How to Start Investing as a Post-Secondary Student

Investing for Students: Building a Strong Financial Foundation

Post-secondary is a time for many firsts. First time living away from home. First time staying in a dorm room or sharing an apartment. First time cooking your own dinner and managing your bills. But there’s one other “first” that should be added to the list of novel adventures during your post-secondary years: investing.

If you think you don’t have the time to learn anything outside of your textbooks and YouTube cooking tutorials, read on. We’ll explain why it’s not only easy to get started but that investing as a student is probably one of the best and most important times to start doing so.

Why investing early is essential

Let’s start with this fact: There’s no such thing as investing too early. The opposite holds greater truth. After all, the sooner you begin your investment journey, the quicker your money can grow. The more years you spend growing your money, the argument follows, the better off you will be financially. Period.

It comes down to something called compound interest. The concept may be a bit complex but heeding its rationale is worth every penny. To put it simply, compound interest is the interest you earn on interest. Effectively, the interest is calculated on both the principal and interest earned on the initial deposit. So, for example, if you invest $100 and earn 5% interest on that amount each year, you’ll have $105 after year 1. That $5 will be reinvested, along with the initial principal, so that you earn $110.25 at year 2. And on and on it goes.

How to start investing as a student

Now that we know the importance of investing as a student, the question becomes: How? What are the best steps to a successful investment foray?

Step 1: Set Your Goals.

Before doing anything else, make sure you’re clear on what you want to accomplish. Ask yourself: what are my goals, whether short and/or long-term? Once you have a sense of your objectives, you can create a roadmap for your investment strategy.

Step 2: Determine how much you can invest.

Being mindful of your day-to-day expenses, consider how much you can reasonably put towards your investments. Do your research. A low-cost broker may come in handy if you can justify the cost.

Step 3: Choose your investment.

There are a variety of investments a student would find appealing. Find the one(s) that suit your needs, goals and risk tolerance. Choices include:

Stocks
When you buy stocks, you're essentially buying an ownership stake in a business. It could be a risky venture but there’s no better time to take a risk than when you’re young. Besides, investing in stocks could also pay off in the long run if you choose the right ones.

Mutual Funds
When you buy a share of a group of investments – a mutual fund - you’re able to diversify your portfolio and avoid putting all your eggs in one basket. So if you’re looking for less risk, mutual funds is a good option.

Index Funds
Since they track a specific market index (e.g., S&P 500), when you put money in an index fund, it’s used to invest in all the companies that make up that specific index. And you end up with a more diverse portfolio than if you were buying individual stocks.

Exchange-Traded Funds (ETFs)Similar to index funds, ETFs can be bought for a fluctuating share price like individual stocks. Still, ETFs are usually less expensive to purchase and manage than mutual funds. BMO offers over 90 commission-free ETFs, so it’s worth a look.

Bonds
While stocks allow you to purchase a piece of a business, bonds are a loan from you to a company or government; there’s no equity involved. Bonds are considered lower-risk investments than stocks – though they’re also deemed to be lower reward.

Guaranteed Investment Certifications (GICs)
A guaranteed investment certificate (GIC) is a deposit investment sold by Canadian banks and trust companies. Effectively, you deposit money in a bank and earn interest on that money. But keep in mind that the money must be deposited for a fixed length of time (while interest rates vary over time). The best attributes of a GIC are that it provides a low-risk fixed rate of return and is insured, to a degree, by the Canadian government.

Step 4: Commit to investing regularly.

Remember that investing is for the long-term. Investments require an ongoing commitment - and periodic check-ins - to reap real rewards. A haphazard, irregular approach will only undermine your ability to reach the goals you’ve established at the outset. Set up a pre-authorize contribution (PAC) to help you achieve those objectives. Keep in mind the strategy of dollar cost averaging, whereby you buy shares in smaller amounts at regular intervals regardless of price (versus purchasing shares at a single price point) which will help manage your risk.

Step 5: Sign up for BMO SmartFolio.

As a new investor, you may not feel equipped to make all the decisions on your own. That’s where BMO SmartFolio can help. It promotes diversified and balanced investing. It removes solo decision-making and complex strategy from the equation. BMO SmartFolio comes with low advisory fees, between 0.4% to 0.7%.

Step 6: Download an investing app.

The best way to stay on top of your investments is to track them regularly and watch them perform. The good news is that the BMO Invest App online is not only easy to use, it’s convenient and user friendly too.

What type of account should I open?

In addition to establishing your investment goals and strategy, every student investor must make an informed decision on the type of account to open. Options include:

Cash Account

A type of brokerage account, a cash account allows you to deposit funds to buy securities. The full cost of an investment is paid using funds from that account. You’ll have a few options on how that money will be managed by the brokerage, but the primary goal is to invest in the stock market.

High Yield Savings Account

Give your savings an easy boost through a high-yield savings account. And the interest rates on your deposits are far greater than those that you’ll find in traditional savings or checking accounts.

Tax Free Savings Account (TFSA)

Considered the smartest option for a student with many years of compounding returns ahead of them, the TFSA allows you to contribute with after-tax money while contributions and withdrawals grow tax free.

Final investing tips

Remember: you don’t need a lot of money or expertise to start on your road to investing. But don’t forget to do your research - and asking for help goes a long way too.

To make life easier, consider BMO’s answer to robo-advisor with BMO SmartFolio. Watch some online Investing Courses to learn about risks, asset classes, and essential investment tips and advice. Investing as a student may be one of your smartest steps you’ll take in your post-secondary journey (don’t tell your parents we said so). There’s no better time like the present. So, what are you waiting for?