Is my money safe with an online broker in Canada?
Yes, provided you choose a regulated broker. Look for platforms that are members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). CIPF protects your securities up to $1 million in the event the brokerage firm becomes insolvent. Always verify a broker's credentials on the IIROC website before opening an account. Security of your capital is paramount, and regulation is the key.
What is the difference between a TFSA and an RRSP?
A Tax-Free Savings Account (TFSA) allows your investments to grow completely tax-free, and withdrawals are also tax-free. An RRSP (Registered Retirement Savings Plan) provides a tax deduction on contributions, and investments grow tax-deferred. However, you pay income tax on withdrawals, typically in retirement when your income is lower. The best choice depends on your income level, savings goals, and time horizon. Many investors use both to maximize their tax advantages.
How much money do I need to start investing?
You can start investing with a surprisingly small amount. Many Canadian brokerages have no minimum deposit requirements, and the advent of fractional shares and low-cost ETFs means you can build a diversified portfolio with as little as $50 or $100. The most important thing is to start early and contribute regularly, allowing the power of compounding to work for you over time. Consistency is more important than the initial amount.
Can I lose more money than I invest?
For most common investment types, like buying stocks or ETFs, the maximum you can lose is the total amount you invested; your account cannot go into a negative balance. However, using advanced strategies like short selling or trading on margin (with borrowed money) introduces the risk of losing more than your initial investment. As a responsible investor, especially when starting out, it's wise to stick to straightforward buying and holding of assets.
What are Management Expense Ratios (MERs)?
The MER is an annual fee charged by mutual funds and ETFs to cover operating costs, including fund manager salaries, administrative fees, and taxes. It is expressed as a percentage of the fund's total assets. For example, a 0.50% MER means you pay $5 annually for every $1,000 invested. Low-cost index ETFs often have MERs below 0.20%, while actively managed mutual funds can be over 2%. Choosing low-MER products is a key strategy for maximizing long-term returns.
How do I handle taxes on my investments in a non-registered account?
In a non-registered (or 'cash') account, you must pay tax on any investment income. This includes interest, dividends, and capital gains. Capital gains (profits from selling an asset for more than you paid) are taxed favorably in Canada; only 50% of the gain is added to your taxable income. You will receive a T5 and/or T5008 slip from your broker each year to report this income on your tax return. It's crucial to track your adjusted cost base (ACB) to calculate gains accurately.