Investing is about putting your money to work for you. Making smart investment decisions can help you build wealth and secure financial freedom in the future. By investing your money early, you can take advantage of the power of compounding interest, which can generate greater returns over time.
Smart investing means starting early in life, having a sound investment strategy, and being consistent and patient over the long haul.
What Does It Mean To Invest?
Investing means putting money into appreciating assets, like stocks, bonds, or real estate to generate a return. Investing allows you to grow your money quicker than simply putting money aside into a savings account.
Whether you’re looking to save for retirement, a home, or your child’s education, investing can help you reach your financial goals.
| The Power of Compound Interest & Time If you start investing $300 a month when you’re 18 for 8 years (a total of $28,800 invested) and then never invest again, you’d have over $1 million dollars* at 64 years old. * Assumes a 10% interest rate compounded annually |
Types Of Investments
Let’s go into a little more detail on the various investment vehicles available to help you decide which ones work best for you.
- Stocks: Stocks represent ownership in a company, offering investors a chance to own a share in its profits.
- Bonds: Bonds are like loans that investors make to governments or corporations, which promise to be repaid, plus interest, at a later date.
- ETFs: Exchange-Traded Funds (ETFs) are investment funds that hold a mix of securities that are traded on an exchange, like stocks. They track a specific index and allow investors to purchase multiple assets with one purchase, allowing for diversification.
- Mutual Funds: Mutual funds are investment pools where many investors pool their money together in an asset portfolio, which is then managed by professionals.
- GICs: Guaranteed Investment Certificates (GICs) are fixed-income investments in which investors deposit funds with a financial institution and earn guaranteed interest over a set term. They offer investors a low-risk way to invest their money.
- REITs: Real Estate Investment Trusts (REITs) are companies that own, finance, or manage income-generating properties, giving investors an opportunity to earn returns without having to directly own real estate or become active landlords.
| How To Evaluate A Stock? | Learn more |
| What Are Exchange-Traded Funds (ETFs)? | Learn more |
| Best GIC Rates In Canada | Learn more |
| What Are Real Estate Investment Trusts (REITs)? | Learn more |
Other Ways To Invest
Besides the more common assets to invest in, other options are available, including the following:
Real Estate
Investing in real estate can provide steady income through rent, long-term appreciation, and portfolio diversification. There are several ways to invest and profit from real estate, including rental properties, flipping houses, commercial real estate, and REITs. Investing in real estate can offer significant profit potential and long-term wealth-building, but it requires lots of capital, careful research, and comes with potential risk.
Learn more: How To Invest In Real Estate
Crypto
Investing in cryptocurrencies offers investors strong growth potential but comes with risk and volatility and risk. Investors have options, including purchasing crypto directly, investing in crypto ETFs, or trading on exchanges.
| Note: Mixing up several types of investments can help you diversify your portfolio, which helps minimize the risk of putting “all your eggs in one basket” while maximizing returns. So, rather than focusing on just one type of investment, you may consider spreading your capital across multiple investment types. |
Accounts You Can Invest In
There are two main types of investment accounts in Canada: registered and non-registered accounts.
Registered Accounts
The following registered accounts are available for Canadians to invest in, which offer tax benefits to help grow investments more efficiently:
- Tax-Free Savings Account (TFSA): A TFSA allows you to deposit funds like a savings account and grow your savings tax-free. You can invest in stocks, bonds, ETFs, and GICs, and withdraw funds anytime without incurring taxation. This type of registered account is best for tax-free growth, making it ideal for saving, investing, and building wealth.
- Registered Retirement Savings Plan (RRSP): An RRSP is a tax-advantaged registered account that helps Canadians save for retirement while deferring taxes on contributions. Deposits grow tax-free until they’re withdrawn, ideally during retirement.
- Registered Education Savings Plan (RESP): An RESP is a tax-advantaged savings account that’s meant to help save for post-secondary education. The Canadian government matches a portion of RESP contributions, which grow tax-free.
