Investing seems to be one of those “big” words that doesn’t mean much when you’re young. If you’re like us, you grew up hearing things like, “invest now and you’ll retire with $1 million.”
The concept can seem so intangible because $1 million is more money than you can probably ever imagine having, and retirement feels like it’s a million miles away because you only just started working! However, whether you’re a student or soon-to-be graduate, you may be looking to familiarize yourself with this topic.
Fortunately, there are a lot of tangible reasons to invest your money now, and getting started isn’t as big or intimidating as it sounds. And if you do start investing when you’re young, there’s the potential to see greater returns, and retire with a good stash of cash or tackle any other financial goals you have. Here are some ideas for how to invest your money when you’re young – and why you should:
1. Start small (but think big)
When you’re in your early career, your first concern might be that you don’t earn enough money to get started. That’s a myth that will hold you back, if you let it. The best thing you can do when you’re young is start investing any amount you can – whether that’s $25/month or $100/month. Opening an account and contributing to it monthly is one of the healthiest habits you can create for your financial future.
As you start to earn more, you can increase the amount you contribute, and you’ll begin to see that compounding is on your side. But start small with whatever amount you have, and keep the big picture in mind: that it’s all going to help you when you want to tackle other financial goals, like travelling, buying a home or retiring.
2. Set goals (both big and small)
After you figure out how much money you can invest each month, set some goals for what you plan to do with it. It’s normal to have both short-term goals (like buying a big-ticket item, such as a new laptop, or going on a vacation) and long-term goals (like retiring).
Once you have your goals in mind, your next step is to figure out what types of accounts you should invest your money in. When you have a short-term goal and need the money soon, you don’t want to risk losing any money if the stock market goes down, so something like a high-interest savings account or GIC will keep your money safe and pay you a little bit of interest. However, if you’re saving for retirement, you may want to look at something that’s attached to the stock market – like a stock index fund or mutual fund – because you have many years to deal with the ups and downs, which can lead to bigger returns.
3. Don’t be intimidated by the acronyms
One of the things that might seem the most intimidating about investing is that there are so many different things you can invest in – and there seems to be an acronym for every option! The two you’ll see most often are TFSA (tax-free savings account) and RRSP (registered retirement savings plan). While both come with very different sets of rules, they’re not as difficult to understand as the media makes them out to be – so don’t let the acronyms scare you away from learning more about them!
After that, you should read up on MERs (management expense ratios), which might be the most important financial acronym you can understand. An MER is the fee you pay when you invest in index funds and mutual funds – be sure to do your research or ask a financial advisor on how this can impact your investments.
4. Final tip: Educate yourself constantly
Investing is intimidating at first, because it’s something you probably don’t know anything about. But the more you learn about it, the better you’ll feel about investing – and the more money you could make from doing so in your lifetime.
Don’t be scared to ask “dumb” questions. Investing can come with a learning curve – but almost every experienced professional has been through it! Start by investing as much as you can, setting some goals and picking the right accounts for them, then keep learning more and change your strategies to fit your new goals. Investing isn’t a get-rich-quick scheme, it’s something you’ll do for life. The most important thing you can do is get started when you’re young. Good luck!