How to Invest in the Stock Market in Canada
Investing in any equities market requires having the right information to make the right decisions. In today's global market, seeking diversification in international markets is enticing to create a well-rounded portfolio. One option to obtain that diversification is to invest in the stock market in Canada
- Difficulty:
- Moderately Challenging
Instructions
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How to Invest in the Stock Market in Canada
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1
Review your existing portfolio of investments to determine if any changes have occurred in your investment objectives. You will want to determine how much of your portfolio (a dollar amount and percentage) you are seeking to diversify and what risk tolerance you are can handle with a new type of investment. You will also want to determine the amount of time you can personally give to maintain a new investment. Once you have done this, you can set aside which funds you would like to invest in Canadian equities and what medium is best for you to achieve your goals.
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2
Review exchange and currency rates for Canada compared to your own country. Determine not just the nominal rate, the rate that banks use as a guide but is not considered the rate for purchase or sale of goods. The rate used for that is called a cash rate and can be the nominal rate with a 4 percent surcharge for converting the funds. For example, in March 2009 there was a U.S. to Canada exchange rate of $0.75 cash rate where the nominal rate is $0.78 for every U.S. dollar. Take the amount you determined in Step 1 and convert it to the Canadian cash rate to get a true value of how much you are investing in Canadian equities.
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3
If you determined in Step 1 that you do not want to spend a lot of time watching individual equities, then you will want to do a search for mutual funds that invest in Canadian equities that fall into your risk tolerance. Mutual funds pool investor monies together to collectively invest in a portfolio of stocks or bonds. They are managed and require less daily review by the individual investor, but may increase expenses, as the fund will have fees associated with maintaining the fund. You may be able to find a domestic fund that invests in Canadian equities or you may want to go directly to a Canadian mutual fund manager. AIM, Fidelity and Templeton are all examples of mutual fund families with a diverse portfolio of investments that run Canadian mutual funds.
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4
Discuss your investment with an accountant to determine the tax consequences of any new investment as a final consideration before you actually purchase. If you are seeking information on specific equities you want to add to your portfolio, you can get information regarding their stocks via their company websites or information analysis sites such as the Royal Bank of Canada stocks site (listed below). This research, called due diligence, is important to being sure that you are investing in a company that is aligned with your goals. Once you are satisfied with your choices, you are ready to add the stock to your portfolio.
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5
Most stock brokerage accounts will allow you to buy a stock via your existing account. Check with your brokerage firm to be sure that you can. If not, you will want to use an account through a company such as Interactive Brokers or Scottrade for purchase of the account. Make sure you understand how you are purchasing and in what dollar rate, US, Canadian or other, so that you don't have any surprises with your first statement. Watch your investment and the news closely to be informed about any situation that may adversely affect your investment.
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Tips & Warnings
Investing is always a risky venture, as past performance can never predict future results. Be sure to use your financial adviser to go over your specific objectives and goals and to review any questions you may have about specific investments and how they may help you achieve your goals. While Canada is a relatively stable political economy, never overlook foreign considerations when investing in a country other than your own.