- First Home Savings Account (FHSA): An FHSA is a savings plan that helps first-time homebuyers save for a down payment tax-free. Contributions are tax-deductible, and withdrawals made to purchase a home are not taxable.
Non-Registered Accounts
The following non-registered accounts don’t offer tax advantages, but offer more flexibility for investors:
- Margin Accounts: A margin account allows investors to borrow money from their brokerage to purchase securities, using existing investments to back the investment. Leveraging other investments can increase profits, but it also comes with additional risk, as losses can sometimes be greater than the initial investment.
- Cash Accounts: A cash account allows investors to trade using the money they already have in their accounts, without borrowing to invest. It’s a suitable option for investors looking for something low-risk and straightforward.
How To Invest In Canada
You have several options when it comes to helping you manage your investments:
Self-Managed Account
A self-managed investing account allows investors to select and manage their investments on their own without the involvement of financial advisors. That means you can select which stocks, ETFs, and other types of investments you’d like to put your money in. It provides self-directed investors with full control over investments.
Managed Account
As the name suggests, a managed investment account is one that is professionally managed by financial experts. These professionals make investment decisions on your behalf based on your goals and risk tolerance. This option may be better suited for those with a large net worth.
Robo-Advisors
For beginner investors or those who want to invest with small sums of money, robo-advisors may be suitable. These tools are automated investment platforms that use algorithms to manage investment portfolios based on your financial goals and risk tolerance. They also have low fees, and usually no minimum investment requirements, making them ideal for new investors.
Investment Brokers
Investment brokers assist investors in buying and selling securities and provide research, market access, and trading platforms to invest on. They’re suitable for investors of all types. Beginner investors may find working with investment brokers helpful in navigating the market and making informed decisions, while active and experienced traders may find brokers helpful in accessing more innovative and advanced tools, research, and speed of trade execution.
Best Investing Platforms
Several investment platforms are available in Canada. Below are some of the more popular options in Canada, each offering something for specific types of investors:
| Investment Platform | Best For |
| QTrade Direct Investing | Both beginner and experienced traders looking for low fees, innovative research tools, and commission-free ETFs. |
| Wealthsimple | Beginner and cost-conscious investors who want commission-free stock and ETF trading with an easy-to-use investment platform. |
| CI Direct Investing | Investors looking for a robo-advisor with financial planning assistance, and diversified portfolios that include socially responsible investing options. |
| TD Direct Investing | Experienced investors and active traders who want a powerful trading platform, advanced research tools, and access to a broad range of investment options. |
| CIBC Investor’s Edge | Low-risk investors looking for low fees and the reliability and reassurance of a trading platform backed by a major bank. |
QTrade Direct Investing
QTrade Direct Investing is a Canadian brokerage known for its low fees, commission-free ETFs, and innovative research tools. Its user-friendly platform is ideal for beginners, while its advanced tools make it useful for experienced traders.
QTrade Direct Investing offers both self-directed investing and managed portfolios. In particular, the platform offers Qtrade Guided Portfolios, a robo-advisor service that creates and manages investment portfolios based on investors’ financial goals and risk tolerance. Investors can also take advantage of QTrade Direct Investing’s support of responsible investing, though Sharia-compliant portfolios are not offered.
Wealthsimple Investing
Wealthsimple Investing is an investment platform that offers both self-directed trading and robo-advisor managed portfolios for automated investing. Its managed portfolios focus on automated rebalancing, diversification, and low-cost ETFs to minimize risks while maximizing returns.
Wealthsimple Investing allows investors to buy fractional shares of Canadian and US companies. It also offers a Shariah-compliant Halal portfolio and socially responsible investing options.
CI Direct Investing
CI Direct Investing is an online wealth management platform that offers robo-advisor services and self-directed trading. The platform offers Impact Portfolios, which focus on socially responsible investing, but does not include Halal-compliant portfolios.
CI Direct Investing’s managed portfolios focus on diversification, automated rebalancing, and low-cost ETFs. They offer goal-based investing, tax-efficient strategies, and expert guidance.
