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Learning to invest starts with understanding how to invest in stocks. Historically, equity investments have offered strong returns compared to other asset types, making them an effective way to grow wealth. This guide will help you get started by explaining how to invest in stocks.
There are multiple ways to approach stock investing, and you can use any of the following strategies or combine them:
- Invest in Individual Stocks
For those who enjoy researching markets and companies, buying individual stocks is a great way to begin investing. While some stock prices may seem high, fractional shares allow for investment with smaller amounts of capital.
Choosing How to Invest in Stocks
Several platforms and accounts are available for stock investing. You can manage the process yourself through an online brokerage, or you can hire a financial advisor or robo-advisor to handle it for you. The best option depends on how much control and guidance is preferred for managing investments.
- Open a Brokerage Account: If you have some knowledge of investing, an online brokerage account allows you to choose and buy stocks independently.
- Use a Direct Stock Purchase Plan: Many large companies offer direct stock purchase plans. These often allow commission-free purchases but may have fees for selling or transferring shares.
Regardless of the method chosen, fees are typically involved in buying or selling stocks, as well as for account management. Pay close attention to fees and expense ratios on mutual funds and ETFs. Don’t hesitate to ask for a fee schedule or speak to customer service for more details on potential costs.
- Accounts for Stock Investing
Different account types can be used to buy stocks. The most common include:
- Retirement Accounts: The RRSP is a widely-used retirement account in Canada. It offers tax advantages, with no taxes due on growth until funds are withdrawn. Early withdrawals are subject to withholding and income taxes. Contributions must cease by the end of the year the account holder turns 71.
- Taxable Investment Accounts: These accounts don’t have the tax benefits or contribution limits of retirement accounts. Proceeds are taxed as regular income.
- Registered Education Savings Plan (RESP): This account helps save for a child’s education, with contributions matched by the government through the Canadian Education Savings Grant and, in some cases, the Canadian Education Savings Bond.
Investment accounts can be set up through a broker, bank, or employer, depending on the account type.
- How to Fund Your Account
To fund stock purchases, consider setting up monthly deposits, especially for RRSP accounts, where contribution limits are in place. Employer-sponsored Group RRSPs allow for automatic deductions from paychecks.
For other account types, define your investment goals and decide how much of your budget will go toward stock purchases.
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