You’ve taken control of your personal finances. You’re out of consumer debt, you’ve built an emergency fund, and now you’re ready to take the next step: investing. But you’re not thrilled about the prospect of paying the 2-3% management fees that most banks charge. Have you ever heard of an online brokerage platform? Self-directed investing? If you think self-directed investing is complicated, you’re not alone. That’s exactly what the financial industry wants you to believe. But the truth is, it’s relatively simple with some basic knowledge, especially for long-term investors with a passive investment strategy.
In this blog post, we’ll explore the world of self-directed investing and show you how to get started without breaking the bank. We’ll cover everything you need to know, from selecting the right online brokerage platform to understanding the basics of the different accounts they offer. You’ll have the knowledge and confidence to take control of your investments and reach your financial goals, all while avoiding the hefty fees that can eat into your investment returns.
So what are you waiting for? Let’s get started! Embrace the opportunity to become your own financial manager and pave the way to a secure and prosperous future.
I. Online Brokerage Platforms
Online brokerage platforms, also known as discount brokers or online brokers, allow you to manage your own investments in stocks, bonds, or exchange-traded funds (ETFs). You don’t need to go through a traditional investment broker or financial advisor to execute trades, such as buying or selling mutual funds, stocks, ETFs, or bonds. The transaction fees are typically $10 or less per trade, which can significantly boost your investment returns over time.
In Canada, some brokerage platforms now offer commission-free trading for stocks and ETFs. Examples include Wealthsimple Trade, Questrade, Qtrade, Disnat (Desjardins), and National Bank Direct Brokerage. These platforms empower you to take control of your investments without incurring high fees, making it easier to achieve your financial goals.
To open an account with an online brokerage platform in Canada, you typically need the following:
- Have an email account (gmail, yahoo, hotmail, etc.)
- Have a phone number
- Be a Canadian citizen, Canadian resident, or have a valid Canadian visa.
- Meet the minimum age requirement set by your province.
- Have a Social Insurance Number (SIN)
- Have a Canadian residential address.
- Be able to satisfy identity verification requirements.
A. Wealthsimple Trade
Wealthsimple is a Canadian online investment management company founded in 2014 with its headquarters in Toronto. Serving over 3 million clients and managing over 30 billion Canadian dollars in assets (as of January 2024), Wealthsimple has become a significant player in the financial landscape. When you open an account using my exclusive Wealthsimple Trade link and referral code 2TNWEA, you’ll receive a $25 cash bonus after depositing an initial amount of $150.
As a Wealthsimple client, your funds are securely protected. The money in all your individual and joint Cash accounts is held in trust with up to five tier 1, Canada Deposit Insurance Corporation (CDIC)-member, regulated Canadian financial institutions. This means that CDIC protection extends to Wealthsimple Cash account holders, safeguarding your money against the failure of these banks for up to $500,000 CAD across all Cash accounts.
In October 2022, the Bank of Canada approved Wealthsimple for direct settlement. This means that Wealthsimple has access to the Real-Time Rail (RTR) and does not have to rely on a third-party financial institution to process transactions through the RTR system.
Products offered by Wealthsimple
Wealthsimple offers the following range of products:
- Managed Investments (Robo-Advisor): Since 2014, Wealthsimple has provided automated, managed investment portfolios, taking the guesswork out of investing by using smart algorithms and expert advice to manage your portfolio.
- Self-Directed Investments (Online Brokerage Platform): Launched in 2019, this platform allows you to buy and sell stocks and exchange-traded funds (ETFs) without any trading fees on major Canadian and US exchanges (TSX, NYSE, NASDAQ, NEO, and CSE).
- Tax (Tax Filing Software): Also introduced in 2019, Wealthsimple Tax helps you file your tax returns easily and accurately.
- Spend and Save (High-Interest Checking Account): Since 2020, this account has offered high-interest checking options, combining everyday spending with the benefit of earning interest.
- Crypto (Cryptocurrency Platform): Available since 2020, this platform lets you buy and sell cryptocurrencies, making it easy to diversify your portfolio into digital assets.
- Private Credit Funds: For those with portfolios of $100,000 or more, Wealthsimple offers access to private credit funds, providing opportunities to invest in assets not typically available to the general public.
For my investments, I primarily use Wealthsimple Trade (use this code 2TNWEA and get $25 bonus), the online brokerage platform from Wealthsimple. It empowers me to make self-directed investments without incurring trading fees, allowing me to buy and sell stocks and ETFs on major exchanges. This platform is perfect for anyone who wants to take control of their investments and maximize returns without the burden of high fees.
