No matter where you live, it is always a good idea to invest your extra money. It can help in case of an unexpected loss of job or illness. It can help you retire in style, or pay for your kids to go to university.
The thing is, investing is different depending on where you happen to live. Investing will take on different forms according to the finance laws of your country.
The US and Canada may seem similar on a lot of levels but their laws are much different so your strategy should be different. For instance, Robinhood Canada doesn’t exist as an investing app since the regulations in Canada are different.
To help you navigate things, we came up with this article about your investment strategy in Canada.
Pick The Right Account
There are a lot of accounts to choose from and they all have their pros and cons. But you have to make a couple of decisions ahead of time before you pick the type of account. Which one is best will be determined by your needs and what you hope to accomplish.
The first thing to figure out is what type of investment you want to be making.
For instance, do you want to hold onto your stocks or fund for a while and not worry too much about it? For those that like a hands-off, low-risk approach you’ll need to have a certain type of account for that. Likewise a high risk, high reward type of investment.
Now, that part is going to the same no matter where you are in the world. It’s no different in Canada as it is in the US or EU. This leads to the second thing you need to have worked out. Which type of account is going to charge the least amount of taxes. This is very relevant to where you are as tax laws change considerably according to country.
Retirement and pension type of accounts through your employer are usually the best in terms of tax advantages in Canada. Many other investment accounts or funds accounts will be tax-free until you decide to withdraw from them either at retirement in the case of a pension plan or in terms of dividends from a fund.
Should You Go With An Advisor?
Many new investors go the route of starting out with an advisor. A financial advisor is able to give you a good overview of your options and craft a strategy based on your needs and even your personality type. They can be essential in giving you your best plan that is tailor-made just for you.
The thing to remember is that there are a lot of fees. And the fees for an advisor are among the highest in the world. Over 2.4% of your assets under management, in fact. That is a pretty big cut from your profits over time.
The alternative is to use an investment app or robo advisor. Make sure to research for Canada specifically as the regulations are going to be different there and not all apps are going to be available for Canadians that may be popular in other countries.
These types of investing programs are great as the fees are very low. They use AI and machine learning to come up with a strategy just for you as a human advisor would. Based on your answers to a lot of questions and by tracking your investing behavior, they can determine the best types of stocks and funds that are a good fit for your needs.
The lower fees are the biggest advantage though. If you let the savings ride from your savings then this could add up to a massive difference over the course of 25 years or so. In some cases, you could see your investment actually double.
You don’t necessarily have to be tech-savvy to use an investment app. In fact, they are great for people who aren’t as they take a lot of the thinking out of the equation with the AI program.
Stocks vs funds
Called Exchange Traded Funds or ETFs, there are funds that don’t require any type of management. They can be considered a set it and forget it type of investment that are great for those that don’t want to pay high fees. There is not usually a big payout with these types of funds which is good for those that also want low risk.
If you like the idea of being more in control of your investment then buying stocks is probably going to be your best investment strategy. You can also have that be hands-off by using an advisor as we talked about in a previous section. But, there is no reason that you can’t buy and trade these stocks yourself and save on fees.
Doing online trading can be done with much lower fees than using an advisor, but you are required to really understand what you are doing if you want to make sure that you don’t lose your initial investment.
The biggest difference between the two options is how much you need to get started. With stocks the minimum isn’t a set dollar amount, but that you have to buy at least one stock. Of course, this depends on how you are buying the stock as no human broker would take such an order.
How much it will cost to buy to get started depends on the price of the stock when you buy. Since a fund is not one particular stock, there is no minimum amount of money or even stocks that you have to buy to get started.
For those Canadians looking to make a lot of money investing, we hope that this article has helped. Investing is a great way to make your money work for you instead of you working for your money. This is as true in Canada as it is anywhere else.