Cheat Sheet

Investing For Canadians For Dummies Cheat Sheet

Smart investing can help Canadians accomplish important financial goals like buying a home or retiring comfortably. Whether you’re an investing novice or your portfolio already consists of stocks, bonds, mutual funds, or real estate, these tips for Canadian investors can help you make informed choices. Read on for advice and resources to help you maximize your investment options, choose a discount broker and find the best Canadian investing Web sites.

Copyright © 2009 Tony Martin and Eric Tyson All rights reserved.

Five Great Canadian Web Sites for Investing

Whether you’re in Canada or elsewhere, thousands of investing Web sites claim to enable you to more easily make profitable investments. As with most other advertising claims, the reality of using your computer for investing and other tasks often falls short of the hype. Here, however, we show you five Canadian Web sites that may help you with your investing challenges and chores.

  • Globe Investor covers most publicly traded stocks in both Canada and the United States. It’s easy to get a quick snapshot of a company’s stock, including a chart of its historical prices going back five years. You can access quarterly and annual financial results, sift through the press release archive, and search current news from The Globe and Mail.

  • Globe Investor Funds, a companion site to Globe Investor, is a straightforward and easy-to-navigate site for researching and screening funds. You can chart funds, compare them with others, look up ratings, and sift the Canadian fund world for those funds that meet your needs. In addition to profiles of funds and fund companies, you can look up data from the Globe’s 15-year fund review.

  • Morningstar is the behemoth of the mutual fund data business, with a Web site that provides information and tools for mutual fund and stock research. In addition to providing more data on funds and stocks than you could ever possibly digest, this site includes short, insightful articles that are useful to more educated investors.

  • Sedar is an excellent one-stop shop for the many different documents that publicly traded Canadian companies and mutual funds must file. The information at Sedar (which stands for System for Electronic Document Analysis and Retrieval) is made available by the Canadian Securities Administrators (CSA) and the Canadian Depository for Securities (CDS).

  • The Ontario Securities Commission is a good starting place for digging up information to protect yourself from fraud, as are the regulators of the other provinces. Our regulatory system is a patchwork, with a mix of federal and provincial bodies overseeing different aspects of the financial services and securities industries. Unfortunately, here in Canada, we are now only starting discussions about having a national body overseeing the securities industry like the U.S. Securities and Exchange Commission.

Maximize Your Investment Options

Diversifying your investments helps buffer your portfolio from being sunk by one or two poor performers. Though no hard-and-fast rules dictate how to allocate the percentage you’ve ear-marked for specific investments, like stocks and real estate, here are some general guidelines for Canadians to keep in mind:

  • Maximize contributions to retirement plans. Unless you need accessible money for shorter-term non-retirement goals, why pass up the free extra returns from the tax benefits of retirement plans?

  • Take advantage of a Tax-Free Savings Account (TFSA). The capital gains, dividends, and interest you earn on money inside these accounts are tax-free, as are any withdrawals. Put short-term money such as your emergency funds into a TFSA. Also consider sheltering savings in a TFSA if you’re already contributing the maximum to your RRSP.

  • Don’t pile into investments that gain lots of attention. Many investors make this mistake, especially those who lack a thought-out plan to buy stocks. In Chapter 5, we provide numerous illustrations of the perils of buying attention-grabbing stocks.

  • Have the courage to be a contrarian. No one wants to jump on board a sinking ship or support a losing cause. However, just like shopping for something at retail stores, the best time to buy something is when its price is reduced.

  • Diversify. As we discuss in Chapter 2, the values of different investments don’t move in tandem. So when you invest in growth investments, such as stocks or real estate, your portfolio’s value will have a smoother ride if you diversify properly.

  • Invest more in what you know. Over the years, we’ve met successful investors who have built substantial wealth without spending gobs of their free time researching, selecting, and monitoring investments. Some investors, for example, concentrate more on real estate because that’s what they best understand and feel comfortable with. Others put more money in stocks for the same reason. No one-size-fits-all code exists for successful investors. Just be careful that you don’t put all your investing eggs in the same basket (for example, don’t load up on stocks in the same industry that you believe you know a lot about).

  • Don’t invest in too many different things. Diversification is good to a point. If you purchase so many investments that you can’t perform a basic annual review of them (for example, reading the annual report from your mutual fund), you have too many investments.

  • Be more aggressive inside retirement plans. When you hit your retirement years, you’ll probably begin to live off your non-retirement plan investments first. Why? For the simple reason that allowing your retirement plans to continue growing will save you tax dollars. Therefore, you should be relatively less aggressive with investments outside of retirement plans because that money will be invested for a shorter time period.

Choosing a Discount Broker: Tips for Canadians

Canadian discount brokers who place your trades at substantial discounts can offer you even better value and service than full-service investment dealers. Which discount broker is best for you and your investments depends on your needs and wants. In addition to fees, consider how important having a local branch office is to you. Here are our top picks for discount brokers:

  • BMO InvestorLine (888-776-6886): Bank of Montreal’s discount brokerage offers an easy-to-use Web site that’s been thoughtfully put together. The site has numerous useful tools, including good asset allocation and financial planning features. InvestorLine is also known for good customer service, and investors can access a load of useful research. The downside to InvestorLine is its transaction costs. Especially for investors with smaller accounts, commissions are higher than those of many other discount brokers.

  • Qtrade Investor (877-787-2330): Qtrade not only offers low commissions but also keeps improving its offerings, including an expanded stock research section. Qtrade also offers online GIC purchases. Qtrade has strong customer service, and you can easily get a real person on the phone should you need assistance.

  • Questrade (888-783-7866): This privately held firm has some of the lowest fees available. Recently, the brokerage offered a commission option of just $4.95 for stock trades. Questrade also is rare in allowing investors to hold U.S. dollars inside their RRSPs, which saves you charges for exchanging currencies.

  • TD Waterhouse (800-465-5463): TD Waterhouse has a solid range of competitive services. You can choose from TD’s solid in-house funds as well as from a wide selection of other funds. TD Waterhouse also offers several “e-funds” that boast bargain-basement-level management expenses — the MER or management expense ratio — if you buy them online.