Investing in stocks seems like a challenging endeavor. If you’ve ever wanted to start buying Canadian stocks, you’ve more than likely ran into the issue of simply not knowing where to start.
Full service brokers, robo advisors, low cost brokers..... It's simply overwhelming.
In this article, I’m going to walk you through how to get started with investing and buying strong Canadian companies on your own, step by step. So if you're looking to start your investing journey, you've come to the right place.
Investing just to invest doesn’t really get you anywhere. You need to know how to navigate the markets and ultimately profit more than you would from giving your money to a bank to invest. If you're looking at stock trading to make a quick buck, you'll more than likely end up broke. That's why the last portion of this article is absolutely critical.
Before we get started, I'd just like to clarify an advertiser disclosure. We are affiliated with Questrade, and will receive a commission in the event you sign up. So, if you appreciate the article, feel free to use our code. Lets get started.
How to buy stocks in Canada
Discount brokerages have made investing ridiculously easy.
This is both a benefit and a detriment to beginner Canadian investors, as it allows them easier access, which ultimately results in some people diving in to the markets way too quickly.
Obviously, this won't be you, because you're searching for guidance on getting started with investing and buying stocks.
Overall, you can get started with the following five steps:
- Open a self-directed investment account with a discount brokerage of your choice.
- Decide what type of account you want to open with that brokerage. Some options are a TFSA, RRSP, Margin account or even a LIRA.
- Set up a deposit schedule to keep your investing strategy consistent. Discount brokerages make this very easy, allowing you to fund your investment account by paying a bill through your online banking.
- Pick an investing strategy. One size definitely doesn't fit all, and the path to a well-diversified portfolio is one that suits your goals and risk tolerance.
- Invest what you can. Gone are the days where you need significant funds to play the market. With as little as $500, you can begin your path to financial independence.
All of these steps are detailed in this guide, including our favorite discount brokerage, details on different account types, investment strategies and more!
Lets get started with our guide on how to invest in stocks in Canada.
You don’t need a brokerage account to buy stocks in Canada online, but with the trouble it takes to purchase them without, you’re going to be much better off to open an account.
Brokerages have been around for ages, yet the key difference nowadays is the fact that you don’t even need to leave your computer chair to purchase Canadian stocks, mutual funds, ETFs or bonds.
In fact, with mobile apps you can often execute trades anywhere in the world in the snap of a second from your brokerage account. There are many different types of brokerages, however for this piece we're going to primarily focus on discount brokerages.
Although major banks have brokerage platforms like RBC Direct Investing and TD Ameritrade, they aren't quite at the same level as a low cost brokerage commission wise. And if you're looking to get into stock trading, you want to do it for the lowest price possible.
There are a wide variety of online brokers.
So, what low cost brokerage do I personally recommend to open an account for online stock trading in 2020?
Questrade, and it’s not even a close decision.
Now, before you think "oh, this is just another website trying to push an affiliate sale", I've walked the walk.
I've been a client of Questrade's for over a decade.
Now due to the stock market crash in 2020 there has been a surge in new investors heading to brokerages like Questrade.
As a result, customer service has been simply overwhelmed, and a lot of new investors are becoming frustrated with the lack of customer service.
Trust me, prior to the crash in 220 it took all of 5 minutes to get through to Questrade's customer service reps or live chats. They had the best customer service in the business.
And I have absolutely no doubts the company will be fixing this issue sooner rather than later. In fact, we can already see drastic improvements.
We have to remember the markets crashed at the quickest pace in history, 19 days. Not a single brokerage in the country had enough staff to handle the surge in clients.
So how exactly do you open an account and get started with stock trading with Questrade?
Well, first things first open a separate tab in your browser.
Second, grab our exclusive discount code to get $50 in free commissions (stocktrades50).
And finally, follow the instructions when you click that link to open an account!
Most beginners are used to their financial institutions simply buying mutual funds or some other form of investment, and have no idea what the best investment account is for them.
When opening your first online brokerage account, you may be overwhelmed by the amount of options you have.
