Investing Money in Canada 2021 | Easy Step-by-Step Guide

investing money in canada for beginners
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Working hard is good but making your money work for you is smart hard work. The secret to financial success is more than your own sweat. it’s about being smart about your investments and making your money work equally hard for you. As a beginner, it can be a bit daunting to finding out how to invest money in Canada.

For you to invest your money, first you need to choose an investment provider. Also, you can make your own investment decisions with discount brokerages where charges are low compared to stockbrokers.

The decision to choose between a discount broker and full time stock broker relies on knowledge or goals of the investor.

There are lots of platform to invest your money in Canada. One can invest with wealthsimple, one of the top online investment management in Canada.

Having a financial advisor or (Robo advisor) is good. Because having no advisor means you are on your own to building and managing your investments- which could be a daunting task for a new investor.

What is Investing?

Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. You can invest in endeavors, such as using money to start a business, or in assets, such as purchasing real estate in hopes of reselling it later at a higher price.

When it comes to investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk.

An investment is an asset that is created with the intention of allowing money grow . It is also an asset obtained with the intention of allowing it to appreciate in value over time.

Investors can take the do-it-yourself approach or employ the services of a professional money manager.  

Whether buying a security qualifies as investing or speculation depends on three factors – the amount of risk taken, the holding period, and the source of returns.

What Can One Invest In?

Like most people will say, it’s not good to put all your eggs in one basket. When planning to invest, you should be able to understand all options as an investor before you actually invest and also build an investment portfolio.

There are lots of investments you can invest in but let me remind you that when we talk about investing, it includes risk tolerance, level of understanding of certain markets,  timeline and reason for investing.

Let’s look at different types of investment you can invest in.

#1. Cash and commodities

This is typically a low type of risk investment. And low risk investment comes with low return. That’s the case here.

See examples below

• Gold

This is a commodity as it’s price is based on scarcity and fear, which can be impacted by political or environmental changes.

You can invest in gold like silver and crude oil. Practicing investing in gold dates way back but that doesn’t necessarily mean it’s a great investment.

Price fluctuates a lot as it tends to go up when scarcity and fear is abundant and down when gold is available.

• Bank products

Bank products are investment types offered by banks that include savings accounts and money market accounts, which are similar to savings accounts but typically earn higher interest rates in return for higher balance requirements. 

• Cryptocurrency

They are digital currencies bought and sold on crypto websites.

Example is Bitcoin which has gained a lot of interest but it’s incredibly risky due to unknown factors.

#2. Bonds and securities

They are both low risk investments.

Bonds can be purchased from the US government, state and city governments, or from individual companies.

Mortgaged-backed securities are a type of bond typically issued by an agency of the U.S. government, but can also be issued by private firms. 

When you purchase any kind of bond, you are loaning money to the entity you purchase it from for a predetermined amount of time and interest.

Bonds are considered safe and low risk because the only chance of not getting your money back is if the issuer defaults.

When you purchase a mortgage-backed security, you are once-again lending money to a bank or government institution, but your loan is backed by a pool of home and other real estate mortgages.

#3. Investment Funds

Investment funds are made up of a pool of money collected from multiple investors that are then invested into many different things including, stocks, bonds, and other assets. 

They include: Mutual funds, Index funds, Exchange traded funds etc

#4. Stock market

Stocks are shares of ownership in a particular company.

There are a number of ways to invest in the stock market. 

It could be stock market index, market option or individual stocks.

The most successful investors invest in stocks because you can make better returns and retire a lot faster by doing so than with any other investment type. 

In discussing individual stocks, when you purchase an individual company’s stock, you become a partial owner of that company. That means when the company makes money, so do you, and when the company grows in value, the value of your stock grows as well.

Why is it Important to Invest in Canada?

Well, it is important to invest in Canada because Canada is the best country for global investment. Period.

In our world today, it can be difficult to seize opportunities and avoid risk. However, to grow and succeed, global companies need to find the oasis in the chaos.

Investors are taking notice of Canada as it  seems the right place to invest.

From 2018 to 2019, FDI into Canada increased by 18.6%, making Canada’s 2019 FDI results 42.5% higher than the previous 10-year average FDI total.

In the case of transportation, Canada is well placed to serve as a central hub for global trade. With over 24 airports, 17 seaports and 117 borders to cross to USA, Our air transport infrastructure is the best in the world and our coastal ports provide direct maritime access to Asia, Europe and South America. The Great Lakes also provide easy access to the U.S.

