Why you should start investing as a student

Graphic showing the title: Why you should start investing as a student CREDIT: FSU PUBLICATIONS AND COMMUNICATIONS DEPARTMENT

Growing up, I was always told by my elders to save up my money and be careful with it. Those same people later recommended that I start investing. I didn’t know anything about investing but gave it some thought.

After paying my regular bills and some small leisurely expenses, I had some money left over. I decided I was going to give investing a try. I didn’t know a lot about investing but knew it would be a good option for the future after graduating.

It starts with a simple question: Why should students invest their money? Investing money creates opportunities and teaches a lot when it comes to decision making. Being smart with money is an important skill to have as we get older, and during the time of being a student, it’s the perfect opportunity to learn the pros and cons of it.

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Before making a big decision, it’s crucial to understand the why of making the investment and what purpose the investment will fill, as well as the financial risks that are at stake. Bradely Bishop, professor of finance at the Lawrence Kinlin School of business, stresses these factors for investors to consider before taking the next step.

“Students may be saving for many reasons, such as for the purchase of a car, or even to start a business in the future,” Bishop said. “Understanding the purpose behind your investment, the time horizon you are saving for, and your comfort level with risk, are three initial factors to consider before investing. After that, it makes sense to review the characteristics of an investment and risks to determine if it is suitable for what you are trying to achieve.”

The idea is to be frugal and know what you have to work with, what will come in the long run of investing, as well as to manage a portfolio as a beginner.

“Investing offers opportunities to build wealth which can be important at any stage of life. There are many different types of investments and it is important to obtain personalized advice to determine what type of investment is most suitable for you,” Bishop said.

Starting off, it’s always recommended to consult with a financial advisor and get guidance as well as a sense for what you’re looking for. This way, you’re able to get a much clearer forecast as to how the investment will progress over time.

When being told that you can gain something out of investing, it’s important to know what it looks like and how it functions when looking at numbers and charts that document the process.

“Investing can make your money work for you due to the power of compound growth over time,” Bishop explained. “This may allow your savings to outpace inflation so that future purchasing power can be maintained or improved. In addition, gaining some knowledge about, and experience with, investing at a young age can be beneficial for a lifetime. There are many ways to learn more about investing.”

Once you understand how the system operates, the next phase of investing is to look at the various services available for you to utilize and make your money work for you, one notable one being a Tax-Free Savings Account (TFSA). TFSAs are a type of savings account that allows people to store money all while it’s sheltered from tax.

Whether it’s for saving money or investing, TFSAs are known for their flexibility and overall tax exemption, which makes them popular among students. According to Statistics Canada, over 15.3 million Canadians utilize TFSA accounts.

What makes this so convenient for students is the ability to set aside a portion of their income and deposit it into the account allowing it to grow over a period of time. If need be, you can still withdraw money from it whenever you please. The government allows up to $6,500 to be in the account.

The stock market is another method of investing, but the overall risk is quite high if you go in guns-a-blazing. The overamounting fees and taxes are also likely too much for a student to handle. That is where Mutual Funds and ETFs (Exchange-Traded Funds) give a student investor a taste of purchasing shares in the market, but with little tax and reduced risk.

“Every investor is different. Individuals have unique goals, objectives and tolerance for risk so there is no one-size-fits-all investment solution,” Bishops said. “Generally speaking though, someone getting started with investing can often benefit from professionally-managed, well diversified mutual funds or ETFs instead of trying to pick individual stocks on their own. These products help reduce the risk of being concentrated in one particular stock, sector or industry.”

Mutual Funds are essentially like a basket full of diverse assets, where investors pool all their money together. What makes this method so ideal for students is diversification which makes it low cost. Both ETFs and Mutual Funds allow the investor to choose and align where they allocate their money by choosing from numerous different funds, which allows them to meet their personal investing goals.

ETFs function similarly to Mutual Funds but are less expensive to own and the investor needs to purchase the funds themselves.

As a student investing, it’s crucial to know how much money you want to invest, where you want to put it, and the risk factor you’re taking on with the investment. When thought out and properly managed, you can profit a lot from the returns and use that money to help pay off outstanding debt, like student loans.