Investing 101 Canada for Beginners

Investing is the process of allocating money in order to achieve financial gains, also known as a return on investment (ROI).  In Canada, individuals can invest in a variety of assets including cash, real estate, stocks, bonds, mutual funds and even collectibles such as fine art. Every investment comes with an element of risk — that means the investor takes a chance that they might not make any money, or worse yet, they could forfeit their principle.  Below you’ll find our general guide to investing, as well as links to our detailed guides that cover different types of investment vehicles and markets that are available to Canadian investors.

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How to Invest in Canada

Canadians who want to invest have a number of options. They can deposit their money in a traditional savings account at a bank, purchase stocks or bonds, or manage their own online investing account.

There are also discount brokerages that facilitate the buying and selling of stocks, much like how a stockbroker does. Some of these discount brokerages charge per-transaction fees, allowing investors to see exactly what it costs to buy or sell through the brokerage.

Other options include private investing, which can mean lending money directly to a borrower in the form of a mortgage or private loan. Those who want a financial professional to manage their investments may decide to hire a financial advisor who provides personalized investment advice and acts as an investment broker.

Types of investments in Canada

Canadians have a wide variety of investments to choose from, including:

  • Stocks: Buying shares in a publicly traded company whereby you now own a piece of that company and can participate in its’ rise or fall in value.
  • Bonds: Loans made directly to a company or government in exchange for a set amount of interest payable on a predetermined date.
  • Exchange traded funds (EFTs): An investment fund that holds a variety of assets including stocks, bonds and commodities that are traded on stock exchanges.
  • Guaranteed investment certificates (GICs): Similar to a bond, GICs are investments that are locked in for a specific time period in exchange for a set amount of interest that is payable to the GIC holder when the investment reaches maturity.
  • Real estate investment trust (REIT): A real estate investment trust is a managed investment fund that pools money from numerous investors in order to purchase real properties. REITs often focus on commercial properties such as shopping malls, office buildings and multi-tenant residential properties.
  • Real estate: Real estate includes real property such as homes, agricultural lands, condominiums, cottages and development lands.

Other less-common types of investments include angel investing, which is the process of investing cash into start-up companies in exchange for a share of the company, dividends or both.

Tax sheltered investments in Canada

The Government of Canada endorses two types of tax sheltered investments – Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). Some types of real estate can also be used as a tax sheltered investment.

TFSAs – Launched in 2009, TFSAs are federally-registered investment accounts that can comprise of cash, mutual funds, guaranteed investment certificates (GICs) and bonds. Any interest earned on investments held in a TFSA is tax-free, and no taxes are payable when funds are withdrawn from a TFSA.

The annual TFSA contribution limit started at $5,000, has since risen to $6,000, and is adjusted annually to account for inflation. Unused contributions can be rolled over, and anyone aged 18 or older who has a valid Canadian social insurance number (SIN) can open a TFSA.

RRSPs  – Introduced in 1957, RRSPs are tax-deferred savings accounts that can be used to hold cash and certain stocks, bonds and mutual funds. Canadians can contribute up to 18% of their gross (pre-tax) annual earnings to an RRSP, up to the annual contribution limit set by the federal government. Any unused contribution room can be carried forward for use in any future tax year, up to the year in which the RRSP holder turns age 71.

RRSPs are tax-deferred accounts — that means contributions to an RRSP help to lower the amount of income tax the RRSP holder pays. RRSP contributions are taxed as income when withdrawn. Eligible first-time home buyers may be able to borrow up to $25,000 from their RRSP towards the purchase of a principle residence under the RRSP Home Buyers Plan (HBP).

Tax sheltered real estate investments

Some Canadians use their home as a tax sheltered investment, since any capital gains realized on a principal residence are tax exempt. In order to qualify for this exemption, homeowners must have used the home as their sole principal residence, and the home may be a condo, house, mobile home, houseboat or a unit in a co-op.

Farmers and fishers also qualify for a $1,000,000 lifetime capital gains exemption (LCGE) on agricultural land and buildings used in an active farming or fishing business. To qualify for the LCGE, farmers, fishers or their immediate family members must have used the farmland or buildings to maintain an active farming business — simply buying a farm and renting out the land doesn’t meet the criteria for the LCGE.

Canadian investing FAQs

Are all Canadian investments guaranteed?

No. Investing involves a degree of risk, regardless of what you decide to invest in. Canadian investors who want a guaranteed investment can make up to $100,000 in eligible deposits at an institution that participates in the Canada Deposit Insurance Corporation program, a federally-backed insurance program.

Is there age limits on buying Canadian investments?

Yes – on some types of investments. Under government rules, investors need to be at least 18 years old to open a TFSA or RRSP. Canadians can hold money in, and make deposits into an RRSP up until the year in which they turn 71, after which time they must convert their RRSP into a Registered Retirement Income Fund (RRIF).

Can non-Canadians buy Canadian investments?

Yes. Many Canadian investment products are open to purchase by investors who don’t hold Canadian citizenship or another form of legal residency in Canada. For example, many offshore investors purchase real estate in Canada, although some provinces have rules limiting non-resident investment in agricultural lands.