Investing in Canada for Beginners – Opening Your First Brokerage Account

Investing in Canada for Beginners – Opening Your First Brokerage Account

Are you looking to start investing this year? Are you having difficulty taking that first step and trying to figure out if you will manage your own investments or pay someone to do it or maybe even something in between? To save you from the hassle of trying to figure it out yourself, here is an easy way to start investing in Canada. The best part is, you do not even need that much money to start!


I think it is safe to say that we all understand how important it is to work hard and do the best we can. The only reason why we try to work harder every day is to create financial stability so that we can improve our lifestyle and happiness. But as we all know, the secret to becoming financially independent is more than just what you are able to do while you work. It is about being smart and putting your money to work for you. As an individual, you only have a finite (or fixed amount) of time every day. Nobody gets more and nobody gets less. We are all stuck with the same 24 hours everyday. This is why it is important to put your money to work – in a savings account or by investing it – you are allowing yourself the ability to make money without having to actually work – also known as passive income – and you are removing the limitation of time and opening up the potential to make even more money every day. This is the whole reason why people invest – to be able to make more money over their lifetime so that they do not have to work every day to be able to pay their bills.

If this is your first time learning how to invest, than congratulations, you have taken the first big step towards financial independence. I know that investing can feel stressful – there seems to be a lot of people shouting online and in-person about companies and financial terms you might not understand – but however overwhelming it all might seem, we are here to help simplify this whole process and make sure you feel comfortable and understand where your money is going throughout this whole process. At the end of the day, you worked hard for that money and now you deserve to have that money work hard for you.

Goodbye In-Person, Hello Online

As a Millennial, our generation has had the benefit of online investing. Investing has become so much easier to get into as you can start investing at home. One of the biggest benefits to date is the fact that you can now start investing with as little as $500 as most brokerages have stopped using minimum requirements for new accounts. This is revolutionary because a couple of years ago, you were forced to use a stockbroker who charged very high fees to invest your hard-earned money. Today, you can do this all through a press of a button, poof – trade has been made and the money has either exited or entered your account. As investing as become more widespread, discount brokerages and robo-advisors have begun leading the charge with higher returns and lower fees. So now that we have the history out of the way, let’s start looking at how you can start investing. 

So Where do I Actually Put my Money to Invest?

The big decision you will need to make is to figure out which type of investment provider you want. Here are your options:

1.) Discount Brokerage Accounts

A discount broker is someone who helps you purchase and sale asset classes – think stocks, bonds, ETFs and Mutual Funds. Also, they do not offer any direct investment advice but they are available via an online platform that provides you with a self-service option. The fees that they charge are low compared to other options as they allow you to make your own investment decisions without any help but are available if you have any questions. They also have very low barriers to entry – meaning that it is not tough to open and start using your discount brokerage account – and are well-established and covered by the CDIC so you never need to worry about losing your money if the financial institution goes bankrupt.

To help you understand what your options are for opening a new discount brokerage account, we have provided a handy list of online brokerages in Canada. Please note that you can have the annual fees waived for all of these accounts if you make a trade every quarter. Please note that this list is up to date as of September 2020 and we will update it monthly.

Online Investing Platform

Best for people who want:

Annual Fees

Transaction Fees (Stocks & Bonds)

Free ETF Transactions?

BMO InvestorLine Self-Directed

A great user-friendly trading interface and provides a lot of research potential

$0 if you have >$25,000

$100 if you have <$25,000

$9.95 / trade

No

TD Direct Investing

Very intuitive, great if you are looking for a passive approach to investing (a set it and forget it type of brokerage account)

$0 if you have >$25,000

$100 if you have <$25,000

$9.99 / trade

No

Scotia iTrade

To invest more than $50,000

$0 if you have >$25,000

$100 if you have <$25,000

$9.99 / trade

Yes – Not a lot

Qtrade

Excellent customer service

$0 if you have >$25,000

$100 if you have <$25,000

$8.75 / trade

Yes – 100 Free ETFs

Questrade

Low Fees

$0

$0.01 / share (minimum of $4.95 / trade up to a maximum of $9.95 / trade)

Yes

Virtual Brokers

To do a lot of research on stocks

$0 if you have >$25,000

$100 if you have <$25,000

$0.01 / share (minimum of $4.95 / trade up to a maximum of $9.95 / trade)

Yes – 100 Free ETFs

2.) Robo-Advisors

Robo-Advisors are a specially designed computer algorithm platform that helps you manage your investment portfolio based on a select few questions you answer when you open your account. Do not worry; you can always update your answers whenever your financial situation changes. By allowing the robo-advisor to take control of your investments, this allows you to take a hands-off approach to investing. Usually they will pick broad-market investments or investment classes (usually growth or income producing investments) and will design a portfolio based on your needs, your risk tolerance and your investing horizon. They will also automatically update your portfolio quarterly to maintain your optimal investment portfolio. 