For the purposes of this guide, we'll be looking at an account that lets you trade stocks on your own. There are also accounts that let you invest in Forex, or even a managed account where the brokerage firm will purchase stocks for you (comes with a management fee.)
If you're opening up your first account with an online broker, look at the following:
- Tax free savings account (TFSA)
- Registered retirement savings plan (RRSP)
- Margin account
So which account should you utilize for online trading?
Well, it depends, and I'm going to try and guide you in the right direction in as little words as possible.
Open up a tax free savings account if you're a low income earner. Tax free savings accounts allow Canadians to invest on a tax free basis, however they provide no personal tax benefits. As always, monitor contribution room.
On a side note, if you plan on purchasing stocks in the United States for the purposes of collecting dividends, just note that although capital gains from these stocks are tax free inside of the TFSA, you are taxed a 15% withholding tax by the IRS on U.S dividends. This tax is taken out before you receive your dividend.
Open up an RRSP account if you're a high income earner. The RRSP provides a personal tax deduction come tax time and can help high income earners reduce their tax burden.
A very generic example; a high income Canadian may get a 30% tax break on RRSP contributions, and in retirement will only pay 18% to withdraw them. However, it's very important to consider things like pensions, which could boost your income in retirement and nullify the tax benefits of an RRSP.
If you currently hold an RRSP with your financial institution, there is a good chance it holds mutual funds. Contrary to the TFSA, U.S. dividend stocks inside of an RRSP will not be charged a withholding tax, and are considered the best account to hold these types of stocks.
Open up a margin account if your TFSA or RRSP accounts are maxed (unlikely if you're a beginner) or if you'd like to trade on margin (borrowing money from your brokerage to invest.)
We don't recommend trading on margin if you're a beginner at all, so a margin account more than likely will not apply. Keep in mind, capital gains(and losses) come into play when opening a margin account.
Because investment returns are subject to capital gains and losses within a margin account or any other non registered account, if you insist on taking on a high-risk trading strategy do so in your margin account.
Although your profits are subject to capital gains, your losses are also subject to capital losses.
Overall, if you're looking to build up a retirement portfolio, the TFSA and RRSP should cover all your investing needs.
What is the best brokerage in terms of fees?
In terms of commission fees from brokerage accounts, the best discount broker here in Canada for online trading is Interactive Brokers.
Interactive Brokers commission fees are $0.01 a share, with minimum fees being $1.
However, before you open an account, it is very important you understand how most discount brokers commission fees work, as many advertise lower commissions than they are actually charging.
For example, the Interactive Broker fees state $0.01 a share, but a dollar minimum. This means if you purchase 50 shares of a stock, you'll still be charged $1. This works the same with Questrade, who's fees are $0.01 a share and a minimum of $4.95.
Now, before you automatically assume that Interactive Brokers is the better brokerage to open an account at because of lower fees, keep in mind the account minimums are different. Also, inactivity fees will need to be taken into account, as Interactive Brokers charges these fees more often than other discount brokerages.
Questrade has actually gone ahead and outright cancelled their inactivity fees, which is a huge advantage for those with small starting balances.
Keep in mind, when you're purchasing mutual funds or an ETF, there will also be management fees on top of commission. However, some brokerages like Questrade offer free purchases of a mutual fund or ETF, meaning you may only have to pay when you sell.
Overall, don't get tunnel vision when it comes to commissions as a beginner investor. There are plenty of factors that should be taken into consideration.
Realistically, you only need the amount you're looking to buy the stock for, plus brokerage commission costs.
For example, if a stock is trading at $20 per share and your brokerage charges a $5 commission, you'd need $25 to trade the stock.
However, you can probably see the downside of this. First off, a $20 per share stock is costing you $25. Nearly a quarter of your purchase price is gone in commission.
This is an impossible rate to keep up with and become profitable.
Therefore, we suggest that your commissions (total commission, not per share) make up no more than 1% of your trade.
