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Do you have a high I.Q.? In this case, I.Q. means investor quotient. Understanding the basics of investing in stocks in Canada can help you expand your holdings. Whether you want to enjoy a comfortable retirement or increase your financial freedom, you need to understand the fundamentals of investing in Canadian stocks.
If you wish to invest in Canadian stocks, you should sign up with a brokerage, simply because trading or investing is easier. However, before do so, you need to review the steps you will need to take.
Some available options include the following:
This account provides Canadian investors with tax benefits when saving investment income, including dividends and capital gains. This income is typically not subject to taxation, even when you withdraw the funds.
This Canadian tax-preferred account is designed to hold invested assets and savings for retirement. The money is tax-deferred until it is withdrawn at retirement.
This registered Canadian account allows you to save for a child’s post-secondary education. Besides your contributions, the government contributes $7,200 in grant money.
This type of account represents a registered Canadian pension fund. Account holders cannot withdraw their money from a LIRA except in rare instances.
This type of account is one where a customer is leant cash by a broker to buy stocks or other financial products. The financing is collateralized by cash and the securities purchased, and includes a periodic interest rate. While this account will increase your buying power by using someone else’s money, you also buy stocks at a greater risk. When you buy stocks on margin, you can also amplify any losses.
Before you buy a stock, it helps to analyze the stock, its company, and the company’s products and services. Know what is behind the company and stock to make an informed investment decision. A basic technical analysis will give you what you need to know about a company’s influence on the stock exchange. This data covers a company’s current and available data, including the following:
Besides these factors, you also have to review the management of a company, the business’s competitive ranking, its branding, and intellectual property. Don’t get too muddled up in the details. As a beginning investor, it is best to review the fundamental concerns, such as the company’s management and basic metrics, such as Earnings per Share and the Dividend Payout Ratio (DPR).
While this basic information will give you a better idea about stock pricing and risk, you still can make investing even more simplified by opting for financial products, such as REITS (Real Estate Investment Trusts) and Exchange Traded Funds (ETFs). Both products are ideal investments for the beginning stock investor as they frequently offer good returns without the risk of other investments.
While a bull market represents a market that is rising in strong economy, a bear market exists when the economy recedes and many stocks are losing their value. Because the prices are more volatile and many of the equities traded fall in price, you have to be careful about investing in a bear marketplace.
An ETF is a type of security that features several securities, such as various stocks. It frequently follows an underlying index, although an ETF can be used to invest in a variety of industry sectors. ETFs are much like mutual funds, except they are listed on exchanges and traded like ordinary stock.
A REIT represents a real estate investment trust or a diversified portfolio of real estate. Investors can invest in the trust with a low minimum to diversify real estate holdings and receive higher returns at a lower risk. Instead of share, you buy trust units in a preferred REIT.
A DRIP stands for an account known as a dividend reinvestment plan – a program that enables investors to reinvest the dividends they receive from a stock to purchase more stock, or fractional shares. Reinvestments can be made by going directly going through the company issuing the stock or through your discount brokerage.
This type of dividend reinvestment plan is set up with your discount brokerage. All you need to do is inform the company about the stocks you wish to DRIP. Some brokerages will allow you to enroll your entire brokerage account into a DRIP. Therefore, any new or current company shares will automatically be reinvested, for example, in your TFSA or RRSP account.
An RRIF account is set up with the federal government so you will receive a steady income when you retire. While you use a Registered Retirement Savings Plan (RRSP) to save tax-free for retirement, you use a Registered Retirement Income Fund (RRIF) to withdraw the accumulated savings.
When selecting a brokerage account, review what types of accounts it features. Most brokerages feature TFSA, RRSP and personal investment accounts.
Check out the minimum investment and see if there are any trading fees. Ideally, the brokerage will not require a minimum investment and will not charge commissions on trades.
See if the brokerage offers any cash bonuses. For example, some brokerage accounts offer a $10.00 cash bonus if you open and account and deposit at least $100 to make trades.
Make sure your account is protected by the Canadian Investment Protection Fund (CIPF), a not-for-profit that was set up in 1969 by the investment industry in Canada. The fund is designed to protect investor assets in case a CIPF member files bankruptcy.
Although this guide suggests establishing an account with a brokerage, some more experienced investors choose to use today’s technology by using a robo-advisor. Also referred to as an online advisor or automated investing service, a robo-advisor uses advanced software and computer algorithms to build and manage an investment portfolio. Because of their lower cost, robo-advisors allow securities investors to begin trading almost immediately.
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