The stock market is a system for buying and selling shares of publicly traded companies. Shares represent pieces of ownership in a company, and the price of a share is determined by supply and demand.
When you buy shares in a company, you are buying an ownership stake in that company. You are entitled to vote on how the company is run and any profit it makes (dividends). The price of your shares can go up or down depending on how the company performs.
Why you should invest
The stock market has historically achieved an average return of 10% annually which by itself proves to be better than saving money in a bank. Banks used to be the main place people would go set up a savings fund, but the interest paid on bank accounts has fallen dramatically since 2008. In addition, you usually need to have a large amount of money saved to receive any sort of decent return on your account. However, unlike a savings account, investing in stocks comes with some risks, which is why you should always educate yourself before you start using your hard-earned cash.
(Note: There is nothing wrong with saving money. It’s actually important to have an emergency fund that can cover 2-3 months of expenses in case something happens. Nevertheless, if the end goal is to build wealth, investing your money will always yield a better return in the long run)
How much do you need to Invest?
If you’re new to investing, the stock market can be a scary place. But there are steps you can take to make the process less intimidating and help yourself become a confident investor.
Numerous individuals think that investing requires a lot of money, but in reality, you don’t need to be a millionaire to get the ball rolling. In fact, it’s possible to start investing with very little money. Whether you want to invest $100 or $500, here are some tips on how to invest in the stock market with little money.
Open a brokerage account
Brokerage accounts are investment accounts that allow you to buy and sell various types of investments. These include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and index funds. An account can be opened by yourself or with the help of an investment professional, such as a broker or financial advisor. You can also open an account at a bank or credit union. The benefits of investing in a brokerage account include access to professionally managed portfolios, retirement planning and research tools for analyzing stocks.
Ready to build your portfolio? Here's what you need to know about opening and funding a brokerage account
- The stock market consists of exchanges, or markets, where these shares can be bought and sold. Each exchange has a different focus. For example, some exchanges are focused on companies from a specific country or region of the world while other exchanges are focused on companies from around the world. Examples of exchanges include NASDAQ, NYSE, NSE and many more.
- Some brokerages have high fees and a minimum balance. It’s wise to keep your costs low by picking a brokerage with low fees. One of the easiest ways to start investing in Canada is through Wealthsimple, by downloading their trading app. All you need to do is fund your account and start trading. They also have a Robo advisor (money will be invested automatically, all you have to do is choose a risk factor) and cryptocurrency investing.
- Place some of your investments on a registered non-taxable account such as a TFSA (Tax-Free Savings Account) or an RRSP. Signing up with any brokerage will allow you to choose a preferred account. To read more on TFSAs and RRSPs accounts, click here. Nonetheless, why do people still use non-registered cash accounts for investments? Non-registered accounts are more flexible when it comes to withdrawing, have no funding restrictions and are good for day trading, therefore, its good to have both (Note: Income earned from your investments will be taxed on a non-registered account)
What is the best portfolio for a beginner?
A diversified balanced portfolio is always safer than investing in only one company. It’s important to spread your money with different companies. If picking individual stocks is not for you, consider using a Robo-Advisor or a financial advisor. You can also invest in index funds and mutual funds to accomplish this. (Mutual funds and Index funds hold a variety of securities such as, stocks and bonds in one portfolio.)
Check out these 5 trading platforms
- Wealthsimple Invest. Possibly the easiest way to invest in Canada. Wealthsimple invest is a Robo advisor that does it all. Money will automatically be invested for you. All you need to do is create an account, decide on a risk portfolio, fund the account and you’re good to go. There’s also no minimum balance, making this a great platform for beginners. To learn more about Wealthsimple Invest, read our article here.
- Wealthsimple Trade. Is the only commission-free trading solution for investors in Canada. There is no minimum balance and account creation takes less than a minute if you already use other Wealthsimple products. You can also trade stocks and cryptocurrencies within the same app, which is quite impressive. The Wealthsimple brand is heavily geared towards Gen Z’s and millennials, therefore expect the interface to be easy to use and friendly. To learn more about Wealthsimple Trade, checkout this article.
- Questrade. Offers competitive fees, great customer service and free ETF purchases.
- TD Direct Investing (Formerly known as TD Waterhouse). Known to have amazing research tools, TD Direct investing has a robust platform that seasonal investors will love, however, it has high trading fees.
- CIBC Investor’s Edge. Though the interface looks quite outdated, Investor’s Edge offers low trading fees and a no minimum balance to start. If you already have a CIBC account, moving money between accounts is easy and all in one place.
Are there any other investments other than stocks?
- Mutual funds & Index funds
- Real estate
- Commodities (precious metals, Currencies)
- Crypto Currencies & NFTs (It’s important to do your research when looking into these. It’s very easy to get caught with the hype.)
Summary: 8 Simple Steps To Getting Started With Investing
Investing in stocks is a great way to grow your money. But, it can also be an overwhelming process if you don’t know what you’re doing.
- Find a broker that fits your needs and budget.
- Research individual companies before investing in them. Invest in stocks that you know and understand (Research is crucial.)
- Decide how much money to invest and set a schedule for regular investments.
- Create a long-term plan for your investments.
- Stay disciplined and focused on your goals.
- Stay invested for the long term. (Re-invest dividends)
- Diversify your portfolio.
- Keep costs low.