The Loonie Bin: Dividend Investing 101: Trading Accounts

The Loonie Bin: Dividend Investing 101: Trading Accounts

Dividend Investing 101: Trading Accounts

In my last post I discussed the magic of dividend investing and how it's an easy choice for DIY investors. If you've been following my blog and are ready to take the big step of being a self investor, choosing the right account from the right discount brokerage can seem very complicated. Not all brokerages are created equal, so you really need to do your homework and find one that works for you and your investment style.

When researching which discount broker to use, you must read all the fine print and become familiar with fees associated with each type of trading account. Each brokerage has different conditions that when met, can either waive fees or lower commissions. I prefer to use discount brokerages through banks personally because I like seeing actual institutions where I can stop by and talk in person if needed. I've covered the different brokerages pros and cons in an earlier post which I highly recommend reading, so I'll focus on the actual types of accounts

Cash accounts are the basic type of trading account that allows you to invest your after tax income. Most cash accounts have an inactivity fee that is charged per quarter unless you execute a few trades, have a high enough balance, or sign up for paperless statements.You must pay taxes on any income generated from these accounts, so make sure you keep track of your investments to calculate your cost basis for tax purposes. (To keep my investing simple, I don't invest with cash accounts. Maybe one day when I have piles of money to burn and can afford to use an accountant, I will use mine more. )

Registered trading accounts are used to invest money that is tax sheltered. They have a yearly fee that can be waived if you have a high enough balance, usually $25000. I recommend getting one even if you have to pay the $100 yearly fee because it's a lot cheaper then paying any MER on mutual funds. Plus it allows you to invest in U.S companies and not have to pay any withholding tax on the dividends. No need to worry about taxes until you take money out after you retire...or need emergency money after Jr. blows up your house after a failed attempt at making a potato cannon.

TFSA trading accounts are my absolute favorite. You can invest totally tax free and fee free( from what I've seen at least). If you are starting to invest from square one, a TFSA trading account is your best bet. I max my TFSA each year so that one day I will have a tax free dividend income, no matter how much money my wife and I make in the future. Even if you start with $50-$100 a month, start pooling your money and purchase some shares in a blue chip, dividend company and save the dividends to re-invest. You can buy shares from other companies in diffferent sectors each year to help deversify your portfolio. After 10 years, your little compounding machine will start to really take off.

That's a basic rundown of the different trading accounts. I know there are more accounts out there like margin and RESP accounts, but my idea of self investing is all about making it as easy as possible. The hardest part of setting up trading accounts is talking on the phone, or making an appointment to sign documents. Don't be frightened by the who investing in the stock market shpeel. I'd compare the process to opening up a chequing or savings account. It's that simple. If you have any questions, ask away with a comment or email.