What Canadian Investors Want to Know: Top 5 Insights from Our Survey

In 2020, Canadians started self-directed investing in record numbers, looking for opportunities — and to take charge of their financial futures. We asked Canadian online investors* about their investing journeys and, in particular, what they want to know more about.

The number one topic of interest? Investing strategies, chosen by 41 per cent of poll participants. Stock trading came in a close second at 40 per cent, followed by exchange-traded funds (ETFs) at 35 per cent, options at 30 per cent and diversification at 24 per cent. Short selling wasn't far behind, with 23 per cent of respondents wanting to know more about that specific strategy, so even though it didn't break the top five, we are offering the scoop. Here we break down all six areas of interest.

1) Investing Strategies

Investing strategies guide your portfolio choices. Think of your strategy as your game plan (which is what investors like Brandon¹ do). It will largely be based on your goals, how long you plan to invest and how much risk you're comfortable with — all of which will help determine what investments are the right fit for you. Some investors may choose to focus on safety and comfort, accepting a lower rate of return from investments in exchange for more predictable earnings. Others may be looking for regular income through dividends or a combination of income and capital growth, and still others will focus on maximizing growth opportunities.

There are a number of specific strategies you'll often hear about. Here are some of the common ones:

• Value: Value investing is based on the belief that buying stocks at a discount can be a sensible approach to growing wealth. Value investors are interested in stocks that appear to be undervalued based on research and fundamentals. They believe that over time a stock's market price will move up to match its fair value price.
• Growth: Growth investors tend to look for companies that offer strong earnings growth. These companies tend to be relatively new or in rapidly growing industries, they don't tend to pay dividends and they are often characterized by very high price valuations and increased volatility. One quick way to differentiate growth and value stocks is to compare their price/earnings [P/E] ratios. (Learn Linda's take on P/E ratios in Investing Truths: Linda on How She Retired Early.)
• Buy & hold: A buy-and-hold strategy is much like it sounds: a long-term passive plan in which one buys investments and holds them.

In addition to these strategies, investors are increasingly choosing to build their portfolios around the principles of responsible investing, combining financial considerations and environmental, social and governance issues that are important to them.

There's no one-size-fits-all when it comes to investing strategies — finding what works for you is what's most important.

2) Stock Trading

Stock trading is often one of the reasons why investors decide to take control of their investments. Stocks — or equities, as they're often called — can be a valuable part of your investment portfolio. Owning stocks in different companies can help you build your savings, protect your money from inflation or maximize income from your investments. But it's important to know that there are always risks when investing in the stock market. Once you understand the risk-return relationship, it's good to explore the different features of common and preferred shares, as well as key trading basics such as bid and ask and order types. Find out more in our Guide to Investing in Stocks.

3) Exchange-Traded Funds (ETFs)

ETFs have been gaining in popularity over the past number of years, so it's no surprise investors want to understand them better. Similar to a mutual fund, an ETF is a pooled investment vehicle that owns a basket of underlying securities and divides ownership of those securities into shares. Shares or units of ETFs can be bought and sold on a stock exchange throughout the trading day, like stocks. An ETF's underlying securities are largely determined by its investment objective. Common underlying assets are stocks, bonds, commodities and currencies.

Like all investments, ETFs present a number of benefits and risks for investors. Buying and selling ETFs is similar to trading stocks. You'll want to look at things like volume, liquidity and the bid/ask spread, all of which you can find in a Detailed Quote. To find out more, explore the full Guide to Investing in ETFs.

4) Options Trading

Many investors (like Orion¹) consider diving into options trading a natural progression after dipping their toes into stock trading. While some options trading strategies can be very complex, options themselves are relatively straightforward. An option is a contract between a buyer and a seller that speculates on the future price of an asset, like a stock, for example. Since it's a contract, buyers and sellers have certain rights and obligations to the other party.

There are two main types of options: calls and puts. Calls give buyers the right to buy a security at a predetermined price; puts give buyers the right to sell a security at a predetermined price. Unlike stocks, options come with an expiration date and an exercise price (learn the lingo in our options glossary); they don't come with shareholder rights or pay dividends; and they generally cost only a fraction of the price of the underlying asset.

To explore the options available for a security you may be interested in, click the options tab on its Detailed Quote. Remember, options can be high-risk instruments, so it's important to closely monitor your investments and understand how much risk you're taking on at any given time. Find out more about options in the Options Trading Guide.

5) Diversification

As its name denotes, diversification refers to the degree of variety in an investment portfolio — generally, the more variety, the more diversified it is. Your mix of investments, also known as asset mix, is considered by many to be key to successful long-term investing. Since financial markets typically don't move in the same direction at the same time, investing in different types of investments, or “asset classes," may help you ride out market fluctuations. The idea is that if some of your investments are performing poorly, stronger performers elsewhere in your portfolio may help balance things out.

Diversification can mean different things to different investors. While some consider a balance of major asset classes such as fixed income, equities and cash right for them, others view holding stocks in various industry sectors as sufficient diversification. You can learn more about diversification in Pleasing a Dinner Crowd Can Be Surprisingly Similar to Diversifying a Portfolio.

BONUS: Short selling

Thanks to Hollywood blockbusters, even brand new investors may have heard of short selling. In a nutshell, short selling is an investing strategy that aims to profit from a tumbling stock price. Investors borrow shares from a brokerage and sell them immediately, in the hopes of buying them back later at a lower price. If the short is successful, the shares are purchased at that lower price, and returned to the brokerage, and the investor keeps the difference in price (minus costs, of course).

Short selling, also known as taking a short position in a company's stock, is a more complex process than traditional stock trading. In order to short sell, investors are required to have a non-registered margin account, rather than the more typical investment cash account.

It's important to know that short selling's potential losses are limitless, and its potential gains are limited. When you short a stock, you lose as the stock price rises. Because a stock's price can, in theory, rise indefinitely, you could lose much more than your initial investment. Conversely, when you short a stock, you gain as the price falls. Because a stock's price can only fall to zero, your gains are limited to the difference between the original price of your short and zero. Find out more in What is Short Selling and How Does it Work?

To explore other investing topics, visit the Investing Academy at RBC Direct Investing.

*The results come from a poll, conducted by DIG Insights for RBC Direct Investing, of 1,836 of Canada's online investors (including 848 RBC Direct Investing clients) between October and November 2020.