The function – and the reason why people enjoy using robo-advisors – is to avoid having to make investment decisions yourself by allowing an algorithm to track trends in the market and help you make the most amount of money possible for a small upfront fee. It also has the ability to factor in external threats to help keep your money safe. The robo-advisor will provide you, as a first-time investor, guidance on investing and helping to build a diversified portfolio based on your financial needs.

Think a robo-advisor might be more your speed? Here is a quick list of Canadian robo-advisors that can help you start investing. Please note that there are many other robo-advisors available in Canada but these are the most trusted ones and the ones that I have personally used and are safe for first-time investors.

Online Investing Platform

Best for people who want:

Management Fee

BMO SmartFolio

A human representative linked to your robo-advisor for any financial-related questions.

0.70% from 0-100K

0.60% from 100K-250K

0.50% from 250K-500K

0.40% from 500K+

WealthSimple

Automation to its fullest

0.50% from 0-100K

0.40% from 100K+

Questwealth Portfolios

Competitive fees

0.25% from 0-100K

0.20% from 100K+

RBC InvestEase

A big bank robo-advisor that is CDIC protected and has a great customer service

0.50% from 0K+

3.) Financial Advisor

If you are not ready to put in the time and effort to research potential investments and are not interested in having a robot aka robo-advisor making your financial decisions, than you can always choose a financial advisor. A financial advisor is an accredited and licensed individual who has passed a set of exams that allows him to provide financial advice to you. If you really like the personal interaction between you and the individual who is managing your money, than this is the one for you. Usually you will meet with your financial advisor once a quarter (every 3 months) or when your financial situation changes. A lot of people like to have a financial advisor as you are able to call or email them for explanations or to just chat about your portfolio whenever you feel worried. The biggest benefit of a financial advisor is having someone who is taking care of your portfolio at all times and who can help you stay calm when the stock market is volatile. The biggest downside of a financial advisor is that they charge high fees. Usually, a financial advisor will charge you anywhere from 1.5% to 3% a year on all of the money they manage. As an example, if you had $100,000 to invest, they would charge you $1500-$3000 every year just to manage your money. It is a lot more expensive than both a discount brokerage account and a robo-advisor.

So What to Pick? 

To decide which option is best for you, it is important to determine what your individual needs and preferences are. Do you prefer doing everything online with no contact? Do you prefer paying a higher management fee but knowing that someone is taking care of you or do you prefer paying a lower fee and staying in control of your own portfolio? To help answer these questions, we have one last table below to help you figure out which option is best for you in your current financial situation. Please note that if you have enough money, you can always separate it into two lump sums and put one in one option and the other lump sum in the other option. Just something to think about!

Situation

Which one is the best?

Explanation

You prefer to do your own research

Online brokerage

If you enjoy doing the research and buying the stock than there is no point paying a fee for someone to tell you what you can research yourself.

You do not feel like having to rebalance your portfolio every year

Robo-advisor

Robo-advisors rebalance your portfolio based on your financial plan every 3 months.

You love chatting about your portfolio

Financial advisor

The financial advisor is the only one that you can speak with on a regular basis.

You are just starting to learn how to invest

Robo-advisor or financial advisor

New to investing? A robo-advisor or a financial advisor can help walk you through the process by providing investment advice.

You want to invest in specific stocks

Online brokerage

Robo-advisors tend to avoid individual stocks as they are programmed for maintaining a diverse portfolio.

You just want to relax and watch your portfolio increase

Robo-advisor

The robo-advisor will do all the work and you can forget about it.

 Please note that most first-time investors tend to go with the same financial advisor that their parents use so that they can slowly learn how to manage their own accounts. The big push from our parent’s generation is to stick with a financial advisor as most people were not willing to learn enough about investing to do it themselves. Now, I am not saying that financial advisors are bad, they are actually great and can help you make a solid financial plan, my only concern is that they come at a steep cost of 1.5%-3% of your entire portfolio. This is why, in today’s world, many investors are moving towards robo-advisors and online brokerages as they are much cheaper and there is a lot more publicly-available information on the internet to help you make good financial decisions.

Overall, you have to choose an option that will let you sleep well at night and always make sure that you never invest money that you might need in the near future. Make sure you always have enough money for food and rent and the rest…goes to investing!

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