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Hi everyone,

I have been lurking around CMF, and I have to really thank you all for how great a resource this forum is to me.

I am currently a student, and with a meagre income from summer jobs, I haven't exactly had a steady income. Saving money, and taking a shot at the market by investing my money were some ideas that came to mind, but I have no idea what to do with the money I have at the moment.

Instead of consulting with a manager whose perspectives are subjective in the hopes of selling products to me, I really want to know what CMF thinks would be a good plan for students like myself.

I have maxed my TFSA contributions for these two years (a no-brainer), and I've taken a look at GICs (of which are not attractive at all, locking at a rate that might rise soon). Moreover, I have cashable government savings bonds that mature in 2016, 2017 and 2018 amounting to around 16k in cash. I've considered cashing out these bonds especially with the terrible rates of these bonds, and throwing the cash into a savings accounts while I decide how to invest.

I do not come from a wealthy background, so keeping liquidity was kept in mind these couple of years.

Any feedback, advice and recommendations would be appreciated, especially if it helps other students in the same boat.

Thank you!
 

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The only way to get better returns is to invest in the markets.
Personally I would open up a trading account with a discount broker, the only
way to become a good investor is through experience.
I have had to learn through trial and a lot of error :D, besides you have
lots of time to recover if you stumble.
 

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If you have the option to cash out the GICs at any time, then they are probably fine where they are, and you should not think too seriously about investing in stocks until you have money you can afford to lose.

Right now, you need to focus on getting a job. Spend whatever you need from the money you have saved in order to maximize your chances.
Buy a nice suit. Buy a cell phone to be ready for calls from employers at any time. Perhaps even buy a car to expand the number of jobs you can apply for. The earnings from your job (likely more than $2,000,000 gross over a lifetime) will likely be worth much more to you than whatever you can save on your money over the next 30 years by investing.

Other thing to keep in mind. Find some way to make your area of study a part of your everyday life. For me, I bought a copy of Quickbooks and tracked all the financial transactions I made during the years I was in school. A lot of very basic practical problems come up that I never would have thought of during school. Developing experience in your field of study will go a long way to making you sound like you know what you are doing during job interviews.

With that said, one financial strategy uniquely tailored for your situation is the following:

SCENARIO
You must have RRSP contribution room saved up, and expect to earn very little income in the current year (be under the basic minimum exemption of approx $8,800 in Ontario), but expect to earn a good income at some point in the future. This could be useful for students with part time jobs, or for the temporarily unemployed.

METHOD
Make an RRSP contribution for the difference between your net income and the basic personal exemption and then withdraw it from the RRSP within the same year. You will then carry forward the RRSP tax deduction to a future year when you will be earning more income. This will withdraw the income at the lowest possible income tax bracket (zero) and leave the deduction available to claim at a much higher tax bracket; all while leaving the original principal outside of the RRSP. As close to free money as I can think of.

POTENTIAL ISSUES
-There will be a 15% withholding tax which will not be recoverable until you file your tax return. There may also be fees and commissions on the investments. A one-time contribution/withdrawl would be best, but still you will not fully recover the initial investment until the tax return is filed.

-This will use up RRSP contribution room permanently, which means you will miss out on "the miracle of tax-free compounding" as my tax teacher called it. But without the initial tax refund, which in this scenario, you will get regardless of whether you keep the RRSPs or sell them as I have suggested, the decision of investing inside or outside of RRSPs is in my opinion very much in favour of investing outside RRSPs (capital gains and dividends are 50% taxable outside of RRSP, while they are 100% taxable inside RRSP). I wouldn't worry too much about the contribution room. As soon as you have a full time job, you will likely have more contribution room than you know what to do with.
 

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On the topic of how much your human capital is worth today, here's a calculator to play around with.

You can also (using the next calculator in the set) estimate the increase in your human capital value as a result of investing in higher education!
 

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I would assume, as a student with a meager income, you cannot afford to risk any capital loss to your savings because you will need the money to see you through school. So equity investments are out. And unfortunately we are in period where fixed income is paying terrible returns. So you are pretty much stuck with Savings Accounts, Canada Saving Bonds, and GICs. Kep an eye on rates for these - it may be worth your while to cash some of the CSBs if your cash flow allows you to lock up some of the money in GICs. Even some high-interest saving accounts are paying more than some CSBs, but the rates on savings accounts are not fixed.

Otherwise "invest" money in things that improve your education or future job prospects as Max suggests.
 

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Why don't you invest in a total market ETF?

Something like VTI is safe enough because the US markets are recovering and its a nice time to be getting in. Just be wary that you have to keep yourself updated and have an approximate direction in which the market is going.
 

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I agree with the other posts here. You should invest in your most valuable asset: you. In addition to your formal education, you may want to consider investing in your financial knowledge. Your local university/college will likely have courses in personal finance or investing. Yes, you will likely be paid $2,000,000 in your life, but if you save and invest your earnings well the difference can be enormous.

If your risk tolerance is low, then you cannot afford much risk. The one suggestion I might make is a CDN bond ETF such as XSB, which is a combination of short-term (1-5 year) gov't + corporate bonds (it's mostly gov't). It's yielding about ~4%, and it's safe and liquid. The drawback is that it's traded like a stock, so there are transactional fees i.e. commission to buy and sell. You have to calculate yourself if this is worth it. For example, you have mentioned that your TFSA is maxed out. I'm going to assume that you have ~ $10,000 X 4% = $400/year. If your money is in a savings account/GIC yielding 1%, then your $10,000 only yields $100. Setting up a self-directed TFSA is easy, and some of the banks (TD for sure) have low cost efunds.
 

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I wish I had been more heavily involved in the stock market when I was a student actually! It would have been a good way to make some extra money on the side.

I knew a guy in college who did just that and basically paid his way through college doing swing trades.

That being said, you have to ask yourself what your tolerance is. If you set aside some money that you know you don't really absolutely need as a student (e.g. extra money that you can do without) you can use that to do some small equity trading and just build on your portfolio using that set amount. If you lose your capital, it would suck, but you would have budgeted for that.
 
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