How To Buy Stocks in Canada: 4 Main Ways

Did you know that nine out of every 10 households in the U.S. that earn US$100,000 invest in stocks?

The beauty of stocks is that they are an investment asset accessible to most people, not just those in the higher end.

And if you want to leverage the power of stocks to sustain your existing wealth and grow your savings, learning how to buy stocks in Canada is the first crucial step. 

4 Ways to Buy Stocks in Canada

Crop dealer touching screen on smartphone with trading application

There are four easy ways to buy stocks in Canada:

1. Trading Platform (aka Discount Broker)

Investment Knowledge Needed: Medium to high
Time commitment: Low to high, depending on your investment
Fees: Low to zero

Thanks to the investment “revolution” that was initiated by the Robinhood app, stock investing has gone commission-free in both Canada and the U.S. You might need to pay a fee to use a stock trading platform and open a brokerage account. Still, apart from that, you don’t have to pay any commission for buying and selling a stock with most trading platforms.

The idea behind these trading platforms is that you will direct your investments yourself and replace the broker between you, the stock buyer, and the stock exchange using a self-directed investment platform. You can buy stocks, ETFs, and even stock options while paying a minimal fee for the discounted brokerage or trade execution. The fees, however, are lower compared to other options. 

Also, understand that if there is a flat fee for using the platform, you can minimize the fees’ impact on your investment by buying more stocks. The more you invest, the smaller the fees would become in comparison. Also, the platform might have different fees for stocks and ETFs. 

Trading platforms are ideal for both beginner and advanced investors. Beginner investors can create a safe and inexpensive investment portfolio based on ETFs using these trading platforms. On the other hand, advanced investors might prefer exposure to direct stocks.

The procedure to buy stocks using a trading platform is fairly easy:

  • Choose the right trading platform (based on fees, ease of use, helpful resources, etc.).
  • Open a brokerage account with that trading platform.
  • Connect it with the registered or non-registered account you want to hold the stocks in.
  • Transfer the investment funds into the account. 
  • Start buying stocks.

You can gauge how good a trading platform is based on multiple factors, including its fees, asset options, history of stability and availability (i.e., it shouldn’t crash nor lag during high market volatility periods), and the intuitiveness of the platform. 

Pros with Discount Brokers

  • It provides you with complete control over your trades and portfolio management.
  • It has minimal to no fees for investing.
  • It offers ETFs that are usually free to buy.
  • There are a lot of asset options.
  • Some trading platforms offer more assets, such as gold and crypto, to easily balance or hedge your stock portfolio.
  • You can buy and sell stocks or ETFs at any moment if you anticipate a sudden drop or rise in the market.

Cons with Discount Brokers

  • You need substantial investment knowledge to buy stocks directly.
  • You will have to control your asset diversification and allocation for optimal risk management and returns.
  • There is no automatic tax-loss harvesting.
  • Since there is neither a broker nor an advisor on your side, they can’t take timely investment decisions on your behalf if you are unavailable.
  • You will need to be more active if you will engage in stock investing.

Best Trading Platforms to Consider

If you want to buy stocks in Canada using a trading platform, these three platforms deserve your attention:

  1. Questrade

Questrade is one of the oldest trading platforms in Canada. It offers self-directed investing at very low commission fees, and you can open an account without a minimum amount. You also don’t have to pay fees for buying ETFs.

The platform can be fully customized and comes with several helpful tools and educational resources. You can set alerts, create watch lists, and monitor your favourite stocks’ activity quite closely to make timely investment decisions.

  1. Wealthsimple

If affordability is what you are after, Wealthsimple trade is a great pick. It comes with no account minimums, annual or monthly fees, or commissions. Like Questrade, it can also be connected to different types of accounts, and you can even create watch lists for your favourite stocks or funds.

However, it does come with a high currency conversion rate if you want to buy U.S. stocks. But apart from that, it’s excellent for starting out since it also allows you to invest in bitcoin.

