Investing 101 - What’s the Hype?

Growing up, my parents and grandparents would frequently remind me that they were always putting money aside for my future, though I wasn’t sure where the money was going or what would become of it. I never quite understood the importance of their conversations; I’d often hear the word ‘bonds’ or ‘interest’ behind closed doors but for a very long time, I had no idea what either meant. At the young age of 8, I found myself most focused on saving my weekly allowance for a year in order to buy a cherry red DS and even splurge on a game or two. That's what I considered to be an investment. Now, at the age of 21, I can confidently say that my current definition of an ‘investment’ is both more accurate and completely different than I had once envisioned. 

Much to my demise, however, I have friends that still don’t have credit cards or savings accounts and don’t know the most basic principles about how to save or grow income. Not to say all aspects of investments are easy to understand; financial responsibility is definitely a lot more complicated with all factors taken into account. 

The concept of investing is broad, so let me begin by breaking it down for you. Investing, by definition, is the act of allocating resources, usually money, with the expectation of generating an income or a profit. Investing in both stocks and various accounts can begin at the age of 18 years old, however sometimes one’s parents will take it upon themselves to put some of the child’s savings into these accounts for them. The parent’s goal in doing so is usually so that the child has some kind of funding for pre post-secondary or post post-secondary. Once they deposit money, they’ll be able to watch the dollar value of the account rise due to accumulated interest. 

Interest on a savings account is the amount of money a bank pays their depositor when they hold their money with that bank for long periods of time. Each type of savings account can hold benefits in different ways- let’s take a look at some of them: 

*The first $250,000 in ALL savings accounts is backed by FDIC for banks and NCUA for credit unions, meaning you won’t lose your money.

Different ways to save 

Traditional savings account - This one is good for students coming out of highschool with a part-time job, or just for beginners. A basic savings account will usually have a low minimum balance requirement but will have a very low interest rate. Although it’s relatively easy to transfer money from these accounts, it can come at a price, which is important to consider. 

High-Yield savings account -  These savings accounts stand out from the traditional savings accounts because they reward you with a higher interest rate. The increase in earnings is significant, being 20 to 25 per cent more than your average savings account. Before you make one of these accounts, however, make sure to double check these factors: How much money is required to open the account? Are you comfortable with depositing that much at the onset? Are there any fees? Will the bank allow you to create links between this account and that of other branches?  

Money-Market account - Once again, a main attraction to this account is that it offers higher interest rates. However, Money-Market accounts are able to do that because they are permitted to invest in CDs and government security, which savings accounts can’t do. They also offer cheque-writing privileges similarly to a checking account, however the fees and transaction limits still remain. The restrictions are tightest when selecting this account, so take note and do your research beforehand. 

*Obviously there are more accounts, like TFSAs and RRSPs, which I’ll link here for you to check out. This is just to give you an idea of the different kinds of accounts you can open.

The glamorization of the stock market 

For the longest time, I had always considered stock investments something that business people did as a job. In recent months, however, it seems the stock market has become a popular topic of conversation. I didn’t really get into it until the buzz about Gamestop came to light earlier in Jan. 2021, however I knew of the basics through my economics courses and through the knowledge given to me by my friends who had previously invested in stocks. Although there’s certainly a lot to know, here is a breakdown of key components to investing in the stock market. 

The stock market is defined as a place where both individuals and investors can come together to buy and sell shares in what once was known as a public revenue, but to date, is done online.  A stock represents ownership in a corporation and represents a proportionate claim on its assets and earnings. You can buy 10 shares, a whole share or even half a share (known as a fractional share, usually the result of a stock split) 

Things to consider when investing in the stock market: 

It’s important to note that while the stock market can carry risk, it’s a good way to build up your investments. To begin, you don’t have to invest thousands of dollars. Begin by setting aside those few dollars you would usually spend on a morning latté and invest that in stocks, or an index fund. 

I’d be lying if I said that you can plan around the stock market. It’s relatively unpredictable and you need to know that there’s NO guarantee to how well your stocks will perform. Now you might be wondering, what can you do in the meantime? Diversify your funds. Typically, when the stock market is up, the bond market is down, and vice versa. By strategically placing money into both stocks and bonds, your ability to better control volatility will be strengthened, and you might learn along the way. 

My last tip, but most important tip is to invest in companies and industries you’re interested in. That could be your father’s work company, cannabis companies or even Starbucks, but at least choosing the ones that best suit you will help you stay motivated and up-to-date with your investments. After all, why own a share of something lame? 

The stock market should scare you, even after all those tips and tricks. Although unpredictable, it’s great practice for investing and who knows, maybe you could make a huge profit from it! 

Investing for young people 

Now, I really wanted to stress the importance of investing at a young age. I had never been good with my money until I got out of high school - once I realized the importance of saving and budgeting, I felt as though I had opened my eyes to a whole new world. Even now, you’ll definitely catch me rolling my eyes when I find out that someone has no direction in financial aspects at all. Here are MY best tips for saving/building up credit, while explaining WHY these methods are beneficial:  

Get a credit card ASAP -  Right when I turned 18, I applied for a credit card. This definitely will help your credit score when you’re trying to put a down payment on a house or a car. Just remember to only buy things on your credit card that you can pay back, watch for interest rates and keep the amount of cards you have low, to one or two. Any more than that and your credit rating will most likely be as poor as they come. 

 50/20/30 rule for budgeting - The basic rule once you get that bi-weekly paycheck is to divide up spending: 50% on needs, 30% on wants and 20% away to savings. Wants/needs are different for everyone, but savings shouldn’t be, so make sure at least 20% ends up in that account! 

Make different accounts - I’ve talked about this in a previous article, but setting up different accounts with your bank can lead to money organization. Bills, Rainy Day Funds, Savings, TFSA and whatnot, just to help monitor your spending! It’s helped me, so I’m sure it’ll help you!

Invest so you can retire young - As cliché as it sounds, the earlier you start saving for retirement, the more potential the money has to grow. By investing early, you might be able to take advantage of compound earnings. Remember: It’s possible to retire as early as even 30, but that’s not too realistic. That would require you to save half your earnings, or more, keeping expenses low and income high. Regardless of the age, however, saving is important and the more you can do that now, the better off you’ll be later. 

A wise friend once told me that although saving is a big part of their life, it’s more than okay to treat yourself from time to time or put money towards experiences. I agree with them; there’s no point in working away only to not spend a penny. You can definitely justify that trip to Mexico with your friends because that’s a life-long memory; you can also justify that $5 croissant and coffee you bought on your way to work because you’ll make way more than that during your 9-hour shift. Just be smart about it and learn from your mistakes; now, if you haven’t already, go start investing- I promise it’ll be worth it!