Investing in the stock market for newcomers to Canada

Get a Social Insurance Number

Everyone who works and earns an income in Canada needs to have a Social Insurance Number (SIN). You may also need one to open a brokerage account and start investing. You can learn more about applying for a SIN here.

Open a bank account

If you’re planning to invest in Canada, you should have a Canadian bank account. Canadian bank accounts are safe, convenient and an efficient way to help facilitate your deposits/withdrawals and transfers to investing accounts. Many banks even offer banking packages specifically designed for newcomers. Learn about the packages TD offers to newcomers here. You can also compare features for different chequing and savings accounts here.

Step 1: Identify your goals and evaluate your risk tolerance 

Investing in the stock market comes with certain risks. Think about how much risk you’re willing to take and how much money you could stand to lose. The level of risk you’re willing to accept will largely dictate the type of investments that are best for you. You also need to consider whether you’re saving for long-term goals like retirement, or short-term goals like saving for a new home. 

Step 2: Choose your investing style 

Consider whether to be an active or passive investor.

Active investing: Active investing involves actively buying and selling stocks in an effort to beat the market. Active investors need to spend more time and energy monitoring investments and deciding when to buy or sell stocks based on short-term fluctuations in price.

Passive investing: Passive investing involves buying and holding investments over the long-term. Passive investors are less concerned about beating the market, and are more concerned with matching market returns. Passive investing involves buying a broad range of investments to mimic the investments held within a specific market index or benchmark. Get more information on passive investment here.  

Step 3: Pick your preferred investments

Guaranteed Investment Certificates (GICs): GICs are secure and considered lower risk investments. When you invest in a GIC, you’re essentially loaning money to a financial institution for a set period of time, usually up to five years. In exchange, the financial institution agrees to pay you interest and repay your loan in full at the end of the GIC’s term. Generally, the longer the term of the GIC, the more interest you can earn.

Stocks: Stocks represent partial ownership in a company. If the value of that company increases, the value of the stock can also increase. If that happens, you can sell that stock for a profit. Some companies even share a portion of their profits with shareholders in the form of dividend payments.

Mutual Funds: Mutual funds represent shares in a range of different investment types such as stocks or bonds. When you invest in mutual funds, you’re buying shares in a portfolio of assets typically assembled by a professional portfolio manager. Mutual funds typically hold a number of investments from different industries or geographies and investing in mutual funds is an easy way to invest in a diversified range of assets.

Exchange-Traded Funds (ETFs): ETFs are like mutual funds but typically have lower fees. They’re usually built to mirror the investments held within a specific market index, like the S&P 500.

Bonds: Bonds are another low-risk form of investment similar to a GIC. You agree to loan your money to a government or company and earn interest on your investment. Bonds can provide a predictable source of income and essentially guarantee you’ll see a return on your investment. Plus, your initial investment will be returned to you in full at the end of the bond’s term. You can even invest in bond mutual funds or ETFs, however the income from these may be different than stated.

Step 4: Choose a broker

Online brokers: Online brokerages can be a great choice for investors that like to manage their money themselves. As a self-directed investor, you’ll have full control over your investments. Different online brokerages offer different account options, investment types, educational resources, and fees. Learn about the best trading platforms in Canada here.

Professional advisors: If you don’t have time to manage your investments, or don’t know much about investing, consider working with a professional advisor. They work with you to build an investment portfolio suited to your budget, goals and risk tolerance. Their fees vary, but you can benefit from their expert knowledge and advice.

Robo advisors: Robo-advisors are automated platforms designed to help you make investment decisions. Just answer a few questions about your individual preferences and goals and the platform will give you advice based on pre-programmed algorithms. While you’ll still pay fees, they’re generally less than fees paid to a professional advisor.

Step 5: Open the Right Investment Account

Registered accounts: Registered accounts provide certain tax benefits to encourage additional savings and investment. Money held within a registered account grows tax-free or on a tax-deferred basis. That means you can save on taxes while building your wealth.

There are several different registered accounts to choose from.

Tax-Free Savings Account (TFSA): TFSAs offer a simple way to help grow your investments free of the application of Canadian income tax. They let you invest after-tax dollars up to a pre-defined contribution amount each year. You can withdraw funds from a TFSA at any time, and anything you withdraw can be paid back any time after January 1^st of the following year.  Learn more about how to invest in a TFSA here.

Registered Retirement Savings Plan (RRSP): RRSPs are specifically designed to help you save for retirement. Money added to your RRSP is tax deductible, helping to reduce your tax bill. Investments held within a RRSP grow tax free until you withdraw them. But if you wait to make any withdrawals until after you retire, you’ll likely be in a lower tax bracket. Because they’re meant for long-term savings, early withdrawals from an RRSP will usually be subject to penalties. Find out more about  RRSPs and how they work here.

Registered Education Savings Plan (RESP): RESPs help you save for a child’s education. There’s no annual contribution limit, but you can only contribute up to a maximum of $50,000 per beneficiary. The Canadian government offers grants and incentives designed to help your savings grow faster. If you contribution $2,500 per year, you’ll be eligible to receive $500 under the Canadian Education Savings Grant (CESG). Visit the Government of Canada website to learn more or check out this article.

Registered Disability Savings Plan (RDSP): A RDSP helps individuals receiving the federal disability tax credit (DTC) reach their financial goals. RDSP contributions aren’t tax deductible, and you won’t pay tax on investment earnings as long as the funds are held within the RDSP. RDSPs have a lifetime contribution limit of $200,000 and you can make contributions up to the end of the year you turn 59. You can learn more about how a registered disability savings plan could help you and your family here.

