Best Way to Invest Money in Canada (How to Get Started)

What’s the best way to invest money in Canada?  Dreaming of hitting it big and getting rich in Canada?  Wanting to reach financial independence to be able to shovel snow during a weekday before the 10:00am deadline where the municipality will fine you for not shovelling snow off your sidewalk? Here’s the best places to put your hard earned dollars so you can get your money working for you instead of you working for your money. You will learn how to invest money in Canada.

Best Way to Invest Money Canada

Best Way to Invest Money in Canada

Whatever your reason for getting involved with Canadian investing, hopefully this blog post will help you out so you can get started investing in Canada. 

This post will cover how to figure out your investing time line, the best way to invest your money in Canada, how to understand the tax implications of investing, and which DIY investment brokerage to use.

Understand Your RISK TOLERANCE AND TIMELINE

To figure out the best way to invest your money in Canada, you’ll have to figure out your risk tolerance and timeline.

Are you investing for retirement?  Will you need the money in a short period of time for a downpayment?

The timeline is very important and is closely linked to your risk tolerance. You don’t want to be invested in bitcoin or weed stocks with the money you have saved up for your home down payment.  The last thing you want is to have your life savings be down 90% when you need that for a down payment in two years.

Here is a risk tolerance calculator from CalcXML to see what your risk level is.

If you are young (for example in your 20s or are investing as a student in Canada) and you are saving for retirement you can have more appetite for risk (as long as you don’t plan to retire at 28, haha).

They are pretty standard questions, and even if you were to go to a bank and speak to an ‘advisor’ about investing your money, they will also point you to a risk tolerance calculator that has similar questions.  It’s pretty standard.

Understand Your Time Commitment

Not in terms of timeline, but in terms of how much time you want to invest into investing.

If you are interested in learning about how to invest in dividend stocks etc. then this requires a much higher time commitment than most people think.

For people that are not interested in investing (which is probably the majority of people outside of the personal finance blogosphere), then plunking your money regularly in an investment account with a robo advisor probably makes most sense.

You can set it and forget it.

People who are not interested in investing do not want to be looking at their portfolio every week (I personally don’t understand this because I love looking at my portfolio, but I have friends who tell me they could care less and would rather have a ‘money guy or girl’ to manage their money.

Safe Investments With High Returns in Canada

What are safe investments with high returns in Canada? Well, right now with the high interest rate environment, there are Guaranteed Income Certificates yielding up to 5%.

If you did the above risk tolerance assessment, and your risk tolerance is very low and you want to protect your capital the only way to go about that is through investment vehicles like GICs and high interest savings accounts. Here’s a comparison of some high interest savings accounts in Canada.

If these are held outside of a registered account then the interest income is considered taxable at your marginal rate (meaning taxed at the rate your income is taxed at),

GIC’s are called guaranteed income certificates- they are less fluid than high interest savings accounts and usually offer higher rates compared to high interest savings accounts, though this is not alway the case. Here’s whether you should pick a high interest savings account or GIC.

How to Invest Your Money in Canada (In Registered Accounts)

In terms of investment vehicles (I like that term) that have more risk compared to a HISA or a GIC you would need to figure out if you want to put your money in a TFSA, an RRSP, or non registered accounts.

In a nutshell, here’s what a TFSA and RRSP is.

When you take out money from your TFSA it is not taxed. The money you put into your TFSA is from after tax dollars.

The money you put into an RRSP is with before tax dollars (you get a tax deduction) but the money you withdraw from the RRSP is taxed.

The TFSA and RRSP both allow you to grow your money within a tax shelter. For non-registered accounts you will need to keep track of your adjusted cost base and report capital gains if you sell.  If you are unable to max out your TFSA and RRSP, depending on your income and current situation, the answer of which one to invest in first differs.

TFSA or RRSP: Which One to Invest in First

Also you have to think about investing in an RESP when you have children.

UNDERSTAND CANADIAN TAX IMPLICATIONS

There are a number of Canadian tax implications to be aware of.