  1. TD Direct Investing

It’s a trading platform offered by one of the Big Five banks in Canada and comes with flat-fee commission rates for both U.S. and Canadian stocks. There is no maintenance fee if you can keep the account balance at $15,000 or more. Otherwise, you’d have to pay $25 a quarter. 

Note that there are also transfer fees involved. Like TD Direct Investing, all the Big Five have trading platforms, but they are just as—if not more—expensive, making independent platforms like Questrade and Wealthsimple Trade much more affordable options. 

You can get details on these and other trading platforms here

2. Robo-Advisor

Investment Knowledge Needed: None to minimal
Time commitment: Very low
Fees: Low 

Robo-advisors are AI or algorithm-based programs that make stock investments passive. Most robo-advisors leverage a fixed selection of a few ETFs, each with its own return potential and risk rating.

When you sign up with a robo-advisor, you have to answer a few questions about your risk tolerance, investment goals, investment frequency, and investment timelines, among others. This allows the robo-advisor to create and manage your investment portfolio for you.

Since these robo-advisors work with a limited number of ETFs that are usually low-cost, they tend to be quite affordable. They also rebalance your portfolio every month/quarter/year to ensure that it’s still aligned with your investment goals and is within your risk tolerance. The rebalancing is usually done by replacing or revising the weightage of each ETF in your portfolio. 

Robo-advisors’ approach to stock investing is hands-off and requires minimal research on your part. You only have to leave the job of investing to a robo-advisor that you have selected. A combination of self-directed investments and a robo-advisor-based portfolio is also a good approach. 

Pros of Robo-Advisors

  • It offers greater convenience since it employs a hands-off approach to stock investing.
  • It prevents human errors or sentimental investment decisions from affecting your portfolio.
  • It rebalances automatically.
  • It provides relatively lower fees.
  • It has an in-built portfolio diversification, thanks to an ETF portfolio.
  • It is ideal for conservative investments and long-term growth.
  • You don’t need to conduct meticulous research.
  • Features like auto-deposits and dividend-reinvesting make robo-advisors more hands-off and effective.
  • Some robo-advisors that rely upon predictive analysis can make smarter investment decisions than you do. 

Cons of Robo-Advisors

  • It provides limited control over your investments.
  • It is solely ETF-based, so you can’t harness individual stocks’ true growth and dividend potential.
  • Its performance is only as good as the algorithm or AI behind the robo-advisor, which can be a black box for users.
  • It has a limited collection of ETFs, which effectively “caps” your return prospects.

Robo-advisors can be a great place to start for beginner investors, especially if they are not willing to spend a significant amount of time and effort in learning the investment basics and prefer to keep stock investing as hands-off as possible. 

Robo-Advisors to Consider

There is a decent selection of robo-advisors and their equivalents for Canadian investors. Three of them are:

  1. Questwealth

Questwealth is one of the most-affordable robo-advisors for Canadians and comes with low management fees of 0.2% to 0.25% per year (0.2% if you have a portfolio of $100,000 or more; 0.25% if your portfolio is worth less than that).

It’s not a genuine robo-advisor per se since its portfolios are actively managed by human experts who leverage technology, but the fee structure puts it in the robo-advisor category. 

It offers five different types of portfolios that are balanced real-time or as needed and leverages tax-loss harvesting for optimal returns. Four of its portfolios have been up for ten years, so you can have a fairly accurate picture of their return potential.

  1. Wealthsimple

It comes with a relatively higher fee: 0.5% for portfolios under $100,000 and 0.4% for larger ones. It offers three core portfolios and two additional ones and works with a small selection of ETFs. The portfolios are actively managed and rebalanced.

In the last five years, Wealthsimple’s conservative portfolio has performed better than Questwealth’s, but it reversed for aggressive portfolios.

  1. Justwealth

Justwealth comes with the following fee options: 0.4% for portfolios over half a million dollars, 0.5% for portfolios with less than $500,000, and $4.99 per month for portfolios with less than $12,000.

