How to Buy Shares in Canada: Effective Step-by-Step Guide for Beginners

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Investing in shares for the long term is an age-old way to grow wealth. Are you wondering how to buy shares in Canada but don’t know where to start? You are not alone. Buying stocks used to be expensive, time-consuming, and difficult for beginners, but it is now more affordable and easier since the advent of online brokerages. 

Right from the comfort of your home, you can buy thousands of shares at an affordable price. The best part is you can even buy them for free with a commission-free stockbroker.

Apart from online brokers, you can also invest in shares through Exchange-Traded Funds (ETFs) that can either be bought using a brokerage platform or through a robo-advisor. Let’s discuss the best of these platforms and the steps you should take to buy shares in Canada. Read on!

Want an answer to how to buy shares in Canada? This guide covers how to invest in stocks-Canada, the best stock trading platforms, the benefits and downsides of buying shares, stock portfolio and investment returns, taxation, and many more. Let’s get started!

How to Buy Shares in Canada: What is a Share?

Shares (also called equities/stocks)  are a major investment class for investors. When you buy shares in a company, you become a part-owner of the company. In other words, you’ll have an ownership interest in the company and can claim some of the company’s profits in dividends. The more shares you purchase, the higher your stake in the company. 

For instance, if a company comprises 100 shares and bought 150 shares, you’d own 15% of the company. You may also enjoy certain privileges as a shareholder. An example is the right to vote at shareholder meetings.

You can sell your shares for more or less than you paid for it, i.e., at a capital gain or loss. Overall, out of all Canada’s major investment assets such as shares, bonds, cash savings, ETFs, and GICs, shares or stocks have historically produced the largest returns for investors in the long term. However, they are also considered the riskiest.


Why do People Invest in Shares?

When you invest in stocks(shares/equities), you can earn extra income through these three primary means: dividends, capital gains from speculation, and compounding returns to maintain buying power. Let’s break them down. 

Dividend Income

A lot of established companies pay their shareholders dividends. They usually increase their dividends yearly, so it’s like you are getting a yearly raise. What you get on dividends is usually better than what you’d get on a savings or GIC account. Dividend income is also not taxed as much as rental income or salary. 

Capital Gains from Speculation

When you sell your stock for more than you paid for it, you earn a capital gain. Capital gains are a tax-effective way to grow wealth. This is because they are taxed more favorably than job earnings.

Maintain Buying Power

Investing in shares remains one of the most effective ways to maintain buying power in the long term. It is especially beneficial in retirement when no inflation-adjusted earnings are coming in. If your investments don’t match the inflation rate during this period, you’ll fall behind. Compared to bonds, savings accounts, or GICs, shares perform better in high inflation periods. Its historical out-performance proves this. 


Types of Shares

Shares can be grouped into two major types:

Common Shares

Common shares are the most common types of stocks held by investors. They are usually bought at a market-set price, and purchasing one makes you a part-owner of the company. As a common shareholder, you can make money from your investment through stock appreciation and dividends. 

However, dividend payments are not guaranteed as not all stocks offer dividend payments. If the company goes bankrupt, they’ll pay preferred shareholders, bondholders, and other creditors first. Common stock owners also get voting rights at shareholder meetings.

Preferred Shares

Preferred shares are also called hybrid securities because they blend both the elements of bonds and common shares. These shares combine the ownership and potential appreciation features of common shares with bonds’ consistent income. 

Preferred shareholders are paid a fixed dividend amount per share. If the company falls on hard times, they are paid before common shareholders. However, preferred shareholders get no voting rights. Types of preferred shares include rate resets,  floating rate, retractables/convertible, and perpetuals.

Another way to group stocks is based on the company issuing them, while stock funds may be categorized based on the types of company stocks the fund is holding.

  • Based on Company Ownership: Private or public stocks
  • Based on the type of company: blue-chip, growth, income, defensive, cyclical, and value.
  • Based on market capitalization: small-capitalization, middle-cap, and large-cap shares.

