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The goal is this article is to give you a step-by-step guide on how to invest in stocks through your TFSA.

I’ll go through each of these 5 steps in detail to ensure that when you finish reading this article you’ll feel 100% confident in your ability to get started.

Before getting into this 5-step process though, I’ll first do a brief recap on what a TFSA is, along with some things you should know when investing in stocks through your TFSA.

So let’s get into it.

What is a TFSA?

In short, a TFSA is a special type of investment or savings account that allows Canadians to invest their money and generate tax-free gains.

I say “special type” because TFSAs are actually registered by the Canadian government which means they come with tax-benefits that aren’t available for normal investment or savings  accounts.

Important Note: TFSAs aren’t investments themselves, they’re accounts in which you can hold investments within and generate tax-free gains for doing so.

So instead of saying you’ve invested in a TFSA, you’d actually say you’ve invested in some type of investment within your TFSA.

For example, I hold Tesla stock within my TFSA. 

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Things To Know: Investing in Stocks Through Your TFSA

Okay, so if you never before, now you atleast have a general idea of what a TFSA is.

But before I show you how to invest in stocks through your TFSA, there are a few things you should know.

I will keep each section here relatively brief, as I want to get into the 5-step process, but I will include links within each section that go into more detail on that topic.

Don’t Over Contribute to Your TFSA 

There is a limit to how much you can contribute to your TFSA every year. If you contribute more than this amount, you’ll have to pay a 1% tax penalty every month.

This video shows you how to check your TFSA contribution limit.

Related Financial Geek Article: How to Know if You Over-Contributed to Your TFSA

You Can Have Multiple TFSAs

While I wouldn’t recommend this, just know you can have multiple TFSAs open at one time if you wish – as long as your total contributions don’t exceed your TFSA contribution room.

If you want more information on this, I wrote an article about opening multiple TFSA accounts and why I don’t recommend it. 

Withholding Taxes will Apply on US Dividends

Any dividends you generate from US stocks through your TFSA will be subject to a 15% withholding tax.

These taxes will be automatically taken off your dividend before it hits your investment account, so you don’t have to worry about anything. 

My article Are Dividends Taxed within a TFSA goes into more detail on how this process works, but just know, there is no action required on your end. The dividends you generate from your US stocks will be 85% of what the actual dividend is.

You are Not Allowed to Day Trade in TFSAs

Day-trading stocks within your TFSA is not allowed, so you shouldn’t do it.

The CRA will consider your profits to be” business income” and not “investment income”.

For information on this, here are six factors that the CRA looks at when determining whether or not your investing or day-trading.

Capital Gains within your TFSA are Tax Free

As long as you aren’t day-trading, any capital gains you earn through stocks will be 100% tax free.

That’s why investing in stocks through your TFSA is such an awesome thing, year after year you can earn tax-free income.

Related Financial Geek Article: Do TFSA Withdrawals Count as Income?

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How To Invest in Stocks Through Your TFSA

Here is the 5-step process to investing in stocks through your TFSA.

Step 1 – Open a TFSA with an Online Brokerage

Step 2 – Research Stocks to Invest In

Step 3 – Check Your TFSA Contribution Room

Step 4 – Login to Your Online Brokerage Account

Step 5 – Buy Stocks Through Your TFSA

Step 1 – Open a TFSA with an Online Brokerage

So the first thing you need to do in order to start investing in stocks through your TFSA is to open an online brokerage account.

An online broker is essentially just an online, account based platform that allows individual investors like you and I to buy and sell stocks.

Now there are many different options out there for you to do this with, but I’d strongly recommend Questrade.  As mentioned, we partner with Questrade, if you do signup with this link, you will get $50 in free trades.

Sign up with Questrade and get $50 in commission free trades.

I’ve tried out a lot of the online brokerage platforms on the market today, but Questrade is who I stuck with. 

Questrade is a Canadian based company that has been in business since 1999. They have low fees, great customer service and I find the overall user experience to be excellent.

Additionally, the signup process is also very straightforward (less than one-hour time commitment). 

You just go to www.questrade.com and then click the “open an account” button.

You’ll then need to select what type of account you want to open, which in this case is a TFSA.

From there you’ll need to fill out some personal information based on these 4 areas.

1. Personal 
2. Employment Status
3. Financial Status
4. Citizenship

You’ll then be asked to deposit the minimum amount required, which at the time of writing this article is $1,000.

