5 Quick Steps to Start Investing in Canada (2024)

Taking the first step into the world of investing can be intimidating, especially for beginners in Canada. The good news is that you don’t need to be an expert to start growing your wealth through investments.

As a beginner investor in Canada, it’s important to remember that managing risks and returns is crucial to laying a solid foundation for your investment journey.

This article will help you build a diversified portfolio that balances risk and reward properly.

Key Takeaways
  • Understand the basics of investing and set specific financial goals
  • Learn about various types of investments and their associated risks and returns
  • Build a diversified portfolio to manage risks and optimize returns

Understanding the Basics of Investing

At its core, investing involves putting your money into assets like stocks, bonds, and mutual funds with the goal of achieving financial returns. When you invest, you aim to make your money grow over time by generating interest, dividends, or capital gains.

Types of Investments:

Stocks represent ownership stakes in companies, and their value can fluctuate with market conditions and the company’s performance. Stocks can be riskier but have the potential for higher returns.

On the other side are bonds, which are loans that investors make to corporations or governments. Bonds typically offer lower returns than stocks but are generally considered less volatile and less risky.

Another popular investment choice is ETFs, which pool your money with other investors to purchase a diverse mix of stocks, bonds, or other assets that usually passively track a specific index.

Savings vs. Investing

Understanding the difference between saving and investing is crucial. Savings accounts typically have lower interest rates, making them suitable for short-term goals like building an emergency fund or saving for a vacation.

Investing, on the other hand, can help you achieve longer-term goals like retirement, as it takes advantage of compound interest and potential returns over time.

When investing, it’s essential to manage your risk by diversifying your portfolio with different types of assets. Your asset allocation should depend on your risk tolerance, investment goals, and time horizon.

Generally, a riskier portfolio might contain a higher percentage of stocks, while a more conservative approach would include a greater proportion of bonds or other lower-risk investments.

5 Steps to Start Your Investment Journey in Canada

Here are the steps you should take to begin your investing journey:

1. Determine Your Investment Goals and Strategy

Understanding your investment goals. These are the specific financial objectives you want to achieve through investing. They provide direction, help prioritize decisions, and serve as a benchmark for assessing your portfolio’s performance.

  • Short-term Goals (1-5 years):
    • Examples: Emergency fund, buying a car, taking a major trip.
    • Suitable Investments: High-yield savings accounts, money market funds, short-term bonds, GICs
    • Popular providers: EQ Bank, Neo
  • Medium-term Goals (5-10 years):
    • Examples: Down payment for a home, starting a business.
    • Suitable Investments: Balanced ETFs, corporate bonds, and certain dividend-paying stocks.
  • Long-term Goals (10+ years):
    • Examples: Retirement, children’s education, leaving a legacy.
    • Suitable Investments: Stocks, ETFs, real estate.

Determine your Risk Tolerance:

Your risk tolerance is a measure of your willingness and ability to accept fluctuations and potential losses in investment values.

  • Factors affecting risk tolerance:
    • Financial Situation: Adequate emergency funds and stable income can allow for higher risk.
    • Investment Horizon: Longer horizons generally allow for greater risk since the market has time to recover from downturns.
    • Emotional Comfort: Some individuals can’t handle watching their investments drop, even if, theoretically they can bear the risk.
  • Types of Risk Profiles:
    • Conservative: Prefer stable and predictable returns; typically select bonds or money market funds.
    • Moderate: Seek a balance between growth and stability; often choose a mix of stocks and bonds.
    • Aggressive: Focus on long-term growth, understand and accept the volatility, and predominantly invest in stocks.

Investment Strategy

Choose an investment strategy:

  • Active Investing:
    • Involves making frequent decisions about buying and selling.
    • Aims to capitalize on short-term market movements.
    • Often incurs higher fees due to frequent trading.
    • Examples include buying your own individual stocks.
  • Passive Investing:
    • Based on the belief that markets are efficient over time.
    • Investments are made to match a market index or sector.
    • Typically involves fewer transactions, leading to lower fees.
    • Common vehicles: Index funds and ETFs.