2. How to use Wealthsimple Trade?
Wealthsimple Trade (Self-Directed Investments) is available on smartphones (iOS and Android) and on computers (Web). Their user-friendly interfaces make it easy to buy stocks and ETFs with just a few clicks. To get started, sign up here* (includes a $25 bonus when you use my promo code 2TNWEA). Download the mobile app (iOS or Android) or use the web version. Next, choose the type of accounts you want to open.
After that, deposit funds by connecting your bank account. You can now invest in thousands of Canadian and U.S. stocks and ETFs with no transaction fees! Additionally, you can even buy fractional shares.
3. Types of Accounts
With Wealthsimple, you can create the following accounts:
- Registered Education Savings Plan (RESP)
- Tax-Free Savings Account (TFSA)
- First Home Savings Account (FHSA)
- Individual Margin Account
- Registered Retirement Savings Plan (RRSP)
- Spousal Registered Retirement Savings Plan (Spousal RRSP)
- Locked-In Retirement Account (LIRA)
- Locked-in Retirement Savings Plan (Locked-in RSP)
- Retirement Income Fund (RIF)
- Life Income Fund (LIF)
Please note, however, that not all account types are available on Wealthsimple Trade (Self-Directed Investments). Some accounts are exclusively offered on other Wealthsimple platforms, such as Managed Investments, Spend & Save, and Crypto. For example, while the RESP is available, Wealthsimple is not an authorized RESP provider in Quebec, meaning the provincial grant (IQEE) is excluded.
4. Account Characteristics
Due to its simplicity and ease of use, Wealthsimple Trade is one of the best online brokerage platforms in Canada. You won’t pay any commission fees on stock trades or exchange-traded fund (ETF) transactions. This makes it an incredibly cost-effective option for investors looking to maximize their returns.
Here are some key features of transactions made on Wealthsimple Trade:
- Commission Fees (Individual Stocks): Free
- Commission Fees on Exchange-Traded Funds (ETFs): Free
- USD Conversion Fee: 1.5% (This percentage can change daily; please refer to Wealthsimple for the current rate)
- Ability to Hold USD in Accounts: No
5. Funding Your Account
After opening your Wealthsimple account, you have the option to link one or more of your bank accounts. Once connected, your checking or savings account will serve as the source of funds whenever you make deposits into Wealthsimple. It will also be the destination for your withdrawal requests.
Funding your account is straightforward with electronic transfers, allowing you to deposit up to $3,000 instantly each day, with these funds immediately available for sending, spending, investing, trading, and withdrawing. The weekly deposit limit is $10,000, and the monthly limit is $20,000.
If you have an investment account with another financial institution, you can transfer it to your Wealthsimple account. Be aware that your current financial institution may charge a transfer fee ranging from $50 to $150, which will be deducted from your account value at the time of transfer. However, Wealthsimple will reimburse these fees for transfers valued at $5,000 or more. You simply need to complete the transfer fee reimbursement request within the mobile app.
Another way to add funds to your Wealthsimple account is by using a Visa or Mastercard debit card. Your deposit request is processed as if you were making an online purchase. By adding a debit card to your Wealthsimple account, you can deposit up to $3,500 instantly. These funds are added directly to your account and can be internally transferred or withdrawn immediately. The maximum monthly deposit amount using this method is $35,000.
6. Some (Minor) Drawbacks of Wealthsimple
a. Currency Conversion Fees
When investing through Wealthsimple Trade, one minor drawback is the currency conversion fees for US dollar transactions. Many investors purchase American funds, which are denominated in US dollars. Unfortunately, Wealthsimple Trade automatically converts your Canadian dollars to US dollars for these transactions, and you must pay a conversion fee of 1.5% each time. While this fee is relatively reasonable compared to other brokerage platforms that charge around 2.0%, it can still add up over time, particularly for active traders.
To mitigate the impact of these conversion fees, consider focusing your investment portfolio primarily on Canadian securities. By doing so, you can avoid frequent currency conversions and the associated costs. Additionally, if you do wish to invest in US funds, aim to hold these investments for the long term—at least 15 years. Over such an extended period, the returns generated by these US investments could significantly outweigh the initial and ongoing conversion fees, making the strategy more cost-effective.
