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Best Way to Buy Stocks - Questions from a "Newb"

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Newbie
Sep 7, 2010
37 posts
2 upvotes

Best Way to Buy Stocks - Questions from a "Newb"

I've always wanted to invest in the stock market, and with a decent tax return this year I figure now is the time.

I figured since I already bank with TD I'd open a TD Waterhouse account, but in the first couple of pages of the application I'm lost. For example, do I want a "Non-Registered (Direct Trading)" or "Self-Directed Registered" account? I had a look at Self-Directed Registered because it seems to me you'd want a bit of tax shelter, but I already have a TFSA and RRSP open with another institution. Do I want a cash or margin account? Am I looking for Option or Short Selling as an account feature?

I don't know! :o

I'm just looking to invest about $4,000 into some stocks. What do you guys/gals suggest? I've heard Questrade is decent but lacks in customer service.

I'm also unsure about commissions and taxes. Say I invest $4000 and it turns into $5000 in a year. How much of that $1000 profit will actually be mine if I decide to cash out? I

I'm not looking to trade daily, more for the long haul.

Thoughts?
27 replies
Deal Fanatic
Mar 24, 2008
6278 posts
2753 upvotes
Toronto
TheGrudge wrote:
I figured since I already bank with TD I'd open a TD Waterhouse account, but in the first couple of pages of the application I'm lost. For example, do I want a "Non-Registered (Direct Trading)" or "Self-Directed Registered" account? I had a look at Self-Directed Registered because it seems to me you'd want a bit of tax shelter, but I already have a TFSA and RRSP open with another institution. Do I want a cash or margin account? Am I looking for Option or Short Selling as an account feature?


I'm not looking to trade daily, more for the long haul.

Thoughts?

1) If you want tax shelter, go with "Self-Directed Registered" account and pick either TFSA or RRSP.
2) In TFSA, any gain that you have will not be taxed and you can withdraw it anytime. In an RRSP, your gains will be taxed when you withdraw that money and you will get money back on your taxes. You also need to check if you have enough contribution room for these (RRSP and TFSA).
3) Go with cash account since you're just starting off. Don't bother with margin account or Options and Short Selling.

If you are unsure, go into a branch and they can help you out. Just don't fall for their sales pitch trying to sell you expensive mutual funds. Good luck.
Member
Nov 15, 2010
205 posts
79 upvotes
I don't use TD Waterhouse however the commission for trading (both buying and selling) is most likely $20 each time. They may also charge you a fee depending on how frequently you trade (less trades = quarterly charge).

I currently use Questrade and have had no issues thus far with the service. The web platform isn't the greatest however there are alternate options available for trading (potentially price-based in the future). The commissions per trade are $5 currently.

If you are concerned about taxes I would suggest opening a TFSA brokerage account and trading within it (questrade offers a USD TFSA for US equities). So long as your contributions do not exceed your allotted TFSA room, you will be fine. All interest earned within a TFSA is tax free. Based on the amount you mentioned, you should be fine, so long as you don't already have a TFSA sitting around that is filled. If this isn't an option, you will be taxed for capital gains at your marginal tax rate (depending on your income) I believe.
Jr. Member
Jan 9, 2009
158 posts
34 upvotes
Ontario
Registered account = RRSP account
You can buy stocks in an RRSP account, TFSA account, or a plain ol' cash account.

Some people think that an RRSP account has to be a "savings" account. It doesn't. You can have a RRSP Savings account, RRSP GIC account, RRSP trading (stocks) account, etc. Just like you can have savings accounts with multiple institutions, you can have a RRSP or TFSA with multiple institutions (provided that your combined contributions across all these accounts don't exceed your limits).

Self-directed means that you will be doing all the buying/selling.

RRSP or TFSA or Cash account?

Depending on what kind of stocks you are planning to buy, it varies what kind of account you should get. Generally, people recommend maxing out your RRSP or TFSA before buying stocks in a cash account.

TD waterhouse or Questrade?

