blue piggy bank | how to start investing

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Key points

  • You can start saving and investing even if you don’t have a lot of money or financial knowledge
  • There are easy, low-risk ways to invest small amounts of money
  • Make a budget to figure out how much you can afford to put into a savings or investment account

Saving for your future is probably one of the last things on your mind when you’re focused on exams, student loans, and other immediate concerns. But the earlier you start putting money into an investment account, the less you’ll have to worry about money as you get older.

This isn’t just about saving for retirement—though that is an important part of it. Investing will help you reach other goals you have for your life too, whether it’s buying a home, starting a business, having children, travelling the world, or whatever else you decide to do.

money bagThe good news is your generation is off to a pretty good start: A 2017 study led by the US Center for Generational Kinetics found that 12 percent of Generation Z is already saving for retirement and about 35 percent plan to start saving sometime in their 20s.

“Life is expensive,” says Jonathan F., a fifth-year undergraduate at the University of Waterloo in Ontario. “I think we should all be saving toward retirement as soon as we start working, if not earlier.” 

What students say about investing

Almost 90 percent of students surveyed by Student Health 101 said investing is somewhat or very important to them, but more than 25 percent said they don’t currently have any savings or investment accounts, and more than 45 percent admitted they were not confident in their ability to successfully manage and invest their money.

Students gave a variety of reasons for putting off investing, including:

I don’t feel like I have enough money 49%
I don’t know how 18%
I’m worried about student loan debt 14%
I don’t like to take financial risks 13%

How you can start investing without a lot of cash

These concerns are valid, but you don’t want them to prevent you from getting started. Even if you have to start small (as most of us do), that initial investment will multiply over time. The earlier you invest, the more time your money has to multiply.

Getting into the habit of saving a portion of your income as soon you can is a great way to start, according to Natalie Lacroix, a Certified Financial Planner in Waterloo, Ontario. “Whether it’s $25 or $100 a month, getting into the routine of savings will pay off in the long-run,” she says. “Although it may not seem like a lot right now, the effects of compound growth will surprise you and set you up to be on track for financial success.”

If you set aside just $25 per month during college or university, you would accumulate $1200 in savings over four years. If you managed to set aside $100 per month, you’d have $4800. Plus, if you put that money in a savings account with a high compound interest rate (which we’ll explain more about below), your savings will start to grow on their own.

“[Invest] while you are young! Don’t put it off!” says Laura R.*, a first-year graduate student at University of Wisconsin in Menomonie.

Canada deposit insurance:

The Canada Deposit Insurance Corporation (CDIC) is a government agency that insures certain bank accounts up to $100,000 (principal and interest combined) per depositor per insured category. If your account is CDIC-insured, then even if the bank goes out of business, you’ll be able to get your money back.

Interest rate:

The interest rate on your savings or investment account is the amount that the bank pays you for letting them hold your money. Standard savings accounts currently offer very low interest rates, but there are other types of accounts (such as high interest savings accounts or GICs) that pay higher interest without requiring you to take any added risks.

Compound interest:

If you invest $100 and your interest rate is 2 percent per year, you’ll have $102 at the end of the year. But if your interest is compounded more often, you’ll make money faster. For example, if interest is compounded monthly, you’ll make 1/12 of 2 percent every month. The first month, you’ll make about 17 cents. Then you have $100.17 in your account. The next month, your interest is calculated based on that amount, not the original $100. It may seem small at first, but once you have a decent amount of money saved, compounding makes your money multiply much faster. You should always check how often your interest compounds.

GIC:

A Guaranteed Investment Certificate is like a loan that you give your bank. You make a commitment that you will keep your money in the account for a specific period of time (typically one or more years). In return, you earn higher interest than you would if you kept the money in a traditional savings account.

Figure out how much you can afford to invest

Before you can start investing, you need to figure out your budget. Add up all the expenses you know you have each month: any bills you pay, groceries, gas or other transportation costs, plus what you spend on going out with friends and other recreational activities.

For example

Let’s say you have a part-time job and make $800 per month. After one year, you’ll have made $9,600. If you need $600 per month for your expenses, that’s $7,200 per year. If you set aside three months’ expenses for an emergency fund, that’s another $1,800. Subtract these expenses from your income, and by the end of the year you’ll have up to $600 that you can safely put aside in a savings or investment account.

Even if it feels like you have no money available to invest, most college students can find a way to cut spending or make a little extra income.

The best investments to make during post-secondary school or your early career

We’ve all heard about how “easy” it is to make millions buying Bitcoin or flipping houses. These “investments” might sound exciting and make for interesting TV shows or YouTube videos, but they’re extremely risky. Remember, the point of investing isn’t to get rich quick—it’s to build a reliable and secure financial foundation for your future. That’s what makes investment different from gambling. Here are three smart ways to start securely investing your money during college or university.

Pros: Higher interest rates, convenient online transactions
Cons: Fees may apply to ATM withdrawals, may have limits on transfers

Opening a high interest savings account enables you to earn higher interest rates compared to a conventional bank account. They are a good place to earn interest without taking on any investment risk.

