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Category: One of the most challenging aspect of starting with dividend investing may be to not know how much money we need to get started. I started investing in mutual funds back in my 20′s and I was focused on building my RRSP (Registered Retirement Savings Plan) and maximizing my contributions. That’s what you were suppose to do … Well, the reality is that the benefits of RRSP when your income is low is not all that great from a tax saving perspective. It’s great that you start early since you will leverage the years of growth but wouldn’t it be nice to also get the benefits of compound growth with dividends? Let’s cover the options when you are young to put dividend investing in perspective.
Investing Options In Your 20′s
You just got your first job and you want to save some money or build a nest egg for early retirement 
Chances are that you don’t have thousands of dollars available for investing. Between paying for the rent, food and transportation, you’ll probably have a few hundreds of dollars available per month to possibly invest. With such small amounts, the options are usually the following:
High Interest Savings Account – Not really a growth account but at least you are putting your money aside and not spending it. The current interest rates don’t even keep up with inflation. I am not sure if they ever did …
Guaranteed Investment Certificate (a.k.a. GIC) - The banks will often offer GIC when you have a small amount of money to invest outside a registered account. It pays more than a high interest savings account but it locks your money for a certain period. Interest is paid and is therefore treated as regular income if done in a non-registered account.
Mutual Funds - Any accounts will let you invest in mutual funds. You can do it form your TFSA, RRSP, Non-Registered or even through the bank. Mutual funds allow you to invest very small amount at any kind of interval you want. It tracks fractional shares and it makes it very easy for anyone to invest in. I started with mutual funds but I am mostly in stocks now. If investing in mutual funds is appealing to you, I suggest you read about index investing. Canadian Couch Potato has a great site for index investors.
These options tend to be what most of us are aware of when we are young. I wish I knew what I know know, as I know stock investing is well within reach when you are young. I thought it was too expensive but that was a myth.
Mythical Cost of Stock Investing
Stock Investing usually requires a discount broker account. I say usually because I’ll show you how you can invest in stocks without it.
Discount Broker – Transaction Fees
The standard way of buying stocks is through a broker, and if you are like me, you are using a discount broker. The cost of investing with a discount broker can vary but I’ll highlight some of the costs depending on your broker.
- Trading Fees - It can range from $4.95 to $29,99. Questrade is by far the cheapest discount broker in Canada.
- Account Fees - Some account will have a fee depending on your capital invested and who the broker is.
Before I saw the light and did my research, I thought I’d have to pay $29.99 to trade stocks and that’s a bit steep when you only invest under $1,000.00 dollars. It can add to the share price over time. Assume you have $500 to invest every few months and you want to buy a bank. For simple math, assume they trade at $50 per share. Your 500$ only allow you to buy 9 shares. We’ll raise your capital to cover the transaction fees to buy a total of 10 shares.
- With a $29,99 fee, you would add $3.00 per share. That’s adding over 5% to your cost.
- With a $4.95 fee, you would add $0.50 per share. That’s adding 1% to your cost. Not much but it’s the cost of a low mutual fund MER (Management Expense Ratio).
Add to this any account fees for the year if you have any due to low investment capital and it starts adding up.
The power of dividend investing is the ability to DRIP shares and that’s very difficult to do with a discount broker account and little money as you need to purchase enough share to generate a dividend payment that is above the cost of one share. Usually, that’s well in the thousands of dollars.
Transfer Agents – No Transaction Fees
I saw the light after reading Derek Foster’s The Lazy Investor
The initial setup could be expensive as you need a share certificate but I found a way to get a share certificate for the price of 10$ only. It beats the cost of any discount brokers! Requesting a share certificate from a discount broker requires you to buy a share plus pay for the certificate. You could end up paying 2 or 3 times the price of the share just to get setup. The cheaper way of doing it is having someone transfer a share in your name. That’s where ‘The DRIP Investing Resource‘ comes into play. I bought all my first share of my 11 holdings with Computershare and CIBC Mellon through other dividend investors I found on the forums. For just 10$, as a thank you for doing the work, I got setup with all these amazing dividend friendly companies. I can DRIP and let my money work for me. Just to show you how small you can invest, I’ll show you my holdings with Computershare. My total account value with Computershare is just slightly above $1,300.00.
As you can see, you can invest in solid Canadian dividend paying companies with little money. In fact, most of my contributions over the past year have been between $50.00 and $300.00. You get the benefits of fractional shares and re-invested dividends (DRIP). All of it at no cost. All you have to do is let your money work for you!
