I'm 22 and looking to start saving, and having my money work for me. I've got a few options I'm aware of right now:

a) Going in with my bank's Mutual Fund plans,

b) going safe and using a TFSA-GIC or regular GIC, or

c) looking into the Stock market, but I hear that's infested with automated trading that's difficult to keep up with.

Here's my current situation:

  1. I'm just about to pay off some student loans, and be in the positive.
  2. I'm working full time, while taking a class (or two) at a time in my spare time.
  3. My work contract tentatively ends at the end of August
  4. My income is ~ $4100/mo, while expenses are between $1200-$1500.

When/if my work contract ends (I may be becoming a full time employee after the contract) I'll be looking for a similar line of work, so income should stay relatively similar. I'm good with renting, which keeps my expenses at about the same. I'd rather not get a mortgage yet, as I may be moving cities in the next couple years.

Current reasons for saving:

  • Have my investments pay for some passive payments I need (car insurance, etc)
  • Create a buffer for a "rainy day"
  • I'd eventually like to have money for a down deposit on a house (or ideally enough for the house outright), but not any time soon as I don't know where I'll be living in the next 5 years.

Are there other options out there? Is there one that's more viable than the other?

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    c) looking into the Stock market, but I hear that's infested with automated trading that's difficult to keep up with. Where did you hear that? Why do you think you have to interact with high frequency trading?
    – quid
    Jan 24, 2019 at 18:36
  • @quid Honestly that was just word of mouth. I hadn't done much research on it, as I find it daunting.
    – KGlasier
    Jan 24, 2019 at 19:02
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    HFT happens in the background, and by and large the HFT firms are trading arbitrage between exchanges. When you buy or sell a publicly traded security you generally don't know the counterparty to the transaction. Whether you buy one share from Frank or an HFT shop or Warren Buffett doesn't matter to you.
    – quid
    Jan 24, 2019 at 19:47
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    I don't have time to write up an answer right now, but I'd suggest to start by setting up a savings account with your bank and setting up a recurring transfer for the money you feel you want to invest into it. Yes, it'll only earn you a pittance of interest at best in today's economic climate, but you'll get into the habit of saving, which is at least 80% of the work. (The rest is really just mechanics.) Being able to save over $2500/month at your age is a great place to start from.
    – user
    Jan 24, 2019 at 21:34
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    Understand the difference between saving and investing.
    – chepner
    Jan 25, 2019 at 18:25

5 Answers 5


The very first thing you should do, and something you can do right now, is to set up a savings account, and an automatic transfer into that savings account.

Yes, a savings account will likely only earn you a pittance.

However, having an automatic transfer of money to elsewhere, which you don't touch, will get you into the habit of saving. That alone is a huge step.

You say that your income is about $4100/month, and your expenses are up to about $1500/month. Subtracting $1500 from $4100 leaves $2600 that you could, in principle, invest each and every month. So set up an automated transfer of, say, $2500 per month into that savings account (leaving a bit of a buffer), with a recurrence matching your pay period. Now try to live for at least a few months without even considering that this money exists. If your numbers are accurate, this should not cause any change for you and you should not need to dip into those savings.

For the first few months, don't do more than this in terms of actually investing the money anywhere. You want to get a feel for what life is like living with an actual disposable income of $1600/month rather than $4100/month. You can spend this time looking for and learning more about alternative investments if you want to. This site is a great, free resource to do that; your local library's personal finance section is another.

Since you're currently on a temporary contract that expires in half a year, that's your initial investment horizon. With such a short investment horizon, preservation of principal becomes an overwhelmingly important factor. Once you actually know that your financial future is a bit safer than this, then you can start putting money into other asset classes, such as stocks or bonds.

In general:

Mutual funds are not an investment class of their own. Mutual funds is just another way of buying the underlying type of security; for example, stocks or bonds.

Always mind the cost of an investment. For example, look closely at the expense ratio and trading fees. You can't know how any given investment will perform in the future, but you can know what it costs to buy, hold and sell. Actively managed investments are almost always more expensive than a similar investment that simply tracks an appropriate index, while rarely having a better return over any appreciable period.

