At first, investing might seem complicated and difficult to start. There are many blogs, articles, and videos explaining how you can start investing. In this guide, we will highlight clear steps you can take in beginning your investing journey in Canada.

Before you start investing, make sure you are prepared by following these simple steps:

1. Define your goals

You should be clear about why you are investing and what you expect. This could be as simple as “I want my money to grow faster than inflation” or “I want to retire early”, but it could also be “I want to invest to pay for my children’s university tuition” or “I want regular investment income.” Perhaps you are interested in learning how to be financially independent and would like to set a goal to learn how to trade. 

Defining your goals will help you understand your investment timeframe and how much risk you are willing to take.

2. Identify your risk levels

In general, the amount of return you can expect from an investment is linked to the level of risk you take on. The higher the risk, the greater the potential for higher returns – and losses.

Understanding your ability and willingness to take risk will help determine what combination of assets you need to invest in to achieve your goal. For instance, if you have a long-time horizon, you likely have time to recover from any unanticipated financial losses and would be deemed to have a higher ability to take risk. Someone with a short time-horizon, such as an individual nearing retirement, may not be seeking the same growth in their portfolio and instead are looking for greater certainty on the value of their investments, would have a lower risk tolerance.

Investors with lower risk profiles might invest more in high-quality fixed income securities and less in stocks. The higher the tolerance for risk, the more likely you are to invest in riskier areas like emerging markets or commodities. The choice is yours, but whatever level of risk you feel comfortable with, it is good practice to build a diversified portfolio.

3. Choose how you want to invest

There are a few different ways you can start investing. Each involves sending the money you want to invest to a brokerage platform that can buy and sell the investments for you. They would then put your money into your trading account.

Bank Brokerages

In Canada, you could open a trading/brokerage account with any of the large Banks. For instance, BMO Investor Line, CIBC Investor’s Edge, National Bank Direct Brokerage, RBC Direct Investing, TD Direct Investing, and Scotia iTrade.

Online Brokerages

These companies in Canada include CI Direct Investing, Interactive Brokers, Qtrade Direct Investing, Questrade, and Wealthsimple Trade. Make sure you understand their fees and platform capabilities before you choose a platform.

Financial Advisor

If you are looking for more guidance, a financial advisor may be the right option for you. There are bank financial advisors as well as independent boutique financial advisors. A financial advisor will buy and sell the investments on your behalf, with many providing additional and personalized advice on your overall financial situation. Financial advice comes at a price that not everyone wishes to pay, and some financial advisors are limited in what they can buy and sell, so make sure you do your homework before selecting a potential advisor.

Robo-Advisor

These can be offered by bank and online brokerages such as BMO SmartFolio, RBC InvestEase, Questwealth Portfolios or independent online boutiques such as JustWealth, Nest Wealth and Wealthsimple. These ‘robot’ financial advisors build a portfolio for you based on information you provide about your investment goals. They typically charge a lower price than traditional financial advisors and can represent an easy way for investors to get started. Still, robo-advisors can be inflexible and many only offer a limited number of investment options.

Before you decide which route is best for you, make sure you understand the costs and fees associated with each option, and consider any additional features or services they offer. Also, ensure that the company you choose is regulated and approved in Canada.

4. Create a diversified portfolio

Once you have chosen how you want to invest, you can start to create a diversified portfolio. Diversification is the principle of spreading out your overall investment into different sectors, geographies, and asset classes to create a portfolio of securities that creates a desirable risk and reward combination for your investment timeline.

Each asset class can behave differently depending on the market conditions, so if one asset is doing poorly, then another might be doing well. This is the result of uncorrelated assets, which is a key principle of a diversified portfolio.

Diversification is also important to reduce company-specific risk (unsystematic risk) which is derived from events that affect a specific investment but not the overall market. Systematic Risk is a broad term for market risk which cannot be solved by diversification and can result from macroeconomic events such as unexpected changes in inflation or business cycles.

Diversification doesn’t prevent you from losing money, but it can dampen losses and reduce the overall risk of your portfolio.

5. Monitor and adapt your portfolio

Once you have a nicely diversified portfolio that is working hard, you need to make sure that it continues to deliver as market conditions change.

Check in on your portfolio regularly. Review how your various holdings have performed and see if you are on track to achieving your goals. If you find that you are falling short of your goals, do some research or talk to an advisor who can help you make the right changes to get you back on track.

This article was written in collaboration with Trackinsight.