Opening Your Investment Accounts
Now that you’ve opened up your account with Qtrade or any other Canadian brokerage, you have to decide what type of investment account you want to open to start investing in stocks.
If you’re brand new to investing and have never contributed any money, or haven’t had your money managed by an advisor, you very likely have contribution room in your Tax Free Savings Account or Registered Retirement Savings Plan .
These accounts, available at practically any brokerage, are what we like to call tax sheltered.
This means that when you buy stocks, exchanged traded funds, mutual funds or any other type of investment, they won’t be subject to capital gains, which is a particular type of tax you have to pay on gains made from investing in the stock market.
These tax sheltered accounts will prove to be critical in your self directed investing career, as tax free investment gains can compound and create a “snowball down a hill” like effect on your money. Just have a look at the TFSA example below.
Keep in mind, not only are the gains from investing in stocks or other investments tax free in these accounts, but also the dividends paid by the stocks you buy.
Investing In Real Estate Vs Stocks: Liquidity
When it comes to investing, liquidity is the ability to get cash out of your investment easily. Stocks are far more liquid than real estate investments. During regular market hours, you can sell your entire position, many times, in a matter of seconds. It may take a few days to see the proceeds, but you can get out of your investment pretty much whenever you want.
When you own a piece of real estate and need to sell it for cash, it can take at least a month. You may have to list real estate for days, weeks, months, or in extreme cases, years before finding a buyer. Once you find a buyer, your property goes into at least a 30-day escrow, during which time there are inspections, title searches, signing of documents, and bank fund transfers that must take place before the property changes hands, and you get your money.
You Can Lose Your Entire Investment
See Enron. Okay, maybe thats not a fair comparison, but the truth is when you invest in stocks you can lose it all.
Youre investing in the company, and if that company goes under, so does your investment. In some cases, youll get something back after the company goes down, but most times you wont.
Since the Enron incident, investors are a lot more cautious in how they evaluate companies, and there are new rules and regulations on how companies report their earnings.
So you have tools and resources available to you, but if you have no idea what youre doing it wont help. Make sure youre comfortable with how stocks work and do a lot of financial research on the companies you choose to invest in before making any decisions.
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Investing In Real Estate Vs Stocks: Diversification
Both real estate and stocks can provide long-term financial gain, and both come with risks. When choosing the right investment strategy for you, the best way to hedge against that risk while taking advantage of the potential gains is to diversify as much as you can.
You can diversify much more easily with stocks than with real estate, especially with mutual funds. You can buy stocks in several companies so that if one takes a hit, you could still make money on another. Mutual funds carefully choose stocks to ensure that the funds are properly diversified.
Unless you’ve got unlimited funds, when you invest in real estate, you will probably only have a few properties at most. That makes it harder to diversify, but even within real estate, you can diversify by carefully choosing the locations and types of properties you buy.
How Do I Determine The Potential Roi For My Rental Property
When looking for a great investment property, the first question you need to ask is Can I actually make money? If the answer is no, its obviously not a great investment. To see how much money your property could potentially make, youll need to consider the return on investment .
The ROI can be calculated by first finding the propertys net annual income. This is the rent money thats left over after youve paid the taxes, insurance, property management fees, expected repairs , potential vacancy periods, HOA fees and any utilities that arent going to be covered by the tenant.
To find the ROI, take the annual income and divide it by the amount you spent on the property. For example, if the net annual income is $7,500 and you spent $100,000 for the property, your ROI is 7.5%.
Use this calculation to see if each rental property is a good potential investment.
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Should I Buy A House Or Invest In Stocks
Its ultimately up to you to decide. But here is the bottom line:
- Buying a house requires work and upfront costs when it comes to house hunting, screening tenants, and hiring property managers. Being a property owner is also work in and of itself, as you must take care of repairs and renovations and handle tenant questions and concerns.
- Buying stocks and other assetsintangible assets, unlike real estate propertyrequire far less work when you leverage the power of AI through technology like Q.ai. Its one-click investing, and you can even consider real estate-focused securities.
- Its a lot more difficult to diversify with physical real estate properties than it is to diversify in the stock market, in general. And a well-diversified portfolio tends to perform a lot better over time than one thats pigeon-holed in one sector or type of asset.