$4000 is a very small amount to put in TD waterhouse. TD charges annual account fees for balances under $25k, so it doesn't make sense for an RRSP at TD waterhouse for you. I don't think their cash account has administration fees though.

Questrade has no annual account fees, but their service does royally suck. However, when I first started investing, I also put my first 4k in Questrade. (As soon as I hit 25k, I moved over to TD waterhouse)

TD Waterhouse charges $9.99 (if you have over 50k with them) - $29.99 per transaction. So if you buy 4000 stocks, and sell 4000 stocks, you'll pay $60 to TD Waterhouse. $30 for selling, $30 for buying.

Questrade charges $4.95 plus a nominal charge for each stock over a certain amount. Overall, you wouldn't be paying more than $15 to buy AND sell your stock. ($60 @ TD, $15 @ Questrade). I recommend Questrade with you for starting out, and I highly recommend switching out as soon as you are more comfortable.

Cash or magin

Cash = your cold hard $4000 cash; you provide all the money to buy stocks from
Margin = borrowing money to invest.

Taxes

This goes back to RRSP and TFSA.

If you purchased a stock and sold it, and made $1000 on it:

RRSP - invest $4000 "before-tax" income; pay income tax on $4000 + $1000 upon withdrawal
TFSA - invest $4000 after-tax income; no tax on $1000 you made
Cash - invest $4000 after-tax income + pay income tax on $1000 you made

(Remember RRSP is tax-deferred, not tax-free).

Generally, you don't want to be investing in a plain ol' account (i.e. that is NOT RRSP or NOT TFSA), unless you're doing dividend investing. Dividends get very favorable tax rates.

Option/Short selling

I don't recommend these just for you. Once you are more familiar with how the stock market works, it's something you should look into.
Newbie
Sep 7, 2010
37 posts
2 upvotes
Thanks for the quick replies everyone. Here's my only hangup. My wife and I just opened TFSA's and they are not with TD, they're with another investment company. I'm not going to exceed the $20,000 ceiling (which I believe is the max I can use per year), but can I open more than one TFSA?
Jr. Member
Jan 9, 2009
158 posts
34 upvotes
Ontario
TheGrudge wrote: Thanks for the quick replies everyone. Here's my only hangup. My wife and I just opened TFSA's and they are not with TD, they're with another investment company. I'm not going to exceed the $20,000 ceiling (which I believe is the max I can use per year), but can I open more than one TFSA?

Whoa whoa, hold up there.

$20,000 is NOT the max you can use per year for TFSAs. Well, not technically.

You get $5000 per year for TFSA, beginning the year 2009. So if you contributed $0 since 2009, your limit this year $20,000. If you contributed $5000 each year - 2009, 2010, 2011, you can only contribute $5000 this year. UNLESS you withdrew money (last year). Please read up on this. You don't want to get nailed for overcontribution in a TFSA.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... n-eng.html

Now, if you've not contributed your $5000 for the year, yes, go ahead and open a TD Waterhouse account for a TFSA (it's free I believe). I have a TFSA at ING, at TD, and Questrade. My total contributions for all three accounts combined over the last 4 years is $20,000. I have withdrawn nothing.
Deal Fanatic
User avatar
Nov 23, 2005
9005 posts
5728 upvotes
TheGrudge wrote: Thanks for the quick replies everyone. Here's my only hangup. My wife and I just opened TFSA's and they are not with TD, they're with another investment company. I'm not going to exceed the $20,000 ceiling (which I believe is the max I can use per year), but can I open more than one TFSA?


You can open more than one TFSA but the total contributions to all your TFSAs cannot be more than your maximum contribution room for that year plus any carry forward room.

For example, your maximum contribution limit for 2009 will be $5,000, therefore you can open one TFSA to which you contribute $3,000 and another TFSA to which you contribute $2,000, so your total combined TFSA contributions equals the maximum of $5,000.
Newbie
Sep 7, 2010
37 posts
2 upvotes
Right....$20,000 assuming I've never contributed until now.

