How to buy stocks in Canada

Updated: June 13, 2024 

One of the ways that savvy investors grow their wealth is by investing in stocks. Stocks – sometimes called shares or equities – represent an interest, or part of ownership, of the company that you invest in. By owning shares, an investor becomes a shareholder, and can then claim some of its profits, or assets, in the form of dividends. Depending on the shares an investor owns, they might also be able to vote at its shareholder meetings, which can be important if shareholders also want to influence the company’s strategic direction. 

When you sell your shares, you can get what’s known as a capital gain if you earn money. If an investor loses money from the sale of shares, this is declared as a loss. While stocks are the riskiest investments, investors who buy and hold them for the long term usually get the highest annual returns.  

So, what do investors need to know to get into investing in stocks? How do you know what stocks to buy? How do you buy stocks in Canada online? In this article, we’ll discuss how to buy stocks for beginners and more.  

The basics of investing 

For beginning investors, the thought of investing their hard-earned money in something as complex as the stock market can be intimidating. While this is understandable, knowing how to invest in stocks and making money from them isn't as complicated as it used to be, or as some may believe. For beginners, the key to buying stocks and making money is being patient and starting with the basics of investing.  

Those who want to become better at investing, whether it’s stocks, bonds, mutual funds, index funds, exchange-traded funds (ETFs), or other types of investments, take your cue from more savvy investors and advisors. Branch out into other investments later when you have enough funds, but don’t blindly put money into them. Make sure you have some understanding of your investments first.  

Know what kind of investor you are 

This is the crucial first step for beginning investors. It might sound trivial, but it’s standard practice for advisors to determine what sort of investor their clients are, or for investors to figure this out first.  

For both financial advisors and their clients, simply taking a chunk of money, randomly picking stocks then hoping for the best, is a recipe for disaster. Before you choose a stock, there are several items to know and decide on beforehand. First, investors should have a financial plan ready – mapping this out is a specialty of financial advisors.  

Create your financial plan 

Even before you pick stocks, make a financial plan. It's a financial planner’s or adviser’s specialty to assist investors in doing this. The process starts with figuring out the investor’s financial goals.  

A financial plan can be a document that details the individual investor’s: 

• short-term financial goals 
• long-term financial goals  
• the strategy to achieve them 

The financial plan should be as detailed as possible, and tailored according to the investor’s: 

• financial needs 
• investment risk tolerance 
• plan for saving and investing 

Know your financial goals 

Knowing and classifying an investor’s short-term, mid-term and long-term financial goals help shape the investment strategy. What’s the difference among them?  

• short-term financial goals: have a short time horizon, usually 5 years or less 
• mid-term financial goals: take more than 5 but less than 15 years to achieve 
• long-term goals: have the longest time horizon, 15 years or more 

Identify your risk tolerance 

Risk tolerance, aka risk appetite or aversion, is another factor for picking and investing in certain stocks and shapes the financial plan. Risk tolerance is the amount of loss an investor can take when investing. This is a relative value or amount that varies from investor to investor. The different kinds of risk tolerance are:  

Aggressive risk tolerance 

Investors with this level of risk tolerance are familiar with the markets and are accustomed to the ups and downs of their investment (stocks, in this case). Typically, investors with an aggressive risk tolerance are already wealthy, highly experienced, and have a diversified portfolio of investments and assets.  

Moderate risk tolerance 

Those with a moderate risk tolerance take on some level of risk, but not on the level of aggressive investors. Investors of this type balance their investment portfolios with both risky and safe assets or investments. While they don’t gain as much as aggressive investors, they don’t lose as much either when the market falls.  

Conservative risk tolerance 

These are investors who take the lowest level of risk in the stock market. Their priority is to avoid losses, even at the cost of lower potential returns.  

Factors that affect risk tolerance include:  

• age: it logically follows that the older the investor, the lower their risk tolerance. As investors approach retirement, they prefer not to risk losing any part of their retirement savings 
• time horizon: the shorter the “deadline” an investor must achieve their financial goal, the more risk-averse they are. On the other hand, the longer the time they have, the less risk-averse they are 
• investment goals: the end goal will also determine an investor’s risk tolerance. For instance, if their goal was to raise money to buy a vacation home or rental property, they would be more tolerant of investment risk. Conversely, if an investor’s financial goal was to set aside money for a college fund for their children, they would be a lot less tolerant of risk 

Once an investor has detailed their financial plan or an adviser has done this for them, they can proceed to choose the stocks that align with the plan.  