So, a $5 commission would mean you only trade the stock if you have $500 minimum. That's pretty much the minimum you need to get started buying Canadian stocks these days.
This won't always be the case though, as online brokerages are coming out with commission free platforms. In this situation, all you'd need is simply the brokerages minimum balance to open an account. And as I mentioned above, Questrade just ditched these fees.
Currently, Wealthsimple Trade is the only commission free platform in Canada. Currently, all they have is a mobile platform, and do have limited selection on some Canadian stocks. It's a solid platform, but does have a long way to go to become an industry leader.
Learn how to research and evaluate a stock
Just because you know how to buy stocks online doesn’t mean you should just invest in the first one you find. Stock analysis is a skill that can take years, even decades to master.
Failure to execute a step like this could mean making a stock purchase that is ridiculously overpriced, much like new traders did with Canadian weed stocks in 2019.
Most were taking speculative investment advice from investors who had positions in these companies and were looking to "pump" the stocks up.
Make sure if you are getting investment advice, it's from someone reliable.
Another situation? You could be looking for stocks that pay high yielding cash dividends, ones that are often cut during economic downturns like we're seeing right now.
And when a company cuts its dividend, its market price usually plummets, and most investors regret the stock purchase and sell at a loss.
However, there are a few things I’m going to explain to you that will at least give you the knowledge to quickly identify overvalued stocks to avoid, or undervalued stocks to look at a bit closer.
Both online and full service brokerages will typically offer all of these metrics when you look up a stock ticker symbol, along with other things like market price and news articles.
Learn basic stock market terminology to avoid making mistakes
The Price to Earnings (P/E) ratio
Probably the most common investment metric available to Canadian investors looking to buy individual stocks, the price to earnings ratio is a comparison of the company’s stock price to its actual earnings.
The price to earnings on its own doesn’t really tell you much about a stock. A stock with a price to earnings ratio of 15 could be overvalued, while a stock with a price to earnings ratio of 30 could be severely discounted.
The key is to look at the industry average.
For example, lets compare two stocks side by side. Royal Bank currently has a price to earnings of 12.6, while Constellation Software has a P/E of 52.63. It is obvious that Constellation is trading at a much higher premium than Royal Bank.
However, most Canadian banks trade within the 10-12 range in terms of price to earnings, while the Canadian technology sector has a P/E average of 283.27.
Royal Bank is trading around industry averages, while Constellation is trading 438% below.
The Price to Earnings to Growth ratio
An ingenious enhancement of the P/E ratio is the PEG (price-earnings-growth) ratio. As a rule of thumb, look for companies with a PEG close to 1.0, which implies that the market’s expectations are based on realistic assumptions about the firm’s growth prospects.
Let’s assume that the P/E ratio of a firm is 10, and the expected growth rate is 5%. In this case, the PEG is 2 (10 divided by 5). Even though a P/E of 10 might be low compared to industry average of 15, the PEG raises a huge red flag.
Return on equity (ROE)
The net income earned expressed as a percentage against shareholder investments.
Plain English: A measure of the management’s ability to use money invested in the business. If you want to beat the markets, a ROE of at least 10% is essential.
Return on equity, like price to earnings, is best used to compare a company to its competitors or its industry average. For example, a 15% ROE may be common place in the financial sector, but in another sector a 5% ROE would be industry leading.
It's also best to compare a company's return on equity with their historical numbers to see if there is a trending increase in ROE or decrease.
An extremely important ratio. Too much debt can cripple a business during tough periods, eventually leading to bankruptcy.
Furthermore, this ratio is a good way to gauge the management’s claims. For instance, they may claim that they are going to double their business by borrowing money from banks.
But if the D-E ratio is 2, no bank will extend a loan to the firm. Look for firms with D-E less than 0.5.
Percentage of stocks owned by big institutions such as mutual funds, pension funds, endowments, hedge funds or other large investors.
There are two ways to look at this metric. High institutional ownership means that big analysts are confident about future prospects of the company.
But this also limits upside as the stock is not ‘hidden’ from big players. Around 50% institutional ownership is the sweet spot.
