Investing can be a powerful way to build wealth over time. How you manage and invest your money today will impact your financial future, so it’s important to understand how investing works.
However, investing can seem daunting for novice investors. To cut through the confusion, we’ve compiled a list of tips on investing for beginners in Canada to help you get started on the right foot.
Key Points
- Investing involves putting your money into productive assets, with the hopes of generating more money over time.
- While having a sizable amount of capital is typically best, you can start investing with very little money and allow consistent contributions to help your money grow.
- Several types of investment vehicles are available, each with its own risk and potential return.
What Is Investing?
Investing is the process of spending money to make more money. In simpler terms, investing means taking the cash that you have and spending it on something that will make you more money in the future. It’s taking an educated risk today to get a reward later down the line. It is different from gambling, which is more speculative.
Investing Guide For Beginners In Canada
Given the financial commitment required to invest, it’s essential that you take the appropriate steps to invest to ensure a safe and lucrative experience. Follow these steps if you’re a beginner investor in Canada.
1. Understand Your Current Financial Situation
Understanding your current financial situation before investing is crucial because it can help you make informed investment decisions that align with your goals. Your income level, your debts and your cash flow will impact how much you can save and invest.
2. Establish Your Financial Goals
Before you start investing, define what your financial goals are. For instance, are you investing to buy a home, build a retirement fund, or simply want to build wealth? Setting clear goals can help you determine the types of vehicles to invest in, your investment timeline, and your appetite for risk.
3. Decide What Type Of Account You Should Invest In
There are many types of investment accounts available to invest in, each with its own benefits and tax advantages:
- Tax-Free Savings Account (TFSA): Contributions to a TFSA are made with after-tax income. Any growth realized in this account or withdrawals are tax-free.
- Registered Retirement Savings Plan (RRSP): Contributions to an RRSP are tax-deductible. Any growth is tax-deferred until you withdraw the funds in retirement.
- First Home Savings Account (FHSA): An FHSA is an account designed to help first-time homebuyers save for a home. Contributions are tax-deductible and withdrawals are tax-free when used for a home purchase.
- Non-Registered Accounts: Cash accounts are the simplest and most common type of non-registered account. It allows you to buy and hold various securities, like stocks, bonds, ETFs, and mutual funds without any contribution limits. However, unlike registered accounts like a TFSA or a RRSP, it does not have any tax benefits.
4. Understand Your Risk Tolerance
Assess how comfortable you are with the possibility of losing money on a bad investment. How much can you afford to lose?
Stocks, ETFs, bonds and other different investment types have different degrees of risk. Some are more volatile than others, though they may come with a higher potential return. Others are more conservative, though their potential returns may not be as high.
5. Decide Between Automatically-Managed Vs Self-Directed Investments
Are you the type to want full control over your investment decisions? Or would you rather have someone else take the reins? The way you answer this question will help you decide whether to choose between human advisors, robo-advisors versus self-directed investments.
Automatically-Managed Investments
Robo-advisors are digital platforms that create and manage investment portfolios for investors using specific algorithms. Examples include Wealthsimple and Questrade. All you need to do is add funds to your account, and your robo-advisor will invest the money based on your risk tolerance.
These platforms come with low fees, minimal effort, automated rebalancing, and customized risk tolerance. However, you have less control over your investments.
Self-Directed Investments
This DIY type of investing allows you to choose and manage your own investments through a brokerage account. Unlike the automatically-managed investment option, self-managed investments give you full control over your investment choices.
However, since you’ll be the one to choose what to invest in, this can be more difficult for a beginner. In this case, you’ll need a little more expertise and will have to do more work to effectively evaluate a stock or fund.
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6. Open A Brokerage Account And Start Investing
Once you’ve determined how to invest and what to invest in, simply fund your account and start! To help you determine where to park your capital, here are a few common types of investments to consider:
- Stocks
- Mutual funds
- ETFs
- Bonds
- Retirement Investment Products
Best Investment Platforms For Beginners In Canada
Before you can start investing, you will need a brokerage account, which is an investment account that you open with a licensed brokerage firm. Once you open a brokerage account, you can deposit money and use it to purchase investments.
Before opening a brokerage account, take the time to research and consider the company and product. Most brokerage accounts don’t have fees but read the fine print to make sure. Here are a few reputable brokerages to look at:
| Type | Account Types | Fees | Minimum Balance | |
| Qtrade | Self-directed | – TFSA – RRSP – RESP – RRIF – Non-registered accounts | – $8.75/stock trade – Buy and sell ETFs for free | No minimum |
| Wealthsimple Trade | Self-directed | – TFSA – RRSP – Non-registered investment account | – $0 commission trading – Various transactional fees | No minimum |
| CI Direct Investing | Robo-advisor | – RRSP – TFSA – RESP – RDSP – RRIF – LIRA – Savings accounts – Non-registered accounts, | 0.35% – 0.6% | $1,000 |
| BMO SmartFolio | Robo-advisor | – RRSP – RESP – RRIF – TFSA – Joint accounts- Non-registered accounts | 0.04% – 0.7% | $1,000 |
| RBC InvestEase | Robo-advisor | -RRSP -TFSA -Non-registered accounts | 0.5% | $100 |
Qtrade
Qtrade is a Canadian online brokerage platform that provides resources and tools for investors to manage their investments. It’s great for those looking to invest in stocks, bonds, ETFs, and mutual funds. Investors can buy and sell ETFs without trading fees, which helps keep costs low when building investment portfolios.