2. Choosing the Right Investment Account

Selecting the appropriate investment account is a critical decision. Your choice will significantly impact your investment strategy, tax implications, and overall financial journey. Here are some key accounts to consider in Canada:

  1. Registered Retirement Savings Plan (RRSP): RRSPs offer tax advantages, making them a popular choice for long-term retirement savings. Contributions are tax-deductible, and your investments grow tax-free until withdrawal. However, there are annual contribution limits and restrictions on accessing your funds before retirement.
  2. Tax-Free Savings Account (TFSA): TFSAs provide tax-free growth on your investments, and you can withdraw funds at any time without penalties. This flexibility makes TFSAs suitable for both short-term and long-term goals. However, there are annual contribution limits.
  3. Non-Registered Accounts: These accounts have no contribution limits, but your investment gains are subject to capital gains tax. They are ideal for investors who have maximized their RRSP and TFSA contributions.
  4. Online Brokerage vs. Robo-Advisor: Decide whether you want a self-directed online brokerage account, which allows you to choose and manage your investments, or a robo-advisor, which offers automated portfolio management based on your risk tolerance and goals.
  5. Education Savings Plans (RESPs): If you have children and want to save for their education, consider RESPs. They come with government grants and tax-deferred growth.
  6. High-Interest Savings Accounts (HISAs) and GICs: For emergency funds or short-term savings goals, HISAs and Guaranteed Income Certificates (GICs) provide a safe and liquid option, although returns may be lower than other investments.

3. Select an Investment Provider

When selecting an investment provider, it’s crucial to consider several factors. Firstly, research the provider’s reputation in the industry, noting any accolades or awards they’ve received. Client reviews and testimonials are invaluable, shedding light on the provider’s strengths and potential areas for improvement.

Equally important is understanding the provider’s fee structure, which includes management fees, transaction costs, and any concealed charges. For those considering digital platforms, prioritize user-friendly interfaces, a comprehensive suite of tools and resources, and excellent customer service.

Lastly, ensure the provider offers investment options aligning with your interests, whether they be specific funds, stocks, or other securities.


  • What are they? Digital platforms that use algorithms to provide financial planning services with minimal human intervention.
  • Pros:
    • Typically have lower fees compared to traditional advisors.
    • Automated portfolio management based on your risk profile.
    • Easy access and user-friendly interfaces.
  • Cons:
    • Lack of personalized advice.
    • Limited to the platform’s investment options.
  • Popular Canadian options: Wealthsimple, Questwealth Portfolios.

Online brokerages

  • What are they? Digital platforms that allow users to self-direct their investments.
  • Pros:
    • More control over individual investment choices.
    • Access to a variety of tools and research.
    • Generally lower transaction fees compared to full-service brokerages.
  • Cons:
    • Requires more active involvement and understanding of the market.
    • Might lack the personalized advice offered by traditional advisors.
  • Popular Canadian options: Questrade, Qtrade

Traditional financial advisors:

  • What are they? Professionals who offer personalized financial advice and may manage portfolios on behalf of clients.
  • Pros:
    • Personalized advice tailored to individual circumstances and goals.
    • Access to a broad range of financial products and services.
    • Hands-on assistance with complex financial strategies.
  • Cons:
    • Often much higher fees compared to digital platforms.
    • Many advisors earn commissions, potentially leading to conflicts of interest.
  • Types: There are various types of advisors, including Certified Financial Planners (CFP), Investment Advisors (IA), and Chartered Financial Analysts (CFA), among others.
  • Due Diligence When Selecting:
    • Reputation: Research potential providers’ standing in the industry, looking for accolades, awards, or recognition.
    • Reviews and Testimonials: Existing clients’ feedback can offer insights into the provider’s strengths and weaknesses.
    • Fees: Understand the fee structure, including management fees, transaction fees, and any hidden charges.
    • Platform Usability: For digital platforms, ensure user-friendliness, the availability of tools and resources, and the quality of customer service.
    • Investment Options: Ensure that the provider offers the types of investments you’re interested in, such as specific funds, stocks, or other securities.

4. Build Your Portfolio

Understanding Portfolio Construction: An investment portfolio is a collection of various financial assets—such as stocks, bonds, mutual funds, and real estate—that you own. Properly constructing it involves a mix that suits your investment goals, risk tolerance, and time horizon.