Earnings per share (EPS)
The EPS is the portion of a company’s profit dedicated to common stocks.
A simple example would be if a company made $100 and had 100 shares outstanding, its EPS would be $1.00. If the company posted a loss of $100, its EPS would be -$1.00. In the simplest terms possible, EPS is a good judge of a company’s profitability.
In the case of dividend stocks, earnings per share is often compared to its annual dividend rate to come up with a payout ratio, with is the amount of a company's earnings paid out towards its dividend.
Price To Book
The price to book ratio simply takes the company’s price per share and divides it by its book value per share, which is often calculated using the balance sheet.
A low price to book, such as something under 1.00, can signify undervaluation. Again, use this metric against the company's sector or competitors.
Develop an investment strategy that suits your risk tolerance and needs
So you know you want to start investing, you’ve opened up your brokerage account and you’ve got some basic stock evaluation methods at your arsenal. Your next step is going to be deciding what kind of investor you’re going to be.
There are three main types of investment strategies out there, and choosing one will depend on your current risk tolerance and goals.
Although there are more methods of investing out there, we’ll be focusing on investing.
Value investing digs into analyzing the true worth of a company, comparing it to the market price and capitalizing on buying stocks that trade below their intrinsic value. The investor can buy or sell stocks based on if they are undervalued or overvalued.
Value investing is one of the more rewarding, yet more challenging ways to trade stocks. It requires extensive research and a deep understanding of company fundamentals and the analysis of company balance sheets, quarterly earnings statements and annual reports.
Due to the possibility of mistakes, new investors with a low risk tolerance may want to avoid using this strategy immediately until they've learned a bit more.
For the purposes of this article, especially with most people reading this just getting started buying stocks in Canada, I’m going to combine dividend (income) investing and dividend growth investing.
Buying dividend stocks is probably the most popular investment strategy out there, and it is something new investors looking to learn can use quite easily.
Those who like stability and reliability will gravitate towards income investing
Income investing for the most part is investing in companies that provide cash dividends, either on a quarterly or monthly basis.
Investors trade seeking high yielding, established blue-chip companies to build their wealth through payments received by the company in the form of a dividend.
Investors who want broader exposure yet higher yield might trade ETFs, which offer investors baskets of stocks. Or, they may even trade REIT ETFs, which give investors high exposure to the real estate sector without actually buying real estate.
Blue-chip companies tend to lag the next type of stock we will be talking about in terms of stock appreciation
But, with what they lack in appreciation they make up for in dividends. A stocks price growing a mere 4-5 percent in a year is nothing to write home about, but combine that with a 4 percent dividend yield, and you have a very healthy 9% return.
A more advanced income strategy, one that beginners looking to start investing in stocks may have to take some time to learn, is dividend growth investing. This investment strategy puts investors in a situation where they are not only looking to trade stocks with solid dividends, but they are looking for consistently growing dividends as well.
If you're looking for an excellent way to keep dibs on your returns, read this post by Dividend Earner on tracking portfolio performance.
Growth investing, which is my favorite investment strategy, focuses on investors finding prospective growth companies that will provide above average market returns.
Because these companies do not issue dividends, they tend to spend cash flows and profits on things like acquisitions and expansion.
A lot of Canadian growth stocks would be considered small-cap stocks, and may be in young industries like 5G or renewable energy.
In terms of risk tolerance, growth investing is one of the riskier investment strategies, especially for beginners just learning how to buy stocks online in Canada, but with carefully planned execution and solid experience, it is likely to be the most profitable strategy an individual investor can deploy. You will be looking for companies with above average revenue growth and earnings growth, and ones with a strong chance of outperforming the market.
If you're looking to discover some of the best growth stocks in the country, check out Stocktrades Premium for free. At the time of writing, our individual growth picks have outperformed the TSX by 4X.
Dollar Cost Averaging
Dollar cost averaging is somewhat of an automated form of buying stocks. When an investor dollar cost averages, they are deciding to set aside an allocated amount toward a particular stock, regardless of the price. This can be every week, month, semi annually or even yearly.