Learn more: Qtrade Direct Investing Review
Wealthsimple Trade
Wealthsimple Trade is a popular Canadian online trading platform designed for self-directed investors who want to buy and sell stocks and ETFs without commission fees. It’s ideal for beginner and casual investors who don’t need advanced features like margin trading or comprehensive analytics. It’s also suitable for those who don’t have a lot of capital to invest.
Learn more: Wealthsimple Review
CI Direct Investing
CI Direct Investing provides investors with both robo-advisor services and professional financial planning advice. One of the perks of this platform is its relatively low management fees, ranging from 0.35% to 0.60% annually, depending on the account size of the account. CI Direct Investing is therefore great for both beginner and more advanced investors and traders looking to keep their investment costs low.
Learn more: CI Direct Investing Review
BMO SmartFolio
BMO SmartFolio is a robo-advisor that offers personalized investment portfolios based on investor risk assessment profiles. Compared to traditional wealth management, BMO Smartfolio comes with low management fees, making it an attractive option for investors of all types. This platform is ideal for BMO clients and those looking for a managed portfolio from a well-established bank.
Learn more: BMO SmartFolio Review
RBC InvestEase
RBC InvestEase is another robo-advisor from a large, established Canadian financial institution that offers fully managed investment portfolios. Of particular interest of this platform is its user-friendly access and ease of use. Investors can take advantage of customized, diversified portfolios and low management fees.
Learn more: RBC InvestEase Review
| What If I Don’t Have Money To Invest? Investing relies on the idea that you need to spend money to make money. But that doesn’t mean you need thousands of dollars to start. The good news is you can invest even with just a few dollars. You don’t have to let a lack of investment capital get in the way of beginning your investment ventures. Invest with spare change and eventually work your way up. This is known as ‘micro investing’ and is a great way for new, young investors with limited capital to get started with investing. |
Why Is It Important To Invest?
Investing is important for several reasons:
- Build Wealth: Many types of investments — like stocks, real estate, and mutual funds — have the potential to grow tremendously over time. The earnings you can realize through investments often surpass the returns of a typical savings account.
- Compounding Interest: With compounding interest, the returns on your investments generate their own returns, which helps grow your wealth exponentially.
- Hedge Against Inflation: Investing helps your money grow faster than inflation, which protects your purchasing power when the dollar weakens.
- Meet Financial Goals: No matter what your future financial goals may be — like buying a house, saving for retirement, or funding post-secondary education — investing helps you reach these financial goals faster.
- Earn Passive Income: Investments often provide a source of passive income, which means you can earn money without having to do much work.
- Retirement Security: Building an investment portfolio can help you save up for retirement, which is essential given the fact that you’re no longer earning an employment income.
Beginner Tips And Tricks For Investing
Investing money for passive income is a lot easier said than done. People invest with the intention of making more money, but there is always a risk that you could lose part or all the money you invested. To minimize the risk of losing your invested money, below are some tips and tricks for beginner investors.
Diversify Your Investments
In the world of investing, the higher the risk of the investment, the more money you will make (or lose). This means that a low-risk investment has more of a guarantee to make you money, but you won’t make as much money as with a high-risk investment.
This doesn’t mean you shouldn’t take a chance on a high-risk investment. Instead, you should diversify the types of investments you make. Instead of only investing in one type of asset, you should invest in assets of all types and levels of risk.
Start With More Affordable ETFs Or Index Funds
Exchange Traded Funds (ETFs) and index funds are suitable for beginner investors. These types of funds track the performance of a specific market index and provide broader market exposure. They’re also more diversified, require minimal capital, and are passive investments.
Be Mindful Of Management Fees
If you choose to invest in actively managed funds, you’ll likely be paying a fee for this service. Be sure to find out what these fees are, as high fees can erode your returns.
Use Logic Over Emotions
Investing should always involve logical decisions over emotional decisions. Perhaps you want to invest in Apple’s stocks because it is your favourite technology company and you are a loyal customer. But, did you consider their financial performance, stock growth, and dividends? Maybe they’re not performing as well as your emotions would lead you to believe.
Investing with emotions could cause money loss at some point; make decisions using logic instead.
Final Thoughts
Investing is sort of like an extra expense that you pay now to secure more money in the future. Like all expenses, it is important to consider if it fits into your budget and what the benefit is to you by spending that money. If you don’t have room in your budget to invest now, that is perfectly okay. Sometimes other expenses are more crucial and important now. If you do have the money to invest, be sure that you invest smart, reasonably and with logic.