Two remaining questions:

1) Does that $20,000 keep rolling each year? For example, if I'm allowed $20,000 this year because I've never contributed before, am I allowed $25k next year?
2) If I open a Waterhouse account as a joint acct with my wife, do our contribution amounts get split? i.e. if we invest $5,000 that takes $2,500 from her contribution allowance and $2,500 from mine?
Deal Fanatic
Mar 24, 2008
6278 posts
2753 upvotes
Toronto
TheGrudge wrote: Right....$20,000 assuming I've never contributed until now.

Two remaining questions:

1) Does that $20,000 keep rolling each year? For example, if I'm allowed $20,000 this year because I've never contributed before, am I allowed $25k next year?
2) If I open a Waterhouse account as a joint acct with my wife, do our contribution amounts get split? i.e. if we invest $5,000 that takes $2,500 from her contribution allowance and $2,500 from mine?

1) Yes.
2) TFSAs and RRSPs cannot be opened in a joint account. You could have one TD Waterhouse account but you'll have separate TFSA and RRSP accounts.
Newbie
Sep 7, 2010
37 posts
2 upvotes
Cool. So with that established.....what are the experience levels of some of you on this forum?

I've had people tell me stocks are a huge gamble and that I shouldn't invest unless I'm prepared to lose everything. I've also heard people say that you'll never get anywhere in life by saving a portion of your paycheque every week.

I've been reading a lot online lately about Apple's stock, and some analysts even see it hitting $1000. I was going to invest a few thousand in that but I've also heard you should invest in 4 or 5 stocks for the sake of diversity.

How'd you guy's get started? Any stories out there you care to share about how you made/lost it all? ;)
Deal Addict
User avatar
Jan 2, 2012
4596 posts
3099 upvotes
Toronto
christianfigo wrote: They may also charge you a fee depending on how frequently you trade (less trades = quarterly charge).

Watch out for this.

Every company has a different policy here. Some say if you make at least 1 trade per quarter the fee is waved, or if you have over a certain dollar value invested. Perhaps if you're a bank/credit card etc client with them also they may waive it, but im not sure.

A while back i didn't realize there was an inactive fee (with Scotia iTrade at the time), and had some stocks sitting in my account for a year that i didnt pay much attention to. So they charged me $25 per quarter, which basically ate up all the dividend payments i was getting. Since then i've moved over to Questrade, which has no inactive fees and cheap fees per trade. Have heard their customer service isn't the best, but i've never really had to use it as i'm just a casual stock market investor, and only buy/sell a couple times per year when i have some extra money to play with.
Jr. Member
Mar 30, 2008
138 posts
21 upvotes
Toronto
TheGrudge wrote: Cool. So with that established.....what are the experience levels of some of you on this forum?

I've had people tell me stocks are a huge gamble and that I shouldn't invest unless I'm prepared to lose everything. I've also heard people say that you'll never get anywhere in life by saving a portion of your paycheque every week.

I've been reading a lot online lately about Apple's stock, and some analysts even see it hitting $1000. I was going to invest a few thousand in that but I've also heard you should invest in 4 or 5 stocks for the sake of diversity.

How'd you guy's get started? Any stories out there you care to share about how you made/lost it all? ;)

It all depends on your risk tolerance. If 4k is nothing to you, than invest it all in a penny stock that can net you 4000000 in return. If you can't bear the idea of losing even 1/4 of that sum, then invest in something safe that gives steady returns (ETF, preferred stocks, bonds). If you put all your eggs into one basket... and the basket get run over by a truck (or whatever happens to them baskets)... then clearly you've lost your investment capital. If you spread your eggs around to various baskets then there is a chance if one basket goes down, a different basket goes up. BUT, it depends on what you diversify with.

