Introduction to Investing for University & College Students

What is investing and why should you care? 

Investing is the process of putting your money into assets that have the potential to grow in value over time.  

Before we go any further, let’s quickly establish a boundary between investing and saving, which is actually a very thin line that people sometimes use synonymously in daily conversations. According to TD Canada Trust, saving is putting money aside for future goals or emergencies, while investing involves purchasing financial products with the expectation that they will increase in value over time.  

Investing is generally good for: 

• Buying a home 
• Financial independence 
• Building passive income  
• Paying for future education or career development 

Why should you care?  

First off, one of your superpowers as a student is time. Starting early gives your investments more time to grow through the power of compound interest. Compounding means that your investment earnings generate additional earnings over time. You can try out compound interest calculators on the websites of most banks, such as TD Bank, which gives you a sneak peek of what your future financial position might look like. 

Secondly, money that is stacked up in cash or in savings tends to lose value over time due to inflation. Inflation means an increase in prices over time resulting in a reduction of your money’s purchasing power. In most cases, the rate of inflation is greater than the rate of interest on your savings, and the yield from your investment is usually greater than inflation rates, giving you a huge advantage. In short, without investing, your money is basically trying to run up a downward escalator. 

Here is a quick, simple guide for anyone new to investing: 

STEP 1: Build an Emergency Fund 

Again? Yes.  

If you have been following my previous articles on finance, such as “Budgeting in the City” you are probably tired of the phrase “emergency funds.” I mean, what could possibly happen to a fit, hardworking student in their early twenties with no kids that may possibly require a bundle of money out of the blue? Well, guess what, when life throws a curveball at you, it throws with no mercy, and you better be ready to catch it. 

Life happens. Laptops break. Jobs disappear. Unexpected health expenses may need to be covered. 

So, before downloading every investing app your TikTok algorithm throws at you, save up some considerable money, usually a sum that can cover 3 months of your basic needs with no income at all. On top of that, markets are volatile, hence the importance of having a buffer, especially now with geographical tensions and unspeculated market downturns. 

STEP 2: Establish Your Goals  

Not every investor has the same goal. Some may want: 

• Long-term wealth
• Passive income
• Financial independence 
• Graduation or any major life change  

It is very important to note down your goals, whatever they might look like, because your goals shape the way you invest. You cannot train for a marathon when the goal is to break Usain Bolt’s 100m world record. It is the same with investing; almost everything has to be tailored to your goals and needs, as well as your current financial position. 

STEP 3: Choose the Right Account  

Canada has several investment accounts that sound confusing at first but are actually incredibly useful. Let’s break them down. 

1. TFSA – Tax Free Savings Account  

A Tax-Free Savings Account allows Canadians (including international students) to invest and grow money tax-free. Any investment gains earned inside the account are generally not taxed when withdrawn. 

For many students, a TFSA is often one of the most flexible, beginner investing accounts, and it also works well for long-term growth. 

2. Registered Retirement Savings Plan (RRSP)  

A Registered Retirement Savings Plan is designed for retirement savings. Contributions may reduce taxable income, but withdrawals are taxed later. 

RRSPs may become more useful once you begin earning higher full-time incomes after graduation. 

3. Registered Disability Savings Plan (RDSP) 

A Registered Disability Savings Plan helps Canadians with disabilities and their families save for long-term financial needs. 

STEP 4: Choose an Investing Platform 

Today, we have access to more investing platforms than previous generations through banks and online brokerages. However, this can make it difficult to choose which one best suits your needs.  

Here is a run-through of some of the things you should consider: 

• Trading fees 
• Ease of use 
• Educational resources 
• Investment options 
• Mobile accessibility 
• Customer support 

STEP 5: Managed vs. Self-Directed Investing  

Are you the “do it for me” investor or the “I got this” investor?  

In managed investing, professionals at your bank or the broker you chose handle the investing for you. All you have to do is put in the cash and everything works by itself. This is good for beginners, busy students, and people who want less stress. The downside is that you have to pay management fees, and you have limited control over your investments. 

In self-directed investing, AKA. Do It Yourself (DIY), you choose your own investments. You are basically your own boss; what to sell and buy, for how much, and when to do it. It is great for students who want to learn, are comfortable with researching investments, and prefer lower fees. The downside of this is that you are responsible for every decision, which means you will have to master how to avoid panic selling after reading one scary headline at 2am. 

It’s important to remember that both options have pros and cons, and that either option is totally fine.  

STEP 6: Choosing Your Investment Products 

1. Stocks: Stocks represent ownership in a company, sometimes known as equity. Buying stocks can be exciting because of their growth potential, but they are also riskier. One bad earnings report and your portfolio can start looking emotionally devastating.  

2. Exchange-Traded Funds (ETFs): This is simply stocks bundled together into one package. An ETF is kind of like a food hamper. Instead of buying just one item, you get a collection of different products packaged together. For students, this is more popular because they spread out the risk, require less constant monitoring, and are relatively simple and cheaper. 

3. Mutual funds: Mutual Funds pool money from many investors and are managed professionally. They can be great for diversification and professional management, though fees are sometimes higher than those of ETFs. 

4. Bonds: Bonds are generally lower-risk investments where you lend money to governments or corporations in exchange for interest payments.  

Final Thoughts 

Once you’ve figured out the necessary steps, you can make your first deposit. It doesn’t matter how small. Think of it like a seed: what matters is that you plant it, water it consistently, and give it time to grow. The earlier you start, the longer your money has to work for you. So take a breath, do your research, and when you’re ready, put that seed in the ground. 

Glossary 

• Return = The profit or loss generated from an investment over time. 
• Risk = The possibility that an investment may lose value. 
• Liquidity = How quickly an investment can be converted into cash. 
• Diversification = Spreading investments across multiple assets to reduce risk. 
• Dollar-Cost Averaging = Investing a fixed amount regularly, regardless of market conditions. 
• Principal = The original amount of money invested. 

References

• Investor Knowledge Quiz
• Investor Readiness Quiz
• CIBC Investor Profile Questionnaire for Students
• The Yeshiva University Observer: “Why College Students Should Start Investing Right Now“
• TD: Investing 101
• Fidelity: “The difference between saving and investing“
• Fidelity: “What is a stock?“
• Fidelity: “What is a bond?“
• Get Smarter About Money: Compound Interest Calculator – This site has different kinds of calculators, including TFSA, Fees, and Cashflow for students who want to predict or have a picture of how much they can make in the future.