Investing can seem very intimidating and stressful, especially to students trying to figure out their finances. However, it’s worth looking into, even as a student, because starting to invest early on can prove very financially beneficial in the future. When done correctly, investing can be very rewarding, and can really help you set up a financially successful future.
What is Investing?
Investing is essentially using your money to make more money --- by purchasing assets from which you will earn a profit in the foreseeable future. The main goal with investing, along with making a profit, is to make your money grow faster than the rate of inflation, which means that you will be making money. Putting your savings in a bank account may not be enough, even if you are earning interest, because a lot of the time, the inflation rate will be higher than your interest rate (depending on the economy and your interest rate). It is also important to consider whether or not investing is currently the best decision for your financial situation at the moment. If you have any credit card debt, it is of the utmost importance that you pay it off as soon as you can before investing any money, because with credit card debt, banks will charge you a very high interest rate that will over time increase your debt. When tackling debt, you should always repay the debt with the highest interest rate. If you also have any outstanding student loans, then that is also something to consider. Depending on the interest rates of your student loans, that is something that you may want to pay off first before investing, or at least allocate some of your income to repay your loans in your budget. Deciding whether or not to invest your money is 100% up to you, and your decision will depend on your financial situation.
Before budgeting some of your income to your investment portfolio, generally speaking, you should have some sort of emergency fund saved up. Your emergency fund should have 3-6 months of expenses, just in case anything happens, you want to be prepared. It may be beneficial to keep your emergency fund in a high-interest savings account because unlike with any money that you may invest, it is best to keep your emergency fund handy, and instead of storing it at home, you may as well be collecting interest.
If you decide that you are financially stable enough to invest, it is quite important to note that with investing, time is money. Time is a prime asset when investing your money. According to Business Insider, “If two people save $100 a month for retirement, but one starts at 25 and the other starts at 35, the early saver will have nearly twice as much in their bank account by age 65.” Investing can be looked at as an advanced form of saving; anywhere from 20-30 dollars a month can make a huge difference in the long run. Here are some investing avenues that can help get you started with investing:
1. GICs
A GIC, or a guaranteed investment certificate, is a very safe and secure investment with very little risk. A GIC works much like a savings account, except that you invest your money for a specified period of time (1 year, for example) and you can only withdraw your money after that period of time is up, or else you may have to pay a penalty. You can invest your money for periods of time like 6 months, 1 year, 2 years up to 5 years, and you generally have to invest a minimum of $500 dollars. GIC’s are very low risk and are not subject to market fluctuation, so they may be an attractive avenue of investing for students.
2. Index Funds
An index fund is a type of mutual fund whose portfolio is made out of components to try and mirror a stock market index, such as the S&P 500 (which is a measure of how well the stock market is doing). The index fund contains at least a representative number of stocks from a certain stock market index, and the value of the index fund will try to mimic the gains and losses of the stock market in general. There are several advantages to investing in an index fund, especially as a way to introduce yourself to the world of investing and the stock market, respectively. While individual stocks may rise or fall over time, since index funds represent a section of the market, index funds tend to rise over time if the market is rising and doing well. Index funds also have less fees than actively managed funds, because index funds are referred to as a passive investment. Index funds are generally lower-risk and lower cost than stocks, which makes for good beginner investments.
Investing doesn’t have to be that stressful or that complicated to get more bang for your buck. If you have a little extra money to invest, it’s a good idea to look into all the different things you can do with it. And if not, don’t worry, you will always be able to invest later on in your life. But remember only to invest if you can afford it --- not the other way around. What matters most is that you’re prioritizing your finances and doing what’s best for you currently in your financial situation, so that you can set yourself up for a financially independent future!