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Fast Cash, Fads and Financing: The basics of investing for students

By Wyatt Gilliland

Graphics by Brithi Sethra

You may know someone who claims to make thousands of dollars a month off lucrative investments in stocks and cryptocurrency. But, you may not know that the higher the risk, the higher the reward. Here is The Eyeopener’s guide to investing basics for students.

With online brokerages like Wealthsimple and Questrade available for download at no cost and several brokerage services offered by all the major banks, nowadays young people with a simple internet connection can easily jump into the market.

But before you choose a trading method, some factors need to be considered, says Toronto Metropolitan University (TMU) associate journalism professor Gavin Adamson who teaches the school’s Follow the Money: Business Journalism course.

“If you’re going to invest, you need to consider what type of investor you are first,” he says. “If you’re more risk averse…or if you find you don’t mind taking risks.” 

For students with low budgets, it’s important to pick the trading platform you use thoughtfully, says social media business investment influencer Joyee Yang in an interview with The Eye. She has amassed over 100,000 followers on TikTok for her approachable videos targeted at investment beginners.

“Big banks traditionally are more expensive. They charge you a fee every time you buy or sell a stock. Some brokerages will give you free for trading [exchange-traded funds (ETFs)] but charge for stocks.” Yang says.

Three of Canada’s biggest banks offer a wide array of trading options. TD Easy Trade offers 50 free first trades with any subsequent transactions at a rate of $9.99. RBC Invest Ease offers $9.95 on purchases. CIBC Investor’s Edge offers 100 free trades, then a fee of $5.95 per month with zero account fees.

However, TMU economics professor Teresa Fung says students should be cautious when picking nonbank online platforms. 

“You have to be very careful because if it’s an online website it can also easily disappear, so check if the website is accredited,” Fung says.

There are several nonbank trading platforms like Wealthsimple. The investment management service offers free accounts with no stock management fee and a two per cent management fee for cryptocurrencies. The company started in 2014 as Canada’s first nonbank stock trading platform and first regulated cryptocurrency trading platform.

Within these brokerages, a plethora of products are available to trade. Between ETFs, stocks, bonds and cryptocurrencies, choosing an asset to put money into is often overwhelming for beginners.

That’s why it’s important to get a grasp on what these assets are. 

Stocks are securities that represent a fraction of ownership of a company. 

ETFs are a mix of stocks managed by a firm, in which you purchase a single share of the ETF.  

Bonds are special securities that governments and companies issue to raise loans (debt), with the promise of paying you back plus a set interest rate.

A big factor to consider when choosing between these options is your risk appetite. “If you’re risk-averse, you’re going to want bonds, but if you find that risk doesn’t bother you and you don’t mind seeing ups and downs, you will want more equity, like stocks or ETFs,” Adamson says.

While bonds can be less risky than stocks or ETFs, they’re often more complex to understand. For that reason, Yang says new investors should only be looking at ETFs. 

“For students beginning to invest, I would choose an ETF, instead of going out and picking individual stocks. I always like the [Standard and Poor’s (S&P)] 500,” she says. 

The S&P 500 Index is an index of the 500 leading publicly traded companies in the U.S., based on market capitalization—the value of the company. 

Fung also recommends students take a low-risk approach to start.

 “I would recommend anything that is less risky, that will not fluctuate too much…if you have some money to invest, [consider] a [Guaranteed Investment Certificate (GIC)]…it’s very safe. I don’t recommend stocks, unless you want high returns…but there’s a higher chance [of] losing money,” she says. 

According to the Canadian Deposit Insurance Corporation, when someone purchases a GIC from a bank or credit union, the purchaser loan money to the financial institution and is guaranteed an interest rate for the term of the investment, as well as the repayment of your initial investment at the end of the term.

“​​If you put in $1,000 today, and if you needed the money in one year’s really don’t want to be in any kind of stocks or bonds, because their value can change quite a lot in the year it might go up but it also might go down,” says Adamson. “You could lose quite a bit depending on what happens with the economy and stock markets.”

There are several methods of investing, with popular ones including day trading and passive investing. Naman Puri, a fourth-year business and technology management student at TMU, had luck with the latter. 

“I started investing in 2018 or 2019.” Puri says. “I’ve mainly made money on Apple…and since then it’s just grown.” 

But, not all stocks are suitable for passive investing. According to TIME Magazine, in 2021, stocks like AMC and Gamestop took off during a meme-driven stock craze that relied on word-of-mouth and ill-informed advice on social media. Subsequently, these stocks crashed after the hype wore off, decimating the investments of those who held them. Puri was someone who invested in those stocks. 

“I invested in two stocks that lost me money. One of which was Gamestop and the other is AMC, both of which were recommended for me to invest in by my friend,” he says. 

Cryptocurrencies have faced severe turbulence in their value and reputation over the last couple of years, sending markets into panic and even plunging companies into bankruptcy.

Fung says students should be cautious of cryptocurrency investments. “I do know that some students have profited from [cryptocurrency] a lot, but there is a lot of volatility…it is a more speculative asset. There can be very big capital gain, but also very big capital loss.” 

According to CNBC, the price of Bitcoin took a 30 per cent hit in one day back in May 2021. 

So, what strategies can an investor take to maximize returns? According to Yang, you should adopt these five rules:

  1. “Beginner investors should not be picking and choosing stocks to buy—stick to ETFs.
  2. “Look for ETFs that have low management expense ratios.”
  3. “Be patient with the stock market. You’re not going to get rich overnight and investing is for the long term.”
  4. “A lot of people have this misconception that you need a lot to invest in the market, and it’s just not true.”
  5. “Don’t be afraid of stock market crashes…a lot of people think that once the stock market crashes they lose all their money and it’s not true.”

Markets typically go through cycles, much like economies do, and dips are normal. According to Investopedia, in situations where extreme external events transpire in economies—like a pandemic or a banking crisis— markets can ‘crash,’ wherein a rapid and unforeseen decline in market values occurs. While your assets may suffer severe losses during these crashes, markets are likely to rebound with time.

There are several resources to learn about companies and investing. Yang says a great way to get a description of an ETF is to go straight to the manager.

The internet can be a helpful catalogue of information for trading, says Yang. “When I first started investing at 19, I learned all of my information from financial influencers.”

While it is helpful to get a grasp on an ETF from the provider’s website, you should not fully rely on direct sources, Adamson says. “You don’t want to go to a product provider, because they will try to push products on you.” Instead, he says to go to resources like the Ontario Securities Commission, which has great resources for understanding just the basics of investing.

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