Moreover, Wealthsimple offers a solution for frequent US dollar investors through its “Trade Plus” account, available to “Essentials” clients. This account allows you to maintain a US dollar balance and execute trades in US dollars without incurring additional commission fees. The service is priced at $10 per month, providing a straightforward way to reduce conversion costs for those who trade US securities regularly.
For clients in the “Advantage” and “Generation” tiers, the USD account feature comes at no additional cost, making it an even more attractive option for higher-tier users. This benefit can be particularly valuable for those who frequently invest in US markets, as it eliminates the recurring 1.5% conversion fee, ultimately enhancing the overall efficiency and profitability of your investment strategy.
In conclusion, while the currency conversion fees on Wealthsimple Trade are a notable consideration, they are manageable with strategic planning. By concentrating on Canadian investments and holding US investments for the long term, you can minimize the impact of these fees. Additionally, upgrading to a “Trade Plus” account can provide significant savings for regular US dollar investors, making Wealthsimple Trade a flexible and cost-effective platform for a wide range of investment needs. Taking these steps will help you navigate the fees and maximize your returns, keeping your financial goals on track.
b. Delayed Data
When using Wealthsimple Trade, one inconvenience that users may encounter is the delayed display of stock values. Frequently, the platform shows stock prices with about 15-minutes lag compared to real-time market prices. This delay means that the prices you see on Wealthsimple Trade may not accurately reflect the current market prices, which could be particularly concerning for active traders or those looking to make time-sensitive investment decisions.
One effective solution to mitigate the impact of this delay is to cross-reference the stock prices displayed on your Wealthsimple Trade account with real-time data from other reliable financial platforms. Websites such as Yahoo! Finance and Dividend Tracker offer real-time stock price updates and can provide a more accurate snapshot of the market at any given moment.
B. Questrade
Questrade (sign up here* and get a $50 bonus when you use my promo code 655729493467527) stands out as one of the premier brokerage platforms in Canada, managing an impressive $30 billion in assets. Established in 1999, Questrade has consistently demonstrated reliability and excellence over its 24-year history. This reputation is further cemented by its recognition as one of Canada’s Best Managed Companies, an accolade it has received 12 times. This consistent recognition highlights Questrade’s commitment to providing exceptional service and robust investment solutions to its clients.
One of Questrade’s most appealing features is its low-cost structure, making it one of the most economical platforms for trading stocks and ETFs in Canada. Investors looking to maximize their returns will appreciate the competitive fees, which are significantly lower than those of many traditional financial institutions. This cost efficiency can play a crucial role in boosting overall investment returns, particularly over the long term.
Questrade’s commitment to security and regulatory compliance is another key aspect that sets it apart. As a registered securities dealer, Questrade is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). These memberships ensure that Questrade adheres to stringent industry standards and provides a safety net for investors. Additionally, Questrade goes above and beyond by offering an extra layer of protection with $10 million in private insurance coverage for client accounts. This comprehensive insurance ensures that investors can trade with confidence, knowing their assets are well protected.
For those new to investing or looking to transition from another brokerage, Questrade offers a user-friendly platform that caters to both novice and experienced investors. The platform provides a wide range of investment options, including stocks, ETFs, mutual funds, bonds, and more. Its intuitive interface and powerful tools make it easy to manage your portfolio, conduct research, and execute trades efficiently.
Products offered by Questrade
Questwealth stands out by offering two primary services: Questrade, for self-directed investment accounts, and Questwealth, for professionally managed investment accounts.
Questwealth is designed for investors who want to take advantage of professional expertise to optimize their investment strategy and achieve their financial goals. With Questwealth, you benefit from the insights and decisions of experienced portfolio managers who actively manage your investments. This service is ideal for those who may not have the time, knowledge, or inclination to manage their portfolios on a daily basis but still want to ensure their investments are being handled strategically.
Questwealth portfolios are built using a mix of low-cost exchange-traded funds (ETFs), which helps keep fees low and enhances your net returns. The platform is designed to be transparent and straightforward, providing you with clear insights into how your money is invested and how your portfolio is performing. Regular updates and reports ensure you stay informed about the progress towards your financial goals.
2. How to use Questrade?
Questrade is available on smartphones (iOS and Android) and on computers (Web). Their user-friendly interfaces make it easy to buy stocks and ETFs with just a few clicks. To get started, sign up here* (includes a $50 bonus when you use my promo code 655729493467527). Download the mobile app (iOS or Android) or use the web version. Next, choose the type of accounts you want to open.