The key to dollar cost averaging when buying stocks is to buy an exact dollar figure of the stock regardless of the price.
So, as an example, you’ve allocated $1000 every two months to stock ABC. The price currently sits at $50 a share. Your first purchase allows you to buy 20 shares.
Over the course of the next two months, the stocks price has dropped to $40. You’ve done your research, the investment thesis on the company hasn’t changed, so you purchase another $1000 in shares.
You’ve now dollar cost averaged your way down in price, as you now own 20 shares from your initial purchase at $50 a share, and 25 shares at $40. You now own 45 total shares for $2000, or an average price of $44.44 a share.
Dollar cost averaging allows you to capitalize on short term market volatility and build growth over the long term. It’s important to keep up with the overall health of the company. If something has changed, especially for the worse, you may want to cease your dollar cost strategy and instead sell your position.
Decide on preferred or common stocks
This is a question I get asked a lot when people are looking at stock picking strategies, and for 99% of retail beginners like yourself, the answer is going to be common stocks.
Why? Well, most often companies won’t even issue preferred stocks.
Although significantly less volatile than common stocks, preferred stock prices fluctuate less, and act much like a bond in the fact that their prices change significantly based on interest rates. A lot of people new to online trading will gravitate towards preferred shares because they offer higher yields for retirement accounts.
These investments, especially for those looking to start investing, are fairly complicated
Common stocks howeever, although at the bottom of the totem pole in terms of importance, have higher risk yet much higher reward than preferred stocks and are much simpler investment products.
Preferred shares are very popular with institutional investment firms, often because of their tax benefits vs common shares.
Learn your brokerage order types
With your discount brokerage, you can buy stocks with a click of a button.
However, it’s important that you know some basic order terminology before you start to buy stocks.
Jumping in too quick could cost you a ton of money depending on what type of stock you are buying.
Bid and ask price
Think of the bid and ask price of a stock being the "billboard" of the stock exchange. If someone wants to sell a stock for $5, the ask price of the stock will be posted as $5.
If someone is willing to buy a stock for $4.90, the bid price of the stock will be $4.90.
In reality, the stock markets have millions of these orders going on at once, but if we isolate a single event like this, we can see how the exchange works if you want to buy stocks in a particular company.
Because the ask is $5, and the bid is $4.90, the trader attempting to sell the stock will not have their order filled unless they bring their price down to $4.90, the highest an investor is willing to pay. The difference between the bid and the ask is what we call the spread.
If you’re looking to buy stocks and buy them fast, the market order is for you.
It is the most basic of all order types, as it simply tells your brokerage to buy stocks or sell stocks with no regard for the price. Now, the brokerage will still get you the best possible price on your stock, however liquidity comes into effect.
While a market order likely won’t hurt you on a high-volume dividend stock like the Royal Bank of Canada, you may get punished severely for a stock that isn’t traded as heavily.
Online brokers will list the total "volume" of a stock, which is how many shares are traded on a daily basis.
If you place a market order for a stock like Royal Bank, often your order will be filled within a few seconds, and for the current trading price, give or take a few cents. This is simply because of supply and demand. In a single day, over 1.5 million shares of Royal Bank could be traded.
On the contrary, with a low volume stock, someone looking to buy or sell shares of a particular stock may have set their price significantly lower or higher than the current trading price. Important to be mindful of that.
This is where the disregard for price comes in. Your brokerage will fill your order as fast as it can, and you may end up paying $25 for a $15 stock or selling your $15 stock for $5.
The Limit Order
Simply put, the limit order helps you control your price when buying or selling a Canadian stock. With a limit order, you’re able to set conditions on your purchase or sale, and online brokers won't execute the trade until the order is satisfied.
If you own a $20 per share stock and are looking to sell, you may set a “limit” on the price of $19.50.