For example, if you buy Apple and then RIM... if all of a sudden we all get chip implants in our brains and don't need smartphones, your eggs are all gone. If you buy Apple, Bank stock, Agriculture stock, tech stock... you have a better chance of staying afloat and making modest but less volatile returns. I would suggest looking into ETF (exchange traded funds), if you have an account with TD, you will be happy to know that they offer one of the best options for investing in ETFs without having a lot of cash. Look into opening a self-direct investment TFSA, then look into their exclusive e-series index funds (which are basically like ETFs), buy a few and see how it goes. The advantage with ETFs is that their basket holds a crapload of other baskets which in turn hold a crapload of other eggs. ETFs track the TSX or S&P, and statistically those have had a steady return for the last few decades. So if your looking for slow and steady thats a good start to get comfortable.

If your looking for hard and fast... nothing wrong with a blackjack table, you can turn that 4k into 8k within a few hours and it will require less research and more fun! Plus you might get a comped room out of it.
www.steadycheddar.wordpress.com
A blog about discovering steady cashflow avenues
Jr. Member
Feb 13, 2012
131 posts
7 upvotes
SCARBOROUGH
sanok wrote: It all depends on your risk tolerance. If 4k is nothing to you, than invest it all in a penny stock that can net you 4000000 in return. If you can't bear the idea of losing even 1/4 of that sum, then invest in something safe that gives steady returns (ETF, preferred stocks, bonds). If you put all your eggs into one basket... and the basket get run over by a truck (or whatever happens to them baskets)... then clearly you've lost your investment capital. If you spread your eggs around to various baskets then there is a chance if one basket goes down, a different basket goes up. BUT, it depends on what you diversify with.

For example, if you buy Apple and then RIM... if all of a sudden we all get chip implants in our brains and don't need smartphones, your eggs are all gone. If you buy Apple, Bank stock, Agriculture stock, tech stock... you have a better chance of staying afloat and making modest but less volatile returns. I would suggest looking into ETF (exchange traded funds), if you have an account with TD, you will be happy to know that they offer one of the best options for investing in ETFs without having a lot of cash. Look into opening a self-direct investment TFSA, then look into their exclusive e-series index funds (which are basically like ETFs), buy a few and see how it goes. The advantage with ETFs is that their basket holds a crapload of other baskets which in turn hold a crapload of other eggs. ETFs track the TSX or S&P, and statistically those have had a steady return for the last few decades. So if your looking for slow and steady thats a good start to get comfortable.

If your looking for hard and fast... nothing wrong with a blackjack table, you can turn that 4k into 8k within a few hours and it will require less research and more fun! Plus you might get a comped room out of it.

Your going to loose money, better put that into safer assets like bonds or real estate
Jr. Member
Mar 30, 2008
138 posts
21 upvotes
Toronto
BobJJones wrote: Your going to loose money, better put that into safer assets like bonds or real estate

I hope your joking about the real estate part right? Check the states and Calgary to see how "safe" real estate is. Historically real estate is a good buy, but at the current prices in Canada it's a trap.

[IMG]http://images.dailydawdle.com/its-a-trap.jpg[/IMG]
www.steadycheddar.wordpress.com
A blog about discovering steady cashflow avenues
Jr. Member
Feb 13, 2012
131 posts
7 upvotes
SCARBOROUGH
sanok wrote: I hope your joking about the real estate part right? Check the states and Calgary to see how "safe" real estate is. Historically real estate is a good buy, but at the current prices in Canada it's a trap.
Nice blanket statement..

As real estate is local and differs by cities within Canada, focus on each cities demographics, immigration, housing policies, municipal utilities, etc
Newbie
User avatar
Nov 17, 2011
30 posts
5 upvotes
So if you're contemplating getting started in the markets there's a bit of research and prep work you really would want to do before you really pull the trigger. It's really easy to get started in the markets, but just because you can get involved, it doesn't really mean you should. I liken it to having two fists: most people have them, but would you step into the ring with a pro boxer without proper training?