Worried about buying and selling your stocks at the right times? Q.ai uses AI to automatically adjust your portfolio when the market moves up or down, so you dont have to actively manage your investments.
Plus, Q.ai offers a Downside Protection feature on some investment strategies called Signature Kits. This feature works to identify risks like market volatility, recession, inflation, and changes in interest rates. And, as it does, it moves your money around to protect it. So you dont have to spend your time thinking about those things while you should be thinking about your personal investment goals.
Where To Start Investing In Stocks
Thrifty, self-motivated investors who know exactly what they want might be best served by online brokerages, especially ones providing commission-free trading. For those that don’t want to pick their own stocks automated investing services are a reasonably priced, user-friendly way to invest. Financial advisors and human brokers offer the highest level of service and can also include investment advice, but are also the most expensive option.
Stock picking is extraordinarily hard. There is no way of knowing the future price of a stock. Famously rich stock picker Warren Buffett has spent the last decades discouraging pretty much everyone not named Warren Buffet from trying to make money picking individual stocks, he proclaimed:
The goal of the non-professional should not be to pick winners neither he nor his ‘helpers’ can do that but should rather be to own a cross-section of businesses that in aggregate are bound to do well.
So, it’s your job to decide if the folksy Yoda with the $81 billion net worth provides better stock tips than the mob of Redditors who proclaimed some stock or another a can’t lose/must buy. We side with the rich old man: smart stock investors are diversified stock investors. More to come on this.
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Invest In Real Estate
If youre looking to invest in another property that wont be your primary home, purchasing a house as a rental property is another way to generate income. The benefits of this are twofold: You can make a monthly income from renters, and sell it in a few years for a profit, as long as the housing trend continues. The drawbacks are if the housing market shifts, the amount you earn from both could dip below what you spent for the house and spend on the cost of maintenance.
Buying A Rental Property Vs Stocks Risks
In general, buying a rental property has fewer risks than stocks, especially when investing in real estate for the long term â the longer you hold investment properties, the fewer risks of loss you have as equity and home prices build and rise over time. In addition, the more rental properties a real estate investor buys, the fewer associated risks he/she faces, unlike the stock market where risks typically stay the same.
While stocks have the advantage of being way more liquid, they are also very unstable. As a result, average stock investors not only canât predict their returns, but they also tend to buy and sell at the wrong times. While the economy affects the real estate market, itâs to a much lesser extent than it affects the stocks market.
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Decide On Your Strategy For Investing In Stocks
I know we’re on step 5 and we haven’t even begun to buy and sell stocks yet, but it’s very important you get all your ducks in a row before you buy your first stocks online.
Much like a chess player goes into a match with a specific strategy, you must do so with your investments.
Fortunes have been lost by ill-informed investors, and this is your retirement and financial future at stake here. So, taking the time to learn how to properly buy stocks online in Canada is key.
Before we start to buy and sell stocks, we need to decide what type we’re going to buy.
A solid investment strategy will allow us to do this.
When it comes to stock trading, there are 4 key long term strategies we’re going to go over.
Lock In Massive Outperformance
Lets say the S& P 500 is down 10% for the year and you were to purchase stocks. You would instantly lock in 10% outperformance on your cash-out capital. No matter whether the S& P 500 continues to go down or up, you will always be outperforming.
Although its better to always make money when it comes to investing, the next best thing is outperforming the index or your peers. If an active fund manager outperforms his benchmark by 10%, he will be in the top 1% of active fund managers. Given his performance, hed probably get a record bonus, attract a massive amount of assets, and be given many awards for the year.
To gain true wealth, you must outperform the average, otherwise, youll always be just average.
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Why Stocks Are A Better Investment Than Real Estate
In general, stocks have produced far superior average annual returns than real estate. Using the same 1982 starting point, U.S. stocks have returned an average annual growth rate of 12.11%. Even a balanced portfolio consisting of 50% bonds and 50% stocks returned an average annual growth rate of 10.12% over those 37 years.
Stocks have been the best performing asset class by far over the long term, and despite recent turbulence, theres no reason for investors to think that outperformance wont continue into the future.
The biggest advantage of investing in stocks vs real estate is diversification. With real estate investing, youre picking one house, on one street, in one city, in one country. That house may or may not be representative of the national average or even the citys own housing market average.
