The Simple Steps To Purchase Your First Investment
Ever think to yourself, how do I start investing ?
I want to start investing but I just don’t know how.
Where do I even begin.
Well with this post, we are going to go over the steps on how you can open your own brokerage account and start investing.
As simple as this might be, you would be shocked with the amount of people I come into contact with that don’t have a clue where to start. But you know what, that's ok. The goal with this post is I break it down, make it simple and hopefully within the next 24-48 hours, have you purchase your very first investment.
Ready ?? Here we go !!
Step 1: Have money set aside for investing
Have some money set aside to start investing. I know that may come as a no brainer to some people but you need to have something to start. So whoever you bank with, make sure you have money set aside, that’s not on hold and ready to be withdrawn.
I don’t care if it’s $25, $50, $100, $500 or even $1,000, just start with what you can afford.
Step 2: Opening your brokerage account
You need to open a brokerage account so we can use that money that you set aside to purchase your first investment.
You cannot buy investments just from your regular bank account that you use to make purchases with everyday.
Now you can probably open an investment account with the bank that you use already, but I can guarantee you that the investment fees are going to be higher if you go that way. The two options that are I’m going to recommend , will have much lower fees. And a disclaimer, I use both of these platforms.
The two platforms that I’m going to recommend are Wealthsimple Trade and Questrade. As I said before, these two options will be cheaper as they don’t have any physical locations, or as many people to employ making their costs cheaper as they don’t have as much overhead to cover.
Two options to open your brokerage account:
Wealthsimple Trade: https://my.wealthsimple.com/app/public/trade-referral-signup?code=2KALKG
Questrade: https://www.questrade.com?refid=5fa051c8dc6a2
Now once you go to there sites to open an account, your going to want to open a Tax-Free Savings Account or also known as a TFSA. Now most people think that this is an account just used to save money, but It’s not. You can connect it to a brokerage account and purchase investments.
Now you could open up a regular brokerage account or a RRSP, but for the sake of simplicity and this podcast, we are going to stay with the TFSA.
The RRSP and the TFSA are registered accounts that offer tax incentives for Canadians to save for retirement.
RRSP stands for Registered Retirement Savings Plan. The RRSP is an account used to defer taxes to a later date. So for example; if someone makes 35k a year and invests 5k into his RRSP account, for that year, he will only be taxed on 30k of income. When you withdraw the money from this account in retirement, you will have to pay taxes on the money you withdraw. If you withdraw money from the account before the age of 65, you will end up having to pay a penalty.
The contribution limit for the RRSP is 18% of your earned income. So if you made 35k, the maximum you can contribute $6,300 for that year. Im not sure how the unused contribution limit works.
Brandon Beavis has a great YouTube channel about investing. If you want to learn more about the RRSP account, I’m going to leave a video for you guys to watch that goes into it in much detail.
With a Tax Free Savings Account, the money being deposited in this account is known as post tax dollars. This means that taxes have already been paid on this money. So after the age of 59, you can withdraw money from this account and pay no taxes no matter how much your investments have grown. Also, if you need to withdraw money from this account in case of an emergency, you can withdraw your contributions without paying any penalty. For example; if you’ve invested 3k in your account but your investments have grown to 6k, you can withdraw 3k and you’ll be fine. I believe as well, after a year on that withdrawal, you get that contribution room back the following year. Don’t quote me on that. I think that’s the case.
Again, Brandon has a great video explaining the TFSA is great detail. If you want to learn more, you can watch the video
The contribution limit for the TFSA in $6,000 each year. However, if you haven’t put any money into a TFSA before, you put as much as $75,500 depending on your age. This account was introduced in 2009 and you can use the contribution limit from previous years.
Contribution limit table used from Forbes Wealth Blog: https://forbeswealthblog.ca/2019/12/you-should-be-maxing-out-your-tfsa/
Image used from Forbes Wealth Blog
I believe that the TFSA is the best option for people to start investing with.
When you opening your account, you’ll have to fill out some information. The whole process takes about 10 minutes.