Step by Step of How To Buy Shares in Canada

You don’t need to have a huge sum of money to start investing in stocks. You can buy a stock with as little as $100, although we recommend setting aside a little more to save on the trading commission that accumulates when you make several small trades.

These are the seven basic steps you should take to invest in stocks in Canada. These steps answers how to buy shares in Canada:

  1. Evaluate Your Financial Goals and Resources
  2. Open an online brokerage account. (e.g., Wealthsimple and Questrade)
  3. Choose an investment account from an RRSP, TFSA, or a non-registered (taxable) investing account.
  4. Analyze Stocks
  5. Set Up Automatic Deposits.
  6. Choose Your Investment Approach.
  7. Consider Using a Financial Advisor.

How to Buy Shares in Canada:

Step 1-Evaluate Your Financial Goals and Resources

To achieve this, divide your money into three parts:

  • The first part is money you’d need in the short term, i.e., within one to three years.
  • Part two is money you need medium-term, i.e., within three to five years. 
  • The last part is money you won’t need for a while (5+ years).

Ensure you include a reasonable amount as an emergency fund as part of the money in the first two parts. Your emergency fund should be held in cash. Once you’ve arranged and set aside funds for the first two parts, you can direct the funds for the third part towards buying stocks. 

Now ask yourself these self-evaluation questions: Why am I buying shares? Is it for a mortgage downpayment? As retirement savings? To finance a child’s education? Or is it just for fun? 

Your financial goals decide how much you’ll have to invest and your risk tolerance. In other words, it is the foundation for investment. Overall, younger people have a longer investment path. So, they can take on more risk than someone close to retirement. 


How to Buy Shares in Canada:

Step 2- Open an Account with an Online Brokerage

When you buy stocks through a broker directly, you are referred to as a “Do-it-yourself” (DIY) investor or a “self-directed” investor. You have the flexibility to pick and manage your investment, as well as commission-free ETFs. 

Taking this route means you have to do your stock-picking research and make investment decisions. Canada’s online brokerage platforms vary from brokerage firms owned by big banks to independent discount brokerage.  

Discount brokerages like Wealthsimple Trade and Questrade offer an excellent online trading platform for DIY investors to buy or sell stocks unaided rather than depending on a human broker to carry out transactions. Their trading and management fees are very low (usually around 0.15% to 0.5%), so you’ll be saving money on both commission and trading fees.

Buying shares with an online brokerage is pretty easy, just enter a stock ticker symbol and stock quantity, hit the “Buy” button, and voila!

Each Canadian big bank has its discount brokerage arm, and many DIY investors find them the easiest way to begin investing on their own. However, you’ll likely get tired eventually of paying $9.99 every time you buy or sell a stock or ETF. So it might be better to just start with an online broker that won’t charge you any commissions like Wealthsimple Trade.

There are many online brokerages to choose from in Canada. We’ll discuss our top picks later in the article.


How to Buy Shares in Canada:

Step 3- Choose an Investment Account

When you are just getting started, you’ll have to decide whether you’ll be investing inside a registered account (such as RRSP, TFSA, and RESP) or in non-registered accounts. These are the popular registered accounts:

Registered Retirement Savings Plan (RRSP): As the name implies, an RRSP is used to save for retirement. It defers taxes on your earnings until you withdraw. RRSPs have a maximum contribution limit offer, and you can contribute 18% of your previous year’s income till you reach the limit. The maximum RRSP contribution limit for 2021 is $27,830.

Tax-Free Savings Account (TFSA): A TFSA provides you the opportunity to invest and earn tax-free returns for life. You can use your TFSA to save towards short- and long-term goals, as well as retirement.

The Canadian government sets a contribution limit for this account yearly. The TFSA contribution limit for 2021 is $6,000.

Both RRSP and TFSA offer you tax-sheltered investments. The general rule o.Debating TFSA vs. RRSP? One general rule of thumb is that a TFSA makes sense for low-income earners while an RRSP works for high-income earners.   

