A guide to buying stocks in Canada
Investing in stocks is quite easy. The investment process requires three things, a broker for trading, an idea to buy something, and money to buy the investment. If you are interested in buying and selling stocks, then you can easily find a trading platform for it. Or in case you want investment on your behalf, then you can find an automated investing service. Also, online investment is very easy and requires minimum expense. The investment itself is easy but the real challenge is to decide what you are going to buy. For guidance see, how to buy stocks in Canada.
The initial step to start investing in stocks
Pick a stock to invest in is the hardest part. You never know the price of a stock in the future. The online brokerages that provide commission-free trading are best for the investors who are self-motivated and they know best what they want. And for those investors who have no idea about their wants, should go for automated investing services because they are user-friendly and less expensive. The most expensive yet the best service is provided by financial advisors and human brokers.
The quickest, easiest, and the less expensive way of buying stocks is using an online investing platform or an online broker. An investor just has to sign up with their insurance number or social security number, phone number, work address, and home address. Some companies do not require any trading fee but some might do.
The value of stocks can rise and fall very quickly making them volatile. That is the reason why the prospectus of every stock says that the future results do not depend on past performances.
Buying stocks without a broker
The DSPs or the direct stock purchase plans let you buy stocks directly from companies without any brokers. But now, there is no particular reason to not use brokers because the accounts for brokers are now opened in less time and also they provide trading without any commission. Only the willingness of investors can pay them a handsome amount because they dare to invest in a stock that may or may not go up. But also, sometimes the investors face loss. This risk/reward scenario is the same. Investors get rewarded for the risks they take in the case of stocks and their trading.
Risk tolerance is about the loss an investor can bear. If an investor has less money and decide to trade it, and if an investor has a lot of money and they decide to invest a small portion of it, then both the investor will have different risk tolerance.
How risk can be reduced
Diversification is the best method to reduce the risk. Diversification means that the investor has invested in a large variety of stocks from different economic sections. So, if any of the stock or an entire sector goes down, the loss would only be a small percentage of the portfolio.
Buying international and domestic low-cost Exchange Trade Funds can give wide exposure to markets. Like individual stocks, the ETFs contain several stocks and are traded on an exchange.
To make money on stocks, an investor must hold on to the stocks for a longer period of time usually called Time Horizon. The conservative might keep the money in government bonds or saving investment accounts. The investors who have a time horizon of ten or more years get rewarded more as compared to those with fewer time horizons. The long time horizon makes the price less variable on average.
When to invest in the stock market
The best day to invest in the stock market is as soon as you realize that you want to invest. Now is the best time! There is no other great time to start the trading and also, the longer you wait, the more you get in return. If you know what you are going to invest in, then the quick way is to use online platforms. In case you are self-employed then you can use your surroundings in a professional way.
Buying stocks with less amount
Many brokers these days require no or minimum deposits for an account, so it helps those investors who do not have money for even a single share. With no or little money in hand, you get provided with the funds and ETFs for exposure to the stock market.
Purchasing a Canadian stock
Purchasing a Canadian stock for a person who lives in Canada is very easy. The platform of trading is free to sign up and if the investor is not willing to trade himself then automated investing is also available.
A rule, commonly known as the 5% rule says that the entire investment should not exceed 5% for both the investor and the sector in the name of diversification. The stock of Apple, the stock of any cool stuff does not need to be more than 5%.
The matter of buying a stock is very different. The market works its discounting packages with the supply and demand law. The stock’s price contains all the information about the market such as growth, revenue, prices, etc.
What to consider when buying a stock
The two ways to make money from stock are;
- The outperformance of the company in case of expectations of the market.
- Equity risk premium.
The equity risk premium is the percentage of the current interest rate an investor can get when they invest the money in the government bonds which are also risk-free. For a long-term project, this risk-taking causes greater reward. Also, the increase in reward mainly depends on the increase in risks.
In this way, the stocks are kept viable. If the stock does not meet the requirements of the market, then the investors will stick to the safe money. Knowing the risks can motivate you to invest a small portion of your portfolio in the stock.
To check how much you are interested in buying the stocks, you should do the following;
Know why you want to buy the stock, list down the reason, and then don’t go buy it., wait for a long pre-determined number of times, and if for some reason you have already predicted the moves of the stock and the stock moves that way, then you should consider yourself who is ready to put some skin in the game.
Terms to remember related to the stock market
Revenue growth: the public companies are bound to show their ups and downs publicly. It includes the financial status of the company and whether the trade is going well or not. The revenue growth number shows if the company is doing good, bad or average on the trajectory.
Earnings per share: the leftover amount after paying all the bills of the company is known as earnings. Earnings per share are the figure that shows how many shares the company has sold. Higher the EPS, high the stock price. Companies also goose their EPS numbers by buying their stock to ignore the outstanding shares.
Price/ Earnings ratio: the P/E ratio is the most effective way to assign a stock its value. To calculate how much money the investors are going to pay for every dollar of annual training, just divide the current stock price and the value of earnings per share. It is also known as the price multiple. A lower number shows that the company is undervalued. A higher number indicates an overvalued company.
Historical price: to take a look at the general assessment of the company, to check its health and working, the information about the company is needed when the company is several years old. If in case of all the business calamity and other related problems, the company has still moved up, then they are on the right path.
Dividends: dividend is the money that investors receive every quarter that has no direct link with the stock price. It is a kind of profit-sharing plan for the investors. Dividend-paying companies are important because sometimes the dividend helps you in saving the amount which you cannot save with a savings account. The companies that pay dividends prove that they are healthy as working and upgrowing companies and it has planned for the future as well.