Should receive some confirmation emails, and you’ll be good to go !!!
Step 3: Funding your account
Once you have your account setup and ready to go, it is time to put that money you set aside and fund your brokerage account.
With Questrade, I believe to start investing, you need to have a minimum of $1,000. You can register your TFSA account number as a bill payment to transfer funds to your account. For me it’s usually there by the next day. You can also do a direct transfer from your account that you bank with. I’m not too sure how long that process will take as I’ve never transferred money to my account that way.
If you have less that $1,000 and want to start investing right away, Wealthsimple Trade is the best option. You connect your regular bank accounts to Wealthsimple and the money get’s transferred that way. They have a instant funds feature for a certain amount depending on your account. With that option, when you transfer the money over the funds will be available to invest right away. They then withdrawal the money from your selected account the following day.
I do believe Questrade is the better platform right now as it has more features as you become more advanced, however if you don’t have the $1,000 to start, Wealthsimple Trade is great option as well.
Or you can just be like me and use both. Have TFSA’s with both platforms.
Step 4: Purchasing your first Investment
Now that you have your account funded, it's time to purchase your first investment.
From all the research that I’ve done and with my short experience with investing, someones first purchase should be an US index Exchange traded fund or in short an ETF in short.
For those who are unfamiliar with what an ETF is, it is pretty much just 1 fund with a group of stocks in it. So instead of just buying one share of Apple, you can purchase for an S&P 500 index ETF that has Apple, Microsoft, Netflix, Tesla and other top 500 companies within America all within one fund.
The breakfast club did an interview with two guys that run a podcast called Earn Your Leisure. These guys do a great job with their podcast. Talk about everything from investing, business, real estate, entrepreneurship and wealth building. In the interview, they did a great job on explaining ETF’s. It’s a interview worth watching.
ETF’s are also a good way for to learn about companies in the future you might want to invest in. You can go to the information page of an ETF and see all the different companies within the fund.
I believe a beginner is better off purchasing an ETF first then a share of a company is because:
Passive and effective to start
Don’t need to do much research or have much experience in investing
Well diversified against risk as it invests in wide range of industries
The ETF that would recommend to start with is the BMO S&P 500 Index ETF. The ticker symbol if you were to look it up is ZSP.TO. A tickers is just symbol used to identify shares of a stock on a stock market index. In this case the Toronto Stock Exchange or in short, TSX. The management fee that BMO charges for putting this fund together is 0.08%. So that means for every $1,000 you invest, you pay a fee of $0.80.
Information page for BMO S&P 500 index ETF: https://www.bmogam.com/ca-en/advisors/zsp-bmo-sp-500-index-etf/
I have a S&P 500 index fund with another company called Vanguard. Different company but pretty much the same type of fund. At the time when I started, that was the first one that I heard of so I just went with that one.
Information about the Vanguard S&P 500 Index ETF: https://www.vanguardcanada.ca/en/investor/products/products-group/etfs/VFV
This is also a great investment for the long term because in order for this ETF to go to zero, the whole US economy would have to fail. That is highly unlikely. You are pretty much betting on America which one of the greatest investors ever Warren Buffet suggests.
The S&P index in America has averaged a return of 10-11% over the last 100 years.
That type a return over a 10 - 20 year period and you would be shocked with the type gains you’d get.
You can play around with a interest rate calculator and see the gains for yourself.
This is a tried and tested passive way to invest for your future.
You Are An Investor !!!!
So there you have it guys. You are now an investor. Thought it was going to be hard right?
Out of all my investments that I have, I make it a habit to make sure that every month I’m putting money into my S&P 500 and Total US stock market ETF. In my short time in investing, they have proved to perform well in good times and bad.
I hope this helped simplify the process for you guys and encourage you to start.
From my experience, you become a better investor and feel better about it once you have some blood in the game.
I remember when I first started and I was watching stocks and ETFs I wanted to get into for like 3 months. Finally one of my boys who is big into investing, encouraged me to take the leap and I haven’t looked back since.
