A guide to investing for students

The pros and cons of different types of investments

Wondering how to invest.

Between balancing classes, assignments, relationships and taking care of yourself, the last stress you need university is worrying about your finances. While it may seem intimidating, the best time to educate yourself on how to save your money is now. 

Every dollar invested now will go further and further as the interest piles up over the years, so getting started early can be highly beneficial. Throughout your teenage years, saving for retirement may  have  amounted to opening abank account and putting some money into your savings. 

While it’s easy to access, the interest itearns is miniscule. Luckily, there are many other ways to invest that can help prepare you for the long term, like stock market funds and bonds.

Getting started with investing is often the toughest part. Despite all the talk about Bitcoin and blockchain, there are less complicated ways to invest in your future. Here are some easy tips to help you get started.

Savings accounts

Through tax plans and investment certificates, the government has several programs that help Canadians save money. Opening a Tax-Free Savings Account (TFSA) with your bank lets you withdraw money that you earn from your investments without having to pay any tax on this income. If you haven’t already done so, opening a TFSA is a great first step for kicking off your investment career.

Bonds

To start, you may choose to invest in bonds, stocks, mutual funds or even real estate.

You can think about bonds as loaning out money to a company or governments, who repay the amount you loaned plus interest. Bonds are generally a safer investment with lower risk, but don’t have any chance of earning more than the interest already agreed upon. Given the time university students have until they retire, it’s not always the wisest investment. It’s better suited for when you need cash on a date in the near future, like when you're  approaching retirement age. Even so, if you’re solely looking to start out in investing, bonds can be a safe, simple way to go.

Stocks

Stocks are a riskier investment but carry a lot of potential to maximize your earnings.

Picking individual stocks that you think will beat the market is a time-consuming process. You’re working against millions of other investors who are all trying to accomplish the same task of finding the best stocks to invest in. While there’s the chance of doubling or even tripling your money, there’s also the chance that the company you choose to invest with goes under and you lose all your savings. The key to managing this risk is diversifying your investments between stocks in different sectors and industries.

Mutual funds

Investing in mutual funds is a great way to prevent the individual stock risk. Mutual funds allow you to invest a small portion of your money across a range of firms. These portfolios are picked by a mutual fund manager, who spreads the risk by including a wide variety of companies from different industries. These fund managers earn their salary by taking a percentage of your earnings, so it’s a costly way to spread your risk with a chance of human error. 

Despite this, mutual funds are a great option if you’re looking to invest in a certain industry or market, all while tailoring the risk to levels you feel comfortable with. 

Index funds

Another way to spread this risk without the chance of human error is investing in index funds. Index and mutual funds both try to lower the risk of losing your money on individual stocks by spreading your money throughout different companies. Instead of a person picking your stocks,, index funds involve an automatic wide selection of the biggest firms. Doing this is like betting on the stock market itself. Unless all companies perform poorly at once, there’s a much smaller chance of experiencing poor returns. 

Index funds are almost completely automated, which lowers the chance of lower returns and also reduces the fees involved, as your investments don’t go towards a fund manager’s salary.

To start investing in these assets, it’s easy to meet with an advisor from your bank, a financial planning firm in person or create an online account. There are a variety of different products that best suit your risk and liquidity needs, all with different fees and restrictions. As a student just starting out, it’s best to consult a financial advisor to help you navigate the investing world and research where you’re putting your money. 

Investing as a student may seem like the last of your worries, but every little bit helps. When the interest adds up, you’ll be happy to have started so early.

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