How To Start Investing
Assuming you’ve read the previous article, now we’re ready to get into the next steps: “how do I actually start investing?“
The internet usually answers this with way too much information. Dozens of accounts, hundreds of investment types, and a lot of jargon make it feel harder than it needs to be. The good news is that starting to invest as a student is much simpler than it sounds when you focus on the basics!
This article walks through the main pieces involved, without getting lost in the details.
You Have Options
There are so many different ways to invest and many different things you can invest in. Individual stocks, bonds, real estate, crypto, and more. While all of these exist, most students don’t need to understand or use them all right away. And to be honest, most of them are too risky and complicated for beginners anyway.
For beginners, especially students, the goal isn’t to pick the perfect investment. It’s a good idea to start with something simple, diversified, and easy to manage while you learn. That’s where ETFs usually come in.
ETFs, Explained
An ETF, or exchange-traded fund, is basically a collection or “basket“ of many investments packaged together. Instead of buying stocks in one company, you’re buying a small piece of many companies, all at once.
This matters because it spreads out risk. If one company does poorly, it doesn’t have the same impact as it would if all your money were tied to that single stock. For students who are just starting out, this built-in diversification is one of the biggest reasons ETFs are commonly recommended.
ETFs are also managed automatically, meaning that you don’t need to do the math or fancy calculations when it comes to rebalancing or adjusting the investment allocation. You can just sit back and enjoy the growth!
How To Buy Them
You don’t buy investments directly from the stock market (at least not in this day and age). Instead, you buy them through a brokerage.
A brokerage is a platform that lets you buy, sell, and hold investments. Think of it as the place where your investments live. You open an account with a brokerage, deposit money, and use it to purchase things like ETFs.
In Canada, one common type of brokerage is a bank brokerage. This includes investment platforms offered by banks like TD, RBC, and Scotiabank. If you already have a chequing or savings account with one of these banks, opening an investment account there can feel convenient. That said, bank brokerages often come with much higher fees and can get expensive over time.
Another option is an online brokerage, such as Wealthsimple. These platforms are often low-cost or zero-cost, which is why many students choose them when they’re just getting started.
It’s completely up to you which brokerage you choose. The important thing is understanding the pros and cons of each and picking what fits your situation best!
Now Comes the TFSA
This part can be a bit confusing at first, so stay with me here. You invest through a brokerage, but within that brokerage, there are different types of accounts. In Canada, one of the most common investment accounts is the TFSA, or Tax-Free Savings Account. Despite the name, a TFSA isn’t just for saving cash. It’s an account that can hold investments, such as ETFs.
One of the biggest benefits of a TFSA is that any growth inside the account isn’t taxed, even when you withdraw it. You can also take money out at any time without penalties, which makes it a flexible option for students. You don’t need to max it out, and you don’t need to start using it right away if you’re not ready.
That said, TFSAs do come with contribution limits. Every Canadian resident over the age of 18 accumulates TFSA contribution room each year. This limit increases annually, and unused room carries forward if you don’t use it. Your total available room depends on your age and whether you’ve ever contributed before.
It’s important not to overcontribute. If you put more money into your TFSA than your available contribution room allows, the CRA charges a 1% penalty per month on the excess amount until it’s corrected. Because of this, keeping track of how much you contribute and withdraw is key.
If we were to give one tip for using this account, it’s to track all the deposits and withdrawals you make, as you may need those numbers for future calculations.
Putting it Together
Here’s the simple mental model:
ETF: what you buy and invest in
Brokerage: the platform you buy and hold investments through
TFSA: the account you invest through
Once you open a TFSA with a brokerage, you can buy ETFs inside that account and let your money grow over time.
