How to Buy Stocks in Canada

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how to invest in stocks CanadaWondering how to buy stocks in Canada, but have no idea where to start? You’re not alone: 4 in 5 millennials are saving money every month, but only half of us are investing in stocks. Luckily, with robo advisors and online brokerages, investing in stocks is easier than you think. Here’s an introduction on how to get started buying stocks in Canada.

When it comes to buying stocks, you’ll need to do three things:

  1. Open a brokerage account without leaving your home by using an online brokerage or robo advisor.
  2. Figure out what you want to buy: are you interested in buying stocks, bonds, mutual funds, ETFs, socially responsible investments?  The key is to put together a diversified, balanced portfolio.
  3. Have money ready to invest: You don’t need big bucks to get going. You can invest as little as $100.

Let’s look at the options for how to invest in stocks in Canada.

Online Brokerages

Discount brokerages, such as Questrade, provide an excellent online trading platform for DIY investors to buy and sell securities on their own instead of relying on a human broker to execute transactions. The fees for discount brokerages are rock bottom and the best bang for your buck – but the catch is that you have to build your portfolio yourself.

With a little know-how, DIY investors can take advantage of:

  • The flexibility to choose and manage your own investments, including commission-free ETFs
  • Low per-transaction trading costs and low management fees (around 0.15% to 0.5%)
  • Access to real-time data, research tools and analysis

As a DIY investor, you can do your own stock picking research and investment decisions. The good news is that figuring out how to invest online in Canada is fairly simple, and buying stocks with an online brokerage can be as easy as entering a stock ticker symbol and the quantity of stock before hitting the “Buy” button.

There are plenty of online brokerages to chose from in Canada, but Questrade stands out as the best of the bunch. With their rock bottom low fees and super easy online trading platform, Questrade is consistently our top pick for the best online brokerage in Canada.

Get $50 in free trades when you start investing with Questrade.

Robo Advisors

If the DIY route is intimidating, you can invest in stocks with the help of a robo-advisor. Robo advisors will automatically create a diversified, balanced portfolio based on your individual preferences, like time horizon and risk tolerance. Plus, they offer much lower fees than a bank or brokerage — saving you even more money in the long run.

Once set up, your portfolio is managed automatically using sophisticated software algorithms. With robo advisors, you benefit from:

  • Investments selected and managed for you
  • A fixed portfolio that matches your risk tolerance
  • Low annual management fees (under 1%)
  • Not having to re-balance your portfolio once a year

The bottom line: robo advisors are an excellent alternative for investors who don’t want to do the work themselves, but also want to avoid high fees charged by a full-service brokerage.

With its low fees, easy-to-use platform, and excellent customer service, Wealthsimple is our top choice for the best robo advisor in Canada. However, if you want to compare robo advisors in Canada head-to-head, read our Complete Guide to the Best Robo Advisors in Canada.

Get your first $10,000 managed for free for a year when you start investing with Wealthsimple.

Online Brokerages vs Robo Advisors

To help with your decision making, here are some of the best discount brokerages and robo advisors in Canada:

Online Investing PlatformService typeBest ForYoung and Thrifty Readers PromoVisit Website
Wealthsimple ReviewRobo advisorBest Overall Robo Advisor in CanadaGet your first $10,000 managed for free for a yearLearn More
Questrade ReviewOnline brokerageBest Overall Online Brokerage in CanadaGet $50 in free tradesLearn More
Nest Wealth ReviewRobo advisorMature InvestorsTry Nest Wealth free for the first 3 monthsLearn More
BMO SmartFolio ReviewRobo advisorHuman TouchGet your first $15,000 managed for freeLearn More
Questwealth PortfoliosRobo advisorCompetitive FeesNoneLearn More
Modern Advisor ReviewRobo advisorExpert-Assembled PortfolioReceive $50,000 managed for free for one yearLearn More
Just Wealth ReviewRobo advisorInvestment VarietyReceive a cash bonus of up to $500 when you open a new Justwealth accountLearn More

How Do Stocks Work?

After buying a stock (or a “share”), you receive ownership over a small portion of the company. As an owner, you’re entitled to a cut of the company’s profits. The more shares you buy, the greater your stake in the company. For example, if a company is made up of 1000 shares, and you bought 100 shares, you would own 10% of the company.

Being a shareholder can come with certain privileges, including the right to receive dividend payments and the right to vote at shareholder meetings.

Difference Between an ETF and a Mutual Fund

Exchange traded funds (or ETFs) are a bundle of stocks packaged together to copy the performance of a stock market index. Basically, it’s an investment fund that lets you buy a large basket of individual stocks or bonds in one purchase.

A mutual fund is the relative of the ETF, but with a much higher price tag. It’s “actively” managed by a fund manager, who selects specific stocks with the goal of trying to “beat the market.” Mutual funds have higher management fees than ETFs, and evidence shows that they don't succeed in beating the market.

In comparison, an ETF looks to copy the performance of a stock market index, which is part of a “passive investing” strategy.

How to Make Money Buying Stocks

You can make money by investing in stocks in a few ways:

  1. Buy and sell individual stocks. If you had bought 10 Apple shares for $100/share and sold them all at $170/share, you could pocket $700 or use the return to buy more shares.
  2. Buy stocks, collect dividends. Some companies will regularly pay dividends (a portion of the company’s earnings) to shareholders. Dividends are paid as a percentage of the stock owned. For example, a 4% dividend yield would return $4 for every $100 invested. You could pocket that dividend as income or reinvest it to buy more shares.
  3. Buy and hold Exchange Traded Funds. As the index goes up over time, so would your investments. It makes a good long-term investment strategy.