Figure out a reasonable asset allocation. For long-term investments, a rule of thumb is to subtract your age, in years, from 100, and that's the percentage of stocks you should have in a stocks/bonds portfolio. At 22 years old, you therefore should have about 75-80 percent stocks and 20-25 percent bonds. This isn't an exact science by any means; it's based on long-term past performance, and is meant to give you a reasonable risk-adjusted return, but if you're risk averse, it may be too aggressive, in which case you reduce the percentage of stocks and increase that of bonds (which tend to be a lot more stable, but return less). Split this into a reasonable mix of local and international investments.

Look up what investment accounts are offered by your bank. Look at their fees; whether they are tax advantaged or not; and whether you can freely withdraw money or not. Set one up, poke around, maybe put some money into it to play with (and expect to lose it at first).

Picking individual stocks is hard. Unless you're willing to spend a considerable time tending to your investments, it's probably better to avoid this, and just go with an index fund of some kind instead. If you want to give stock-picking a shot for real, consider having some separate money that you can "play" with.

  • Thanks for the advice. I've got a TFSA I put money into that I'm using as a savings, but I'm going to run out of available space relatively quickly if I keep this position. But by then I should have researched other options for investing and got that feeling of a "reduced disposable income".
    – KGlasier
    Jan 25, 2019 at 18:01
  • One simple way to implement this answer is to have your paycheck deposited directly to two accounts: One for paying expenses, and a second for savings. Jan 25, 2019 at 19:45

Simple answer: I think the best "starter investment" is a conservative mutual fund. I suggest you talk to your bank or an investment company (like Fidelity or T Rowe Price or any of many others) about what sort of fund is best for you. My first investments were in a fund that is designed to be low-risk. In bad years, it rarely loses more than 1% or so. Sure, in good years it rarely makes more than 5%, but that's the trade-off. I still have that account and today I think of it as my "savings account", though most of my money is now in funds that are riskier but which in the long run perform better.

If your company has a 401k or Simple IRA or similar retirement plan, you should definitely look into this. Many companies will make matching contributions. Matching 1/2 of the first 6% of your salary is common, i.e. if you put in 6% they'll put in 3%, if you put in 4% they'll put in 2%, etc. A deal like this means you get an instant 50% return on your investment, which is pretty tough to beat.

Investing in individual stocks is riskier. I have less than 10% of my money in individual stocks. It's risky because you're putting a higher percentage of your money into one company. A typical mutual fund is invested in hundreds, maybe thousands of companies. If one company goes broke because they made a stupid decision, it's a small percentage of the total. But if you invest in individual stocks, you probably can only afford a handful, maybe 10 or 20. If one goes broke, that's a significant portion of your investment. Not to scare you off from individual stocks, as I say, I have some money invested like that myself. But it's riskier.

That said, there's no need for you to "keep up with" automated trading. You decide to buy or sell a stock. What stocks others are buying affects you indirectly: when there's a lot of demand it drives the price up, and vice versa. But whether you are buying from some other small investor or from some billionaire or from a trading house using automated trading doesn't make any difference to you. I've seen some discussions of the impact of automated trading on how markets move, but it's complicated and debatable and not something that need really concern the average small investor.


I would deal with uncertainty with diversification.

For instance, 20% of the portfolio in six-month high-yield bonds, 20% of the portfolio in one-year government bonds, 20% of the portfolio in intermediate duration investment grade bonds, 20% of the portfolio in gold, and 20% of the portfolio in stock index funds.

And if the bank will make the loan then buy a one-bedroom apartment that can be lived-in now and rented-out later.


