So you’re looking to get into the world of investing are you? Great. The stock market has long been a mystifying place for most, but it’s quite simple really. With the proper education and practice you can be well on your way to investing for retirement. Let’s start out with learning exactly what a stock is first.
So what exactly is a stock?
First of all stocks are different from other investments because they are pieces of an actual company. Unlike mutual funds which are investments that are comprised of any number of companies and are repackaged and sold to an end user. Additionally there is more than one type of stock, for examples stocks can be purchased based on the class of shares, different classes offer different privileges. But for this article we will assume that common stock is being purchased.
A common stock is simply a type of security that involves ownership in a business and represents a claim on a portion of the companies assets and earnings.
To buy or sell any stock you need to get in contact with a broker. A broker is a licensed individual or corporation that will purchase and sell shares on the market on your behalf. Brokers are trained in the legal requirements that need to be followed in order to make these transactions, ie. registering trades with the appropriate governing authorities.
Should I go with a discount brokerage or a full service brokerage?
The most basic decision an investor must make is the type of brokerage house they want representing them. As of today there are essentially two options, discount brokerage or full service brokerage. This decision is far from easy to make. A discount broker will not offer guidance as to which purchases you make.
Discount brokerages are online entities like Interactive Brokers, or Questrade. More often than not these companies will provide a research platform to view fundamental data for companies trading on exchanges that you are investing in.
However, if you are reading this article on how to buy stocks chances are good that you don’t know how to choose them either. Conversely at a full service broker you will be provided with research based on your investing style and risk tolerance.
Essentially you will have a guide to help you navigate through different investments. A full service brokerage will provide you with an account manager that will be there to answer questions that may arise about your future or current investments.
Should I keep stocks inside my RRSP?
In addition to the differences listed above between full service and discount brokerages there is another important consideration to keep in mind and that is whether you want to keep stocks inside your RRSP or not. There is plenty of information on RRSPs on www.stocktrades.ca. Before you make any decisions it is important to keep in mind the tax saving benefits of RRSPs and TFSAs as opposed to holding stocks outside of a plan which will then be subject to full taxation.
We hope this article gave you an idea of what a stock is and how you can go about purchasing them. It’s imperative that you read, read, read, and read some more when learning about investing. It takes years to learn the intricacies of the stock market. In fact, most investors are in a constant cycle of learning, as the markets always change.