The economy is in recession. Some say it is going to be the biggest recession since the Great Depression in the 1930s. If that is the case, then this is a great opportunity for those who don’t currently hold any stocks–students especially–to start investing. If the stock market is at its lowest levels, then it can only go up in the future but it may take a long time. Since you are young, you have lots of time to wait for the recovery, and if you don’t currently hold any investments, you are not starting from negative. Here’s the basics on how to start investing:
- Firstly, a disclaimer. I am not a financial advisor so this is not professional advice. Use at your own risk. Check other internet sources listed below and/or consult a financial advisor.
- Tax Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP)? You need to start reporting income to earn RRSP contribution room. Also the best way to leverage RRSP is to decrease current tax from a higher tax bracket to a lower tax bracket. Assuming you earn less than $20,000 per year, you pay minimal tax so should save your RRSP contribution room for future high-income years. For more info, see: https://www.wealthsimple.com/en-ca/learn/rrsp-vs-tfsa
- TFSA Rules. Depending on the province you live in, TFSA eligibility starts at age 18 or 19 (see https://www.ratehub.ca/investing/tfsa-rules). In 2020, the contribution limit is $6,000.
- Limit risk using Passive Index Investing. Purchasing individual stocks is risky, very risky. Nobody knows the future and no one can predict when an individual stock rises or falls. Enter index investing where instead of investing in a single stock, you purchase a index of thousands of companies. If one company goes bust, the impact is tempered by the rest of the market. So what you get is market returns. To learn more, visit Canadian Couch Potato Investing and read Andrew Hallam’s Millionaire Teacher.
- Which bank? Check out the Model Portfolios and choose a financial institution to start your TFSA. Both Andrew Hallam and Canadian Couch Potato mention TD e-Series a lot. If you go with TD, the good news is there is no trading fee to buy and sell TD e-Series mutual funds. The bad news is there is a $25 quarterly charge to maintain your account unless:
- You contribute $100 a month, or
- You maintain a balance of $15,000, or
- Your household has at least $15,000 of investments with TD.
- See https://www.td.com/ca/en/investing/direct-investing/pricing/ for more details.
Good luck investing!
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