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.