If you invest in a TFSA, you are using after tax money and the gains you receive from your investments within the TFSA are yours to keep.  If you invest in an RRSP, you are using pre-tax money but it is more of a tax shelter because you are meant to pay taxes on your RRSP withdrawal when your taxes are low.

For example, capital gains tax rate in Canada in your non-registered account can be annoying to keep track of, but very important when tax time rolls around.

Here are some tips on how to incorporate tax efficient investing in Canada.

Even with robo advisors, you have to think about the tax implications.  Robo advisors rebalance automatically and this can trigger some taxable consequences, whereas if you were a DIY investor with your own portfolio, you could opt for a rebalancing method that doesn’t requiring selling (like buying more ETFs instead to asset allocate).

Questrade Fees: A Breakdown for Questrade Discount Brokerage

When you get closer to retirement (e.g. within 10 years out) there are other things to consider like OAS clawbacks, or how to best withdraw your RRSP to avoid taxes and mandatory RRIF conversions at age 71.

Something like Cashflow and Portfolios Retirement Projections would be helpful in this case if you are a DIY investor in Canada.

How to Invest Money in Canada

Okay, now to the meat and potatoes of this post.

The easiest way to invest your money in Canada is to get an all in one ETF (meaning a basket of stocks that trades publicly on the market and rebalances by itself) or to go the robo advisor route (meaning higher commissions and fees but even more hands off).

Ironically, the best way to invest in Canada is to invest.. outside of Canada?

Here are some of the robo advisors available in Canada.

These investments aim to TRACK the index. They don’t try to beat the index (because most financial gurus don’t beat the index anyway).

The TSX (Canadian stock exchange) has an annual return of 9.62% for the past 15 years.

The S&P500 index has returned a historic annualized average return of around 10.26% since its 1957 inception through the end of 2023.

The charts above illustrate that you shouldn’t just invest in Canadian financials (which is what the TSX mainly is) but you should also invest outside of Canada.

In fact, my own portfolio is admittedly Canadian-heavy (the preferential tax treatment of Canadian dividends combined with high dividend payout is just too alluring), about 35%…but the GDP of Canada just represents under 2% (1.39% in 2022) of the world’s GDP.

If you want to go the all in one ETF route, you will need to open up your own brokerage account.

If you go the robo advisor route, you will need to contact a robo advisor and open up an account that way (usually money is just withdrawn from your bank account and automatically invested for you).

PICK A DIY INVESTING ONLINE BROKERAGE

If you’re not going the robo advisor route and are picking an online brokerage instead to buy and sell your own ETFs, choose an online brokerage.

There are many online brokerages available and some have no fee commissions on ETF purchases, and some have discount trading commissions if you’re a student, or they have lower trading commissions in general.

Here are some online brokerage new account promotions in Canada– some of them even offer up to $2000 cash back on a new online brokerage account in Canada.

I personally use Questrade because I like the no fee ETF purchases and I like the low commissions but there are other options out there, I’ve been with them since 2009.  It is a no frills brokerage and ‘you get what you pay for’, some people are dissatisfied with the customer service but I have personally been quite happy with them.

In regards to other brokerages in Canada, for example, Million Dollar Journey has a Questrade vs Qtrade comparison.

Qtrade is another popular discount brokerage in Canada and has been ranked the best brokerage in terms of customer service multiple years in a row.

Another alternative is something like an all-in-one ETF, like VGRO, a Vanguard Canada offering.  This ETF rebalances automatically so you won’t have to do it yourself.

See: Step-By-Step Guide on How to Invest your TFSA with Questrade

You can rebalance automatically or use something like Passiv to help guide you on what to purchase to rebalance.  It’s free for the first year for Questrade users.

On individual stocks, you can save on fees by setting up a Questrade drip, or reinvesting your dividends received.

WATCH FOR FEES

There are fees associated with investing, and the fees can totally vary.  They can be anywhere from under 0.5% annually to over 3% annually (if you are investing in a typical mutual fund, for example).