This means that if you cannot sell your stocks for $19.50, you don’t want the limit order to be executed. The same applies for buying a stock. If you’re looking a stock that is currently trading at $20 and would be a buyer at no more than $21, you can set a limit order to not pay more than $21.
Like I said above, buying Canadian stocks online that are traded at higher volumes more than likely won’t get you into trouble with a market order, but I suggest using a limit order any time you make a purchase.
Using a limit order is a very good habit to get into, and reduces the chances of you slipping up and accidentally executing a market order on a highly volatile or low volume stock. Most online brokers these days have interfaces that are very easy to use in terms of order types, and limit orders are usually near the top because of their popularity.
Overall, the limit order is the number one order you should be using when buying stocks online. Although we like to explain what the market order is, we don't suggest using it.
The Stop Limit Order
The stop limit order is a very versatile order for buying stocks online. It can help limit your downside, and also eliminate the need for you to consistently watch your holdings.
With a stop limit, the investors issues a stop price, which is the price they'd like to sell a stock at. They also issue a limit price, which is the lowest they'd take for a sale of the stock.
This is much easier to explain in a simple example. Say you purchased a stock for $10, and it has risen to $20. You want to see if the momentum will continue, but you also want to protect profits. So you issue a stop price of $18, and a limit price of $17.
This means that once the stock hits $18, your brokerage will execute a limit order on the stock where it will execute your transaction as long as the sell price is higher than $17.
Purchase your first Canadian stock
Now that you have your brokerage account set up, have deposited some money inside of it from your bank account and learned some valuation ratios, you’re finally ready to make your first stock purchase.
However, online trading is a little more complex than that. So, don't skip this part just because you know some valuation metrics.
Anyone can buy stocks online their online brokerage once they open an account, just like anyone can pick up a golf club and try to hit the ball.
It doesn’t mean you’re going to be any good at it.
And while being a bad golfer may result in only a few laughs, your money is at stake here, which is no laughing matter.
Warren Buffett, one of the most famous investors of all time, attributes his success to one primary habit he had.
Warren Buffett loved to read. I'd highly suggest doing the same thing prior to jumping into the markets. Why?
Your first stock purchase is an important moment, and it must be well thought out.
Stocks must be bought with a long term time horizon, and your investment choices must look multiple years into the future, not months or even days.
The goal of investing should be to build a retirement account
And depending on how old you are, retirement isn't coming in the next month. So why would you care about fluctuations over that time period?
This is why relying on things like social media as an investment platform for stock tips is a mistake. The people in these groups do not have your best intentions at heart, and really don't care about your money.
Their so called "stock tips" may be promoting companies they own to try and get the stock price to rise, or downplaying strong companies they have a "short" position in to get the stock price to fall.
There are many ways to invest your money in Canada today
Things like bonds, ETFs, Index Funds, Real Estate Investment Trusts, mutual funds or even commodities can be suitable investment vehicles.
Stock market Indexes like the S & P 500, NASDAQ, Toronto Stock Exchange and New York Stock Exchange are all different exchanges that list different stocks.
Obviously with this guide being primarily based on trading stocks (equities being the proper term) through a brokerage account, that is what we are going to be focused on.
However, it's fairly important, especially for a retirement account, that it includes a variety of fixed-income investments like bonds to reduce overall volatility.
Can I buy stocks directly from the company?
Some companies have what they call a stock purchase plan, or direct stock purchase. This can enable you to buy and sell stocks for your investment portfolio directly from the company instead of going through your brokerage.
This can save you money, as a company may sell its stock for a discounted price.
But typically you need to be buying large portions to get the discounted share price, and not very many companies offer it. Bottom line, because of the nuances of a direct stock purchase, we highly suggest to buy and sell stocks through your online brokerage account.
Invest in stocks with an investors mentality, not a speculators
As I said at the start of this article, learning to trade stocks in Canada has become ridiculously easy. And with that brings the ability to buy or sell without much thought. While most aspiring investors hope to be large scale traders, there is about a 95% chance you’re going to end up with an empty wallet.
