Investing as a Student in Canada (How to Start)

Here’s a story on how I started investing as a student in Canada. I started investing when I was a university student in Canada back in the early 2000’s. I was influenced by a smart guy who was a year older than me. I remember him telling me that he funded his tuition solely from investing and he was investing in Canadian companies (I recall one of the companies was Bombardier, I hope he has not held onto those shares).

He said he made enough from capital gains to pay for that year’s tuition (I think it was something like $3500 at that time) and then some.

I was so excited about the potential for fast cash (instant gratification is the name of the game when you’re under 20), that I signed up for a BMO Investorline account and started calling in to place trades for $29.95. Yes, this is what commissions where, and you had to phone the brokerage to place your buy or sell trade. This was before the time of online trading, before the time of Questrade. This was before TFSAs were available.

How times have changed!

Anyway, I might have lost money at that time, I can’t remember. I had no idea what I was doing. I then took it more seriously when I started my career after university.

Why Investing as a Student Is A Great Idea

Why is investing as a student in Canada a great idea?

The main reason is because you have time on your side.

Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t… pays it.

—- Albert Einstein

Here’s an example of the power of compounding.

Let’s say you start off with $1000 when you’re 19 years old in 2nd year university investing as a student in Canada. If you can manage to save and invest $100 a month ($1200 a year) at age 29 you will have an investment portfolio of almost $20,000 assuming a 7% average annual return on your investment. This is without any yearly contribution increases.

Here’s the exact same numbers I inputted into Financial Mentor’s Compound interest calculator.

The result is almost $20,000 at age 29 with $13,000 of your own money invested.

Now for the even more fun part. At age 29, if you didn’t contribute ANOTHER DIME to your investment account, after 36 years the almost $20,000 will compound to almost $220,000 at age 65.

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Now, I know that at age 19 you might have other priorities, but for those that get it and want to build a life of leisure later on, you will be rewarded.

Investing when you are young is the ultimate delayed gratification, the ultimate marshmallow test.

The effort you put in today (and $100 a month might be a little effort to you or it might be a lot as a student) will reap big rewards years down the road.

Can you imagine what the portfolio might look like if you invested more than $100 a month and increased your contributions as your income grew?

Time is on your side. What is another reason why starting young is a good idea?

Another reason why investing as a student in Canada is a good idea is that it puts you on the path towards building saving and investing habits.

If you save and invest $100 a month it helps you trick your lizard brain, through automating the saving and investing.

We all have lizard brains whether we like it or not.

We all know that exercise is good for you, we all know that eating more vegetables is good for you, we all know chips shouldn’t be eaten every day, but human nature is human nature.

Knowing something is different from actually doing something and changing behaviour.

Therefore, discipline can be achieved by just automating your investing and taking out as much of the emotion and innate human irrationality as you can.

Get those good habits of saving and investing early and the future will be very bright.

Investing is Easier Than Ever Now

The other reason why investing as a student is a good idea is because the barriers are much lwoer.

Now, this is the tricky part. Back when I was a university student, I didn’t have access to what we have now. It was the dial up land line phone (and you had to make sure the Internet wasn’t being used because it was dial up Internet back in the day) to call your brokerage and pay $29.95 per trade to invest.

Back when I went to school we had to walk 2 hours in the pouring rain and pouring snow to school and back.

(Just kidding, I’m trying my best not to sound like a grandma)

What do you have access to now, investing as a student in Canada?

  • Online discount brokerages (you don’t need to even see anyone to open a discount brokerage account)
  • All in one ETFs where you don’t need to rebalance for asset allocation
  • Robo advisors
  • More ETFs to invest in than you can shake your fist at

In fact, since 2003, the list of ETFs available worldwide has grown exponentially.

According to Statista, there are over 7500 ETFs available worldwide in 2020.

As I said, DIY investing is easier than ever and if you set up good habits now (e.g. avoid the mutual funds sales people where the fees will eat up your investments), you will be on the direct path to success a few years down the road.

There’s even courses on how to start investing and get a leg up on personal finance as a young adult, like Enriched Academy.

Best Investments for Students

What are some of the best investments for students?

Well, I will be honest here, I am not here to tout the fastest way to get rich in Canada because building wealth is a marathon and not a sprint.

So therefore I won’t be recommending Meme stocks or other stocks that have the potential to go “to the moon” because of day trading.

Some of the best investments for students in Canada are what I have mentioned already… these are:

All in One ETFs in Canada

All in One ETFs mean that you just invest in this one ETF (exchange traded fund) and then you are… well done!

Exchange traded funds are funds that include a huge basket of companies but they are traded on the stock market. Depending on your brokerage, it can be free to purchase exchange traded funds. Otherwise, there is usually a commission charged when you buy and sell.

One of the most popular ETF providers is Vanguard. On top of the commission to your brokerage when you buy and sell, there is also a fee that the ETF provider charges. Vanguard has very low fees. For these all in one ETFs, they are around 0.24%.

So for every $1000 invested you will pay $2.40 annually to Vanguard, this is what it costs to manage the fund. ETFs are passive, so there isn’t an active fund manager salary to pay for, this is why the ETF management fee is so minimal at 0.24%. Mutual funds that you might see at the big banks charge MERs of 2.40%.