More and more of our banking takes place online. No matter which bank, credit card, or payment app you use, the ability to check your balance or transfer funds online is an important feature.

“Banking apps are a great way monitor your spending and saving,” says Lacroix. “Some apps even have tools that allow you to build a budget and track your financial goals.”

Remember, if your cash is sitting in a desk drawer or even in a regular chequing account, it won’t grow at all. Of course, you need to do your homework before putting money into an account.

Some factors to consider when opening a new account:

  • Is there a minimum initial deposit or balance you must maintain?
  • Is the interest rate only an introductory rate that will drop later?
  • How often is interest compounded? (More often means more money for you.)
  • Are there convenient ways to deposit, transfer, or otherwise access and use your money?

Pros: Safer and more predictable than investing in stocks, profit is guaranteed
Cons: Lower return on investment compared with mutual funds, your money is “locked up” for a year or more

GICs are very safe and predictable, which makes them a good first step for younger investors. If you already have a savings account set up, you should start by checking what GIC options are available from your bank. With a GIC, you earn a fixed interest rate from your investment and receive the money at a specific date. However, you won’t be able to withdraw or use that money for that period of time (typically at least one year), and the average returns are far below what you can make investing in higher risk/higher return options, like stocks.

It’s not the most profitable option, but it’s a safe way to invest a limited amount of money for a defined period of time. This feature can make GICs a good option for students and recent graduates who are just starting to build their portfolio and aren’t ready to commit to longer-term investments.

“If you are not comfortable taking on risk or any potential losses with your investments, GICs will give you the security you are looking for with a guaranteed return on investment,” says Lacroix. “However, if you want easy access to your savings, you may run into fees if you take your money out before maturity.”

Pros: Tax-free investment growth, flexible investment options
Cons: Won’t offset your taxable income, there is an annual limit to how much you can invest

“A TFSA may be one of the greatest investment gifts the government has given Canadians,” says Lacroix. The advantage of investing in a TFSA is that you don’t have to pay taxes on the profits from your investments.

One critical thing you need to understand about your TFSA is that it’s only an account. After you set it up, you still need to decide on specific investments (e.g., cash, GICs, mutual funds) to put inside the account.

“A TFSA can be used for short or long-term savings however, the real power of the TFSA comes from long term savings,” says Lacroix. “Used as an account for retirement planning, you will pay less in taxes keep more of your money in retirement.”

Keep learning and take action

As you start opening accounts and making investments, you’ll end up dealing with several different types of financial professionals. It’s important to find a financial advisor that can help you make a plan for your financial goals. Ask them about their certification, experience, what types of products they sell, and how they’re paid (i.e., salary, commission).

stacking coinsYour school may also provide resources related to financial education and planning. For example, the University of Western Ontario offers a free program called Money Talks. This program offers workshops that cover five areas of financial wellness: budgeting, paying for school, banking and investments, credit and debt, and life after school.

Learning the basics of saving and investing is important, but you still need to take action. “What’s different about financial literacy from other subjects you learn in school is that it’s not just about knowledge—it’s also about behaviour,” says John Pelletier, Director, Center for Financial Literacy, Champlain College, Burlington, Vermont. “If you can score 100 percent on a financial literacy test but you don’t change your behaviour, you don’t get the benefits.”

“Saving is like exercising or going to the gym to build muscle,” he says. “It’s not always the most pleasant thing to do, but most of us can save something [and] it helps build the habit.”

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Article sources

Natalie Lacroix, Certified Financial Planner, Waterloo, Ontario.

John Pelletier, Director, Center for Financial Literacy, Champlain College, Burlington, Vermont.

Canada Deposit Insurance Corporation. (2019). What’s covered. Retrieved from https://www.cdic.ca/about-deposit-insurance/whats-covered/

Employee Benefit Research Institute. (n.d.). 2019 retirement confidence survey fact sheet #1. Retrieved from https://www.ebri.org/docs/default-source/rcs/2019-rcs/rcs_19-fs-1_confid.pdf?sfvrsn=c6553f2f_4

Schiavone, J., & Lynch, J. (April 12, 2017). Less than half of non-retired Americans confident they’ll reach financial goals by retirement: AICPA survey. Retrieved from https://www.aicpa.org/press/pressreleases/2017/less-than-half-of-non-retired-americans-confident-theyll-reach-financial-goals-by-retirement-aicpa-survey.html

University of Massachusetts Amherst. (April 29, 2019). Shaking the money tree. Retrieved from https://www.umass.edu/smart-about-money/

US Trust. (n.d.). 2018 US Trust insights on wealth and worth detailed findings. Retrieved from https://ustrustaem.fs.ml.com/content/dam/ust/articles/pdf/insights-on-wealth-and-worth-2018/Detailed_Findings.pdf

Villa, D., & Dorsey, J. (n.d.). The state of Gen Z 2017 national research study. Retrieved from https://genhq.com/gen-z-2017-research-white-paper/

Student Health 101 survey, June 2019.