Developing an investors mentality when buying stocks is something that takes time.
Investing in stocks exposes you to extreme volatility over the short term. New investors often get caught up buying stocks at their peaks and selling stocks at their lows. This is often due to fear and what I call “market noise.”
There is one thing for certain though, long term investing will provide extensive wealth. Long term, at least in the case of the stock market, is not one, two, or even five years. It often takes decades to reap the real rewards of the stock market.
You’ve probably heard the term pay yourself first. It is the number one driving force behind being a successful stock investor.
Set aside a certain amount of money that you can afford every week, two weeks or even a month and place it into your investment account, and use the following investment strategy to ensure you block our market noise and continue down the path to investing success.
I really hope this guide has helped you and you feel comfortable enough to invest! As always, feel free to e-mail me or comment any questions you may have.
Beginner Canadian Investor FAQ
How do I buy stock by myself?
This is a valid question, and initially this stumps beginner investors. This is primarily because they're used to dealing with a bank to purchase mutual funds, stocks, or ETFs.
However, the process is pretty easy. All you need to do to purchase stocks by yourself is open up a self-directed brokerage account at a brokerage like Questrade. And speaking of that, if you use the code Stocktrades50, you'll get $50 in free commission.
Is it a good time to buy stocks in Canada?
The longer you wait to start investing, the longer you're giving up long term, compounding returns.
Even as little as $5000 invested today earning 8% works out to $50,426 in 30 years.
How can I buy OTC stocks in Canada?
There are a few things to consider however. For one, you're not allowed to buy OTC stocks in a TFSA or RRSP unless it is cross-listed on an approved exchange. It's very important to research whether or not the OTC stock you're considering buying will be valid inside of a tax-sheltered account.
Secondly, OTC commissions tend to be much higher than normal. Whatever discount brokerage you're with, make sure you understand costs.
What stocks to buy as a beginner?
These stocks typically don't have big movements in price, so beginner investors are likely to make less mistakes owning them. We're avid believers that the core of every investors portfolio should be built off safe, reliable dividend producing stocks.
Is it worth buying 10 shares of a stock?
Purchasing one $1000 stock or a thousand $1 stocks makes zero difference. You have $1000 invested. There is a common misconception that high priced stocks struggle to go up as much as a low priced stock.
The key thing to understand is total returns. a 10% return on investment is a 10% return, regardless of how many shares you own.
There are some instances where purchasing more shares benefits investors, like giving them the ability to purchase covered calls. But as a beginner, you don't need to worry about this.
How can I buy US stocks in Canada?
The key thing to understand however, is some accounts are better for holding U.S. listed stocks. For example, U.S. stocks in a TFSA will accrue a withholding tax on dividends, while dividends paid from U.S. companies inside of a RRSP will not.
It's important to do some research prior to purchasing U.S. stocks in Canada.
How many shares of a stock should I buy?
Optimally, a stock should make up no more than 7% of your current portfolio. So if you have a balance of $10,000 and are looking to buy a $100 stock, 7 shares would align well with a 7% per stock allocation.
Should you buy stocks during a crash?
However, this is primarily where money is made in the markets. The most important thing to do if you're going to purchase stocks during a stock market crash is to average in to position.
This means don't purchase all your stocks at once. Average them out over several weeks or months. This allows you to reduce your overall risk. If you purchase all your stocks today and the market continues to crash, this isn't optimal.
However if you purchase some today, some next month, some the month after and so forth, you expose yourself to a longer period of price movements.
Can stocks go to zero?
It is very, very unlikely solid blue-chip stocks will lose all of their value, but it is certainly possible with small/micro/nano cap stocks who are in the emerging growth phase to go bankrupt.
If this happens, you'd ultimately lose all the money you had invested.
Can you lose more than you invest?
However, in a non-registered account, your brokerage will allow you to borrow funds to invest. For example, with an account balance of $5000, they may allow you to invest $15,000.
So in this case yes, you could lose more than you invested. And this is exactly why beginners should avoid borrowing to invest at all costs.