Stocks 101
How the stock market works and whether individual stocks are right for you.
What is a Stock?
A stock represents a tiny piece of ownership in a company. When you buy a share of Royal Bank (RY), you literally own a fraction of that bank. If the company does well, your share becomes more valuable.
How Do You Make Money?
- ⬥Capital gains: Buy at $50, sell at $75 = $25 profit per share
- ⬥Dividends: Some companies pay you cash quarterly just for holding their stock
The Canadian Stock Market
Canada's main stock exchange is the Toronto Stock Exchange (TSX). It's home to major companies like:
- ⬥Big 5 Banks (RBC, TD, BMO, Scotiabank, CIBC)
- ⬥Energy companies (Enbridge, Suncor, TC Energy)
- ⬥Tech companies (Shopify, Constellation Software)
- ⬥Telecoms (BCE, Telus, Rogers)
Individual Stocks vs. ETFs
| Factor | Individual Stocks | ETFs |
|---|---|---|
| Risk | Higher (one company) | Lower (hundreds) |
| Research needed | Significant | Minimal |
| Potential return | Higher (or lower!) | Market average |
| Best for | Experienced investors | Most people |
Key Terms to Know
- ⬥Market cap: Total value of all a company's shares (large-cap = safer, small-cap = riskier)
- ⬥P/E ratio: Price-to-earnings — helps you gauge if a stock is expensive or cheap
- ⬥Dividend yield: Annual dividend payment as a % of stock price
- ⬥Blue chip: Large, stable, well-established companies (like the Big 5 banks)
⚠️ Honest Advice
For most beginners, ETFs are a better choice than individual stocks. You get diversification, lower risk, and don't need to research individual companies. If you want to pick stocks, limit it to 10% of your portfolio until you're experienced.
🍁 Canadian Pro Tip
Canadian dividends get preferential tax treatment through the Dividend Tax Credit. If you hold dividend stocks outside a registered account, you'll pay less tax on dividends than on regular income.