After that, deposit funds by connecting your bank account. You can now invest in thousands of Canadian and U.S. stocks and ETFs with no transaction fees!
3. Types of Accounts
Similar to Wealthsimple, you can open the following accounts with Questrade:
- Registered Education Savings Plan (RESP)
- Tax-Free Savings Account (TFSA)
- First Home Savings Account (FHSA)
- Individual Margin Account
- Registered Retirement Savings Plan (RRSP)
- Spousal Registered Retirement Savings Plan (Spousal RRSP)
- Locked-In Retirement Account (LIRA)
- Locked-in Retirement Savings Plan (Locked-in RSP)
- Retirement Income Fund (RIF)
- Life Income Fund (LIF)
4. Accounts Characteristics
Questrade stands out in the Canadian brokerage landscape for its exceptionally low trading fees, making it a compelling choice for investors looking to optimize their investment costs.
For instance, Questrade pioneered commission-free purchasing of Exchange-Traded Funds (ETFs) in Canada, setting a precedent in the industry. This fee structure allows investors to build diversified portfolios without incurring additional costs typically associated with trading ETFs.
Questrade’s competitive pricing extends to individual stocks as well, with trading commissions ranging from $4.95 to $9.95 per transaction, depending on the type and volume of trading. Moreover, Questrade offers the flexibility to hold U.S. dollars directly in your accounts, which can be advantageous for investors looking to manage currency fluctuations and avoid unnecessary conversion fees.
While there is a small fee for currency conversion (ranging from 1.5% to 2%), Questrade’s commitment to transparency ensures that investors are informed of any changes in these rates, allowing for informed decision-making. Whether you’re a seasoned investor or just starting to build your portfolio, Questrade’s low-cost structure and comprehensive range of investment options empower you to take control of your financial future effectively.
If you’re ready to reduce your investment expenses and maximize your returns, Questrade offers a reliable platform with the tools and support to help you achieve your financial goals.
5. Funding your Account
When it comes to managing your investments efficiently, Questrade offers seamless options to fund your accounts and consolidate your investments from other financial institutions. You can deposit funds into your Questrade account directly from your bank, although this method may take a few business days to process. For those who prefer instant transactions, using your Visa Debit card ensures immediate funding.
Questrade goes the extra mile by reimbursing transfer fees up to $150 per account when you move your investments from other brokers. There’s no limit to the number of accounts you can transfer, making it easier to consolidate and streamline your investment portfolio under one platform. To claim your $150 reimbursement per account, simply provide Questrade with proof of the transfer fees charged by your previous brokerage within 60 days of initiating the transfer. This seamless process not only helps you save on transfer costs but also ensures that your investment strategy remains uninterrupted as you transition to Questrade’s comprehensive suite of investment tools and low-cost trading options.
6. Some minor drawbacks
- Available only in English (translation in progress according to Questrade’s website)
- No fractional shares
- Trading fees for stocks and ETF sales
How to Invest in the Stock Market in Canada
To invest in the stock market, you need to open an investment account with an online broker. In Canada, there are currently four online brokers with either no commission fees or low commission fees:
- Wealthsimple (use my exclusive Wealthsimple Trade link and referral code 2TNWEA, you’ll receive a $25 cash bonus after depositing an initial amount of $150).
- Questrade (sign up here* and get a $50 bonus when you use my promo code 655729493467527)
- National Bank Direct Brokerage
- Desjardins Disnat
I will update this list as other credible providers, validated by the country’s competent authorities, enter the market. If you know of any others, please let me know.
Personally, I use Questrade to invest in my children’s RESP and Wealthsimple for my TFSA, RRSP, and non-registered accounts. Mrs. Finance Faded exclusively uses Wealthsimple because she finds it easier. Together, we have a family RESP, two TFSAs, two RRSPs, and a non-registered account. In each of these accounts, we self-invest by exclusively purchasing all-in-one index ETFs.
II. Other Online Investment Platforms
Other online trading platforms such as Disnat (Desjardins), National Bank Direct Brokerage, and Qtrade also offer the same features as Questrade and Wealthsimple Trade.
Thanks for reading! You can support my work by buying me a coffee.
Disclaimer
While I have tried to ensure the accuracy of the information contained in this blog, I do not guarantee it. I’m not a licensed financial adviser or anything similar, so take this blog only as an educational resource and my personal thoughts and opinions. No liability is assumed for losses or disappointments due to the information provided. It is important that you always exercise your own judgement when making decisions that can impact your wallet, and your life!