  • Asset Allocation:
    • Definition: The process of dividing your portfolio among various asset classes like equities, fixed income, and possibly others like real estate or commodities.
    • Importance: Asset allocation is crucial because it determines the bulk of your portfolio’s returns and its volatility. Different assets respond differently to economic events, ensuring diversification.
    • Considerations: Your desired rate of return, acceptable levels of risk, and investment horizon all impact how you should allocate your assets.
    • Fill out this free investor questionnaire from Vanguard to get an idea of what allocation you should use.
  • Diversification:
    • What is it? Spreading your investments across various assets or asset sub-classes to reduce risk.
    • Benefits: It helps to mitigate the negative impact if any specific asset underperforms. In simpler terms, don’t put all your eggs in one basket.
    • Methods: Diversify across sectors (e.g., tech, healthcare, finance), geographic regions (e.g., North America, Europe, Asia), and asset size (e.g., large-cap vs. small-cap stocks).
  • Selecting Individual Investments:
    • Research: Utilize financial news, company reports, and analytical tools to understand potential investments.
    • Investment Thesis: Have a clear rationale for each investment. Understand why you believe it’s a good addition to your portfolio.
    • Continual Learning: Investment landscapes evolve. Stay updated about global economic trends, industry advancements, and company-specific news.
  • Cost Considerations:
    • Expense Ratios: If investing in mutual funds or ETFs, be aware of the expense ratios, which can erode returns over time.
    • Transaction Fees: Some brokerages charge fees for buying or selling assets. Factor these into your investment decisions.
    • Tax Implications: Understand potential tax liabilities from selling assets at a gain or the benefits of tax-loss harvesting.

5. Monitor and Adjust

  • Regular Reviews: Set aside time, either monthly or quarterly, to review your portfolio’s performance.
  • Rebalancing: If one asset class performs well and becomes a larger portion of your portfolio, you might need to sell some of it and invest in other asset classes to maintain your desired asset allocation.
  • Continuous Learning: Canada has specific regulations, market dynamics, and opportunities. Use resources like books, online courses, and seminars to keep informed.
  • Adaptability: Economic conditions, personal needs, or financial goals might change. Ensure your investment strategy evolves accordingly.

Reasons to Avoid Mutual Funds

I don’t invest in mutual funds, even though I used to work for one of the largest fund companies in Canada. Mutual funds are not proven to outperform the market after the high fees to run a fund are taken into account. 

The S&P semi-annual report from 2019 reported that over 85% of Canadian equity managers underperformed the S&P/TSX Composite Index. Small market capitalization managers performed the worst, with 88% of them lagging their benchmark.

The long-term performance of most active managers also falls short of their benchmark, according to the S&P report. The report also noted that just 46% of the Canadian equity funds that existed a decade ago were still active in June 2019. 

It’s no wonder why Canadians are fleeing mutual funds to ETFs in droves, with over $200 billion invested at the start of 2020.

If you want more details, read my guide on the best investment options in Canada here.

Investing with Big Five Banks

The Big Five is a term used to describe five of the largest banks in Canada:

  • Royal Bank of Canada
  • The Bank of Montreal
  • Canadian Imperial Bank of Commerce
  • The Bank of Nova Scotia
  • Toronto-Dominion Bank

When it comes to investing in Canada, traditional brick-and-mortar banks are the first option for most Canadians. I worked briefly as a financial advisor at a Big Five bank.

I want to stress that most financial advisors are good and decent hard-working people. But the harsh reality is that their paycheck is often based on how many bank-created products they can sell you.

 A financial advisor’s fiduciary duty to provide sound and unbiased advice to you can be clouded by the incentive systems set up by the banks. 

Also, the investment products offered by banks are usually mutual funds, which contain some of the highest fees in the world. 

For these reasons, it’s my opinion that most investors are better off either doing their own research and using discount brokerages or investing with robo-advisors if they need more guidance.

The Power of Compound Interest

Compound interest is a powerful force that can help you grow your money over time. When you invest in savings accounts or other investment vehicles, you earn interest on the initial amount you invested, as well as interest on any interest you previously earned.

This process of earning interest on interest accelerates the growth of your investment, making it an essential component for achieving long-term financial goals like retirement savings or an investment portfolio.

To maximize the benefits of compound interest, it’s important to start early. The more time you give your investments to grow, the greater the impact of compounding.

For example, if you invest $1,000 in a savings account with an annual interest rate of 5%, in 20 years, your initial investment will have grown to $2,653. However, if you had started 30 years earlier, your $1,000 investment would have grown to $4,322.