One of the reasons people want to invest in Canada is because of

#1. Security and Safety

Why Canada is the place to seek permanent residency,

Canada continues to be a popular destination for those looking to relocate to a family-friendly country with plenty of opportunities.

Canada has a reputation for being a safe country, and for good reason, too. The Global Peace Index (GPI) ranks Canada as one of the safest places to live in the entire world. It has become a place synonymous with peaceful living due to its low crime rates (particularly violent crime) and low rates of gun ownership, especially when compared to the U.S. Along with political stability, these reasons make the country a natural place to seek permanent residency.

#2. Education

Another reason why it’s good to invest in Canada is their educational system.

Well-educated people mean a more skilled workforce with better wages, a higher standard of living and a generally well-informed society. When it comes to higher education, consider the 95+ universities across the country, each offering a high standard of education with unique curricula, campus life and opportunities.  

In addition, the government spends more per capita on education than any other country in the world. And as a Canadian resident, your children will have access to a public education system that’s free for students between the age of five and nineteen. 

#3. A Diverse Supportive Society

The organization economic cooperation and Development (OECD) ranks the country as the best in the world for tolerance and acceptance of minorities. And the country has long understood the importance of bringing skilled labour into Canada, which means it welcomes investors from around the world. 

Those looking to invest in Canada will find a country that provides a platform designed to help investors succeed. And with one of the strongest economies in the world, it possesses a wide variety of career options for those who want to make Canada their new home, with the second highest standard of living of all the G20 nations.

#4. Access to Healthcare Services

Residing and investing in Canada is really amazing. The healthcare system is rightly lauded around the world due to its fairness and accessibility when treating patients.

Treatment is almost always free, funded through government taxes, with each province allocated a healthy budget to use locally. Permanent residents of Canada have access to free basic healthcare, ensuring the health and well-being of you and your family.

#5. Wide Open Spaces

Those keen to invest in Canada will most certainly have plenty of opportunities to enjoy the great outdoors. Canada is the second largest country in the world with close to ten million square kilometres of beautiful countryside.

It is undoubtedly one of the most beautiful countries in the world, and those that love filling their spare time with outdoor activities will find all sort of possibilities, including skiing, kayaking, and hiking. 

What are the things to Consider before Investing?

Due to economic breakdown, political instability and tumbling currency value etc most investors extract their funds from home country to invest in Canada.

Following the economic stability, the strong rule of law, ethical business practices etc.

The World Bank Group currently ranks Canada 16th in its annual ease-of-doing-business index. Part of the credit for that high placement goes to a workforce that is highly educated and entrepreneurial, as well as federal and provincial governments that maintain a steady hand on the economic tiller to help foster growth and ease market shocks in times of uncertainty.

Indeed, while Canada maintains a welcoming approach to foreign investment, our economy is more regulated than other countries’ – particularly in specific industries such as media, banking and energy. 

With that in mind, let’s look at some key points that every foreign investor should take into account before investing in Canada:

#1. Incorporation

The rules that govern corporations vary by province. Most of Canada’s ten provinces require corporations to appoint a Canadian tax resident as a local director. But when incorporating in Ontario, for example, the law requires that at least 25 per cent of the directors of a corporation (with the exception of a non-resident corporation) be resident Canadians. Where a corporation has less than four directors, however, at least one director must be a resident Canadian.

Foreign businesses unable or unwilling to appoint a local director might consider incorporating in British Columbia instead. That’s because B.C. doesn’t have the same residency requirement for directorship.

Remember that once incorporated – even in a jurisdiction with local resident directorship requirements – your company may apply for extra-provincial registration to continue operations in another province with more attractive operating rules.

Of course, there are other options for foreign investors looking to establish businesses in Canada, such as a branch operation, partnership or joint venture. Each has its own rules for compliance.

#2. Structure of funds

In many countries, individuals are required to make significant capital investments before they can form a company. Not so in Canada, where even a meagre $1 investment is enough to incorporate a business. After incorporation, companies can seek investment loans immediately. Many of these come in the form of intercompany loans from a foreign parent company.

These loans can be interest bearing, meaning that a foreign parent company can charge a reasonable rate of interest on any loan made to a Canadian subsidiary. However, for the purpose of tax deductibility, you’ll need to be aware of the Thin Capitalization Rule – specifically, when the level of debt is greater than its equity capital.

In that case, certain interest expenses could be denied or deferred by the Canada Revenue Agency (CRA) if the debt-to-equity ratio is below a particular threshold, and certain other conditions.

#3. Taxation rate

If a foreign-owned company based in Canada is set up as a non-Canadian Controlled Private Corporation (CCPC), the corporate income tax rate is 26.5 per cent regardless of the source of income, which for certain forms of investments can be more advantageous than a CCPC.

