Investing for beginners in Canada: Your complete guide

What do you want in life? It’s a big question. While daunting, it's important to ask this question now because money will play a big role in getting you there.

Some potential goals could include home ownership, starting a family and retirement. It’s important to account for each of these goals in your investment strategy. 

For retirement, you’ll want to get a bit more specific. When do you want to retire? My wife and I, for example, can’t see ourselves working until we’re in our 60s, so our investment plans have been much more aggressive. 

Also, how much do you think you’ll want to spend in retirement? Will you be living a modest life in an isolated cabin in Northern Ontario or living it up in a penthouse in Toronto? 

Your answers to these questions can be guesses for now. The important part is to pick a point on the map to aim for, even if that isn’t where you ultimately end up.

The first test of my risk tolerance came at the beginning of the pandemic. In less than a month, my portfolio dropped 30%. What did I do? Absolutely nothing. And it was one of the best financial decisions I ever made.

Risk tolerance is all about how well you’re able to withstand fluctuations in the market, without pressing the big, red abort button. Especially if you’re saving for retirement, which could be decades in the future, you’re guaranteed to experience some market drops along your investment journey.

In general, higher risk equals higher rewards. When you’re investing for a future goal, drops are nothing to fear. In fact, some seasoned investors actually look at this as the ideal time to put more money in the market.

Since the pandemic market drop, my portfolio has recovered by 150% — over double its original value. If I had panicked and taken it out, I would have lost tens of thousands of dollars.

The key is to understand yourself. The goal here is to prevent you from panic selling when the market drops. If you have ironclad will, then a 90 to 100% stock-weighted portfolio could be right for you. If you’re a bit risk averse, you may feel better with 80% to help you sleep at night through those inevitable drops.

Of course, you’ll need to adjust your risk tolerance along your investment journey. As you approach retirement, you’ll begin to move more of your portfolio to lower-risk investments.

When I started investing, it was all about maximizing the amount of money I could put in the market. Instead of taking the bus, I biked to work. I brought leftovers for lunch instead of buying. I resisted the urge to impulse buy video games. 

All these little decisions add up quickly. My wife and I used to have a spare change jar that we’d use to accumulate our savings. Today, there are apps and bank features that take this same concept and apply it to the digital world. 

If you started investing at 20 and contributed $10,000 per year, your total contributions would reach $138,000 by age 34. But thanks to the magic of compound interest, your investment balance would actually grow to approximately $220,554 by that time, assuming a standard market growth rate of 7%. 

By age 40, with a total principal of $200,000, your investment would grow to $386,000, and by 60, it would reach $1.3 million—over two-thirds of that coming purely from the power of compounding.

The first 100k is a milestone on the investment journey. I truly believe in some ways it is even more impactful than one million (although truth be told, I can’t speak to that milestone yet). For me, it was the moment I thought, “wow, this stuff actually works.”

If your $100,000 is in high risk investments, then this is where the magic starts to happen. This money makes roughly $7,000 per year on average. That’s more than I’d make working the whole summer as a landscaper when I was a teenager. And instead of shovelling dirt, I’m doing absolutely nothing to make that amount. 

The Canadian government offers several different ways to incentivize citizens to save their money — and you should be taking advantage of every one you can.

A Tax-Free Savings Account (TFSA) allows your investment income to grow tax-free. A Registered Retirement Savings Plan (RRSP) gives you tax breaks now when you contribute to it, and taxes you later when you withdraw (likely at a lower bracket than you are currently).

Related: Best TFSA investment options

Best practice is to focus on maxing out your TFSA first. For one, your money is more accessible in your TFSA as it can be withdrawn without penalty. But also, since RRSPs reduce your taxes, it’s better to save your RRSP room for you when you’ve reached your max earning potential in life.

For example, if you’re making $85,000 right now at 30 years old, you may want to save your RRSP room when you’re 40 making $200,000. While it's difficult to predict the future, on average, income peaks in your 40s and 50s.  

A Locked-In Retirement Account (LIRA) is an account that holds money transferred from a pension. For example, when my wife left her job, she transferred her pension money into a LIRA, where it will rest until she retires. As the name implies, this money is locked-in — it cannot be accessed until retirement age under most circumstances.

This is the “set it and forget it” strategy popular with many investors, yours truly included. I have a dedicated amount I invest every month that I contribute when I’m paid. This is a great strategy for consistency and sticking to a budget, and it’s the one I’d recommend. 

I’m not a fan of lump sum investing unless it’s done in tandem with DCA. I think only investing when you have a large amount of cash means you’re keeping money off the market where it could be growing, and isn’t a consistent investment strategy. That said, if you’re already a DCA enthusiast and you get a bonus or inheritance, by all means – invest a lump of it.

“Hedging your bets” may be a phrase that arose from gambling, but it applies perfectly to investment strategy. A single stock may go up or it may go down – there’s no consistent way to predict it (and if there were, we’d all be rich). But there’s one thing we do know – a diverse portfolio with a mix of investment types has traditionally always gone up in value over a long enough period of time. That’s the power of diversification.

Invest early, invest often and hold on for as long as you can. Compound growth means your money will grow exponentially, so the longer you hold the more dramatic that will be. Since most people want to retire at some point (as early as possible if you’re me) investing early means you can have that long-term focus without putting off your financial freedom.