TD Direct Investing
TD Direct Investing is a bank-owned brokerage, offering investors self-directed accounts, allowing investors to manage their own portfolios. It provides a powerful trading platform, advanced research tools, market data, and educational resources to help investors make better investment decisions. Fully managed investment accounts are not available.
TD Direct Investing offers fractional share trading, allowing investors to buy partial shares of stocks and ETFs. It also offers environmentally-conscious investment options, but no Halal-compliant portfolios.
CIBC Investor’s Edge
CIBC Investor’s Edge is a self-directed investing platform that offers access to a variety of investment assets. To help investors make informed decisions, the platform provides advanced research tools, stock screeners, technical analysis, analyst reports, and flexible charts. Fully managed investment accounts are not available.
CIBC Investor’s Edge offers socially responsible investing options, but doesn’t offer Halal-compliant portfolios. Investors would have to research individual stocks to ensure Shariah compliance.
Fractional shares allow investors to purchase a portion of a stock rather than a full share. This makes fractional shares more accessible to those with little capital to invest, or investors who want to add very expensive companies to their investment portfolios. These types of shares also make it easier for investors to diversify their portfolios.
In Canada, fractional shares are available from the following investment platforms:
- Wealthsimple Investing
- TD Direct Investing
Learn more: How To Buy Fractional Shares In Canada
What Are Dividends In Investing?
Dividends are payments made by companies to their shareholders from profits earned through their investments. Dividends can be distributed in cash, additional shares, or other assets, and are typically paid on a quarterly, semi-annual, or annual basis.
Investors looking to earn passive investment income may find dividends particularly attractive. However, dividend payments are not necessarily guaranteed, as they’re dependent on the profitability of the invested companies.
Things To Remember Before You Start Investing
Before investing your hard-earned capital, consider the following factors first to minimize risk while maximizing gains:
- Have An Emergency Fund Before You Invest: An emergency fund ensures that you have enough money readily available in the event of an unexpected expense, such as job loss or car repairs, without throwing a wrench in your investments. It can also help you avoid taking on additional debt to cover these unforeseen expenses while maintaining financial stability.
- Diversify Your Investments: Diversifying your investments minimizes your risk and maximizes your returns by spreading your capital across different assets. It helps hedge against market volatility, balancing gains in some assets with losses in others.
- Consider Your Investing Time Horizon: Determine whether you want to invest long-term or have shorter-term investment goals. This will determine your risk level and the investment types that suit your goals. While short-term investments are ideal for liquidity and stability, long-term investments give you more time to build wealth and manage higher risk.
- Assess Your Risk Profile: Review your appetite for risk before investing to ensure you can comfortably handle potential losses during market fluctuations.
Taxes And Investing
When it comes to investing, understanding taxes is essential. Taxes will affect your investment returns and, in turn, impact your long-term wealth building. When investing, it’s important to understand your tax obligations as well as ways to minimize how much you’ll have to pay in taxes on your investments.
Taxation By Account
How much you owe in taxes on your investments depends on the account you’re invested in, as taxation varies by account:
- TFSAs: You can grow your investments tax-free when you deposit funds into a TFSA. That means you won’t have to pay taxes on capital gains, interest, or dividends earned in the account. Keep in mind that you may be subject to penalties if you over-contribute to your TFSA or make non-resident contributions.
- RRSPs: Contributions to an RRSP are tax-deductible, which reduces taxable income in the year the deposit is made. That said, withdrawals are taxed as income, which means you’ll have to pay taxes on the money you take out.
- FHSAs: Like RRSPs, FHSAs allow tax-deductible contributions, which reduces taxable income in the year of deposit. However, while withdrawals for an eligible home purchase are tax-free, non-qualifying withdrawals may be taxed.
- Non-Registered Accounts: Non-registered accounts are subject to taxation on investment income. How the income is taxed depends on the type of income earned: income from interest is fully taxable, while capital gains are taxed at 50% of the profit.
Day Trading Taxes
Day trading profits are typically taxed as business income, which means that 100% of profits are taxable. The Canada Revenue Agency (CRA) will determine whether day trading activity qualifies as business income based on specific factors, such as trade frequency, holding periods, and reliance on day trading for income.