The tax rate on passive income earned by a non-CCPC is 26.5 percent, compared to the 53 per cent tax rate that a CCPC pays before dividends are distributed.

#4. Stability of law and regulations

Again, the overall investment environment is stable in Canada, particularly when compared to some other countries where taxation and business law systems are still in a state of development or subject to rapid and unexpected change, leaving many investors at a financial disadvantage.

Take China for example, where a new inheritance tax will soon come into effect, prompting many investors to consider repositioning their wealth outside of the country. Currency depreciation is another challenge for high net-worth Chinese, prompting many to convert liquid assets to U.S. dollars or other, more predictable currencies. At the same time, uncertainty over shifting regulations remains a concern in China and other non-Western markets.

While stability reigns supreme in Canada, so do the (often steep) penalties for disobeying provincial and federal laws – think costly fines or even imprisonment. That’s why it pays to invest in the right legal, accounting, immigration and strategic business assistance to ensure that you remain on the right side of the law when doing business in the Great White North. Why not invest in Canada.

How much do you need to start?

One thing you should be able to understand is that savings is different from investing.

Saving won’t give you any returns but with investing, you get returns on your money.

If you are thinking about starting to invest and want to get a better return on your money there is no need to wait. Improvements in technology and increased competition have made the process of investing quicker, easier and cheaper than ever before.

Investing is different from saving in as much as you are prepared to take additional risk in order to improve the returns on your cash.

You mustn’t have large sums of money before Investing as you can actually start investing either with small regular amounts or a small lump sum.

When planning to invest you should be looking to invest for a minimum period of 5 years to make sure investments have time to recover from the inevitable setbacks involved with investing in stock markets.

When Should you Invest in Canada?

Before investing in Canada, you should first of all try to get acquainted with the type of investment you want, educate yourself or get involved with a financial advisor to know the basics of what you want and where you want to be.

Now is the best time to begin investing. The most valuable advice is to not panic, practice discipline, and keep a diversified portfolio. You’ll beat inflation and maximize your profit. If you’re ready to begin investing, there are a few options available to you: 

Robo-advisors 

Robo-advisors are great if you want to invest but don’t have the confidence to start. Robo’s charge a small annual fee, usually between 0.3-0.5%, which is added to the cost of underlying exchange traded funds (ETFs) in which they invest your money. The fee scales with the amount you invest with them, but at least your money is put to work for you.

you can also read: Why Do I Need an Estate Planning Attorney| Things to Lookout For

Discount Brokers 

Discount brokers are a good option if you are fee conscious and want to manage your investments. You have to know the ETFs in which you want to invest and place the trades yourself. If you are considering this option, I recommend Questrade.

Questrade lets you buy ETFs for free and they give you access to a rebalancing tool to help you manage your investments. I consider them to be the best brokerage in Canada for passive investors. 

In closing, whatever option you chose please keep the following in mind:

Don’t invest if you have high interest debt.

Build an emergency fund before you start investing

Never have all your eggs in one basket (i.e. stocks) remember to diversify

Stick to your plan and don’t panic when markets are down

Have a long-term outlook when building wealth

Be mindful of fees, they can eat a huge chunk of your nest egg.

BEGINNER INVESTING TIPS

The world of investment can seem new and confusing to a beginner who doesn’t know his left or right. But here are few tips that could be of help,

1. Set investment goals

Now it is time to decide what you want to get out of investing. Obviously, your ultimate goal is to make money, but everyone’s needs are different. Things to consider include income, capital appreciation, and safety of capital. Also, consider your age, your personal circumstances, and your financial position.

2. Start investing early

It doesn’t matter if you are a student or not. The earlier you start investing, the better. For one thing, the sooner you start, the less money you will need every year to achieve your investing goals.

Your earnings will compound over time, so don’t be afraid to start investing, even if you are a college student- or better yet, in your last year of high school.

3. Learn about investing

Read book that has to do with investments and finances.

Once you have your finances in order, it is time to start learning about investing. Study basic terminology, so you know how to make coherent decisions.

Learn about stocks, bonds, mutual funds and certificates of deposits (CD’s). Don’t forget about other details that include diversification, portfolio optimization and market efficiency.

4. Look at your finances

Before you can begin investing, you need to look at how much money you have to invest. Be realistic about it. Make sure that you leave yourself with enough money to pay for your regular monthly bills, loan payments, etc.

You don’t need a lot of money to get started with investing- but there are risks. You don’t want to leave yourself short of paying other important bills.

