Topic: How To Invest

How to put your money in the Canadian stock market

discount brokerage firm

Before you begin investing in the Canadian stock market, you’ll have an important choice to make: Do you use a discount broker and take advantage of the lower commission rates? Or do you deal through a traditional, full-service broker and pay extra for service and possibly some good stock research?

Many investors have given up on full-service stock brokers and do all their dealings through discount brokers, with no regrets. But a lot depends on you, and on the quality of brokers you have managed to find.

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A good stock broker is worth paying for, but hard to find

A good broker is generally worth the higher commissions that he or she costs you, compared to dealing through a discounter. However, good brokers are hard to find. Many good brokers eventually move into money management. Many bad brokers manage to pass themselves off as good ones, at least initially.

Today, it’s easier than ever to use a discount broker. The Internet provides lots of information on publicly traded companies, including corporate press releases, newspaper articles and company web sites. Of course, you’ll want to take advantage of the information we provide on TSI Network. You may also decide to subscribe to one or more of our newsletters and investment services.

When looking for a discount broker, start with your bank

Your bank is probably the best place to look for a discount broker. All of the “big five” Canadian banks have both full-service and discount brokerage arms. It’s also easier to transfer money between your bank account and your brokerage account if you have both at the same bank.

Commission rates are even cheaper if you use a discount broker’s Internet trading facility. Unfortunately, low commission rates sometimes lead investors to trade more than they should. They may assume they can’t lose because they can sell at the first sign of trouble. Being quick to sell can cut your losses, but that’s not the same as making money. And, if you stumble onto an investment that has a huge move ahead of it, you may wind up selling just before the move begins.

Fewer trades, high-quality companies are the keys to successful Canadian stock market investing

In the long run, the best way to cut commissions is by sticking to high-quality investments and making fewer transactions. This cuts commissions, and it improves your tax deferral.

For instance, suppose you buy an investment at $10 and it goes to $20. As long as you hold on, you defer taxes — the entire $20 keeps on producing dividends and capital gains for you. If you sell, you’ll have only $18 or so to reinvest, after capital-gains taxes and commissions. The lost 10% of your capital can take an enormous bite out of your returns, if you let it compound for a decade or two.

This article was originally published in 2011 and is regularly updated.


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