Mailbag: Registered vs Non-Registered and Getting Started With Questrade

As always, these are actual emails sent from real readers whose names have been altered for privacy’s sake.

Hi Kyle,

I'm having a very Young & Thrifty pre-work afternoon. I just read your post about how to rebalance your portfolio the easy way which was helpful. I don't totally get the math (also math challenged – heyooo!) but I'm sure I'll get there.

I haven't started a real account with Questrade (as the funds I had are now going elsewhere), but my friend and I are doing one of their trials. We got together yesterday and bought some ETFs just to practice. The truth is, I find the Questrade page super overwhelming. I don't even know what I'm looking at half the time. I've watched a tutorial or two, but I haven't found one that breaks down what each page is showing you. Perhaps one just gets used to it?

I also don't get the different type of accounts they have eg. what a margin account is. And you mentioned you had a registered account with them and then a non-registered something else in one of your articles. What is the perk of having a non-registered account? I also feel I need to spend more time reading about the different ETFs and what they actually are. Do you use Morningstar for this type of learning? I could ask a million questions, I'm sorry. I really appreciate your sharing! One day, I want to be able to look at a Google finance or Morningstar page and understand everything I am looking at. At this point, it's just a number jumble!

Making your first transaction can seem a bit weird at first.  Here is a great video that another Canadian blogger put together that guides you through the process step-by-step:

Let me know if you have any questions after that.  The only math you have to do is figuring out how many shares you want your investment to be.  Basically, if you want to invest $500 in a TSX60 index such as XIU, you’d look up the price of a single unit of the ETF (at the time of writing it is currently $22.28) and then divide $500 by the price you’ve researched.  In my hypothetical example I can purchase 22 units (don’t worry about partial shares for now) of the XIU ETF.  Questrade will confirm with you the final numbers before anything is finalized.

Your question on accounts is a great one.  Basically, if you want to keep life super simple for yourself right now I would apply to Questrade to open two accounts: an RRSP account and a TFSA account.  Both of these accounts will allow you to transfer funds from your bank’s chequing account and then use that money to build an investing portfolio (most Canadians aren’t aware of the fact that investing in a tax-free savings account doesn’t mean your money is in a literal high-interest savings account, it can be invested in almost anything you want it to be).  Before choosing to put your money in either a TFSA or an RRSP, check out the article we wrote explaining why one might be better for you than the other. (Although, to be honest, when you’re just starting out I wouldn’t let worrying about which one is better stop you from starting your investing journey – avoid paralysis by analysis!)

Both TFSA and RRSP accounts are referred to as “registered” accounts.  Essentially this means that investment gains within the account are tax sheltered (the government won’t be taking taxes on them each year, so that allows them to compound faster).  Non-registered accounts on the other hand are simply just accounts that you are investing money within.  They have no special tax considerations.  They are most often used by fairly well-to-do investors or investors that have some experience (I personally don’t have one just to give you some context).  Margin accounts are like non-registered accounts but with one unique feature – you can borrow money from the broker (Questrade) in order to invest even more money than you have within the account (this is commonly known as leveraging).  Obviously borrowing money to invest is somewhat more risky than simply investing what you have.  I’m not saying to never use leverage, but since you’re just starting and want to keep things simple I wouldn’t worry about a margin account for now.

By all means, read about ETFs until your heart is content.  Honestly, there is no source better than the other.  If you follow the Google link to the company that has created the ETF, you can usually get all of the relevant details.  For example, if you click here it brings you the Blackrock page (the company that produces the XIU ETF) and it tells you every detail about the ETF including which companies are included within it, and how big a percentage they are of the entire fund.  You’ll see a lot of banks and energy companies listed which makes sense when you think about Canada’s economy.  Truthfully there really isn’t a lot to know about simple ETFs that track indexes.  They don’t make decisions to actively buy or sell anything.  They will go up and down along with the market average.

Don’t worry by being intimidated at first.  The good news is that you’re already ahead of the vast majority of Canadians!

4 Comments

  1. John on May 13, 2015 at 10:51 pm

    For non-registered accounts, it’s not just the rich and experienced, it’s anyone who has more to invest than they can stuff in their TFSA. And of course, before TFSAs existed, if you didn’t have enough RRSP room to shelter all your investments (or needed more flexibility than the RRSP allowed) then you’d have to invest in a taxable (non-registered) account. For a personal example, as a PhD student making scholarship income I didn’t create any RRSP room, so any long-term savings I wanted to invest had to be in a taxable account, no matter my relative wealth or experience at the time. Future generations will be accumulating TFSA space from the time they turn 18, so non-registered accounts will likely start to become more the things for wealthier people.

    Even if you don’t use it for investing, you’ll have a non-registered account as a place for cash to travel through on the way from your chequing account to your investment TFSA or RRSP (and eventually, vice-versa). (And I’d be surprised if you don’t have one attached to your account, Kyle, even if it’s empty)

    My one big beef with Questrade is that they only allow margin accounts for non-registered, so newbies have to be just a little bit more careful not to accidentally borrow to invest than when holding cash non-registered accounts at other brokerages.

    For reading more on ETFs that’s a tricky one — what do you hope to learn and do with whatever information you dig up, dear reader? For someone who just wants to invest with an indexing strategy then you may only need the most superficial information to start investing: does the fund track the index you want it to track, are the fees what you expect? Maybe a few advanced questions like whether it’s suffered from tracking error, uses currency hedging, how foreign dividend withholding taxes are treated, and if it has sufficient liquidity. But there’s lots more that can lead to information overload out there, that won’t really affect an index investing strategy.

    And of course if you’re going to open a QuestTrade account, be sure to grab a Qpass to give yourself (and the person referring you) a bonus — if Kyle hasn’t given you one, mine is on my website.



  2. Kyle on May 14, 2015 at 8:14 pm

    All of these are great points John. Truthfully I hadn’t considered someone in the scholarship situation you were in. When thinking about it, I figured at least 95% of all non-registered accounts were people that had maxed out their registered accounts and consequently what I would consider “well to do”.

    I do have an empty one John, this is true. Again, I seem to have oversimplified. Since I re-invest all dividends and new money I put through into the account right away (I’m not big on market timing) I never have much of a balance in there so I never considered it an “investment account” even though, you are certainly right – it would be non-registered on a tax form.

    The real question for us as bloggers trying to get people to take their first tentative steps in to this stuff is at what point do we give too much detail and have eyes glaze over? I’m still trying to figure out my balance there…



  3. Carolyn on May 21, 2015 at 1:41 pm

    This is a great primer for all the newbies. And the next supplemental post is the tax implications of buying ETF traded in TSX or foreign exchange.

    TFSA and RRSP shelter the investment and gains differently from tax.



  4. Kyle on May 23, 2015 at 12:14 pm

    True Carolyn. I could definitely write this article, but truth be told, I would essentially just be re-phrasing what you can find on the Canadian Couch Potato blog if you Google the question. No need to plagiarize the good work of Mr. Bortolotti.



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