Quick Note: If this $1,000 threshold is too much for you, I’d recommend Wealthsimple Trade for the 8 reasons I talk about in my article here – one being that they have no minimum account requirements.

From there you’ll have to wait a few days for everything to get approved, but it shouldn’t take any longer than 4-5 business days.

And while I do recommend Questrade, it’s important to note that there are other great platforms out there too. 

I also want to remind you that if you already have a TFSA open with your bank, you can still open up another one with an online broker. Just make sure that the sum of your contributions don’t exceed your total contribution room.

Step 2 – Research Stocks to Invest In

Once you have a TFSA account opened with an online brokerage, it’s time to research some stocks to invest in.

Now the types of stocks you decide to invest in are very dependent on each person’s situation.

So I am not here to give out suggestions on what type of stocks you should invest in, because again, everyone’s situation is different.

With that said, if you’re a beginner, here are some very basic things you may want to look at when trying to decide what stocks you want to invest in through your TFSA.

Company Profits 

Is the company profitable? If so, are their profits growing quarter after quarter and year after year?

What is their profit margin like? How does it compare to other companies within the same industry.

Revenue Growth

What does the company’s revenue trend look like? Is it increasing every year? 

If so, that means the company has a proven product-market fit, plus they’re likely investing their money back into the company to fund further growth and innovation of new products or services.

All good signs.

Location

For tax purposes, where a company is based out of could have an impact on if you decide to invest in them or not.

Remember, even if you invest through your TFSA – you still have to pay withholding tax (15%) on dividends from US stocks. This tax does not apply for Canadian based companies though, so clearly this could impact your decision.

Dividend Yield

Speaking of dividends, does the company you might invest in pay dividends? If so, what is their dividend yield? 

As you can see from the stock chart below from Yahoo Finance, Apple is currently paying $.82 per share which puts their dividend yield at .63%.

But maybe you’d rather invest in a growth stock like Facebook or Tesla?

While you won’t generate regular dividend payments like you would with a stock like Apple or Microsoft, growth stocks are more likely to experience well….greater stock growth! 

So again, these are all questions you have to ask yourself before buying stocks through your TFSA.

Stock Price Trend

How has the stock performed over the last number of months?Is it in a dip or is trending upwards? 

While there are different ways to interrupt each one of these situations, I like to invest in stocks that have been trending upwards for an extended period of time, but are currently experiencing a short term dip.

That way I’m buying the stock when it’s “on sale”. Of course you only want to do this if you truly believe in the company’s long term success. 

For example, look at the stock chart for Facebook here below.

From a long term perspective, the stock is clearly trending upwards, but as you can see it has a few dips along the way, in 2018 and 2020. 

So while hindsight is always twenty-twenty, waiting for a stock that you plan to invest in to dip a little in price is never a bad idea.

Disclaimer: I never try and time the market on a consistent basis. I would never buy a stock purely because it’s in a dip, but if it’s a company I want to buy and hold for the long term, I’ll sometimes wait for a dip before purchasing.

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While there are some other metrics you can look at before buying stocks through your TFSA, such as Price-to-Equity, Earnings Per Share and Market Capitalization  – I don’t want to over complicate this step too much because you just need to get started.

So as a beginner, I’d recommend investing in companies in which you have some sort of connection with.

For example, I love investing in companies like Facebook, Snapchat, Shopify, Apple and Amazon. 

Why? Because I use all of these platforms and I know they have great products and services.

Additionally, I find it much easier and more enjoyable to research stocks that I actually find interesting.

So if you are just starting out, don’t complicate this step too much. 

My recommendation would be to start with a small budget, the $1,000 minimum with Questrade is more than enough, and then  pick two or three stocks to invest in.

Which then brings us to step #3.

Step 3 – Check Your TFSA Contribution Room

The next thing you want to do is check your TFSA contribution room. 

As discussed earlier in this article, there is a limit to how much you can contribute to your TFSA every year.

So before you dump a large amount of money into your account, make sure you have the room to do so. 

Here is How You Can Check Your TFSA Contribution Room

Step 1 – If you haven’t already, register for your CRA online account.

Step 2 – Login to your CRA online account.

Step 3 – Scroll down to the bottom of your homepage.

Step 4 – Look at the amount assigned to your “TFSA Contribution Room”.

Step 5- Using a calculator, subtract all (if any) of your TFSA deposits, since January 1st of the current year, from your TFSA Contribution Room.

Step 6- This value is your TFSA contribution limit as of today.

For a more detailed version of this answer, check out my How Can You Check Your TFSA Limit article – Or watch the video posted earlier in the article.