If you are debating between a TFSA and an RRSP, check out the TFSA vs. RRSP: How to Choose the Better One for You to help you make an informed decision on the better one for your situation.

Registered Education Savings Plan (RESP): With an RESP, you can save towards your child’s post-secondary education. Apart from your contributions, the government also provides free grant money up to $7,200. You can also invest your stocks in a non-registered account for personal or business purposes.


How to Buy Shares in Canada:

Step 4- Analyze Stocks 

Once you decide on the account you are investing in, do your research before buying a stock. Stock analysis can be divided into two broad parts: fundamental analysis and technical analysis. 

  1. Fundamental analysis uses the company’s available data to establish its financial health, growth potential, and intrinsic value. These factors on the company’s financial statement (balance sheet, income, and cash flow statements) indicate their stock performance: 
  • Price to Earning (P/E) ratio
  • Earnings per Share (EPS)
  • Dividend payout ratio
  • Debt to Equity Ratio
  • Return on Equity (ROE)
  • Price to Earnings Growth (PEG) ratio

Other factors that come into play here include a company’s management, competitive ranking in the industry, branding, intellectual property, and more.

  1. Technical analysis involves using historical price patterns and charts to forecast a stock’s future price. Traders use this method when making buy and sell decisions. These are the popular technical analysis indicators:
  • Moving averages
  • Support and resistance levels
  • Relative strength index
  • Trend channels, etc.

Your brokerage platform may give you access to charting tools. Another option is to use a stock screener. Analyzing which stock to buy can quickly familiarize you with the details.

Dissecting a company or stock and predicting what it may do or not do in the future is a continuous process. 

If you are just starting, keep things simple. Concentrate on fundamental analysis and prioritize understanding what a company is about and its prospects.


How to Buy Shares in Canada:

Step 5- Set Up Automatic Deposits 

Now the next step is to fund your account to commence investment. Doing this is pretty easy. All you have to do is link your chequing or savings account to your brokerage account and transfer the funds.

Most brokers allow automatic deposits from your chequing account. When you set this up, you can fund your account regularly each time you get paid. You can also fund your account by transferring existing investments from an investment firm or bank.

You can choose to transfer the funds “in-kind,” i.e., transferring the investments as is, to your new broker account, or “in-cash,” i.e., you’ll sell the investment and transfer the cash to your new account for you to begin investing.

As a beginner, your savings rate is more important than the rate of returns on your investment. Concentrate on contributing money regularly, irrespective of the market condition. You can contribute small amounts regularly (also called dollar-cost-averaging) and build a sizable portfolio a little bit at a time.


How to Buy Shares in Canada:

Step 6- Choose Your Investment Approach

After funding your account and setting up continuous contributions, you should decide on your investment approach. These are the two investment approaches:

Index Investing

A passive index investing approach is arguably the easiest approach to take. With this strategy, you only need to buy an index mutual fund or ETF that tracks a broad stock market index, such as the TSX Composite Index. With only one to four ETFs that will make up the U.S., Canadian, International stock markets and corporate or government bonds, you can build a diversified portfolio.

Growth Investing

Another approach is to invest in companies that have strong growth prospects. These are companies like Apple, Tesla, Amazon, Netflix, etc. Growth stocks usually don’t pay dividends until they become more mature. But they have a strong potential to earn capital gains

Dividend Investing

Dividend investing has its benefits and downsides, but some investors prefer growing a dividend stocks portfolio. Stocks that increase their dividend pay-outs yearly usually perform incredibly well in the long-run, because they tilt towards the value and profitability factor.

Dividend payments keep rolling in even when the markets are rocky. So investors can handle any market storm.


How to Buy Shares in Canada:

Step 7- Consider Using a Financial Advisor

High net individuals can consider using a financial advisor. A financial advisor assesses your investment plans and risk tolerance and then builds and implements an investment plan for you. However, this option is not accessible for everyone. Usually, you’ll need at least a $250K to $1M investment to get their attention.