It uses 50 ETFs and combines them based on your preferences to provide you with 70 different model portfolios, one of which would be the ideal fit for you. Evidently, it’s a simple and hands-off way to invest in your future.

You can find out more about robo-advisors in Canada here.

3. Financial Advisor (Not recommended) 

Investment Knowledge Needed: None 
Time commitment: Very low
Fees: Very high

Financial advisors can be just as expensive as mutual funds, if not more. They are also more suited for individuals with millions of dollars in several different types of investment assets. These individuals require an expert’s knowledge and a personal touch for complex investment management and tax strategies, but they are simply an overkill for retail investors.

That’s especially true today, when robo-advisors are relatively inexpensive and financial advice and suggestions are easily available on the internet. Even if you decide to use them, thinking that they might offer higher returns by personalizing your portfolio at a deeper level than robo-advisors can, the choice may still negatively impact you because:

  • The higher fees will eat into your returns in the long term.
  • Personal bias or financial incentives might make them lean towards certain investments.
  • You might have to relinquish a lot of portfolio control over to them.

They might be the right fit for some investors, but they are not a good choice for most.

4. Dividend Re-Investment Plans (DRIPs) or Direct Stock Purchase Plan (DSPP)

Investment Knowledge Needed: High 
Time commitment: Moderate to high
Fees: Low

You might also be able to buy stocks directly from a company—without a brokerage—and buy into a DRIP plan, which might get you a discount when new stocks are added into your stake from your returns.

However, this is a relatively risky way and requires a lot of trust in the company you are buying stock from. It should only be considered for companies that you are fairly sure will stay profitable for years, and only when you are sure that you won’t exit the program any time soon.

Things You Should Know Before Buying Stocks

Person Holding Blue Ballpoint Pen On White Notebook

There are several things you should know before learning how to buy stocks in Canada. I might not be able to cover all of them under this topic, but here is an overview:

Registered vs. Non-Registered Accounts

In Canada, you can put the stocks you buy in two kinds of accounts:

  1. Registered Accounts

Accounts that enjoy a tax-sheltered status, such as Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), are considered registered accounts.

If you place your stocks in TFSA, whatever growth or losses you accumulate will not impact your taxable income. On the other hand, stocks in RRSP will be able to grow and earn you profits through capital gains or dividends in a tax-deferred environment.

You will only pay taxes when you start withdrawing from your RRSP. Registered accounts have certain limitations regarding how much you can invest, how frequently you can buy and sell stocks while retaining tax-sheltered status, and how much and how often you can withdraw. 

  1. Non-Registered Accounts

Profits from stocks in non-registered accounts are considered part of your taxable income and are taxed based on their nature since capital gains and dividends are taxed differently. Similarly, if you lose money on stocks when they are in your non-registered accounts, you can use it to offset your profit income.

Non-registered accounts are more flexible in terms of asset types, contributions, and withdrawals, among others.

When you are buying stocks, asset allocation is an essential factor to consider. Where you place your assets (i.e., in registered or non-registered accounts) will have a significant impact on your return on investments (ROI) due to tax implications.

Capital Gains vs. Dividend Stocks in Canada

When you buy stocks in Canada, you get two kinds of returns:

  • Dividends: Mature companies with stable income and revenue sources share a portion of their profits with investors through dividends. These are paid per share, so the more shares you have of a company, the more dividends you’ll get. 
  • Capital Gains: If you buy a stock at a low price and sell it at a higher one, you will realize capital gains with this investment. 

Many stocks offer both dividends and capital growth prospects. It’s imperative that you understand both kinds of returns before buying stocks in Canada because it will impact your overall investment strategy and goals.

Risk Tolerance

Each stock comes with its own risk level. Although it’s not a solitary metric that you can check to see which stocks are more or less risky, funds made up of a basket of individual stocks have their own risk rating. For stocks, you have to look at a few metrics and some broad market conditions to determine whether a stock is risky or not.

