Fool Canada’s first 1,000%+ winner?

Our Chief Investment Advisor, Iain Butler, and a team of The Motley Fool’s most talented investors from across the globe recently embarked on an unprecedented mission:

To identify the 20 Canadian small-cap companies they believe have the best shot at earning investors like you gains of 1,000%+ over the coming years.

For the next few days only, you can get the names and full details on these 20 potential “10-baggers” when you join Iain and his team in a first-of-its-kind project they have dubbed Discovery Canada 2017.

What Self-Directed Investors Should Know: Part 2

It can be exciting and rewarding to build and manage your own portfolio. However, self-directed investors should keep value and cost in mind to maximize every dollar they invest. They should also know what kind of account to use for investing to minimize taxes and maximize returns.


Investors should never overpay for a stock. Doing so increases the risk and simultaneously lowers your returns. If you’re buying a dividend stock, your initial yield will also be lower if you pay too much.

Look for stocks with a margin of safety. For example, if you want to invest in a technology company right now, Apple Inc. (NASDAQ:AAPL) may be a better choice than Microsoft Corporation (NASDAQ:MSFT) because Apple has a lower multiple of 11.3 compared to Microsoft’s multiple of 19.1. In the medium term Microsoft is expected to grow its earnings by about 10%, while Apple is expected to grow its earnings by about 12%.

Which account to use

High-yield U.S. dividend stocks should be held in an RRSP, so there’s no 15% withholding tax on the foreign dividend. However, be careful not to buy master limited partnerships (MLPs), such as Blackstone Group LP (NYSE:BX), because even if you buy it in an RRSP, rumour has it that there’s a withholding tax of about 39% deducted from their distributions. Additionally, there may not be enough information to file taxes for MLPs.

Capital gains and Canadian-eligible dividends are favourably taxed in a non-registered account. However, if you have room in a TFSA, dividends kept there are tax free.

If you earn interests from bonds, GICs, or savings accounts, you might also consider placing them in a TFSA because interests are fully taxable based on your marginal tax rate.

Real estate investment trusts (REITs) such as H&R Real Estate Investment Trust (TSX:HR.UN) and Artis Real Estate Investment Trust (TSX:AX.UN) can be bought in a TFSA to avoid tax-reporting hassles because their distributions can consist of capital gains, foreign income, dividends, and return of capital.

However, the return of capital portion of REIT distributions reduces the cost basis and is tax deferred if the REIT is held in a non-registered account. Always check a REIT’s corporate website to see what its distributions typically consist of to help you decide which account to hold it in.


Investors should keep costs in mind. Exchange-traded funds (ETFs) are a low-cost way to diversify as they typically cost around 0.5-1% per year compared to $10 per transaction to buy or sell a stock with your bank. However, other discount brokerages cost less. The ideal scenario is to keep costs low by trading less, only buying quality businesses when they’re priced at a discount, and holding them forever.


The price is what you pay and the value is what you get. So, never overpay for any company. In fact, to improve returns, investors should aim to buy companies with a margin of safety. If it’s a really high-quality company, pay at most a fair value for it.

It’s good to know which accounts you should use to hold assets to minimize taxes and maximize your gains. Investors should use TFSAs, RRSPs, RESPs, and non-registered accounts appropriately for that purpose.

Lastly, investors should aim to reduce costs by trading less. And consider low-cost ETFs as a way to diversify.

Want to earn rental income without becoming a landlord?

We'd all love to have a steady stream of extra income, but who wants the hassle (and expense!) of buying and managing property and dealing with tenants? We have a much better option: real estate investment trusts (REITs) allow investors like us to purchase shares in a diversified portfolio of properties and earn a share of the profits!

Want to know more? Our just-released report, "Earn $6,000 Per Year in Rental Income Without Becoming a Landlord" has all the details. Just click here now to find out how to get your FREE copy today!

Fool contributor Kay Ng owns shares of Apple. David Gardner owns shares of Apple. The Motley Fool owns shares of Apple.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to find out how you can claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.