How to Buy Shares in Canada: Online Brokers

Wealthsimple Trade

Wealthsimple Trade is Canada’s only commission-free stock trading platform. It is great for stock traders just starting. While big bank discount brokerages charge $9.95 per trade, you won’t pay any trading commissions when you buy or sell thousands of shares or ETFs on Wealthsimple. 

Features

Available AccountsPersonal investment account, RRSP, and TFSA.
Minimum InvestmentNone
Trading Fees$0
Best For Beginner traders
SafetyTheir accounts are under Canadian Investor Protection Fund (CIPF) protection.
How to Buy Shares in Canada: Wealthsimple Trade

Perks

  • No minimum investment
  • Zero trading fees
  • Best for beginner investors
  • Accounts are protected by CIPF (Canadian Investor Protection Fund).

Con

  • The only con is the currency exchange fee applies to USD trades.

Questrade

Questrade was founded in 1999 and has been offering Canadians brokerage services since then. It offers low-cost trading in shares/stocks, ETFs, Forex, options, and other investment products.

Features

Available AccountsPersonal non-registered accounts, RRSP, TFSA, RESP, corporate, and margin accounts.
Minimum investment$1,000
Trading feesOne cent per stock; minimum $4.95 and the maximum is $9.95 per trade.
Best for Experienced traders
SafetyCIPF and private insurance protection
How to Buy Shares in Canada: Questrade

Questrade is best for seasoned investors who want a customizable platform, charting abilities, and access to advanced market data.

Perks

  • It is an excellent platform for experienced traders.
  • Your account has CIPF and private insurance protection.
  • $0 inactivity fee
  • Low trading fees.
  • They have a solid reputation in Canada
  • Multiple trading platforms

Cons

  • You need at least $1,000 to start investing.
  • Stock purchases are not commission-free

How to Buy Shares in Canada: Big Bank Trading Platforms 

All of Canada’s biggest banks offer a stock trading platform for DIY investors. The fees are higher, but they may offer active traders discounts. You may also be charged inactivity fees if you don’t maintain a minimum account balance.

RBC Direct Investing

RBC Direct Investing is Royal Bank of Canada (RBC)’s brokerage division. You can trade stocks, ETFs, mutual funds, bonds, and options through this platform. It also offers traders a demo practice account.

Features

Available AccountsRRSP, TFSA, RESP, margin, personal and corporate non-registered accounts.
Minimum investment$0
Trading Fees$9.95 trading commission. $6.95 per trade for active traders.
Other Fees$25 maintenance fee every quarter for investors whose investment balance is less than $15,000.
SafetyThe RBC Online Banking Security Guarantee provides 100% reimbursement for any unauthorized transactions.
How to Buy Shares in Canada: RBC Direct Investing

Perks

  • No minimum deposit
  • No withdrawal fee amount
  • Zero inactivity fee
  • They offer high-quality educational tools.
  • Customer service is useful and quick.

Cons

  • High trading commissions at $9.95 per trade.

CIBC Investor’s Edge

CIBC Investor’s Edge is the Canadian Imperial Bank of Commerce (CIBC)’s brokerage platform. You can trade stocks, ETFs, mutual funds, options, GICs, etc.

Features

Available AccountsRRSP, TFSA, RESP, margin, personal and corporate non-registered accounts.
Minimum InvestmentNone
Trading Fees$6.95 trading commission per stock trade. $5.95 per trade for students. $4.95 per trade for active traders (traders with 150+ trades per quarter).
Other Fees$100 annual fee for registered account balance with $25,000 or less. 
$100 annual fee for non-registered account balance with $10,000 or less.
SafetyAccounts are protected by CIPF (Canadian Investment Protection Fund) Insurance for up to $1 million.

Perks

  • Excellent customer service.
  • It offers all investment account options.
  • Lower trading fees compared to other big banks
  • CIPF insured.

Cons

  • It is more expensive than the best brokers.

TD Direct Investing

The brokerage platform for TD bank is called TD Direct Investing and it is one of Canada’s first stock trading platforms. You can trade stocks, bonds, ETFs, options, IPOs, and mutual funds on this platform.