Your risk tolerance refers to how much risk you are willing to take with your investment capital and determines what kind of investor you are:

  1. Conservative investors typically have a lower risk tolerance and focus more on preserving capital instead of rapid growth.
  2. Aggressive investors usually take the opposite route and focus more on high-risk but rapidly growing stocks to fast-track their portfolio growth. It’s a simple high-risk/high-reward strategy.
  3. Moderate investors try to balance both. They take some calculated risks and aim for a consistent and moderately high investment growth rate. 

Risk tolerance also varies as a function of time as well as portfolio distribution. For example, some conservative investors might invest aggressively with about 10% of their capital, while some aggressive investors might have 20% of their portfolio in conservative stocks as a safety net.

Similarly, you might have a higher risk tolerance when you are young and might be able to afford to make a few risky stock investments. But as you grow closer to your retirement age, you might focus more on retaining what you have and less on growing it to new heights, such that you will have lower risk tolerance.

Set Investment Goals and Timelines

Your investment goals will determine what stocks you pick, your asset allocation, portfolio orientation/distribution, and several other things. Therefore, it’s essential to set your goals before you start picking out stocks to buy. 

Your goals can be long-term, like retirement savings, relocation, and children’s education. These goals have timelines, usually in decades, so you have more time to grow your investments.

You can also set short-term goals, like growing your savings for a downpayment, early retirement, and buying a new vehicle. With these investment goals, you might have only a few years, so you might want to consider rapidly growing stocks that fall within your level of risk tolerance.

3 Main Ways to Get Exposure to Stocks in Canada

Cutout paper illustration representing scheme and Stocks inscription

There are three primary ways you can buy or invest in stocks in Canada:

1. Buying Stocks Directly

You can buy stocks directly from the stock exchange. Each stock represents a portion of the company, and you get rewarded or “penalized” based on how that stock performs during the time you own it.

You can buy two types of stock:

  1. Common stocks, which make you a partial owner of the company, and you get rewarded like most other shareholders; and
  2. Preferred shares, which sometimes come with better incentives, such as higher dividends. In case the company goes under, preferred stockholders will be paid first from the proceeds.

Pros of Buying Stock Directly

  • It offers a better dividend yield.
  • It provides direct exposure to the stock’s performance.
  • There are usually no fees for buying stocks. 
  • It is better for value investing since stocks can be undervalued even when the market as a whole is going up.
  • It has rapid growth potential.
  • It is very liquid and easy to buy and sell.

Cons of Buying Stock Directly

  • It has no in-asset diversification, and you will have to diversify your stock-only portfolio as a whole.
  • It requires relatively more research and investment acumen.
  • It provides direct exposure to company losses, too.
  • There is a high risk of losing most or all of your capital if the company goes bankrupt.

2. Buying an ETF

An exchange-traded fund (ETF) is a fund or an investment portfolio composed of multiple individual stocks created by a fund manager or financial expert. It’s very similar to a mutual fund designed and actively managed by fund managers, but the difference is that it can be easily bought and sold at the stock exchange. 

Buying an ETF gives you exposure to several different stocks at once, each with its own weightage that determines how each stock will influence the ETF’s performance.

The ETFs can be sector-oriented, similar to index funds that track a specific index’s performance, or be growth-focused or dividend-focused.

They come with an additional fee, which is usually very small (somewhere between 0.03% and 0.1% in most cases). The lower fee is due to passive management since the fund is not rearranged and overhauled very frequently, if at all.

Pros of ETFs

  • ETFs are inherently diversified since they are made up of multiple companies or stocks.
  • They carry minimal fees compared to mutual funds.
  • They are easier for beginner investors to pick since they are highly liquid.
  • They are less risky and volatile since the risk is spread out over multiple stocks. 
  • They offer an averaged-out exposure to value since overvalued and undervalued stocks are lumped together.
  • They require minimal research and investment knowledge.
  • They allow investors to “match” the market performance.
  • They offer more consistent growth than most individual stocks can provide.
  • They are more tax-efficient.
  • Dividends are safer.