A short guide on how to buy stocks in Canada 

For beginners, the process of investing in stocks can be a simple one, if they follow these steps.  

1. Calculate how much you can invest 

After mapping out your financial plan, you can start investing in stocks. You can buy shares for as little as $10, but that restricts your options. You wouldn’t be able to buy enough to diversify, and some stock shares and mutual funds have higher minimum investments. It might also not be worth the fees and commissions.   

An option is to invest in a low-cost index fund or exchange-traded fund (ETF) to diversify at a lower price. These usually don’t have minimum investments. New investors can also try robo-advisors, which can charge only an annual flat fee of 0.2% to 0.5% of a client’s account. One caveat: even though robo-advisors make choosing stocks easier, there’s no guarantee they perform better than a human one.  

Beginners can start with at least $1,000 but can work with their advisors to see what they can invest. Investors must also ensure to meet all other financial goals. 

2. Open an online brokerage account 

Investors who buy stocks directly from a broker are called “self-directed”. Investors can and should research their own stocks before they invest and decide how to allocate and diversify the assets in their portfolio.  Canadian online brokerage trading platforms vary from independent discount brokers to the bank-owned brokerage firms. Check which style works best for you. 

Speaking of online brokerages, there are many of them in Canada to choose from, so which is advisable for beginners? WealthSimple Trade is an excellent option. As you gain more experience and confidence in stocks, you can move to Questrade and TD DirectInvest from TD bank. Get more details on these Canadian online brokerages from this video:  

3. Choose an investment account 

You will need an investment account to hold the funds and investments. In Canada, there are several types of investment accounts; you can use either a registered or non-registered account, such as:  

• Tax-free Savings Accounts (TFSA): allows investors aged 18 and over to invest and earn tax-free returns on it. You can use this account to save for your short or long-term goals, including retirement. It has an annual contribution limit, which is $7,000 for 2024  
• Registered Retirement Savings Plans (RRSP): allows investors to save for retirement and defer the taxes on earnings until they withdraw the money. RRSP account holders can contribute 18% of last year’s income, up to a maximum, which is $31,560 for 2024 
• Registered Education Savings Plans (RESP): allows investors to save for their child’s post-secondary education. The government will also match investors’ savings up to $7,200 to add to the fund  

Investors can also place stocks in a non-registered account for personal or business purposes. 

4. Get acquainted with stock market terminology 

Stock investing has its own lingo, but you can learn the most important terms. Investors should spend some time online to see what they need to know for the level they're at.  

5. Fund your account 

Investors can choose individual stocks or choose baskets of stocks like a:  

• mutual fund, which is a collection of stocks, bonds, or other assets packaged under one price. They allow you to pool your money and buy many stocks, which you couldn’t buy on your own. A financial professional generally “actively” manages these, so there can be higher fees. 

• index fund, which provides you with a basket of investments for one price, just like mutual funds. This fund tracks an index, like the Toronto Stock Exchange (TSX) or Standard & Poor’s (S&P) 500. It usually has lower fees since you aren’t paying for a financial pro. 

• exchange-traded funds (ETFs), which also allow you to invest in several companies, industries, or sectors at an affordable price. Like index funds, they usually track an index rather than a fund manager’s strategy. But, like stocks, you can trade them on an exchange during the day. (Mutuals and index funds can’t be traded until the market closes). You must pay a commission, but it’s often lower than the other options. 

6. Analyze and strategize how you will diversify 

As an investor, once you have decided on the kind of account you want, do your research to buy a stock. Are you looking for growth – or value?  

You can choose from a variety of stocks, including the best Canadian bank stocks to invest in. If you have a bit more to spend, you can also invest in some of the best blue-chip stocks and hold them as long-term investments.  

Either way, you need to analyze the company’s financial health, value, potential growth, management, industry ranking, and other factors. Research what’s important for the area you’re choosing. If you want the full experience, you can also do as the traders do: analyze its historical price patterns to try to forecast the stock price. Or you can work with a broker, who will make that much easier for you.   

For beginners, buying stocks in Canada can be challenging at first, but it’s not as daunting a task as it seems. New investors who want to get into stocks must equip themselves with essential knowledge. Always seek the assistance of more experienced investors or, better yet, an expert financial adviser.  

Looking for further guidance on how to buy stocks? Look up the best names in Canada’s financial services industry in our Best in Wealth section. Reach out to the top financial advisors across the country for support in meeting your financial goals.