Registered Retirement Income Fund (RRIF): RRIFs provide you with a regular stream of income during your retirement. You can convert an RRSP into a RRIF at any time, but all RRSPs must be closed or converted into a RRIF by the end of the year you turn 71. Funds held within a RRIF can continue to grow tax-free but any funds you withdraw will be taxed at your marginal tax rate. You can only make contributions to a RRIF when you transfer funds from a RRSP. Here's an article that breaks down the ins and outs of RRIF.

First Home Savings Account (FHSA): The FHSA is a new kind of savings account that helps first-time homebuyers save for a home. FHSAs combine features of an RRSP and a TFSA. Contributions are tax deductible and funds withdrawn to purchase a first home are tax-free. You can contribute up to $8,000 per year up to a maximum lifetime contribution of $40,000. Any annual contribution room unused can be carried forward to the following year. Learn about the FHSA and how it works here.

Locked-In Retirement Account (LIRA): You can transfer funds from a pension plan into a LIRA. As the name suggests, money held within a LIRA is locked in. You can’t add additional funds to a LIRA and won’t be able to withdraw any funds until you retire. Funds can grow tax-free within the account until you turn 71, at which point, you’ll need to withdraw the money or transfer it to a Life Income Fund (LIF). You can only withdraw a certain amount each year depending on your age and how much money is held within the account. Here's an article that will give you useful information about LIRA and help decide if it's right for you.

Non-Registered Accounts: Non-registered accounts don’t provide any tax benefits but don’t have any contribution limits.

Cash accounts: Cash accounts are conventional bank accounts capable of holding cash, stocks, bonds, ETFs, and other assets.

Margin account: Margin accounts let qualified investors borrow money from a broker and use it to buy stocks and other securities. Learn more about margin trading and understand the risks involved.

Step 6: Diversify Your Stocks

Diversification involves holding several different types of investments within your portfolio. Diversification helps limit risk by ensuring that changes in the value of one asset or asset class won’t drastically affect the overall value of your investments. The more diverse your portfolio is, the more insulated from market volatility you’ll be. Building a portfolio that includes a range of different stocks, bonds and other assets also gives you the best chance of capitalizing on high-performing investments. Read more about portfolio diversification here.

Step 7: Periodic Portfolio Review

Periodically reviewing and updating your investments is a great way to keep your portfolio balanced and ensure you’re on track to reach your goals. It also helps you feel confident about your investments. Portfolio reviews can be completed monthly or quarterly but should be done at least once a year.

Registered accounts
Investing with registered accounts, such as RRSPs and TFSAs may provide certain tax benefits. Contributions to an RRSP can be deducted from your taxable income helping you reduce your tax bill. You will have to pay tax on any money you withdraw from the RRSP. While contributions to a TFSA aren’t tax deductible, you won’t be taxed on any investment earnings or on any amounts withdrawn from the TFSA. Learn more about the tax implications of different registered accounts including RRSPs, TFSAs, RDSPs, RRIFs, LIRAs, and RESPs.

Non-registered accounts
Non-registered accounts don’t provide any tax benefits. Any investment gains earned in these accounts will be taxed at your marginal tax rate. Certain investment fees are tax deductible such as, for example, management fees and specific investment advice fees. In some instances, interest paid on money borrowed for the purpose of investing may also be tax deductible.

Here's how earnings from investments held within non-registered accounts are taxed:

Interest: Interest earned from GICs, bonds and savings accounts will be taxed at your marginal tax rate.

Dividends from Canadian stocks: Some companies share their profits with their shareholders through dividend payments. These dividends are subject to a federal dividend tax credit to offset any taxes the issuing company has already paid on those earnings.

Capital gains: Income earned within non-registered accounts are subject to capital gains tax. You pay capital gains on any investments you sell for more than you paid for them. However, you’ll only be taxed on 50% of the gains you earn. For example, if you bought a stock for $500, and sold it for $750, you will have gained $250. Capital gains tax will only apply to $125, or 50%, of that $250 gain. The amount of tax you pay on that $125 will depend on your marginal tax rate. If you incur a loss on an investment, by selling it for less than you paid for it, 50% of the loss is considered a capital loss. Capital losses can be used to offset capital gains.. You can even carry back capital losses to the previous three years or carry them forward indefinitely. That can potentially help you minimize tax liabilities associated with realized capital gains.

Foreign interest and dividends: Earnings received from foreign investments will generally be taxed at your marginal tax rate.

What do I need to know as a newbie to Canadian stock market investing?
While a lot can go into investing, it’s critical to understand a couple of key things before you get started. Those include the importance of diversification, conducting research and staying informed of trends in the market. You should also understand the different tax implications associated with different kinds of investment accounts. If you’re entirely new to investing, consider seeking some assistance from a professional advisor. 

How can I open a stock trading account in Canada as a newcomer?
Simply visit a Canadian bank or brokerage firm to apply for an account. You’ll need to provide certain documentation and identification, such as a passport and proof of address, and may need a Canadian credit history or Social Insurance Number (SIN). Some online brokerages, including TD Direct Investing and TD Easy Trade^TM let you apply for a new account online.

Can I invest in Canadian stocks while still holding stocks in my home country?
Yes. Just be aware that tax implications in each country may be different so be sure you understand what they are.

What resources and tools are available for newcomers to Canada looking to invest in stocks?
Various resources and investment tools are available to help you start investing in the Canadian stock market. TD Direct Investing provides robust research reports, research tools and other online resources such as webinars, eBooks, master classes and tutorials to help you get started.

You came to Canada to pursue your dreams. Building a strong financial foundation can help. While starting to invest in a new country can feel intimidating, it doesn’t have to be. TD Direct Investing provides numerous tools and resources to help you get started and feel confident in your decisions.

Start pursuing your financial goals today by opening an investment account with TD Direct Investing.