By: Jeffrey Low
The world of investing can be complicated and full of unfamiliar terms and concepts.
Additionally, as a student, you may think that it’s too early to start thinking about investing — that investing is only for people who are already wealthy and “successful.” This is one of many common misconceptions students and other younger people have about investing, according to Michelle Hung, AKA the Sassy Investor. The fact is, students can enter the world of investing now through gathering information, exploring their options and planning.
Michelle Hung is a chartered financial analyst (CFA) and investing expert who’s worked for seven years in investment banking and venture capital. She’s also an author and content creator, having contributed to Canadian Money Saver Magazine, hosted webinars for Questrade and developed TikToks for the budgeting app Cleo. To date, she’s taught people how to invest (over $2 million total!) and save on average over $9,000 per year.
We had a chance to chat with Michelle Hung and ask her some common investing questions. Here’s what she shared.
How much should I have in my savings before I start investing?
You should have at least three to six months’ worth of expenses in your savings account, but you can start investing when you feel comfortable at the level of savings you’re at. For example, if you have two months worth of expenses in your savings account (e.g. $6,000, if each month you spend $3,000 on living expenses), and you’re comfortable with that, you can start your investing process while continuing to build up your savings fund.
How do I start investing? What’s the difference between using my bank’s investment team and an independent broker?
The first thing you need to do is educate yourself so you know exactly what to invest in and what the risks are. Managing your risk and expectations is critical. Bank-owned brokerages are generally more expensive when it comes to fees, like trading commissions, and they may even charge a quarterly maintenance fee if your balance does not exceed a certain amount (e.g. If you don’t have at least $15,000 in your investment account, you’ll be charged $25 per quarter). Independent brokers like Questrade or Wealthsimple Trade are cheaper. They offer commission-free purchases on ETFs, and they don’t charge maintenance fees (a fee if your account balance falls below a certain amount).
Is there a good website or app I should use to help me invest?
Check out Wealthsimple or Questwealth Portfolios if you decide to use a robo-advisor to help you manage/build your own investment portfolio.
What are the requirements, pros and cons of using a platform and trading on my own?
Trading on your own is the cheapest option — which means you’re not paying a management fee for someone to manage your investment portfolio. This gives you the most freedom in terms of what you want to put in your portfolio. However, you have to do this work on your own, including the management of it.
If you decide to go with a robo-advisor, which means having your portfolio managed for a fee, you don’t have to worry about how to build and manage your portfolio — they do it for you. Wealthsimple charges an annual fee anywhere between 0.4% to 0.5%, plus the cost of the ETFs. Questwealth Portfolios charges anywhere from 0.2% to 0.25%, plus the cost of the ETFs.
What are ETFs? What are mutual funds? Do you recommend one over the other?
“ETF” is an acronym for “exchange-traded funds,” which means these funds can be purchased on the stock exchange like any other stock. Mutual funds have to be purchased through a financial institution and usually carry some restrictions like a minimum initial investment. Mutual funds are also generally expensive, as they carry annual fees of, on average, 2.3% per year (Canadian average). ETFs are cheaper and can start as low as 0.05% per year.
I recommend ETFs mainly because they are lower in cost — these fees can add up to thousands of dollars over a lifetime!
What is a good fee percentage?
The lower, the better. There are ETFs that start at 0.05%, and then there are ETFs where they are diverse enough to own just one in your portfolio, which can cost 0.25% per year. These are all reasonably priced, especially compared to the average mutual fund fee of 2.3%.
If I have debt, should I take out any money I have invested to pay off the debt?
That depends on your financial situation, the level of debt and the cost of debt (e.g. the interest rate you’re paying). Mathematically, it makes sense if you’re paying 20% in interest costs vs. earning 8% per year, for example, to pay off your debt first. If your investments are held in an RRSP, you shouldn’t sell your investments to pay it off because you’ll be on the hook for taxes.
If, however, you’re thinking about taking money out of your TFSAs to pay off credit card debt, it makes sense. Some people are comfortable carrying some debt for a short period of time, and some just want to get rid of it ASAP — so it all depends on your personal circumstances and what you’re comfortable with.
Should I be thinking about investing if I don’t have a job right now?
You can certainly think about it, but I wouldn’t advise on acting on it! I would suggest using this time to educate yourself so you can get started when you’re ready to go — that is, after securing a job/income stream and building some sufficient savings first.
I have reservations about what’s happening in the economy right now. Should I wait to invest? Or is this a good time?
When you’re investing, you should avoid: 1) news and current events, and 2) trying to time the markets. The proven and best strategy is to continue investing every month, no matter what is happening in the economy right now or any short-term volatility driven by events, such as the U.S. election. Staying invested, but also continuing to invest through the ups and downs of the stock markets, is the best way to avoid losing money!
I have extra funds that I have saved from OSAP. Should I invest this money in the market, or are there other options to consider?
Eventually, you’ll have to pay that money back when you graduate, which means interest will start. Put that money in a high-interest savings account in the meantime (e.g. EQ Bank), so when you graduate, you can reduce your student loan balance immediately, avoiding unnecessary interest costs.
Learn more about the Sassy Investor on her website. Connect with her on social media: Instagram (@TheSassyInvestor), Facebook (@TheSassyInvestor), Twitter (@Sassy_Investor) and YouTube.
The Investing with Michelle Hung series was part of Financial Literacy Month, hosted by Mac’s Money Centre and the Student Success Centre. Information about the series, including webinar recordings, can be found on the Financial Literacy Month web page. Check out the Mac’s Money Centre’s website for more information on managing your money.