Readers: Are you investing with the Transfer Agents? How long have you been doing it?
I had not really heard of transfer agents so this is some good information. Thanks much.
Cool article, and yes it is definitely possible to start with little money. I use Scottrade, and it has a flat $7 fee per trade. I don’t think that’s bad, but of course I try to make sure all transactions are north of $1k to limit my costs and spread the average out.
Nice article! Let your money work for you indeed! I hope this article demystifies that you need tens of thousands of dollars to buy stocks; although this is nice too
Great information I didn’t really know anything about transfer agents before this post. You have definitely perked my interest.
I didn’t actually know you could buy directly through the TA’s for the first share – thanks for the post! I use CIBC Mellon and ComputerShare for my DRIP’s & SPP’s with Canadian companies too, but I’ve used my iTrade account to purchase the first batch of shares in the past, and then purchased the share certificates from there.
Your way is definitely much cheaper, as trades cost $19.99 (unless you’re trading frequently, in which case the cost decreases) and share certificates cost $75. The nice thing is that once your request the share certificate, iTrade passes everything along to the TA.
Thanks for info – I’m using your method moving forward!
Hi Martin,
The first share is transfered by another owner as opposed to be bought through the TA. You need to use the forums to find a person to transfer it. Sometimes they do group buy if there is enough interest but no one to do the transfer.
Thank you so much for this article.
Baby steps are very important and I wish there were more articles like this to cover them. So far all the blogs I found do not cover much details on how to get rolling with limited funds. If you know of any please post them!
I am just getting into investing, in the process of opening Questrade account and this puts different light on how and where to start. I definitely want to explore this option in more details.
You mention forums. Are there any forums in particular that you could recommend?
@SirTie
Thanks for the comments! I too wished there was more information on how to invest with little money. The Transfer Agents really open up opportunities as you can see. The companies are limited but with little money it should not be a show stopper.
The forum I refer to can be access from the link below. I have more informations in my Resources section. It’s a very active forum all across Canada.
http://dripinvesting.org/Default.htm
[...] The Passive Income Earner shows how to start dividend investing with little money. [...]
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Okay, I see what you mean. That makes more sense.
Thanks for the post!
[...] How To Start Dividend Investing With Little Money (The Passive Income Earner) [...]
Not the main point of the article, but another way for young people to start saving is through maximizing your employer’s income tax withholding, which you get back after filing your tax report. Only a few hundred dollars, no compounding during the year . . . but better than casually spending that $20 each payday at the local beerhall?
Hi, thank you for your interesting post. I there is so much information on dividend investing, but not enough info on how to start.
I really like the Transfer Agent option.
My question is: If I find shares for sale on ‘The DRIP Investing Resources” (at 10$), do I buy the first share and then contact the Transfer Agent. Or is it the reverse, that is contact Transfer agent and then buy the share? Or neither?
Thank you
Hi Karen,
Thanks for your question! If you buy the first share on your own from a broker, then you need to receive a share certificate and then transfer it to the TA. However, if you use the boards where investors offer the first share, it’s all taken care of with the 10$ fee (plus the cost of the share on that day). You don’t have to do anything. The person transferring the share handles it all.
Hope this helps!
[...] How To Start Dividend Investing with Little Money [...]
How much shares do you need in order for the drips to be effective … also if u collect dividends in ur TFSA, can you take them out TAX FREE…..
TFSA withdrawals are all tax free thus the name TAX FREE SAVINGS ACCOUNT. You can never pay tax on a TFSA under any circumstance that you could dream up. It’s tax free. You could pay penalties for going over your limit, having unqualified investments inside the account ,contributing while a non-resident or receiving what tax law deems “an advantage”. But you could never pay tax. Ever. The penalties are absolutely harsh as hell when compared to any returns you might get so be sure to stay within the limits and read what investments are prohibited.
My brother suggested I might like this blog. He used to be entirely right. This publish actually made my day. You cann’t consider simply how much time I had spent for this info! Thanks!
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[...] (at the time, trading was usually $30 – no $6.99 options back then). It turns out that you don’t need a lot of money and you don’t have to pay any fees!!! It was quite marvelous when I learned about buying [...]
[...] I currently DRIP 11 companies with the Transfer Agents to accelerate my DRIP growth with companies that have a history of paying dividends and growing them. This allows me to not worry about the lack of control on the purchase price and focus on the Dollar Cost Averaging and Compound Growth. I start small and I slowly add to my holdings. [...]