Features

Available AccountsRRSP, TFSA, RESP, and margin accounts.
Minimum investment$0
Trading Fees$9.99 per trade. $7 per trade for active traders with 150+ trades per quarter.
Other Fees$25 inactivity fee per quarter if your account balance is less than $15,000.
SafetyAccounts are protected by CIPF (Canadian Investment Protection Fund) Insurance for up to $1 million.
They are also a member of the Investment Industry Regulatory Organization of Canada (IIROC).

Perks

  • No minimum investment.
  • Accounts are CIPF insured.
  • Excellent customer service support from 7 a.m to 6 p.m ET on Mondays to Fridays.
  • Investors get access to multiple investment accounts and securities.
  • They offer free, comprehensive investment education resources.

Cons

  • High commission rates at $9.99 per trade.

Scotia iTrade

Scotia iTrade is a part of Scotia Capital Inc., a subsidiary of the Bank of Nova Scotia (Scotiabank). You can use the platform for trading shares, ETFs, mutual funds, options, bonds, and GICs.

Features

Available AccountsRRSP, TFSA, RESP, margin, personal and non-personal accounts.
Minimum investment$0
Trading fees$9.99 per trade. $4.99 per trade for active traders with 150+ trades per quarter.
Other Fees$100 annual fee when the account balance is less than $25,000.
SafetyAccounts are protected by CIPF (Canadian Investment Protection Fund) Insurance for up to $1 million.
Scotia Capital Inc is also a member of the Investment Industry Regulatory Organization of Canada (IIROC).

Perks

  • No minimum investment.
  • Young investors who are under 26 years can waive the low activity fee.
  • They provide a tool that helps you identify sustainable investments.
  • Active traders get a discount on trading fees.
  • They offer a practice account where you can test-run the platform without investing funds.

Cons

  • High trading commission at $9.99 per trade.

BMO InvestorLine

BMO InvestorLine is operated by the Bank of Montreal (BMO). Both beginners and experienced traders can trade stocks, mutual funds, ETFs, options, GICs, and bonds on the platform.

Features

Available AccountsRRSP, TFSA, RESP, margin, personal and corporate non-registered accounts.
Minimum Investment$5,000
Trading Fees$9.95 per trade. 
Other Fees$25 quarterly fee on non-registered account balance below $15,000.
$100 annual fee on registered accounts less than $25,000.
SafetyAccounts are Canadian Investment Protection Fund (CIPF) insured and IIROC (Industry Regulatory Organization of Canada) regulated. 

Perks

  • Various account types and investment
  • Discount and flat-fee pricing are available when you have a huge account balance.
  • They offer an adviceDirect service option that gives you access to investment advisors.
  • Active traders have access to research tools.

Cons

  • Expensive trading commissions.
  • You need a $5,000 minimum to open most accounts, eliminating beginners looking to start small.

Apart from Wealthsimple Trade and Questrade, there are other online brokers not owned by banks where you can trade your shares.


How to Buy Shares in Canada: Other Stock Trading Platforms

Virtual Brokers

Virtual Brokers is a subsidiary of BBS Securities Inc. It offers trading in stocks, options, ETFs, bonds, and mutual funds on several trading platforms.

Features

Available AccountsRRSP, TFSA, RESP, and margin accounts.
Minimum Investment$1,000
Trading FeesOne cent per share or a minimum of $1.99/trade and a maximum of $7.99/trade. Active traders pay a $3.99 flat fee per trade.
Other Fees$24.95 quarterly inactivity fee on account balance below $5,000.(It is waived if you are under 26 years old or if you complete a minimum of one commissioned trade of $1.99).
SafetyCIPF protection up to $1 million per account. 

Perks

  • A fourteen-day demo account is available.
  • Active traders with over 150 trades per quarter enjoy a flat fee.
  • They offer a dividend purchase plan at a $1 monthly cost.

Cons

  • $1,000 minimum investment.
  • A $24.95 inactivity fee applies for accounts under $5,000.

