Shannon Terrell
Many people think investing requires a certain amount of money and know-how to get started. But anyone can become an investor — no matter your financial goals, the size of your bank account or how much you know about the stock market.
To start investing in Canada, you just need a firm grasp of your finances and a clear picture of your investing goals.
1. Review your finances
If you want to start investing, first, sit down and look at your finances. Compare your income to your ongoing expenses. Examine your account transactions over the past few months.
Getting a comprehensive look at your finances can help you figure out how much you can responsibly allocate towards an investment account — both as an initial investment and on an ongoing basis. You don’t need to be debt-free to start investing, but you don’t want to overextend yourself either. Consider creating a debt plan to balance monthly debt payments with regular contributions to an investment account.
Do you have an emergency fund?
No matter how eager you are to start putting together an investment portfolio, it may be worthwhile to take stock of your emergency savings first. An emergency fund is a highly liquid (read: easily accessible) account that acts as a monetary safety cushion when you encounter unexpected expenses, like a roadside breakdown or a vet bill.
Investing is a way to grow your wealth over time, but it’s best to invest funds you won’t need to access quickly or in the near future. It can take a while to access funds from an investment account — up to two weeks, in some cases.
Also, your investments may go down in value if they don’t perform well, leading to a temporary or permanent loss of money — another reason to keep your savings and investments separate.
An emergency fund that offers you quick and easy access to your money is essential. As for how much you should tuck away? Most financial experts suggest a savings goal of three to six months of living expenses. If that doesn’t feel possible, aim to save up at least $500, and then add funds as you can over time. Setting up automatic transfers from your bank account or stashing windfalls like your tax return can accelerate the process.
2. Pick an investment strategy
There are numerous investment strategies to pick from, but they all boil down to one fundamental question:
How involved do you want to be in the investment process?
Active versus passive investing
In most cases, Canadian brokerages offer self-directed accounts for active investors or automated accounts for passive investors. Active and passive investors are two sides of the same coin.
The difference is that active investors fly solo while passive investors rely on the guidance of a third party — either a financial advisor or investment algorithm.
| Investing method | How it works | Active or passive |
|---|---|---|
| Financial advisor | A registered investment advisor at a financial institution or brokerage builds and manages your portfolio on your behalf. | Passive |
| Robo-advisor | An automated service offered by digital investment platforms that uses sophisticated algorithms to maintain your investments. | Passive |
| Self-directed trading | You open a brokerage account, and buy and sell your own investments. | Active |
Ultimately, the most practical approach for your investment portfolio will hinge on how much support you’d like throughout the process.
» MORE: How to start investing in stocks in Canada
3. Compare investment platforms
Investing is a commitment that can involve significant risk. Before you sign up, vet your potential investment platform by considering the following:
- Account options. There are numerous investment account options, including non-registered cash accounts, TFSAs, self-directed RRSPs and more. Not all financial institutions offer a full spectrum of accounts, so if you’ve got your heart set on something specific, verify that the platform you’re interested in offers that type of account.
- Investment options. Stocks, exchange-traded funds, mutual funds, GICs, crypto — there are plenty of options out there, so if there’s something in which you’re keen to invest, make sure your potential platform has it on the roster.
- Fees. Investment fees range from flat-rate trade commissions to ongoing account fees. Any fee you’re charged to invest can impact your profitability.
- Registration. If you’re interested in getting set up with a financial advisor, vet their credentials and find out if they’re registered by using the National Registration Search on the Canadian Securities Administrators website. Investment dealers should be Canadian Investor Protection Fund (CIPF) members.
- Investor feedback. Find out what other investors have to say by reading reviews published by the Better Business Bureau, Trustpilot, Reddit and other online forums.
» MORE: 10 RRSP benefits you shouldn’t ignore
Why investment fees matter
Fees lower your returns, and commission-free brokerages in Canada are few and far between.
Investors executing their own trades will want to be on the lookout for commission fees, which are flat-rate fees brokers charge each time you make a trade. On average, Canadian brokerages charge $6.95 per trade.
Investors interested in automated investment services, like robo-advisors, will want to compare management fees, which are percentage-based fees brokers charge to oversee your investments. Automated investment services typically charge 0.25% to 0.7% annually.
4. Open and fund your account
Once you’ve picked an investment platform, you’ll need to sign up for an account. Be prepared to supply the following information:
- Full name.
- Date of birth.
- Residential address.
- Employment information.
- Government-issued photo ID.
- SIN number.
- Bank statements.
Some of Canada’s major financial institutions use the Verified.Me service to confirm applicant identity. If you plan to invest through one of these institutions, be prepared to navigate the Verified.Me process, which may require you to securely sign in to your bank account.
Though numerous investment platforms have no minimum opening deposit, others require a minimum account balance of up to $1,000 before you can start investing.
5. Pick your investments
There’s plenty to pick from, so take some time to familiarize yourself with the asset classes you might add to your portfolio:
- Stocks. An investment that represents a slice of ownership in a company divided and sold as individual shares on a stock exchange.
- Exchange-traded funds. These funds pool money from multiple investors to buy into a basket of investments — typically stocks and bonds. ETFs trade on exchanges during market hours.
- Mutual funds. These funds also invest in a collection of investments, but, unlike ETFs, they don’t trade on market exchanges.
- Bonds. A loan from an investor to a company or government that earns interest and is repaid over a predetermined time frame.
- Options. A contract that gives an investor the right — not the obligation — to buy or sell an investment at a set price within a specific amount of time.
- Futures. A contract that represents an agreement to buy or sell an investment at a fixed price on a future date.
- Forex. The foreign exchange market facilitates the 24-hour exchange of global currencies.
- Cryptocurrency. Digital assets that can be bought and sold as individual coins or tokens through dedicated exchanges.
» MORE: What is cryptocurrency?
What should I invest in as a first-time investor?
As a first-time investor, take time to acquaint yourself with your investment options. You may also want to learn more about diversification, an investment strategy that involves spreading your investments across multiple asset classes, sectors and industries to help protect your portfolio from fluctuations in the market.
The more risk you’re willing to take, the greater your potential profit — but you’ll lose more if your investments perform poorly. Riskier investments include options, futures, crypto and stocks.
For the risk-averse, bonds, funds, GICs and other types of fixed-income investments are more predictable and less volatile. These investments offer more consistent returns, although gains tend to be less dramatic than their high-risk counterparts.
6. Monitor your portfolio
The true challenge of investing is monitoring your portfolio and rebalancing your investments so that they continue to align with your goals. Even if you invest with a robo-advisor, keeping an eye on your investments can help you determine whether you need to revisit your risk allocation strategy.
Schedule regular portfolio check-ins to make sure your investments are on the right track, whether that’s meeting with your financial advisor for an update or simply logging into your online account to view your portfolio’s performance.
About the Author
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