That’s 10x the amount for a similar (or even worse probably) return on your investment.

It doesn’t make any sense right?

Why would one pay more for a mutual fund when you don’t need to?

Here are some all in one ETFs in Canada provided by Vanguard:

  • VGRO ETF– Has about 20% in bond and fixed income allocation and the rest equities
  • VEQT– All Equity ETF portfolio, has 13,337 stock and about 30% Canadian exposure.
  • VBAL ETF– The Balanced portfolio, has about 40% in bond and fixed income allocation and the rest equities

To set up an all in one ETF, you would need to sign up for a brokerage.

  • Scotia iTrade offers free ETF trades (there is a specific list of free ETFs).
  • National Bank Direct Brokerage also offers free trades.
  • Wealthsimple Trade also offers free trades ($50 cash bonus offer)
  • Questrade offers free ETF purchases ($50 in free non-ETF trades too). This is the brokerage I have been using 4 years since I graduation university and became more ‘enlightened’ with investing.
  • CIBC Investor’s Edge offers Young Investors who are under the age of 25 free ($0) ETF and stock trades. They also wave the $100 fee for registered and non-registered accounts.

After that, you literally just fund your account with the aforementioned $100, input “VEQT.TO” or “VGRO.TO” into the ticker symbol, press ‘buy’ and that’s it.

You can then invest your $100 each month with the aforementioned all in one ETF (perhaps pick a day of the month) and watch your money grow.

Just a note, if you pick the ETF option it is important to use a brokerage where ETF purchases are free or minimal, because spending $5 to $10 a month for $100 means you will be paying 0.50% to 1.00% in fees and negates the whole point of low cost DIY investing.

Robo Advisors

For a little higher cost in fees, you can have what’s called a ‘robo advisor’ do your asset allocation rebalancing and ETF portfolio picking for you.

The robo advisor fees in Canada around around 0.70% to 1.00%. Some are cheaper, like Questrade’s Questwealth robo advisor is cheaper than this around 0.50% (robo advisor fee plus ETF average fee) and you can get your first $10,000 managed for free.

Here’s a list of robo advisors in Canada if you are interested.

Simple ETF Portfolio

Alternatively, you can give yourself a bit more flexibility and choose a simple portfolio of ETFs, for example a two fund ETF portfolio comprising of ex-Canada and Canada. This way you can control your Canadian allocation more than an all-in-one ETF option.

One example of a Canadian ETF is XIC by Blackrock for an unbeatable fee of 0.06% annually. It holds the entire Canadian stock market (233 holdings) and has a generous 2.44% distribution yield, thanks to all the Canadian financials.

An example of an ex-Canada ETF is VXC. VXC compromises of about 57% US exposure and the rest is ex-United States. It has over 10,700 businesses within this ETF. The MER is 0.21% for VXC. The other popular option is XAW which has an MER of 0.22%.

WHich Account to Invest in as a Student

Finally, the next step is to think about which account to invest in.

There are a number of options such as the TFSA (Tax Free Savings Account) and the RRSP (Registered Retirement Savings Account) and a non-registered account.

The best option as a student who has a lifetime of compounding ahead of you is to invest in the Tax Free Savings Account.

If you are over 18 years old and have a SIN (Social Insurance Number), you can invest in the TFSA. If you are 18 in 2022, you can invest $6000. If you are 19 in 2022, you may invest up to $12,000 in your TFSA.

YearTFSA Contribution Room
2009$5000
2010$5000
2011$5000
2012$5000
2013$5500
2014$5500
2015$10,000
2016$5500
2017$5500
2018$5500
2019$6000
2020$6000
2021$6000
2022$6000
2023$6500
2024$7000
Total$95,000

In the TFSA account, you contribute with after-tax money and the money invested in the TFSA grows tax free. When you withdraw the money you also pay no taxes. You can even keep contributing to the TFSA when you’re 98 (I know it is probably hard to think that far ahead!).

Here’s a step-by-step guide on how to invest your TFSA with Questrade.

If you hold VEQT in your TFSA or registered accounts there are foreign withholding taxes on the distributions paid. However, this will be a small amount (because the TFSA has capped contribution room) and you won’t see it anyway because it is deducted before it hits your TFSA account. The tax free effect from the TFSA on expected capital gains outweighs this minor downside.

Later on after you graduate and get started with your career, once you make a certain threshold (usually around $75,000 annually) you can start contributing to your RRSP for the tax benefits.

As your RRSP balance grows, another option is to hold US listed ETFs directly (like VTI for example) because there is no foreign withholding tax on that.

Investing as a Student in Canada Recap

Really, that’s all you need to get started.

Later on when you get older and you want to delve in some dividend investing or invest in individual companies you can.

But right now, when you have to concentrate on that English 112 final, or that Psychology mid-term, or that Math 101 assignment, you don’t need to fill your brain bandwidth with worrying about your individual stock selection.

I know it can seem overwhelming as a student who is on a tight budget, there may be student loans, tuition to worry about, and exams to cram for, but this is what I would tell my 19 year old self.

Time is on your side, take advantage of it! 🙂

When did you start investing?

What would you tell your 19 year old self in relation to investing?

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