Cons of ETFs

  • Dividends are aggregated, so ETFs usually offer low yields.
  • They typically don’t provide rapid growth.
  • They don’t offer great undervalued opportunities.
  • ETFs lump winning and losing stocks together, thereby only averaging the returns.

ETFs are an excellent way for beginners to start investing as they develop their investment experience and refine research methodologies. ETFs, by design, lean more towards long-term growth consistency. So, if you want to leverage the robust growth that the stock market has to offer, individual stocks might be the better pick.

3. Buying a Mutual Fund (Not Recommended)

Before ETFs became the norm, actively managed mutual funds were how investors had access to professional stock picking and portfolio management. But they also came with substantial fees.

In Canada, for example, you can end up paying a 2% fee every year, regardless of how your mutual fund performs. This makes it one of the highest in the world. In comparison, the fees across the border are, on average, 0.5% to 1%.

But even if it does perform well, accumulated fees of 2% over several years can be devastating for your overall investment growth.

Let’s say you are paying a 2% fee for a mutual fund that essentially offers the same returns as an S&P 500 index ETF and has a 0.1% fee. If it provides a 5% return a year, you will basically earn 3% from the mutual fund and 4.9% from the ETF. And it would be worse the deeper you get to the negative territory.

Pros of Mutual Funds

  • It is a professionally and actively managed basket of stocks.
  • It is inherently diversified and carries a very low risk.
  • It requires no special investment knowledge and research.

Cons of Mutual Funds

  • It could carry very high fees.
  • It usually has minimum investment requirements.
  • It is exposed to your fund manager’s bias.
  • It is less liquid than stocks or ETFs. 

Between ETFs and mutual funds, the former is the clear winner for a wide variety of reasons. The real choice would be between ETFs and stocks.

Beginner Mistakes to Avoid When Investing in Stocks

Black and Green Line Illustration

There are a lot of mistakes beginner investors tend to make. However, most of these can be avoided with proper due diligence.

1. Overestimating the Importance of Historical Data

It’s a simple conundrum: the historical performance of a stock is no guarantee that the stock will perform well in the future as well. But historical data is what you have to go on, apart from broad market conditions.

It’s important to not just look back but look ahead as well. For example, in 2008, buying Blockbuster stock (indirectly via Viacom) would have been wise based on historical data. But that is when the rise of Netflix streaming began which started Blockbuster’s downfall. Hence, try to understand future prospects of a company as well from markers other than historical data.

2. Not Enough Research

If you are investing in an individual stock, do a lot of research. Try to understand relevant metrics, market trends, and the business you are investing in. If its product line or services are obsolete or are going obsolete and the company is clinging to the old ways, it might not be a profitable long-term investment.

3. Investing in Something They Don’t Understand

Don’t invest in businesses or investment assets that you can’t understand yourself, even if it’s all the hype. Do your own research, develop a basic understanding of the industry, then decide whether a stock is worth investing in or not.

4. Following the Hype

If you are a long-term investor and you’ve researched your stock thoroughly before buying, don’t get worked up in the temporary hype surrounding it. Similarly, don’t just buy something just because everyone else is. Temporary market activities ramp up the price, and if you don’t sell during the right period, you might have an on-hand overvalued stock with dark future prospects.

5. Not Taking Enough Risks

A healthy risk appetite is necessary for all investors. If you are too cautious, you might only be able to get minimal returns from your investments. My suggestion is to divide your capital and portfolio. Invest part of it in conservative portfolios for gradual growth and stability, and take calculated risks with the rest. If you are too afraid to lose, you might not play the game at all.

6. Portfolio Concentration and No Diversification

Buy what you understand, but don’t create an overly concentrated portfolio. Diversify your portfolio by buying stocks from a few different industries and sectors. Also, diversify among dividend and growth stocks. 

7. Dabbling in Day-Trading

Investing and trading are radically different and require different skill sets and levels of involvement. But the worst part is that, if you day-trade—or the Canada Revenue Agency (CRA) deems that you have—in your registered accounts, your accounts will lose their tax-sheltered status. So, it is advisable to stick to long-term stockholding.