Qtrade

Qtrade is an independent brokerage platform that has excelled over the years and stands out for its excellent customer service. They offer trades in stocks, GICs, ETFs, options, new issues (IPOs), bonds, and mutual funds.

Features

Available AccountsRRSP, TFSA, RSP, margin, personal, and corporate investment accounts.
Minimum investment$1,000
Trading fees$8.75 per trade; $6.95 for active investors.
Other Fees$25 quarterly inactivity fee on account balance below $25,000.
SafetyCIPF protection up to $1 million per account. 

Perks

  • They offer a trial account.
  • Young investors can get $7.75 commissions and zero quarterly fees.

Cons

  • High trading commissions
  • You need to trade at least $1,000 to enjoy commission-free ETFs.

How to Invest in Stocks Canada Using a Robo-Advisor

Rather than purchasing individual stocks conducting researches to pick reliable stocks, you can go for a professionally managed stocks basket, i.e., an index ETF portfolio.

An Index ETF can contain thousand of stocks, and it provides diversification across geographical locations and industries. It is tough to achieve this diversification level if when you purchase individual stocks.

You can buy ETFs directly through your brokerage account or through a low-cost wealth manager called a robo-advisor.

Robo-advisors do all the heavy lifting for you and make the investment process easy. The best robo advisors in Canada offers you these benefits:

  • Help you recognize your risk tolerance, investment goals, and how long you intend to invest.
  • Proffer an investment portfolio that fits your needs.
  • Rebalance your portfolio automatically when needed.
  • Offer free financial advice and handle dividend re-investing
  • They make dollar-cost averaging easy, i.e., contributing small amounts regularly rather than in lump sum less frequently.

In exchange for these perks, you’ll only pay a small annual management fee compared to what you’d have paid for a comparable mutual fund. RBC’s robo advisor platform called the RBC InvestEase offers all these perks. It is one of the best robo advisors in Canada from a big bank.


How to Buy Shares in Canada: Types of Stock Trades

The three common types of orders you can place when buying or selling a stock are limit orders, market orders, and stop orders.

  • Market Orders: This order means buying or selling a stock immediately at the current best market price. The stock market can be very volatile, and stock prices are always changing, so the market price executed may not be the same one you saw when you clicked on “buy” or “sell.”
  • Limit Orders: A limit order states the specific price you want to buy or sell a stock. When you set a limit price, the trade can only occur at that price or better. For instance, a buy limit order will only be carried out at the limit price or lower, while a sell limit order will only sell a stock at the set price or higher. If the set price is not met or there aren’t enough shares, the limit order may not get filled. You can set how long you want your limit order to stay active or leave it as GTC, i.e., Good Till Cancelled (GTC).
  • Stop Orders: A stop order buys or sells a stock when the price reaches a stop price. If your share’s price falls to or below the stop price, it triggers an order to sell your stock at the next best market price is triggered. Investors who are buying can protect their position with a stop-loss order which can also be used to cover selling positions. When you set a limit price and stop price, the trade is called a Stop-limit order.

Note: If you are just starting, you should know what the terms “bid” and “ask” mean. “Bid” refers to the highest price buyers are willing to pay for a stock, while “Ask” refers to the lowest price a seller is willing to sell a stock for.

The difference between the Bid and Ask prices is called the Bid-Ask spread.


How to Pick Stocks

Choosing individual stocks involves research. These are a few approaches to picking stocks:

Value Investing Approach

You’ll begin with basic metrics such as dividend yield, price-earnings ratio, earnings-per-share, and price-to-book ratio for this approach. Your broker’s tools should contain stock screeners.

Stock screeners sort individual stocks according to one or more of these metrics so you can make an informed decision on the stocks to pick. This is what is called a value investing approach. 

This approach is effective because the market usually undervalues companies with low price-to-earnings and low price to book. Picking these value stocks means you expect an increase in share price once these undervalued companies start to shine once more.


Dividend Investing Approach

Investors who prefer dividend stocks might want a higher dividend yield or want stocks with a high dividend growth rate, i.e., stocks that have a history of increasing their dividend payouts annually. 

