
Choosing potential stock is another tough job to do. There are many stocks available in Canadian Market. These stocks are mainly categorized into 5 types
- Penny Stocks – A penny stock is commonly used to describe the stock of a small company that typically trades at a price lower than $5 per share.
- Green Stocks – These Stocks deal with companies that work regarding environmentally friendly products or technology. Canadian Solar and Northland Power are famous and the most preferable green stock in Canada.
- Growth Stocks – These stocks do better than other companies in their industry by making more money and experiencing higher revenue growth.
- Blue-Chips Stocks – Companies having a nice reputation in the market release this type of stock. Mainly many big government entities and private companies come under this category.
- Income Stocks – These stocks provide you with a source of income called dividends, which are paid out regularly over some time.
Now, Just went through the news and market and select your preferred Stock. In Canada, Stocks related to banking sectors and technology gives good return.
If you have a trusted financial advisor it’s good. Still, most of you can’t afford them so go through company financial records, the company’s earnings, and some metrics like Price-to-Earning (P/E) Ratio, Debt-to-EBITDA ratio, Price-to-earnings-growth (PEG) ratio, and Price-to-sales (PSR) ratio.
2.4 Choose a Stock Order Type
You are just a few away clicks to claim your first-ever stock. You have to choose the order type before placing an order. There are two main order type
- Limit Order –
A limit order allows you to set your preferred price where you can buy or sell the stock at that particular point. For example, if you wanted to buy 1 stock of a company having a market price of $14,567 and you think the stock price is a little bit higher then you can simply set $14,560 while buying in a limit order.
Hence your trading platform will automatically purchase the stock when it will hit that particular price which helps you to buy that particular stock at a lower price.
- Market Order
When you buy stocks using a market order, you are purchasing the stock immediately at the current market price. Daily traders mostly do these practices.
2.5 Purchase Your Stock
Finally, It’s time to purchase the stock. Now, Set the amount of which you want to purchase or simply set the number of stocks you want to purchase. Select the order type according to your choice and hit on place order. Your brokerage account will take some trading fees in the form of a commission.
Booyah! You just purchased your first-ever stock.
2.6 Monitoring your Stock
Just investing and leaving your portfolio will not give great returns. At least monitor your investment twice a month and stay connected to invested companies.
If you don’t pay attention, there is the possibility of losing a nice chunk of money. Be attentive to market news as It is advisable to invest in stocks when the market is at a lower point.
2.7 Diversify your Portfolio
Diversifying the holdings is the most important aspect of improving investment strategy. Still confused, How a diversified portfolio looks? Your portfolio should have holdings of almost all reputed industries.
It shouldn’t be like you are only buying finance companies’ stocks instead, you should also give a chance to other industries like health, utilities, energy, real estate, NFTs, cryptocurrency like Bitcoin, and other digital assets.
Therefore, diversification allows you to take advantage of different investment opportunities. By investing in a variety of stocks, you can participate in emerging trends and capitalize on opportunities for long-term growth.
In conclusion, I think now you have got How to buy Stocks in Canada. Investing in Canadian equities can be profitable, but it needs thorough preparation and wise judgment.
You may improve your chances of success as a stock investor by having a full grasp of the stock market, setting financial objectives, completing in-depth research, and employing a systematic approach. Keep in mind to be patient, to learn new things constantly, and to adjust your plans to the always-shifting market conditions.