8. Not Using Stop-Limits

Temporary dips in stocks are nothing to be afraid of, especially if you are holding them long-term. However, for relatively risky investments that you have added to your portfolio as a test case, using stop-limits can be a major lifesaver. You can set limits for a stock, and if its value falls below that threshold, it will automatically be sold. Therefore, it is recommended that you at least set warnings for stop-limits.

9. Not Leveraging Market Turmoil

One thing you have to understand is that market crashes and dips are ideal for buying great businesses at decent values. Don’t let the fear for your existing stocks prevent you from buying for the future.

10. Hesitating in Making a Recent Move

Even though it’s not a good idea to compare investing to gambling, cutting your losses is one concept that translates very well in both fields. If you’ve analyzed that a stock might be doomed, don’t wait around for eventual recovery. Instead, try to minimize your losses by selling early. However, think long and hard and determine whether it’s simply a temporary dip or a long-term decline.

Stocks vs. Other Investment Assets

Man Holding Hoe

When you are mulling over how to buy stocks in Canada, it’s a good idea to determine why you should buy stocks in the first place.

There are plenty of other investment assets, but here are some reasons why stocks should make up your part of your portfolio:

  • Stocks have one of the lowest financial barriers to entry, and you can practically get started with $10, making it easier to get started compared to costly investments like real estate.
  • Stocks don’t require the complexities that come with active investments like commodities.
  • Few assets allow you to make use of tax-sheltered accounts as effectively as stocks do.
  • You can achieve a lot of diversification while staying within one asset class.
  • The stock market offers more stability than crypto assets and better long-term growth than safe-haven assets like gold.
  • Stocks are highly liquid, so your money is not tied up with the investment.
  • Stock investment can be automated and managed in a more hands-off manner than almost any other asset.

There are certain inherent weaknesses associated with stocks as well, like the fact that they can lose almost all their value, unlike with gold or real estate. You also can’t do anything to improve the value of your investment, and your profits and losses are tied to market trends that are far out of your control. But overall, the pros of investing in stocks far outweigh the cons. 

Buying Stocks in Canada FAQs

Black Magnifying Glass

How Do I Buy Stocks by Myself?

You can open a brokerage account with an online trading platform and start buying stocks right away. You will have sole control over your stock-related transactions and portfolio management.

What Should I Look for In A Good Stock?

There are several metrics that you can look into when identifying whether a stock is good or bad. These include price-to-earnings and price-to-books ratio, among others, for evaluating whether a stock is overvalued or undervalued compared with others in the same industry.

Other important metrics include dividend yield and payout ratio for dividend stocks, price/earnings to growth ratio (PEG) and historical compound annual growth rate (CAGR) for growth productions, return on equity (ROE), and earnings per share (EPS).

You should also look into the company’s books, the pattern of earnings (i.e., whether it’s growing or declining), and a few other things. You must also look into the sector and broad market patterns. 

Can You Gift Stocks in Canada?

Yes, you can. If it’s in a non-registered account, you will realize any capital gains you have accumulated on the stock/fund so far and pay relevant taxes. But if it’s in registered accounts, the gifting of stocks would be bound by the in-kind transfer rules of the registered account.The simplest way is to gift them the funds to buy the stocks themselves. 

Conclusion

I hope the article answered your questions related to how to buy stocks in Canada. If you have any more questions or discussion points, feel free to write them in the comments.

If you’ve made up your mind about investing in stocks, don’t wait around. The earlier you start, the more you can leverage the power of time to grow your investments.

If stocks seem too complex, you can also start with broad market index funds. Your true learning will take place after you have taken the first step, i.e., when you have opened a brokerage account or robo-advisor account and transferred funds to it. So, get invested in investing, and start!

How to Buy Stocks in Canada
Photo of author
Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

Check Out These Posts:

Leave a Comment