Boxers go into their sport knowing they're going to get hit, maybe even knocked down or badly hurt, and yet they do it anyway. When getting involved in the stock market, whether you're a "long-term investor" or a "trader" you have to know you're gonna get punched in the financial nose, and the person doing the punching is much more of a pro than you are. That said, if you're prepared and willing to get punched, and willing to train on how to take a punch, then you might want do some training and education BEFORE opening an account.

With all the sources of information out there, as a beginner and a "do-it-yourself"-er it's hard to separate news from noise. It's hard to know who's reputable and who isn't. Although I can't self-promote and post a link to my site here, I've put together resources that DIYs and beginners could find useful mostly because I started where most others do.

A good question to ask yourself is "how much time or effort do I want to put into this?" Trading successfully is a skill that takes time and practice. Gambling is much easier but less predictable in terms of outcome. If you don't think that trading is investing, I would simply say that unless your strategy is "buy low and sell never", you're a trader. That said, some good tips:

-seek out some free education: you'll have to endure some sales pitches, however there's a lot of free stuff out there, there's some going on this month and next such as the active trader expo: www.stockscores.com/expo
-some good books - a great starting point is called "juggling dynamite" by Danielle Park

As for which brokerage to pick, it really comes down to how much money you have and your activity level. If you're not planning on being very active, there are options out there such as questrade, optionsXpress or virtual brokers that don't have minimum trading requirements, but then there are others such as credential direct which have a low quarterly threshold for getting good rates and no inactivity minimums. Just look out for 'data fees' which can get tacked on to access market data which can add an unexpected monthly charge.

Lastly, for a beginner, think about the extra support you might need. The 'discounted commissions' are around because some organizations don't have the same type of resources to manage (and therefore spend on) - such as physical branches. That discount can sometimes turn into less responsive service. If, however, you like to deal with people face to face, or you really want well organized and timely reporting of your financial information, then sometimes the extra commission charges are worth it, especially if it saves headache and heartache at tax time. It's probably a lot of info to digest, but the reality is that if you're going to get started in the world of investing/trading, you'll have to be comfortable with dealing with a lot information and learn how to separate good information from bad information. It's the same thing you'll have to do when you eventually start evaluating potential investments.

Hope that helps.

-sparxtrading
Newbie
Sep 7, 2010
37 posts
2 upvotes
Thanks.

I know from my post earlier today it seems kind of like I woke up this morning and said "hey, let's try the stock market!". Truth is, I've been looking at it for quite some time, but I've never had a few thousand to play with, so I never bothered.

A couple of years ago I watched Jim Cramer's Mad Money religiously - even bought his book. The guy has quirks for sure but he knows his stuff. It was from him that I learned you don't just drop 5k and then sit back and pray. It's about diversification (5 companies ideally -- tech, gas, banks as someone already eluded to), and HOMEWORK! I even signed up on a virtual stock exchange site where you play with virtual stocks. Lost my shirt by the way - LOL.

I'm definitely going to give it some more thought and prepare a bit more before I pull the trigger. THanks.
Newbie
Feb 28, 2011
50 posts
2 upvotes
junkyardbottles wrote:
Taxes

This goes back to RRSP and TFSA.

If you purchased a stock and sold it, and made $1000 on it:

RRSP - you will pay income tax on all the amount ($4000 you put in your RRSP + $1000 you made) when you withdraw the money from your RRSP account
TFSA - you will pay income tax on the ($4000). The $1000 you made, you pay no tax on it.
Cash - you will pay income tax on the $4000 + $1000 you made.
Option/Short selling
"TFSA - you will pay income tax on the ($4000). The $1000 you made, you pay no tax on it."

For TFSA, why am I paying income tax on the $4000 still?
Deal Addict
Jul 31, 2004
1490 posts
40 upvotes
GTA
anothefoo wrote: "TFSA - you will pay income tax on the ($4000). The $1000 you made, you pay no tax on it."

For TFSA, why am I paying income tax on the $4000 still?

You didn't/don't pay income tax on the $4000 itself, but the $4000 is after-tax income.

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