In this case, they’d be screening for dividend stocks based on yield and growth. Doing this enables the investor to build a portfolio of dividend-paying dynamos. 

However, remember that dividends are not guaranteed, and looking at companies’ dividend payout ratio can help you screen for companies that are likely to cut or eliminate their dividend.

Companies with a dividend payout ratio above 100% pay more dividends than they earn in net income. A major red flag! Suppose you are after dividend growth, screen for stocks based on high sales or revenue growth and high earnings-per-share. 

Even if you’ve been doing it for years, stock picking is hard and professional investment managers still struggle to make the right decisions even with the best research and sophisticated analysis. 

You can’t know for sure if a stock’s future price will go up or down. When picking individual stocks, while winning is possible, be also prepared to lose. The risk is a part of the process. 


Bonus Tip: Start Broad

When you begin investing, start broad. Don’t start picking individual stocks right away. Rather, get used to investing and select a few index funds, ETFs, or mutual funds. That way, you’ll get familiar with how the market works, reduce costs, and diversify your portfolio instantly.

Once you’re more comfortable, begin by examining value investing. Value investing requires great patience and discipline together with vital skills when choosing stocks.


Stock Investment Returns and Taxation

The dividend payout ratio and dividend yield are factors that show a company’s strength and stock attractiveness. The dividend payout ratio is how much of its profit is paid out to shareholders as dividends. In contrast, the dividend yield is a percentage measure of the dividend out of the stock’s current price.

Companies can pay out their dividends monthly, quarterly, semi-annually, or yearly. A company can also decide not to pay out dividends at all, either due to financial troubles or because it wants to reinvest profits into growing the company.

Apart from dividends, a shareholder can also make money from shares by selling them when the price rises. When you sell a share at a higher price than you bought it, you earn a capital gain. If vice versa, you sustain a capital loss. If you invest in shares within a non-registered account, this is how they are taxed:

  • Capital Gains: Half (50%) of your capital gains are added to your income and taxed at your marginal tax rate. You can carry capital losses back up to three years to cut down or eliminate capital gains. You can also carry your capital losses forward indefinitely.

  • Dividends: Acceptable dividends, like dividends from a Canadian company, are summed up and taxed. You can decide to claim the dividend tax credit to prevent double taxation. Dividends from non-Canadian companies, on the other hand, are summed up, added to your income, and taxed at your marginal tax rate.

If you invest in shares within a registered account like RESP and RRSP, you won’t pay taxes on any income you earn until you withdraw money from your account. For a TFSA, your income is tax-free. 


What are the Benefits of Investing in Stocks?

Some of the advantages you derive when you invest your money in shares are: 

Dividends

Suppose you buy shares in a company that pays out dividends regularly. In that case, you’ll earn an additional and predictable stream of income that can complement other income from money-market or fixed income securities.

Capital Gains

If the company you invest in does well, its stock price and value will go up, leading to capital gains for the investor.

Easy Diversification

Compared to the other primary asset classes, stocks are a lot riskier. However, to lower your risks, you can invest in a portfolio of diversified equities across countries, sectors, and industries. You can achieve this diversification easily accomplished through equity mutual funds/ETFs.

Liquidity 

Usually, stocks are traded on liquid stock exchanges. This means you can easily buy or sell them without affecting the stock price significantly.

Friendly Taxation

Only half (50%) of capital gains are taxed. Also, dividends get a favourable tax treatment compared to interest income from GICs and bonds that is completely (100%) taxed at the investor’s marginal tax rate.

Beat Inflation

Long-term stock returns on stocks tend to surpass the inflation rate. Therefore, investing in stocks allows you to grow your portfolio and make real returns.


Downsides of Investing in Stocks

Time Consuming

The processes involved in trading stocks successfully can take the bulk of your time. Buying individual stocks, examining them each for merits, and making sure your basket of stocks is properly diversified can be time-consuming.  

Volatility

The stock market is volatile and can fluctuate to rumour, news, company information, and investor sentiments. During a recession, stock prices can stay down for a long period.