Choosing individual stocks takes research. There are different ways to evaluate how any given stock is valued. If you’re serious about picking individual stocks, study up and crunch the numbers.

No matter how good you think you are, stock picking is hard. Even with the best research and sophisticated analysis, professional investment managers struggle to get things right.

There is just no way to know for certain if the future price of a stock will go up or down. When it comes to picking individual stocks, it is very possible to win some of the time – just be prepared to lose too. That risk is just part of the process.

How to Reduce Risk

Stock prices are volatile by nature. They’re up one day and down the next depending on things we can’t control – like company performance, industry trends, or politics. There’s simply no way to tell how well a stock will do in the future, regardless of how well it’s done in the past. There are a few things you can do to protect yourself:

Diversify Your Portfolio

Don’t keep all your eggs in one basket. “Diversification” means holding as many different eggs (companies) in as many different baskets (industries) as possible. This way, if one company or sector fails, you won’t lose your shirt because you still have money invested somewhere else.

Diversifying a portfolio with individual stocks can get pricey and will take time for a new investor. If you’re a new investor, consider starting with ETFs. For example, buying the broad market iShares CDN Composite Index Fund (XIC) ETF means you’d be invested in 245 companies, instead of just one.

The overall price of the ETF can still go down but it won’t fluctuate as much if a few of the 245 companies aren’t doing well at any given point. The idea is that the ETF price will eventually go up as the companies collectively do well over time.

Become a Couch Potato Investor

You can also become a Couch Potato Investor. Also known as “index investing” or “passive investing,” this award-winning approach is gaining popularity. Smart investors don’t try to beat the market, and instead, try to match total market performance by putting their money into low-fee funds, such as index funds and exchange-traded funds, which hold all (or nearly all) the stocks or bonds in a particular index. Then, they check on their couch potato portfolio once a year.

Buying Stocks Through a Full-Service Brokerage

You can buy stocks through a full-service brokerage. Full-service brokerages have teams of dedicated investment advisors and financial planners on hand to “actively” manage your investments and provide expert recommendations. These types of brokerages also offer tax advice and can help with retirement or estate planning.

However, all of these services come at a premium, with high fees and commissions even if you don’t make use of all their services. In Canada, actively managed mutual funds can cost investors a fortune in fees (around 2-3% of their total portfolio annually), with many Canadians trusting that their fund manager is an “investing wizard” who can deliver high returns. But it’s quite the contrary: evidence shows that actively managed mutual funds in Canada don’t necessarily perform well long-term. Even when actively managed mutual funds match or outperform the market performance, those extra earnings may end up in the fund manager’s pocket, since they take such a big cut through fees.

Fortunately, full-service brokerages aren’t the only way to buy stocks anymore, and many savvy investors are turning to online brokerages and robo advisors in Canada to make their investments.

Can You Buy Stocks in Canada Without a Broker?

It is possible: some established companies will let you buy stock from them without a broker through a direct stock purchase plan (DSPP). DSPPs were conceived ages ago to let smaller investors buy shares without going through a full-service broker.

You can also buy stocks without a broker through a company’s dividend reinvestment program (DRIP). DRIPs let investors automatically reinvest cash dividends to buy more shares. This helps to save on trading fees for investors that reinvest their dividends regularly.

While investing without a broker is possible, there really isn’t any reason to avoid opening a brokerage account. These days, you might consider this as an add-on option. Individual companies will have their own specific instructions on how to sign up for these plans, search for them online if you’re interested.

Final Words on Investing in Stocks

All said and done, choosing between different brokerages or robo advisors comes down to finding the one that best suits your needs. If you’re worried about the time it takes to learn about how to invest in stocks in Canada, consider starting with a robo advisor that can set up a portfolio of ETFs until you figure out the ins and outs of DIY stock picking.

Whatever you decide, experts agree that investors with the with the patience to hold a broadly diversified portfolio of investments over a long period of time, say 20 years, have the best chance of positive gains.

Don’t let the fear of the stocks keep you from the rewards that come from investing. It takes a while to learn how to swim, but if you invest early and invest often, you’ll find that you can keep swimming until you eventually reach a nice sunny little beach.

On a final note, here are a few key terms and core concepts of Stock Market Terminology that you should know before diving into the investment world:

Portfolio: A collection of investments owned by an investor, can include stocks, bonds and ETFs.

Bear Market: A period of falling stock prices.

Bull Market: A period of rising stock prices.

Stock Market Index: A benchmark used to describe the stock market or a specific portion of it. It's also used by investors and investment managers to compare investment returns. A portfolio of an investor's actively traded stocks that returns 10%, for example, will have underperformed if an index returned 12%. Indexes include the S&P500 in the US and the S&P/TSX in Canada.

Initial Public Offering (IPO): The first time a company issues shares on an exchange for sale to the public.

Stock Symbol: A one to four character alphabetic abbreviation that represents a company listed on a stock exchange. For example, Apple's stock symbol is APPL.

Earnings per share (EPS): The company's profit divided by the average number of shares in the market. This is an indicator of a company's profitability.

Price/Earnings Ratio (P/E Ratio): The stock price divided by a company's earning per share (EPS). An indicator of demand, the P/E ratio determines the price an investor is willing to pay to receive one dollar of the company's earnings.

Dividend: A portion of a company's earnings paid quarterly or annually to people that own the company's stock. Dividends are not guaranteed even if they've been paid in that past.

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Daniel Teo
Daniel Teo is a personal finance expert and travel writer at Urban Departures. He has a passion for financial literacy and a wanderlust that has brought him to over 30 countries. Urban Departures has appeared in The Globe and Mail, the Toronto Star, CBC and on BNN. You can connect with Daniel on Twitter and Instagram.
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