With stock investing, you can invest in a diversified portfolio of companies from Canada, U.S., and abroad using index funds or ETFs. Doing so spreads the risk of any one company, industry, country, or region going through a downturn and instead aims to capture all of the returns from global stock and bond markets.
And, for those who prefer to take the wheel themselves, there are discount brokers available where you can build your own portfolio of stocks or ETFs. The best choice for ETFs these days is an asset allocation ETF a single ETF that invests broadly in stocks and bonds from around the world and automatically rebalances daily for the extremely low cost of 0.25%.
How To Reduce Risk
The most effective way to reduce risk is through diversificationowning a large array of stocks in many different economic sectors so that if one stock or even one sector suffers a major setback, it will represent only a very small percentage of a portfolio.
If one day Amazon delivery drones start attacking pedestrians and the stock craters, wont you be better off if Amazon represents just 1/100th of your portfolio versus ½?
One simple way of receiving broad exposure to markets is by purchasing a mix of domestic and international low-cost ETFs . Though ETFs trade on exchanges just like individual stocks, many contain dozens or even hundreds of stocks. Or have an automated investing service do this for you. With one single purchase, youre able to track some or all of a countrys entire economy rather than putting all your eggs in one stock basket and zeroing in on a handful of stocks.
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When Should I Invest In The Stock Market
Today is the absolute best day to invest in stocks. Without a time machine, its the soonest day possible. There is no perfect time to enter the stock market, but as you’ll see, the longer youre invested, the likelier it will be that stocks will provide higher returns.
If you already know what stocks you want to buy, the absolute easiest, cheapest way to buy them is through an online discount brokerage. Accounts can be opened in ten minutes if you have a social security or social insurance number, a home address, and an employers address even if, in the case of the self employed, your bedroom is your office and casual Friday means pants discouraged.
Account minimums vary considerably in the minimum investment they require to open an account. They also normally charge a fee for each stock you trade. Most will assess a flat per-trade commission fee for any stock purchase, big or small, that generally range from $5-$10 per online trade. If you have a small amount of money to invest, look out for a provider that offers a low minimum investments to open an account. Some, even offer no minimum investment to open an account.
Most brokerages do employ humans to execute trades, but theyll charge a lot more if you need to use one. In the last decade, a few investment providers have started offering commission free trading, so every cent you pay goes directly into your stock investment, not into the brokerages coffers.
How To Invest In Share Market
- 17 Nov 2021
- 3 min read
Investing in the stock market can be tricky, especially for individuals who are new to this world. That said, the investment process has become hassle-free nowadays as individuals can allocate their funds to shares through various digital platforms. In case you are not up-to-date with the process, heres a complete guide on how to invest in the share market online.
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Technically You Own Part Of The Company
Buying shares of stock is buying part ownership of a company. Now, a single share of stock in a large company like Google means almost nothing. Most major institutional investors only own a fraction of a percent of the company.
Still, though, knowing that you own part of the company is kind of cool. And if you own enough, or if you own specific types of shares, you may be entitled to voting rights when the company votes on changes.
Value Up Loan Balance Down
Over time, youll pay your loan balance down. If you chose a 15-year mortgage on a residential property, for example, youll owe nothing after 15 years, and youll have an incredibly valuable asset on your hands. A
t that point, all youll owe is property taxes and your profit margins when renting will be much higher. At the same point time, historical data shows us that home values will tend to increase over time. So over these same 15 years of paying your balance down, the value of the property itself will have hopefully gone up so you can sell it at an even more substantial gain if youd like.
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Buying A House Vs Investing In The Stock Market
- Investing in real estate and the stock market are both passive income sources
- Investing in the stock market can potentially yield better returns over time
- Both come with its own set of risks that all investors should consider
Unpopular opinion: Investing in the stock market is better than investing in real estate over the long term. Put simply, an investment in real estate earns just three to four percent per year historically on the contrary, investments in the stock market post about 10 percent annual returns. That can amount to an impressive return on investment .
And, when you invest with Q.ais artificial intelligence-powered technology, youre well-poised to maximize your returns and minimize your risks.
So, would you invest in a house or a stock? Why? Lets unpack the answers to some of the most frequently asked questions about buying a house vs. investing in the stock market.
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