How to Invest in Stock Market for Beginners Canada – learning how to invest in stock market for beginners Canada is quite easy. All you need is the right information and guidance. Everyone knows that investing in stocks is beneficial and it helps us to get great achievement.
Learning how to invest in stock market for beginners Canada is a step by step guide that will help you discover the stock market and the best ways to invest in stocks even if you are an absolute beginner.
Table of Contents
How to Invest in the Stock Market?
You cannot buy or sell directly on the stock market. For this, you have to go through brokers who are authorised to trade on the market or stock brokerage companies that allow you to trade using their platform. The process is simple:
- To begin investing, you have to open a trading account with a broker or a stock brokerage platform. A trading account is where you actually “trade” or place buy or sell orders.
- The broker or the stock brokerage platform opens a demat account for you. A demat account holds the financial securities in your name.
- These two accounts are then linked to your bank account.
- To open a trading and demat account, you need to provide Know Your Customer (KYC) documentation that includes verification via government-authorized identity cards such as the PAN card or your Aadhar.
- Most brokers and brokerage platforms now have an online KYC process that allows you to open an account in a couple of days by submitting your verification details digitally.
- Once open, you can trade with your broker or brokerage company online via a portal or offline via phone calls.
What Can You Invest In The Stock Market?
The key financial instruments traded on the stock market are:
- Equity shares: Issued by companies, equity shares entitle you to receive a claim to any profits paid by the company in the form of dividends.
- Bonds: Issued by companies and governments, bonds represent loans made by the investor to the issuer. These are issued at a fixed interest rate for a fixed tenure. Hence, they are also known as debt instruments or fixed income instruments.
- Mutual Funds (MFs): Issued and operated by financial institutions, MFs are vehicles to pool money which is then invested in different financial instruments. Profit from the investments is distributed between the investors in proportion to the number of units or investments they hold. These are called “actively” managed products where a fund manager takes calls on what to buy and sell on your behalf to generate better returns than the benchmark (like the NIFTY).
- Exchange Traded Funds (ETFs): Increasingly gaining popularity, ETFs essentially track an index like the NIFTY or the SENSEX. Once you buy a unit of the ETF, you hold a part of the 50 stocks in the NIFTY in the same weightage that the NIFTY holds them. These are called “passive” products, which are typically much lower in cost than MFs and give you the same risk or return profile as the index.
- Derivatives: A derivative derives its value from the performance of an underlying asset or asset class. These derivatives can be commodities, currencies, stocks, bonds, market indices and interest rates.
How Should You Decide What to Buy?
- Decide your risk appetite
Risk appetite is the amount of risk that you can withstand. Several factors influencing risk appetite include the timeline of investment, age, goal and capital. Another key variable to keep in mind is your current liabilities. For example, if you are the sole earning member of your family then you will be less inclined to take risks. Here, maybe you’ll have more debt, large cap stocks, in your portfolio.
On the other hand, if you are younger, with no dependents, you may have a high risk appetite. This may allow you higher exposure to equities vs. debt. Even within equities, you may be able to invest in more small caps, which are higher risk stocks. The starting point is to make a choice keeping in mind that risk and reward go hand in hand. - Invest regularly
Now that you have a demat account, you need to allocate funds for regular investment. Set a personal budget, track your expenses, and see how much you can set aside. The best way to invest in the market is to use a Systematic Investment Plan (SIP). A SIP is investing the same amount of money every month in, say, a mutual fund. This allows you to average the different market levels you come in at, maintain good investing habits and slowly increase your investments as you gain confidence. - Build a diverse portfolio
The basic rule for building any portfolio is to invest in a diverse range of assets. This is because it minimizes the impact if a certain asset performs badly. Diversification extends within the asset class, industry, and cycles. It may be tempting to park all your money in an industry that is in an upward swing. But it is always better to distribute between industries, balancing market cap exposure, and offset the risk of equity shares with stable, but lower return bonds. Finally, use SIPs to make sure you have invested in securities across different market cycles. - Rebalance your portfolio
As your priorities change with time, your portfolio must also change to reflect this. You must rebalance your portfolio every couple of quarters to make sure you are not over or underexposed to any one stock or asset class. This is also necessary as you grow older and your priorities change. For instance, you may want to lower your risks when you start a family or when you are nearing retirement age.
Investing in stocks
Choose how you want to invest
These days you have several options when it comes to investing, so you can really match your investing style to your knowledge and how much time and energy you want to spend investing. You can spend as much or as little time as you want on investing.
Open an investment account
So which kind of account do you want to open? Here are your options:
If you want a pro to manage your money
- A human financial advisor can help you design a stock portfolio and can help with other wealth-planning moves such as planning for college expenses.
- A robo-advisor can design a stock portfolio that matches your time horizon and risk tolerance.
Decide what to invest in
The next major step is figuring out what you want to invest in. This step can be daunting for many beginners, but if you’ve opted for a robo-advisor or human advisor, it’s going to be easy.
Determine how much you can invest – then buy
The key to building wealth is to add money to your account over time and let the power of compounding work its magic. That means you need to budget money for investing regularly into your monthly or weekly plans. The good news is that it’s super simple to get started.
Track your portfolio
You’ve established a brokerage or advisor account, so now’s the time to watch your portfolio. That’s easy if you’re using a human advisor or robo-advisor. Your advisor will do all the heavy work, managing your portfolio for the long term and keeping you to the plan.
If you’re managing your own portfolio, you’ll have to make the trading decisions. Is it time to sell a stock or fund? Was your investment’s last quarter a signal to sell or buy more? If the market dips, are you buying more or selling? These are tough decisions for investors, both new and old. If you’re investing actively, you’ll need to stay on top of the news to make the best decisions.
How do I invest $100?
If you have $100 to invest, here are our six best suggestions for what to do with it:
- Start an emergency fund.
- Use a micro-investing app or robo-advisor.
- Invest in a stock index mutual fund or exchange-traded fund.
- Use fractional shares to buy stocks.
- Open an IRA.
- Put it in your 401(k).
How do I open a brokerage account?
Here’s your step-by-step guide for opening a brokerage account:
- Determine the type of brokerage account you need
- Compare the costs and incentives
- Consider the services and conveniences offered
- Decide on a brokerage firm
- Fill out the new account application
- Fund the account
- Start researching investments
What is the S&P 500?
The S&P 500 (also known as the Standard & Poor’s 500) is a stock index that consists of the 500 largest companies in the U.S. It is generally considered the best indicator of how U.S. stocks are performing overall.
Conclusion
How to invest in the stock market for beginners Canada? It is a question of how to invest in the stock market with little money. If you want to get started with investing, but feel like you don’t have enough money, here’s a quick guide for beginners so you can still get started.