Risk of Incurring Total Loss

It is possible for a company to go bankrupt and leave nothing for the common shareholders after settling bondholders and preferred shareholders. Companies may also fall on difficult financial times and be unable to pay dividends.


Smart Investment Strategies to Lower Risk

Invest in Index funds and ETFs

Exchange-traded funds (ETFs) are a pile of stocks packed together to copy a stock market index’s performance. In other words, this investment fund allows you to purchase a large basket of individual stocks at a time.

Smart investors don’t try to beat the stock market. Rather they try to match the total market performance by investing their money into low-fee funds, like index funds and ETFs, that hold all (or almost all) the stocks in one specific index. Then, they check their portfolio once a year. 


Diversifying Your Portfolio

Another smart investment move is not to keep all your eggs in one basket. Diversification means holding as many companies in as many industries as you can. So, if one company or sector fails, you will still have money invested elsewhere you can fall back on. 

Diversifying a portfolio with individual stocks can be expensive, and it will take time for a beginner investor. If you’re a new investor, you can start with ETFs. For instance, if you purchase the broad market iShares CDN Composite Index Fund (XIC) ETF,  you’d be invested in 237 companies instead of just one.

An ETF’s overall price can go down but not as much, even if a few of the companies are not doing well at a point. The price will go back up once the companies do well.


Have Some Lower Risk Investments in Your Portfolio

Your portfolio should also contain lower-risk investments. Although it will earn you a lower return than you’ll get on high-risk investments, but building a diverse and balanced portfolio is the best defence you can get against volatility. Examples are high-interest savings accounts or a  Guaranteed Investment Certificate (GIC).


How to Buy Shares in Canada: Can You Buy Shares in a Market Crash? 

A market crash doesn’t mean you can’t invest in stocks. According to experts, the best time to invest is during a market downturn, and investors can still make profits even during this period. The question is, “What kind of companies flourish during these times?

Let’s use the pandemic as a case study. During the first quarter of 2020, stock prices fell badly. However, some companies thrived during this period. Everybody was working from home, and the use of video conferencing software like Zoom went up. What of groceries? Everybody, including those who are self-isolating need groceries, and grocery businesses benefitted from this. 

Companies producing cleaning products, hand sanitizers, and disinfectants thrived since we all have to wash our hands constantly and clean surfaces. So, the smart move would be to look for companies that will flourish during difficult times. 


Who Should Invest in Stocks?

If you fit into the situations below, there’s no better time than now for you to start buying shares. 

  • You have a medium to long-term time scope of at least four to five years.
  • You are inclined to learn more about the basics of stock market investing, such as evaluating stocks, how financial markets work, and economic cycles. (The fact that you are reading this article is a start).
  • If you are patient enough to allow your dividends and capital compound. For instance, if your return rate is 8% yearly, your investment will double in value in around ten years.
  • You are aware of your risk tolerance and goals.

Who Should Not Invest in Stocks?

Invest your money in safer options like GCs and savings accounts for now, and consider stock investing at a later time if either of the situations below applies to you.  

  • You will need the money back in the short term, within one to three years.
  • You can’t handle financial risk.

FAQs: How to Buy Shares in Canada?


Final Thoughts  –  How to Buy Shares in Canada

Buying shares involves choosing between several online brokerages or robo advisors. The most important thing is to find one that suits your needs best. If you are okay with DIY investing and don’t mind picking the stocks yourself, an online brokerage like Wealthsimple and Questrade will do the job. 

Stock investment comes with risks but the higher the risk, the greater your expected return. According to experts, investors who are patient enough to hold a diversified portfolio for a long period have a better chance of earning positive gains.

So if you have the time and a long-term approach to investing, shares deserve a primary position in your wealthy-building game plan. Don’t allow the fear of stocks to stop you from the gains and benefits from investing.

While it can take time to get the hang of the market, you’ll achieve your goal with consistency. Now that you know how to buy shares in Canada, you can get started with investing in shares right away!

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