With my discount brokerage, I am cognizant of the Questrade fees that I pay.  I don’t have to pay any fees (except for ECN fees) when buying ETFs, however, I do have to pay when I sell ETFs.

These fees will eat away at your return.  If you earn a 5% annual return, and your fees are 2.5%, you’re left with 2.5% (and that’s before inflation kicks in!). 

The moral of the story is, keep your fees as low as you can if you are able to.  The lower your fees, the more money is kept to yourself, the bigger your ‘moat’ is to keep your money safe.

For example, in the past 12 months, I paid $60 in fees for a $800,000+ portfolio with Questrade.  This represents 0.008% in fees (I’m not including the 0.25% MER on my largest holding VXC though and other ETF MERs).

Had I have paid a 2.5% MER, it would be $20,000 in fees PER YEAR. 

This is absolutely insane.  INSANE.

Can you think of what you could be doing for $20,000 a year?

The bank commissioned ‘financial advisors’ that you are entrusting your hard earned money to are enjoying a latte a day on your behalf (and more, ha).

My Wealthica account (it’s free to sign up for) tells me how much in fees I paid in the past year.

BE Discliplined and CONSISTENT

The key to investing and growing your wealth in Canada is to be consistent.

Invest a regular amount every month and dollar cost average (as long as you won’t pay an exorbitant amount of fees with this approach).

Don’t try to time the market or beat the market.  Just pick a day or a date to contribute your savings and turn them into investments, and then watch the money roll in (over time, remember, investing in the stock market is not usually a get rich quick type of thing).

Consistency is key if you want to be financially independent in your 40’s.

Also, if you do not have an All in One ETF, be consistent in terms of reviewing your asset allocation, pick a day or date quarterly or annually to review your asset allocation, that sounds like a lot of fun, doesn’t it?  The last thing you want is to have Canadian home bias.

You could even allocate your investments towards real estate crowdfunding, or investing in commercial real estate in Canada.

GET INSPIRATION FROM CANADIAN INVESTING SOURCES

There are lots of websites that have a plethora of information on how to get started with Canadian investing so you know where to invest money in Canada.

Invest in income generating assets and you’ll reach a tipping point where your money is working harder for more money than YOU are.

  • You can get some inspiration with Canadian dividend investing from these great Canadian dividend blogs
  • A few Canadian personal finance blogs also track their net worth and share their investing strategies.
  • Here are the best dividend investing books available in Canada.
  • Canadian Couch Potato is a blog by Dan Bortolotti and has some great index/ ETF recommendations or “couch potato recipes” for your DIY indexing portfolio.
  • Get Smarter about Money is a website produced by the Ontario Securities Commissions and has a ton of great information on Canadian investing including retirement calculators and other types of investing calculators
  • The Motley Fool Canada is also very useful source of Canadian investing information.  It is a multimedia financial-services company that is originally from the US and has websites for certain countries (like Australia, the US) dedicated to investing around the world.

You may also be interested in:

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2 thoughts on “Best Way to Invest Money in Canada (How to Get Started)”

  1. Nice post GenY. What holds me back from diy is the threat of the brokerages going belly up. I know RBC won’t go bankrupt but it’s definitely in the realm of possibility questrade goes bankrupt. If that happens would you be out $700k plus? If the fdic only insures $100k. I might be mistaken of course. Maybe they can insure multiple accounts? Have you ever blogged about this?

    Reply
    • @GB- Valid concerns! You can still DIY in the big bank brokerages too, like TD Waterhouse, or RBC Direct Invest, or BMO Investorline, or Scotia iTrade (and Scotia gives you a few free trades per year if you are an Ultimate account holder). The main thing is to get out of mutual funds/ ‘financial advisor’ type of investments.
      I have been meaning to do a “questrade review” post but I have been saying that for 5 years, ha… I’ll get to it one of these days. But to answer your question, Questrade has investor protection up to $10 million from CIPF in case they go belly up. https://www.questrade.com/about-us/who-we-are/investor-protection

      Reply

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