So you want to start investing? Now what?
To buy and sell stocks, you have to do so through a brokerage, which executes your desired trades as a middleman on behalf of investors.
In history, stock brokers were the people you see in movies and TV shows, who were at the New York Stock Exchange on the trading floor, shouting out their buy and sell requests.
Today, all of this is done using computers, but the concept is the same.
This can seem intimidating, but you’ll quickly realize it’s really not.
A brokerage account functions much like a bank account, serving as a holding place for your investments. You’ll link your bank account to your brokerage account, transfer money between them, and then use your brokerage account to buy and sell stocks.
What to Look For in a Brokerage
The key aspects to look for in a brokerage are:
- Commission-free trading: Ideally, your brokerage should have $0 commissions. A commission is a fee you pay to the brokerage for executing your trade (buy or sell). For example, a brokerage might charge $10 for every buy or sell order you do. Commissions can add up to significantly reduce your investment returns. For example, your average annual return of 8% might get reduced to 7.5% because of commissions. This is especially true if you are starting out with little money, because commissions are typically a flat fee, regardless of the order size. In the past, every brokerage had commissions. But today, with the declining cost of trading, and market competition, there are multiple good brokerages that offer $0 commissions.
- Low minimum investment: If you don’t have a lot of money, you should choose a brokerage with a low minimum investment, so that you can get started right away.
- User-friendly platform: If you’re a beginner investor, you want a platform with a shallow learning curve, to make starting investing as easy as possible.
National Bank Direct Brokerage (NBDB)
I personally use National Bank Direct Brokerage (NBDB), which is the online brokerage arm of National Bank of Canada.
It has a user-friendly platform, and has $0 commissions on all transactions, and has no account minimums.
There are many other features that they offer, such as margin trading, options trading, investment analysis and research tools.
However, all of these are unnecessary, and you shouldn’t worry about them.
You can apply for the account online.
- Go to their website.
- Open an account, and start an online application.
- Fill out your personal information. This includes name, address, date of birth, Social Insurance Number (SIN), and employment information. You will also need to provide a valid government-issued ID (e.g., driver’s license, passport) for identification purposes. Most of this information they are required to collect because of government regulation.
- After you submit your application, the brokerage will review your information, and give you more information about how to log in and get started.
- Fund your account: Link your bank account to your NBDB brokerage account to transfer funds.
- After the money is in your account, you can start buying stocks! More about this later.
On NBDB, they will ask you what kind of accounts you want to open. At minimum, you should open a regular account (called a Margin account on NBDB).
Ideally, you should also open a TFSA and RRSP. These are special investment accounts set up by the Canadian government that allow you to pay less income tax, called tax-advantaged accounts.
In fact, when you are just starting out, you should first contribute and max out your tax-advantaged accounts, so your TFSA and RRSP are actually more important to set up first.
After you open one type of account, you can always open additional accounts later. However, doing everything now will save you time (and there is no downside).