So at this point, if you haven’t already done so, you should deposit funds into your TFSA account. The sum of your deposit should be an amount you can comfortably afford while at the same time be below your contribution limit.

When you fund your account, your money will be deposited in the form of cash. Once the money is officially in your account, you can then purchase your stocks.

You’re almost there!

Step 4 – Login to Your Online Brokerage Account

Okay, step number four. If you’ve made it this far, you are basically in the clear. This is without a doubt the easiest step of the five. 

I realize this step could have probably been assumed and not included in this guide, but as I mentioned at the beginning of this article, I want to give an in-depth explanation of each step. 

In other words, I want you to be able to leave this article with no confusion on what to do next.

Whether you go with Questrade, Wealthsimple Trade, or something else, it doesn’t really matter – but you need to login to your account before buying your stocks.

So once everythings been approved and you’ve done your research and checked your TFSA limit, find yourself a comfy chair, grab a drink and then sign-in to your online brokerage account.

Step 5 – Buy Stocks Through Your TFSA

At this point, you’ve done all the upfront work and now it’s time to put things into action!

As mentioned earlier, if you are just starting out, I’d recommend picking two or three, maybe four stocks to start out with.

Don’t overcomplicate things or stress yourself out. Based on your research, pick a few of your favourite stocks and pull the trigger on them.

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If you decide to signup with Questrade, simply click the “Order Entry” button as shown below.

From there, to the left of “STK” (image below), you’ll want to put in the name of the company you want to buy stocks in.

You can also put the ticker symbol in if you wish, but I just find it easier to enter the company name.

You’ll also now put in the number of shares you wish to buy – You input this number in the field underneath QTY (quantity).

The last thing you want to do before clicking “Buy” is set your “Order Type”.

If you select “Market, you’ll buy the stock at whatever the current market value of the stock is. 

If you select “Limit”, you’ll then have to put an amount you want to buy the stock for, once (if) the stock drops to that price, you’ll automatically purchase the stock.

Next to the order type you’ll see “Duration”. Whatever you set for this will determine the amount of time your limit order type will stay in effect for.

For example, if you set it for “Day”, then after that day is up, then your order will automatically be canceled.

While there are other options for both the “Order Type” and “Duration”, I wouldn’t worry about any of them right now. Let’s just keep it super simple.

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For Wealthsimple Trade, the process is fairly similar, I use the app when investing with their platform. 

So all you do for this is login to your account through the app and click “browse stocks” on the homepage.

From there, you’ll search for the stock you want to buy in the search bar shown below – I am using Shopify as an example here.

You’ll then click the stock you want to purchase and then click “Buy”

Finally, similar to Questrade you have to select the type of order you want (by default it will be left at “Market Buy”) and then the number of shares you wish to purchase.

Once you’ve done that, you hit “Continue” and then you’re done!

Congrats, you’re done! Once you complete this you are now officially a part owner of whatever company you just bought into.

Quick Note: I use a normal investment account for my Wealthsimple Trade Account, so that’s why you see it called a “personal account” and not “Tax Free Savings Account”. 

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And there you have it, while it might seem like a lot, once you dive in and play around with the platform you’ve chosen, you’ll get the hang of it very quickly.

Trust me, all of these companies pay big money to design their platforms to be as user-friendly as possible, so don’t be intimidated by what you’ve seen above, it’s always much easier than it looks.

If I can learn it, you can too. 

Conclusion

To conclude, here is the 5-step process to investing in stocks through your TFSA.

Step 1 – Open a TFSA with an Online Brokerage

Step 2 – Research Stocks to Invest In

Step 3 – Check Your TFSA Contribution Room

Step 4 – Login to Your Online Brokerage Account

Step 5 – Buy Stocks Through Your TFSA

My recommendation would be to take things one step at a time. 

Don’t worry about step 2 until you finish step 1, don’t worry about step 3 until you finish step 2, etc. 

Focus on each section one step at a time. 

This will help you avoid information overload and keep you moving forward through the 5-step process.

As mentioned throughout the article, I’d recommend using Questrade as your online brokerage if you can afford the $1,000 minimum deposit requirement. If not, Wealthsimple Trade is the way to go.

My last piece of advice would be to keep things as simple as possible when you are starting out. If you try and learn everything at once you are going to drown in information. 

The information given in this article gives you a solid foundation of knowledge to get started with, execute on this process first before you start learning more.

Remember, one step at a time.

Geek, out.