Thanks for writing that!I am 25 and I am just think of making investments, and thanks to your post I have more useful and detailed information and now I know even if I have not a lot of money I still can make investments and start my retirement savings.I think it will be absolutely right and wise step because its’ never too early to take care about your future,especially if investing money to devident stocks you make money work for you.Most of young people like me do not have a lot of money to make investments, so it’s great to see that there are companies where I can invest with little money.
[...] I usually tend to do my dividend income update in the middle of the month but my time was at a premium this month. I am however managing to update you at the end of the month April marked the second year anniversary of this blog and 2009 is when I officially started down my dividend investing path. It has been an great journey so far. I encourage you to take some time and look at my dividend income over the past 3 years and see how growing wealth can be done albeit slowly. [...]
Hey,
I went to the website u suggested about buying one share, however, they are only American, where can you get one certificate of framing quality for the Toronto market?
@Daniel
Computershare and CanStock do represent Canadian companies for share purchase plans. However, to get a certificate, you either need someone to transfer a share in your name using one of the forums or to buy a share through a discount broker and have them send you a certificate.
I have gotten all my shares through the forum and it worked well for all my first shares.
Hope this helps!
Hey,
Thanks so much for your quickly reply. What message board do you suggest the DRIP forum? I went there and it didn’t look legit… Thoughts?
Also on a side note, u may know, I am actually thinking of buying some certificates to actually frame, does it matter if I do it through one of those site or a discount broker ie. Itrade?
Also do u know of any cool Canadian ceificates that you would recommended framing?
@Daniel
I never did frame anything but it can be something cool. It will cost you a bit to request a certificate from a discount broker.
I used this site: http://dripinvesting.org/Boards/Boards.asp through the share exchange. It worked out for me for 11 different companies. Obviously, it works on trust but considering everyone saves over $100 per certificate, it’s a major saving for anyone to want to keep.
One of the easiest way to start buying shares is:
https://uinvest.com.ua/?amigosid=5390
Hi! I’m just reading this post for the first time. I’m starting to get interested in dividend investing after reading about transfer agents on another money blog I keep up with… I haven’t tried to purchase any yet, as I’m still researching. I was under the impression taht if I wanted to enroll in, say, a Johnson and Johnson DRIP where the company pays all teh fees, I just need to do the minimum price/1 share initial investment? I wasn’t aware of the need for the certificate… if you could explain, i’d appreciate it. Also, what sort of information do I need to exchange with someone from one of these share transfer message boards? It seems like there’s a lot of potential for scamming, unless I’m missing something… Thanks!
@Laura
There are chances for scamming but people ask if the person is reputable. It’s definitely a trust. I started with a small stock that cost $20 and figured it’s a little price to test it. Since then I bought 11 stocks through the board.
As for a US stock, the process is different. I have not personally done it yet being that I am Canadian. The share certificate can cost quite a bit through a broker but if someone transfer a share in your name, it’s free.
Hope this helps.
Thanks for the clarification. So, I’ve been using my Vanguard account to buy stocks, and can do so for 7$ per trade. Could I buy one share through Vanguard and then use ComputerShare, for example, to transfer it to a Computershare account and enroll in the DRIP?
Really interesting article. I want to get started, but need some clarification.
I am curious about what kind of account this is applicable for.
So my understanding is, buy a share, get a certificate, send to transfer agent, buy additional / set up DRIP with the transfer agent.
My question is this, does the share get transferred to another account? or account type (registered/unregistered)?
The example in my head is as follows.
1)Open a TD waterhouse RRSP account. Buy a share, get a certificate.
2)Send the certificate to Compushare.
3)Set up DRIP and buy additional shares from Compushare.
Are those shares still in the TD waterhouse RRSP? Or are they in an unregistered account? Or is there account type when setting up with Compushare?
Thank you so much for the blog, makes me a little anxious about how I’ll have to decide how to invest for the next 30-40 years, but really interesting reads.
Think I figured it out.. No, being the quick answer.
For anyone else, the Transfer agent is another account. Unregistered. But it allows the OCP(SPP), fee-free share purchases. What seems to be normally done, is to DRIP/SPP enough to get full shares, transfer that amount (minus at least 1 share to keep getting fee-free shares) into an RRSP/TFSA, and synthetic DRIP there.
So I think that first share, should be bought, in an unregistered account.
Please correct me if I’m wrong. (or even if I’m right)
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