Suze Orman says young people would rather go on TikTok than invest for the future

Why Gen Z needs to invest early

Investing is all about the power of compound interest, which helps your money grow over time. It’s crucial to start investing as early as possible to reap higher returns, and it’s harder to catch up once you’re older.

As Orman explains: A 25-year-old could start putting $100 a month into their RRSP account and continue to make this investment until age 65 and use this retirement account to invest in shares of the S&P 500 Index Fund (TSX:SPX) — which investors typically use as a benchmark for the US stock market.

“It’s very probable that you will average a 12% annual rate of return over 40 years,” Orman said. “At the end of those years, you have a million dollars.”

On the other hand, she said, if you hold off on investing until you turn 35, for example, you’ll end up with just $300,000 at the age of 65.

Now, while it’s true that you’ll definitely benefit from investing at 25 as opposed to waiting a whole decade to get started, the average annual return from the S&P 500 is actually closer to 10%.

This means you’re more likely to grow your funds to around $500,000 after 40 years instead of $1 million — although that’s still significantly more than hitting only $200,000 after 30 years.

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Here’s what you need to do to get started

Although Orman seemed to believe the majority of young North Americans would rather mindlessly scroll on social media and buy fashionable clothing than take the time to work on their investments, the two aren’t necessarily mutually exclusive.

Say you’ve got $200 left over from your paycheque each month, after budgeting for your basic expenses and perhaps putting some into an emergency fund.

You could still keep $100 for your fun purchases and invest the rest. And some platforms, such as Moka, let you start even smaller and use the spare change left over from your everyday purchases.

You also need to pick your preferred investment vehicle. If your employer offers an RRSP matching program, you can put in pre-tax dollars and let it grow until you make withdrawals in retirement — which do get taxed. You can also go with a tax-free savings account (TFSA). These are similar to other RRSPs, but the main difference with a TFSA is that even though you don't get a tax break when you contribute, you wouldn't pay any capital gains tax to the Canada Revenue Agency (CRA) when money is withdrawn.

As for your investments, a good place to start is to use exchange-traded funds (ETFs) — a basket of stocks that offer diversification as well as exposure to the equities market. To invest in the stock market — in either stocks, ETFs are real estate investment trusts (REITs) — you'll need an online direct brokerage account. Good options include:

• Qtrade: Customers get free trades on hundreds of ETFs, while stock trade fees can be as low as $6.95 for elite account holders. The best part is that opening a new account can earn you up to $150 cashback. Open a Qtrade account today.
• Questrade: Trading fees range from $4.95 to $9.95 (depending on the account). With a Questrade account you won't have to pay a trading fee when you buy an ETF, a good option for investors not quite comfortable with short-term stock holds. Open a Questrade account today and get $50 in free trades

You could also consider using a robo-advisor that builds you a customized and diversified portfolio and automatically rebalances.

Sources

1. The Wall Street Journal: Why Suze Orman Financial Adviser Never Goes Out to Dinner (Jan 1, 2024)

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— with files from Romana King