In the current market environment, you might want to hold off on investing in stocks. Technically, if you believe that markets are efficient you would not take a view like this, but think of it as protecting yourself form the experience to start off your investment journey with a large loss. On the rates side, yield curve has completely flattened, with yields on very short term government bonds approaching 2.5%. This has caused some banks to offer amazing rates on savings accounts. Currently HSBC pays 2.22% with no minimum deposits and no strings attached. There are others that pay even more, but they come with conditions. Your thinking of wanting to build a safety buffer for a rainy day is spot on. You could build that up in such a high yield savings account. If your monthly expenses are $1,500, you should shoot for ~10k buffer. Once you have that, check whether the stock market has come down and maybe start cautiously investing in some broad ETF that replicates the entire US market or even world wide (ETF on MSCI World). Put in some small fixed amount per month, maybe 200 bucks. Then you can start diversifying into other asset classes, maybe get some physical gold and silver, some REITs, maybe even very small amounts of crypto. In any case as long as the stock/bond market has not come down substantially, like in a new recession, I'd have at least a 50% cash quota. Think of it as fire powder you can use to aggressively start buying in the next recession. In the very long term, your objective should be to buy everything and generate enough passive income from it (interest, dividends, rent payment) that can sustain you. Just try to get into different asset classes when they are "cheap".


You should start saving by investing in a low cost, accessible fund. An index fund is the best option in theory, but not in practice. Index funds are like mutual funds with a lower fee and higher average returns and lower average risk.

The two economic forces at work here are opportunity cost and risk aversion. No one can tell you if you should prefer A to B without knowing your personal risk aversion, but I can tell you that if you have normal levels of risk aversion, or if you are more risk loving than normal, income certificates are equivalent to burning money.

In practice, services like Betterment and Acorns investing are not pure index funds, but they are managed by automated systems so the management fee is tiny like an index fund, and performance is insignificantly different.

Build this nest egg until you have 3-6 months of savings, depending on your risk profile, and then buy a house. You should be able to purchase a home with a monthly payment at or lower than your current rent, and you will be accruing equity value at a rate much higher than the same money would have generated return in risk-adjusted securities markets. The only reason buying a house would be a bad idea is if you plan to sell it and move within 18 months or so, or you are faced with extremely unusual market conditions in your area.

You can generate incredible income from a small up front amount if you are willing to try so-called house hacking. Get a low down payment loan like an FHA loan or a VA loan if you or a parent is current or former military. In some cases you can get a low down payment USDA or SBA loan as well. Try to buy a house with a rentable room or space. Look for features like a basement kitchenette with a separate entrance, or an in-law or guest suite. You can also just rent out a room if you are comfortable with that, but check your local county laws in that case.

  • 1
    So a widely known low fee index fund held with a reputable custodian is not the best option 'in practice' because Betterment and Acorns do some automated mumbo-jumbo for a similar fee (it's not actually similar, Betterment is 0.25% which is more than 6x more expensive than VOO) and performance is the same? After 6 months of saving a person who generously (based on the math in the question) is putting away $3k/month would have $18k. In what real estate market does $18k cover purchase costs for a property with a mortgage and associated costs 'at or lower than your current rent'?
    – quid
    Jan 24, 2019 at 18:43
  • So 5% should cover closing and downpayment on an FHA, which means 18k->18*20 = 360k house cost. 360k will buy you a solid house in all but the most expensive markets in the world. In addition, VA/USDA have 0% down. NavyFederal will support 0 down even if you aren't military if you have a military parent. I actually received a check at closing on a 500k house this way, plus some seller closing assistance, which is a common real estate deal feature. Jan 24, 2019 at 19:13
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    Last I checked, many big cities in Canada have property values that make renting the better choice, especially considering rent controls. It's not 'extremely rare market conditions' either, the rent v buy argument is not as clear cut as you present it.
    – Hart CO
    Jan 24, 2019 at 19:32
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    There is no such thing as VA/FHA/SBA...etc loan types in Canada, so yes clearly that advice was targeted at a US context. Jan 24, 2019 at 19:39
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    @JohnVandivier I thought you were suggesting buying a house as an alternative investment to the market, not as the temporary storage for the down-payment. Money shouldn't be going in to the market at all if the horizon is 6 months, but that's a whole different discussion. It doesn't really matter what impact rent control regulations have on the applicable market, as they're a largely inescapable factor in the markets in which they exist. If rent control drives rent up, what do you think happens to home prices?
    – quid
    Jan 24, 2019 at 19:42

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