For traders, 2020 has been as profitable as it has been weird. Usually, a disruption like a global pandemic has devastating consequences for the economy AND the stock market. And, for a brief time, it certainly looked that way, as equities plunged more than 40% in March.
Then, a curious thing happened – the U.S. Treasury came to the rescue of investors. By pumping more than 2.3 trillion USD into markets, the DOW, NASDAQ, and S&P began to reverse their losses. Aided by a nation of neophyte traders, the NYSE recovered its losses by November. Later that month, they hit an all-time high.
As these equity markets explore new territory, you want in on the action. However, trading on your own is different than getting a mutual fund manager to do it. Below, we’ll run down the basics of self-guided investing, and we’ll help you pick the right brokerage.
Why Trade With a Discount Brokerage?
77% of Canadians have investment accounts. That’s no accident, as most of us understand the importance of putting extra cash to work. So, why do so many struggle to get ahead?
There is plenty of blame to go around, but underperforming mutual funds deserve much of it. According to Forbes, the average investor only gets an annual return of 2.6% over ten years. Things get even worse as time passes – over 30 years, the average return is just 1.9%.
Let’s not mince words – that’s pathetic. For perspective, online banks (like Varo) offer savings account interest rates that yield better than that (2.81% at press time). That begs the question – why on Earth does the average mutual fund do so poorly?
We’ll keep it real – sometimes, investors have nobody to blame but themselves. They get caught up in the hype and buy high, and then, when markets fall, they sell low. However, when you take a close look at most mutual funds, they aren’t set up to optimize returns, either. From high maintenance fees to excessive expense ratios, their rates steadily erode investment principal.
Discount brokerages like Qtrade minimize these fees. Paired with a healthy approach to investing, these firms can enhance your returns.
Learn the Basics Before Getting Started
You mustn’t approach self-directed investing with a sense of entitlement. Trading is like any other skill – to do well, you have to study hard. You can’t dump your money in a handful of stocks and hope for the best. In fact, that’s how inexperienced traders lose their shirts.
So, let’s start from the start. Before investing a dime, define your goals. Are you beginning from zero? Starting late? Looking to improve your current yields? Are you within 10-15 years from retirement age?
Generally speaking, the younger you are, the more aggressive you’ll want to be. The closer you are to retirement, the more you’ll want to play defence. However, if you’re older, but are behind on your savings goals, you may need to take more risks.
For this to make sense, though, you’ll have to learn investing basics. First of all, never invest money you might need in the next five years. This includes everything from rent to college tuition. So, draw up a household budget. After accounting for needs and short-term savings goals, extra funds can go towards investments.
Next, open an account with an online broker like Qtrade discount brokerage. In general, don’t trade with any broker that charges total fees of more than 1%. Many mutual funds charge fees equal to 2% of assets under management. So, if these products return 5% per year, the investor makes 3%. That’s unacceptable.
After setting up your account, start by investing in a conservatively-managed ETF. Then, get to work. Any online brokerage worth their salt makes research resources available to their customers. Review these, and use them to inform decisions on riskier mutual funds and individual stocks.
Which Discount Brokerages Should I Trade With?
Our country may be small, but we have a wealth of choice regarding discount brokers. Each of the Big 5 banks has online discount brokerages. However, all pale in comparison to the lower fees charged by non-bank alternatives.
Below, we’ll discuss the pros and cons of each trading service.
Many online brokerages (like Wealthsimple Trade) are new to the Canadian investing scene. Not Qtrade – this industry veteran has been around since 1999. Ancient by internet standards, Qtrade discount brokerage has built and maintained its market share by delivering fantastic value to investors.
Low/no fees are the most significant way they do this. If you invest in ETFs or mutual funds, you won’t pay a transaction fee when buying OR selling these products. And, if you opt to trade individual stocks, you’ll only pay $8.95 per transaction. Except for Questrade’s premium rate, that’s one of the lowest fees in the industry.
Qtrade is also famous for the customer service they offer. Rather than make their customers wait forever on hold, they offer a callback service. They also offer outreach by email and live chat – in all cases, they respond quickly. When they do, they work proactively to solve customer issues.
Many investors will love the Qtrade discount brokerage, but there are some downsides. The biggest is their inactivity fees – if you don’t sign in enough AND have less than $25,000 on your account, they’ll ding you.
Need more information? This Qtrade review by MillionDollarJourney covers this brokerage in exhausting detail.
Were it not for Questrade, Qtrade may have ended up just like the bank brokerages. Founded around the same time as Qtrade, Questrade is just as popular. Every year, they open more than 30,000 trading accounts.
On fees, Questrade is excellent. The buying of ETFs are free, and for top customers, individual stock trading fees can get as low as $4.95. Best of all, Questrade charges no annual/inactivity fees on customers below the age of 25. Even if you are older than 25, Questrade waives fees if your account balance is above $1,000.
On the other hand, they do charge fees on the sale of ETFs. Furthermore, their investor information lags behind competitors. Apart from these cons, Questrade is a fine choice for retail investors.
At first glance, Interactive Brokers looks positively intimidating. Its dashboard has a technical appearance, with much of the screen dominated by candlestick graphs and stock listings. However, if have invested for a while, this service might be for you.
If you’re into trading individual stocks, you’ll pay nothing as a casual trader. If you sign up for the pro package, you’ll pay $0.005 per share – minimum $1 and maximum 0.5% trade value per order. The casual package seems like the better deal, but you get access to a suite of in-depth services as a pro subscriber.
Unless you trade penny stocks, Interactive Brokers is a fantastic option for the seasoned trader.
Take Control Over Your Future
Trying to save with traditional mutual funds is like running with a parachute on your back. Over a set period, you’ll wind up far behind those not burdened by freaking parachute on their backs.
Do your research, learn more about investing, then sign up for a broker like Qtrade discount brokerage. Get it right, and you’ll reach your financial goals years ahead of schedule.
Tradersdna is a leading digital and social media platform for traders and investors. Tradersdna offers premiere resources for trading and investing education, digital resources for personal finance, market analysis and free trading guides. More about TradersDNA Features: What Does It Take to Become an Aggressive Trader? | Everything You Need to Know About White Label Trading Software | Advantages of Automated Forex Trading