By Ian Greenwood and Stacey Askew
Students are a rare commodity on the investment scene, but the people selling stocks, shares and bonds say that with a little cash in the bank, students can easily make the trading plunge.
“There’s a perception you have to have a lot of money in order to start investing and that’s really not the case,” said Christopher Manning, a broker at BMO Nesbitt Burns.
“I think it’s partly the result of the way the financial industry works. They just don’t think its worthwhile talking to young people.”
Manning and other traders agree that there is a place in the world of investing and returns for young people, who may only have a thousand or so dollars to work with.
He said he has a small number of younger clients who he both advises on investing and who occasionally come to him with the stocks they want to purchase. However, with an official broker, if the value of trades in a given period is not high enough, an additional fee is required.
Gary Maiato, a financial advisor at Business and Executive Planning, said the idea of compounding is important in understandng investing.
“It is hard to believe that an annual contribution of $1,500 can grow to over $1,000,000 before age 65 if you start today.” He added that starting to invest the same amount at 45 will only be worth about $100,000 on retirement.
Manning agreed. “The way to make a lot of money in the stock market is through the power of compounding over long periods of time. Buying dividend-bearing stocks and reinvesting the dividends over the years will reap huge returns down the road.”
For students with only a couple thousand dollars, a full-fledged dealer, such as Nesbitt Burns, may not be the best option. But, Manning said, for those willing to put in a couple hours research, discount brokers are a student-friendly option.
There are a number of discount brokers in Canada, a few of which are directly tied to Canadian banks.
Phillip Guilbert, a customer service rep at discount broker CIBC Investors Edge, said a self-directed investor normally needs at least one to two thousand dollars to make investing practical.
One trade, buying or selling, will run an investor a minimum of $25. Trading is done from an online account or for an extra fee over the phone.
Customers can also pay a minimum of $39 a trade when assistance from a financial advisor is needed, Guilbert said.
“You would not be dealing with a full broker, but you still have the assistance of a financial advisor and the benefit of going through a [kind of] broker,” he said.
Maiato suggested some investment bedtime reading. MoneySense Magazine, $25 for a full-year subscription and the Globe and Mail’s globefund.com are good ways to delve into the investment world.
Manning said some of the safest stocks are those of Canadian banks.
Guilbert had another idea he considered ideal for students: Mutual funds.
Jennifer Carter, of Guardian Capital Advisors, agreed. “Mutual funds allow you to invest small amounts of money in a diversified pool of professionally managed investments,” she said.
Mutual funds also offer a chance at diversification and keep students from making costly mistakes in investing.
“For a relatively small amount of money, you diversify your investment,” Manning said.
He added a mutual fund will typically offer a greater return than the same amount placed in a bond, but with a slightly higher risk.
While company stock typically offers the most return on investment, averaging 10 per cent over the past five years, the possibility of return comes at a cost.
In a word, “risk.” More specifically, the risk of losing your money when a company crashes.
For those who prefer zero risk consider a high interest bank account.
High interest accounts can be connected to a traditional chequing or savings account. They allow transfers between a savings or chequing account online.
Scotiabank’s savings account offers a 3.5 per cent return compared to 0.025 for a savings account with less than $5,000. If you have any funds you don’t plan on using in the near future it is an ideal place to invest with zero risk.