How to start investing young

Sometimes the hardest part is just getting started, and if that's holding you back, here are 2 myths you'll want to debunk.

Beyond the clear advantage of compounded interest, starting to invest at a young age also helps you get into the responsible habit of saving and setting aside money for your future.

You also have the flexibility to take on a bit more investment risk — like investing in stocks, which are generally riskier but also have the potential to generate more return over time. For example, if your goal is to invest for your retirement, it is a long way off and your portfolio will have time to recover if the market gets volatile and your investments suffer.

Taking advantage of dollar-cost averaging is a great way for new investors to get into the market. Essentially, rather than investing a large lump sum of money upfront which you likely don't have, you slowly put small amounts of money in the same equity investment at regular intervals — let's say $25 a week, like our example linked above. This approach allows you to benefit from market volatility and price fluctuations to potentially lower the average cost of your investments.

A simple way to get into this habit is to set up a regular investment plan so the process is more automated. Money is pulled from your savings or chequing account and deposited to your investment account at regular intervals. It's an easy way to "set it and forget it" so that you easily introduce some discipline into your investment strategy.

Part of developing good savings habits is to focus on paying yourself first — in other words, setting aside money for investment and savings before any other spending. Consider the possible benefits of setting up an automatic contribution to an RRSP, an FHSA and a TFSA, all of which allow you to contribute up to a maximum amount for each year while sheltering taxes on your investment returns.

If you're ready to dip a toe in the investment pool, you'll first need to establish your financial priorities. For most people, that includes short-term goals like a vacation or a new car, medium-term goals like post-graduate studies or your first home, and long-term goals like retirement. Determine how important each of these goals are and how much you'll need to save in order to achieve them.

Next, you'll need to make some decisions on how to invest your money. Things you'll want to take into consideration are your investment objectives, how long you have to reach those objectives, how much investment risk you can accept and what types of investments are suitable for your objectives. For example, some of the investments may seem attractive but they may not be suitable for short-term objectives, based on how volatile they are.

An important way to reduce investment risk is through portfolio diversification. Diversifying your portfolio is essentially spreading your holdings across different industries, countries and asset types like fixed income, equity or cash. Adequate diversification can be your portfolio's best protection against a major loss if one asset class or market experiences a downturn.

Investing with CIBC Investor's Edge is possible even on a limited budget. If you have CIBC Smart™ Start, you qualify for free stock and ETF online trading in your Investor’s Edge accounts until you’re 25. To help you build your portfolio, we’ll also waive your annual fees, and you can take advantage of our educational resources and tools.

If you turn 25, you’re still a student and you have CIBC Smart™ for Students, you’ll pay $5.95 for stock and ETF online trades instead of $6.95, with options trading at $5.95 + $1.25 per contract. We’ll continue to waive your annual fees.

You need a CIBC Smart™ Account with the Smart Start benefit and a CIBC Investor’s Edge trading account to take advantage of the CIBC Investor’s Edge Young Investor Free Online Trading Offer. Conditions apply. Learn about CIBC Investor’s Edge for Students.

Maybe you’re not thinking about your retirement at the moment, but you might be investing to meet shorter-term goals like paying for school, buying a car or saving for a down payment. Investing regularly helps you build this important financial habit now, when time is on your side.