Day trading, which is considered occasional investing, may be taxed as capital gains, which means 50% of the profits are taxed.
It’s important for investors to understand that TFSAs and RRSPs do not shelter any capital gains. The CRA does not permit any business activity from taking place within a TFSA.
Learn more: Day Trading Taxes In Canada: When Capital Gains Tax Applies Even In A TFSA
Tax Loss Harvesting
As mentioned, you’ll be taxed on gains made on capital investments, which can eat into your profits. To offset the taxes you have to pay, you might consider a strategy known as ‘tax-loss harvesting’. This tactic involves offsetting your taxable capital gains with losses, which can reduce the amount you owe in taxes.
Investors can carry forward losses or apply them to gains earned in the previous 3 tax years. The superficial loss rule prevents investors from claiming a loss if the same asset is bought again within 30 days.
Keep in mind that tax-loss harvesting is only applicable to non-registered accounts. As such, accounts like TFSAs and RRSPs don’t qualify.
Dividend Tax Rate
In Canada, dividends are taxed based on whether they’re eligible or non-eligible. The tax rate for each dividend classification includes a “gross-up,” which is an increase that considers applicable taxes.
Eligible dividends are grossed up by 38%, while non-eligible dividends are grossed up by 15%. Eligible dividends come with a higher dividend tax credit, which can reduce investors’ personal tax rates.
Should You Invest With Borrowed Money?
Investing with borrowed money can be beneficial in certain situations. If you don’t have the capital available to take advantage of investment opportunities, taking out a loan and using those funds can help you enjoy profits that would otherwise be inaccessible without leveraged funds.
However, using borrowed money to invest can be risky. It’s important to assess your financial stability and risk tolerance before borrowing to invest.
When It Might Be Worth It
There are situations where borrowing money to invest may be worth it, but there are also cases in which it may be too risky:
| When To Borrow To Invest | When Not To Borrow To Invest |
| Low Interest Rates: The rate to borrow is low, making returns higher than loan costs. | High Interest Rates: The rate to borrow is high, making your costs higher than any expected returns. |
| Tax-Deductible Interest: Interest on loans for taxable investments, such as margin accounts, can reduce taxable income. | Non-Deductible Interest: Borrowing for non-taxable investments, such as RRSPs, doesn’t come with tax perks. |
| Stable Finances: You have enough money to cover your loan payments without adding any unnecessary financial strain. | Unstable Finances: If you don’t have any back-up funds, the risk of financial strain can be high if your investments underperform. |
| Strong Investment Strategy: Ensuring detailed research and risk management can minimize losses and drawbacks. | Speculative Trading: Not doing your research or investing in volatile assets can increase the risk of losses. |
Learn more: Borrowing Money To Invest: Is It Worth It?
Best Investment Tips To Grow Your Money
To ensure you maximize your investment growth while minimizing risk, consider the following tips:
- Don’t Try Timing the Market: Buying and selling based on short-term predictions is risky and unreliable. Even experts can sometimes have trouble accurately predicting market highs and lows. Instead, invest regularly to remove the guessing game and to enjoy steadier returns. Historically, good investments trend upward over time, despite fluctuations in the short term.
- Don’t Panic Sell: Don’t let your emotions get in the way. Stick to your investment strategy and avoid panic-selling when the market takes a downturn.
- Invest Early: The earlier you invest, the more time you’ll have to benefit from compound growth on your investments.
- Don’t Give Into The Hype: Evaluating an investment is crucial for making smart financial decisions. Too much hype in an asset can result in overpricing, which means you’ll pay more than you should and put you at greater risk of loss. Instead, pay attention to the fundamentals of a company to make smart buying decisions.
Final Thoughts
Investing is a powerful tool for building wealth and securing financial freedom. By starting early and remaining consistent, you can watch your returns grow exponentially over time thanks to the power of compounding interest. Just remember to be patient, make smart decisions, do your research, and keep a level head about your investment purchases and exits.
