How To Invest In Stocks In Canada (2022 Beginner Guide)

Adam Burns
April 26, 2022

Learning how to invest in stocks in Canada is important if you want to invest your savings rather than let your money sit in cash in a bank account.

Canada is the 9th largest economy in the world ranked by nominal GDP. The largest canadian companies’ stock trades on the Toronto Stock Exchange and smaller companies’ stock trades on the TSX Venture Exchange.

You’ll need a stock broker to help you buy stocks in Canada and luckily there are many different trading platforms to use ranging from independant online stock brokers to bank-owned brokerage accounts.

Keep reading and you’ll be investing in stocks in no time!

How To Invest In Stocks In Canada

Investing in stocks is a lot easier than most people think. It really only requires 4 steps simple steps outlined here:

Choose your broker
Set up you investment account
Pick your stocks
Decide on your holding period

More information on each step below.

1. Choose a broker

The stock broker that you choose will depend on the level of service you want.

There are free and discount online stock trading platforms like Wealthsimple and Questrade as well as full commission bank-owned platforms like RBC Direct Investing and BMO Investorline.

If you want an experienced investment professional to help invest your money for you then you can work with a financial advisor. Not only will they invest your money in stocks for you but they offer various other services like estate planning and tax management.

So, if you want the lowest cost way to invest in stocks then go with a self directed online platform. If you want to outsource your investing then look for a financial advisor to help.

2. Set up an investment account

The first step in setting up an investment account is to determine what type of account is right for you.

The types of investment accounts in Canada are:

Non-registered accounts (cash and margin)
Registered accounts (TFSA, RRSP, RESP, LIRA)

The difference between non-registered and registered accounts is that registered accounts have additional government imposed rules and benefits such as maximum amounts you can invest in a year and tax saving or deferral.

Any money you earn in a non-registered account is taxed along with your income every year.

3. Choose your stocks (or ETFs)

Individual stock picking is challenging and time consuming. Buying a portfolio of stocks gives you diversification and can be done quickly by purchasing an Exchange Traded Fund (ETF).

Diversification offers a less-risky way to invest in stocks than investing all your money in just a handful of stocks so, unless you fancy yourself a young Warren Buffett, you should think about buying an ETF.

Depending on your risk tolerance and holding period (more on that below) there are many different stocks and ETFs for you to choose from.

Stocks range from lower-risk “blue chips” (think banks and utilities) to higher-risk “speculative stocks” (think junior gold mines and startup tech stocks) while ETFs will usually have a risk profile detailed on the ETF manager’s website.

Another great option to look at investing in is Canadian dividend stocks as they can offer additional yield and diversification to a balanced portfolio.

4. Choose your holding period

Making a decision on how long you plan on holding an investment is a critical step before investing.

You might even go back and make some changes to the type of investment account you chose or the stocks and ETFs you want to invest in.

Why is knowing your holding period so important?

Because, the timing of when you buy and sell stocks can impact your tax bill (don’t use your RRSP as a savings account) and will impact the amount of volatility you will be comfortable with in your investments.

The simplest way to describe volatility is the expected percentage move (in either direction) that an investment is likely to make in a given time period.

Put another way, ask yourself if you be more comfortable buying a stock that was likely to either drop -20% or gain 40% over the next month OR a stock that was likely to either drop -2% or gain 4% over the next month IF YOU KNEW that you had to sell at the end of the month – no matter what.

So, review your expected holding period and align on the type of brokerage account and investment risk profile that fits your needs and then make your first investment!

Canadian Stocks and ETFs Guide

Here is a list and some detailed information on the largest Canadian stocks and ETFs to help you start your investment journey.

Stock and ETF data updated as of Apr 11, 2022.

Canadian Stocks

Royal Bank of Canada (TSX: RY)

Industry: Financial Services
Market Cap: $192 billion
Annual Revenue: $50 billion
P/E Ratio: 12x
Dividend Yield: 3.5%

Toronto Dominion Bank (TSX: TD)

Industry: Financial Services
Market Cap: $176 billion
Annual Revenue: $43 billion
P/E Ratio: 12x
Dividend Yield: 3.7%

Enbridge (TSX: ENB)

Industry: Energy
Market Cap: $118 billion
Annual Revenue: $47 billion
P/E Ratio: 20x
Dividend Yield: 5.9%

Brookfield Asset Management (TSX: BAM.A)

Industry: Investment Management
Market Cap: $113 billion
Annual Revenue: $81 billion
P/E Ratio: 23x
Dividend Yield: 1.o%

Canadian National Railway (TSX: CNR)

Industry: Rail Transportation
Market Cap: $109 billion
Annual Revenue: $14 billion
P/E Ratio: 23x
Dividend Yield: 1.9%

Scotiabank (TSX: BNS)

Industry: Financial Services
Market Cap: $105 billion
Annual Revenue: $29 billion
P/E Ratio: 11x
Dividend Yield: 4.6%

Bank of Montreal (TSX: BMO)

Industry: Financial Services
Market Cap: $94 billion
Annual Revenue: $27 billion
P/E Ratio: 11x
Dividend Yield: 3.7%

Shopify (TSX: SHOP)

Industry: Technology
Market Cap: $90 billion
Annual Revenue: $5 billion
P/E Ratio: 27x
Dividend Yield: No dividend

Canadian Natural Resources (TSX: CNQ)

Industry: Energy
Market Cap: $93 billion
Annual Revenue: $30 billion
P/E Ratio: 12x
Dividend Yield: 3.8%

Canadian Pacific Railway (TSX: CP)

Industry: Rail Transportation
Market Cap: $89 billion
Annual Revenue: $8 billion
P/E Ratio: 23x
Dividend Yield: 0.8%

Canadian ETFs

There are a number of ETF managers in Canada who offer a wide variety of products that include index funds, equity funds, fixed income funds and commodity funds. Some examples of ETF providers are:

BlackRock Inc
BMO Asset Management
Horizons ETFs Management
First Asset
Purpose Investments
Vanguard Investments Canada Inc.
Invesco

Here is a list of the largest ETFs in Canada (ranked by assets under management) that focus on stocks for you to learn about:

Blackrock – iShares SPTSX 60 Index (TSX: XIU)
Vanguard – U.S. Total Market Index (TSX: VUN)
Blackrock – iShares SPTSX Canadian Dividend Aristocrats Index (TSX: CDZ)
BMO – MSCI EAFE Hedged to CAD Index (TSX: ZDM)
Blackrock – iShares SPTSX Capped Energy Index (TSX: XEG)

When investing in an ETF vs. an individual stock you will pay ongoing expenses to the ETF manager. These expenses cover the costs of managing the fund and providing the service of diversification to individual investors.

It is important to look for low cost ETFs (low management fees) because the cost to own an ETF reduces your returns over time.

Canadian Online Trading Platform Guide

We’re going to skip over financial advisors and look only at Canadian self directed online trading platforms.

Why?

Because the best investment you can make is in yourself AND that means actually learning how to invest in stocks in Canada YOURSELF!

Here is a list of self directed online trading platforms in Canada:

Summary – How To Invest In Stocks In Canada

Congratulations! You’ve read through the Cash Cow Canada guide to investing in stocks in Canada.

Now, what are you going to do?

Making an investment is a big deal for most people and can be stressful. But, it is also a liberating experience. Afterall, an investment in a Canadian company means that you are an owner of the corporation and it now works for you!

*Featured Image credit: Jason Briscoe