Investment for Canadian Employees PART 5 – How to invest in stocks

hello. This is Miki’s Honey, MikiHani.

When investing with an RRSP or TFSA, you can invest indirectly or directly.

Indirect investing usually involves investing in mutual funds. The fund manager increases your money by buying and selling. However, there are a lot of maintenance fees paid every year.

Direct investment involves directly buying and selling individual products such as stocks or ETFs.

Talking at length about which is better is a waste of time, and the bottom line is, invest directly. By using a direct investment product called ETF, you can obtain all the benefits of a fund while lowering management fees.

To invest directly, you can sign up with a stock brokerage, make changes, and then directly buy stocks, ETFs, or other investment products. Details on signing up for a brokerage company or registering an account will be explained separately later.

Here, we will talk about what products to buy when making direct investments.

I usually buy a mix of ETFs and individual company stocks, but I mainly invest in U.S. stocks. All stock brokerages in Canada trade U.S. stocks.

One thing to note here is that when buying US stocks, you must transact in $US, so a currency exchange fee will be incurred. They usually charge 2-2.5%, but when you buy US stocks, you start with a 2% loss. And transaction fees are also paid in US$.

Don’t buy US stocks!

Haha, it seems like a very aggressive title, but the conclusion is that there is no need to buy US stocks while exchanging US$. You can invest as much as you want in American stocks in the Canadian stock market without having to exchange currency.

First ETF

First of all, most famous ETFs have similar ETFs in the Canadian stock market. For example

Canadian ETFs that track U.S. indices

ETFs tracking the same index can be purchased on the Canadian stock market with CAD$.

US company stocks (short-term investments)

If you want to make a short-term investment by selling individual U.S. stocks within 1-2 years, do not exchange currency and buy CDRs on the Canadian stock market.

When searching for stocks, you can buy stocks with .NE at the end. For example, if you search for Apple stock, APPL and APPL.NE appear simultaneously. APPL is Apple stock in the U.S. market, and APPL.NE is Apple CDR (Canadian Depository Receipts) in the Canadian stock market. You can think of it as having the same value as Apple stock. However, since it is traded on the Canadian stock market in CAD$, you can trade without incurring currency exchange losses and with low transaction fees.

Not all American stocks have a CDR on the Canadian stock market, but almost all the famous stocks you know have a CDR.

It is said that CDR also charges an internal fee of about 0.6%, which is much less than the currency exchange fee.

US company stocks (long-term investment)

To be honest, it is very difficult for ordinary investors to make long-term investments in individual stocks. They say Warren Buffett has owned Coca-Cola for 30 years, but that’s because he’s Warren Buffett. In fact, Warren Buffett will not forget it after buying it for the first time, but will continue to review the market situation and the company’s circumstances at an investment company called Berkshire Hathaway and decide that it is okay to continue investing every year.

On the other hand, when individuals first buy a company, they study hard and analyze information, but after purchasing stocks, they become confident in their initial decision and enter the realm of belief that stocks will continue to rise. But the world changes and companies change too. Even companies that were thought to be doing well 1-2 years ago are failing in droves.

So, in the end, if you want to continue studying the stocks you own, I think the answer is to own a very small number of stocks and continue to watch them with interest or invest in ETFs.

Norbert’s Gambit

Still, if you want to make a long-term investment in individual U.S. company stocks or want to keep selling and buying U.S. stocks while maintaining a US$ account, you can exchange CAD to USD using a method called Norbert’s Gambit. When exchanging money using this method, the larger the amount, the better. Exchange in increments of at least $10,000. Norbert’s Gambit allows you to exchange currency with a fee of 0.25%.

Norbert’s Gambit has such a complicated process that I need to write a separate article about it, so if you want to exchange money and invest, you can Google it.

Norbert’s Gambit {his own stock trading company}

Try searching.

Norbert’s Gambit may not be supported by each securities trading company.

personal advice

I have virtually stopped investing in individual U.S. stocks. ETFs are suitable for long-term investment, and individual stocks are eventually sold within 1-2 years. Then, it is more convenient in many ways to buy CDR rather than exchanging currency, and the account becomes simpler.

If stocks are complicatedly divided here and there, it is difficult to remember what you currently own, and if you pay attention to each one, it becomes a hindrance to your daily life.

So in the end, most of the money is buying Canadian ETFs that track the U.S. market and buying individual stocks with CDRs in the short term.

I am posting about investing using only Canadian ETFs. If you are interested in ETF investment, please read this article as well.

https://en.wonderfulmiki.com/2023/12/26/2023-december-canada-stock-investment-using-etf/

Next, let’s talk about investment products other than stocks.

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