Common Beginner Mistakes to Avoid When Investing

What better way to avoid making mistakes by learning from the mistakes others have already made. In this section of my guide to start investing in Canada, I will discuss some of the most frequent mistakes beginner investors make that you need to be aware of.

1. Not Understanding Investments

When you are investing in an asset, whether it is a bond, stock, or ETF it is crucial to understand how it works. Warren Buffett, one of the world’s most successful investors, says that you should invest only in the businesses you understand.

Stock market investors buying the shares of a company should not simply treat the shares as stocks. According to Buffett, understanding how the company works helps you make better judgment calls about your stock position. Avoid investing in companies, products, or ETFs that you do not understand. 

2. The Danger of Impatience

Slow and steady wins the race. I’m sure you’ve heard this time and time again. The phrase applies to every aspect of life, and it is true for the world of investors as well. A disciplined, slow, and steady approach can help investors go a lot further than an impatient one.

Many investors make the mistake of making risky moves without gauging the situation. They expect their portfolios to do more than what they are designed to do, and that can be disastrous for them. Keeping realistic expectations can help you make the most of your investment career.

3. Failing to Diversify

Diversification can be an investor’s best friend. While you might see some professional investors make substantial returns by investing with a focused approach, beginners should not attempt to do this.

Diversification through ETFs provides you with exposure to a wide range of spaces and offers your capital more security. If you’re starting out, try not to invest more than 5% to 10% of your funds in one stock.

4. Too Much Investment Turnover

Jumping in and out of positions as an investor kills your chances of making significant returns with your capital. The transaction costs of changing your positions in an investment can eat up any returns. You also have the opportunity cost of missing out on potential long-term gains.

5. Pay down Your Debt First

Before you dive into investing, it’s essential to pay off any outstanding high-interest debt, especially credit card debt. Carrying such debt can significantly impact your financial goals and limit the potential growth of your investments.

Tips for Beginner Investors

Now that I’ve warned you of some of the most common mistakes investors make when they start out, here are some tips to help you on your way. Remember that learning how to start investing in Canada is not hard. Here is some advice for first-time investors:

1. Start as Early as Possible

I will recommend that you start investing as soon as possible. Whether you are a mid-career professional in your 40s who has just realized the importance of investing, or a young professional about to get your first paycheck – start as soon as you can. The longer you invest, the more your investments can pay off in the long run.

2. Invest Regularly

Make investing a habit rather than something to do occasionally. Even if you are investing a seemingly insignificant amount, you should put some money towards your investments.

That spare change from when you bought a chai tea latte might not seem like much, but investing that amount into an income-generating asset can result in massive long-term returns due to the power of compounding.

3. Stay invested

Many investors try to time the market and wait along on the sidelines waiting for the right time to invest. The idea is to invest in the stock of a company while it bottoms so you can make the maximum profit when it bounces back.

It might produce short-term gains, but generally sitting on the sidelines as an investor causes more losses than gains, since the direction of the stock market trends upwards over time.

4. Automate Investments

Automated investment allows you to capitalize on your capital with little to no experience in investing. Platforms like WealthSimple offer you the chance to allocate funds to your savings portfolio automatically.

It is a low-cost investment option you can use to automate your investing without having to worry about taking a hands-on approach.

5. Your Company’s RRSP

If you have a full-time job at a company, you can take advantage of tax savings through your company’s Registered Retirement Savings Plan (RRSP). Set your RRSP to automatically deduct a fixed amount from your salary and allocate it to investments. Always sign up for any type of matching RRSP or pension contribution that your company offers, as that is free money for you.


Just like Rome wasn’t built in a day, I know and understand that learning how to start investing in Canada can’t happen overnight. It is a lengthy process, and you will face challenges due to many unforeseen events. You might even fail many times on your way.

I’m not ashamed to admit that I’ve made bad investments myself in the past. However, I’ve used those opportunities to learn and progress. It helped me learn and understand the stock market better, and what types of investments work for me.

Investing is a skill that you get better at, like learning the guitar or playing hockey. Though the stakes are a lot higher, as it is the livelihood for you and your family, so start slow and keep on learning!

I’ve created this guide to help you learn from my experience. While it will not lay down everything for you on a platter, it can help you understand what to expect.

I really hope this article turns out to be helpful for you. You can also learn about how to invest in tough times such as a market crash here.

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