How to Buy Stock in Canada

If you came to this article looking to buy the best chicken stock for your food, I’m afraid to disappoint you but the stock in question is the capital stock that one buys in order to get an ownership percentage of a company. Buying a stock means that you’ll own a small piece of a public company that is most likely listed on the stock exchange.

If you’re wondering how to buy stock in Canada, you’ve come to the right guide. We will be discussing everything from scratch if one wants to know how to buy stock in Canada without letting their money drown in losses. If you think it’s less likely for you to do a good job at investing through stocks in Canada just because you don’t know how to, you might be mistaken.

Everyone can learn the technicalities of buying stock, and eventually get better at them too! In this guide, we shall be discussing everything about how to buy stock in Canada; we will leave no stone unturned in order to help you understand how stock markets work and how you could buy stock on your own as well.

Essentially, it is very simple and straightforward for anyone to know how to buy stock in Canada. Nowadays, you don’t even need to call up a stockbroker in order to buy stocks because the introduction of discount brokerage has made this process easy enough for every other person to get the hang of.

There are five steps that you must understand if you want to know how to buy stock in Canada:

1. Make a self-directed account through an online brokerage system.
2. Make an RRSP, TFSA, or a non-registered and taxable investing account.
3. Set up deposits that are automatic.
4. Pick an investing approach for your stocks.
5. And of course, have enough money to invest.

Step 1: Make a self-directed account through an online broker

Discount online brokerage systems have now become an excellent platform for investors to buy stock in Canada. The same platforms can be used by investors to sell their securities without having to rely on a third person, a broker, to make these transactions for them.

For these discount brokerage systems, fees are quite minimal as compared to the benefits one can get out of them; as a DIY investor, you get the opportunity to manage your own investments and choose where you invest with commission-free ETFs.

This way, your per-transaction trading costs will remain low and so will your management fees, with an estimate of 0.15% or 0.5%. Managing your own investments also means that you’d have complete access to real-time data and other analysis plus the research tools for your stocks.

If you want to know how to buy stock in Canada, the first step is to make an account on any online brokerages. Fortunately, there are many online brokerages in Canada that you could choose from but one of the most recommended ones is Questrade.

Questrade is known as the low-cost investing guru in Canada, all thanks to its minimal fees and customer service so brilliant that’s been going on for twenty years of its existence. You could also pick Wealthsimple Trade because this discount brokerage does not charge any commission if you buy individual stocks or ETF trades.

Step 2: Open an RRSP, TFSA, or non-registered, taxable investing account

Another important thing that newbie investors don’t know is whether to invest inside an RRSP, TFSA, or a non-registered and taxable account.

The difference between RRSP and TFSA is that the former allows you a deduction on your taxes on contributions but you would have to pay the income taxes on withdrawals while in the latter, you won’t be given a tax deduction on contributions but you would be offered tax-free fund withdrawals.

To know how to buy stock in Canada, knowing how to make the decision between these two is an important part as well. Both of these options, TFSA and RRSP, provide you with tax-sheltered growth on your investments which means that you will not be charged with taxes on contributions, dividends, interest earned in your account, and also capital gains.

If you’re still confused about which account to invest in, know that RRSP is usually for people who have a high income while TFSA is for people on low incomes. It would be good for you if you get the opportunity to invest in both of these accounts.

When you’ve received maximum benefit out of your RRSP and TFSA account, you can consider opening up a non-registered and taxable investing account for yourself. No matter which online brokerage you decide for yourself, they would offer multiple account types like joint investment accounts, LIRAs (Locked-in Retirement Accounts), and also corporate accounts.

Step 3: Set up automatic deposits

When you learn how to buy stock in Canada, you’ll find out that a crucial part about it is funding your account once it’s set up.

We’ve already gone through the points of opening an account and deciding which type would be suitable for you, and the next part consists of putting up money in order to begin investing. Setting up automatic deposits for your account is very easy; all you need to do is link your bank account (chequing or savings) to your brokerage account and take the funds out.

In many cases, brokers will give you the option to link your account to the brokerage account in a way that transfers are automatic so that your account can receive funding whenever you get the influx of your income. You can also fund your account through the transfer of existing investments that you have in any bank or an investment firm.

There are two ways to do this; the ‘in-kind’ transfers would include the investments transferring off from your previous company to the new broker account that you have, and the ‘in-cash’ transfers would mean that the previous funds will be sold and the cash retrieved from them is transferred in your account.

Step 4: Pick an investing approach

Now that you’ve learnt the basics about how to buy stock in Canada, let’s move on to the technical parts. Investing approaches are very important to understand because they will determine the revenue you get out of your stocks in the future. There are three approaches for this; index investing, dividend investing, and growth investing.

Index investing is probably the easiest and a hands-off approach, which is also known as passive investing. If you practice the index investing approach, you will be buying ETF or a index mutual fund that will track a broad stock market index – for example, this could be the TSX Composite Index. Through the help of just one to four ETFs, you could be able to build a very diversified stock portfolio for yourself.

Dividend investing has its own shortcomings and benefits, but many of the investors prefer owning a portfolio of dividend stocks for themselves. The dividend stocks that experience an increase in their pay-outs annually could be worth quite a lot in the long run because of their value and profitability factor.

Growth investing is more towards companies that have been established in the market for some time and hence, have a strong prospect for growth. Companies like Google, Facebook, Apple, Tesla, or Netflix might be quite enjoyable to invest in but these stocks do not usually pay out dividends until they’re mature, but you can earn capital gains through these stocks.

Step 5: Save the funds to invest

Now that we reach the end of our guide teaching you how to buy stock in Canada, take a word of advice from us and believe that you do not need thousands of dollars in order to begin investing in stocks. A discount broker like Questrade would allow you to begin investing with as little as $100, and you wouldn’t even need to fret over the transaction fees of buying stocks.

As you begin investing, you need to keep in mind that the rate of your savings will be more important than the rate of return over your investments. It should be your goal to keep contributing money in order to save without thinking about the market or any external factor. This way, you will get yourself in the habit of saving and investing in the long run will become easier for you too.

Even if it means that you invest little at a time, you may be able to build a profitable portfolio for yourself by investing small amounts of money regularly through the dollar-cost-averaging method.

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Final words

If you’ve read this guide properly, you’ll now know how to buy stock in Canada and are ready to set your foot in the stock market! It will take you time to understand the market, but a little experience would become quite fruitful in the long run. Happy investing!

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