5. Be wary of commissions

Professionals will try to talk you into buying investments that give them high commissions. Don’t do this without some serious research. Some so-called professionals are well known for selling products that pay them big commissions, but don’t pay much to their buyers.

6. Stay informed

It is a good idea to always study the markets. Read up on the things you have invested in, and look for resources that keep up with market trends, as well as the global economy.

SHORT TERM VS LONG TERM INVESTING

A short term investment is an asset you hold for one year or less while a long term investment is an asset you hold for more than a year.

Though most investors hold long term investment for several years as part of a strategy for their portfolio.

Short term investments are financial instruments that you hold for less than a year. Most traders will hold a short term investment for several months at the most, looking to profit off volatility and near-term gains.

While any asset can technically be a short term investment, most will share a few common features. They will typically be volatile assets, letting the price move quickly enough for investors to profit off the asset within a brief period.

They will generally have relatively small price movements. Finally, a short term investment will also generally be highly liquid, allowing investors to sell the asset fairly quickly.

Common short term investments include products such as stocks, options and ETFs, all volatile assets with existing markets that allow rapid sale.

While long term investments are financial instruments that you hold for more than a year. Most traders hold these investments for several years at a time, building them into portfolios with a specific strategy, such as 401(k)s, college funds and long term savings accounts.

However common long term investments gain value slowly but predictably, making them better assets to hold over several years. Investors will also usually hold illiquid assets as long term investments.

The most common long term investment is real estate. 

One thing you need to note is:

•Both carry different investment time horizons

•They carry different investment risk profiles

•They meet different investment goals

RISK TOLERANCE FOR BEGINNERS WHO WANT TO INVEST IN CANADA

As a beginner, It’s easy to feel confident in your investment strategy when the market is performing well, but the reality is that the market moves up and down in cycles over time. That’s why it’s important to understand your risk tolerance – because it helps you decide how much risk you take.

Two factors work together to determine your risk tolerance – your willingness and ability to take risk. 

• Willingness

Your willingness to take risk is tied to your personality and how much you’ll worry about your investments. If you’re the type of person who may worry when the market changes, you probably have a lower risk tolerance. This means you’d prefer investments that are less likely to lose money but offer lower return.

If you’re willing to leave your money alone and stick to your long-term investment plan through ups and downs in the market, you probably have a higher risk tolerance. 

• Ability

Your timeline also plays a big role in your investment strategy. The younger you are, the more time you have to recover from market downturns – particularly when it comes to your retirement goals. If you’re in your 20s and are saving for retirement, you should be able to handle short-term changes in your investment.

Before deciding where to invest in Canada, you’ll need to first assess your personal risk tolerance. This is a fancy way of saying how much of your investment you can really afford to lose. If you need money for next month’s rent, you have a very low-risk tolerance.

If your life wouldn’t be materially affected in any way, if rather than investing money, you set fire to it, your risk tolerance is through the roof. Risk tolerance is often dictated by your so-called “time horizon”. It’s just a term that means the length of time you’ll hold a particular investment.

Related: What Is Hybrid Investing? Pros & Cons

HOW CAN ONE START INVESTING IN CANADA?

Money is one of the most valuable assets you can have. If you don’t use it well or just keep it stashed under the mattress, it loses value over time due to inflation.

But if you put your money to good use by investing it patiently, your net worth rises slowly but surely.

Before you start investing in Canada, you need to check out the various investment providers as there are online platforms whereby one can invest their money.

You can invest in stock, using the discount brokerages like Questrade or Wealthsimple trade

If you need guidance on which investment platform to go for you can try Robo advisors like Wealthsimple.

The robo advisor platform will give advice that’s specific to your financial goals, whether you’re looking to build wealth, buy property, or save up for retirement.

Ultimately, choosing between a financial advisor, an online brokerage like Wealthsimple Trade or Questrade, or a reputable robo-advisor like Wealthsimple comes down to your individual needs and preference.

While that might seem overwhelming at first, this comparison of a few options can help get you started down the right path.

CONCLUSION

Investing in Canada is actually one great move anyone can make and achieve a lot. Canada is growing and advancing day by day, however making it a great place for investors to build.

Investing in Canada’s stock market is an excellent opportunity for people looking to build wealth over time and save their money from moderate inflation.

The sooner you start, the better it is, as you can accumulate more wealth.

Learning how to invest in Canada doesn’t occur overnight. It’s a long process that often includes failing quite a bit. Regardless of what you choose, know that investing is critical, and you’re losing money by not putting your money to work for you. 

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