“Investing” is a term often thrown at people, especially young adults, when discussing financial security. However, the word “investing” itself is a vague word with no real direction associated with it. In these next few paragraphs I am going to give you a crash course on what investing is, why you should invest, and how you can start.

What is investing? 

Let’s start out with the definition. I like to describe investing as buying stuff (the “investment”) that earns income – either through interest, capital gains, or dividends. 

• Interest is fixed income you can earn on certain types of investments, and are often lower risk (because they are fixed). This is the more common type of income if you are a lower-risk investor.
• Capital gains is the “gain” you earn when you sell an investment for more than you originally purchased it for. The difference between what you sell it for and what you bought it for is your capital gain.
• Dividends are earned when you own shares in a company. Shares are another spooky concept, but in simple terms, it is just a small ownership of a company.
  • You essentially own the rights to the income of that company, proportionate to your share percentage (based on the total amount of shares outstanding). So if you owned 1% of the shares of a company, you would be entitled to 1% of the income of that company! 
  • The way you get paid this portion of the income is through Dividends – which is just what the payment is called. Dividends are discretionary, so they are more common in higher risk investments (since the amount of dividend you receive is not guaranteed). 

So overall, you are investing (or making an investment) if you purchase something that you ideally want to earn money on. The most common investments you can buy to invest are (from lower to higher risk):

1. Guaranteed Income Certificate (GIC): You will earn fixed interest on this type of investment after you hold it for a specific period of time. 
2. Bonds: These are essentially mini loans that companies can issue (and you can buy). They also earn you interest, based on the specific terms of the bond, which was determined by the company. 
3. Exchange Traded Funds (ETFs)/Mutual Funds: ETFs and mutual funds are slightly different (but that is an adventure for a different day). They are essentially mini pools of different shares in different companies that are managed by an investment broker. They are often grouped based on various characteristics such as industry, value, geography, etc.This is primarily what I invest in!
4. Individual Shares: You can buy individual shares of individual companies. Therefore, you essentially make the buying/selling decisions (not an investment broker). As a newer investor, these are a lot riskier as you have to monitor the performance of a business to ensure you are actually making money. I would not recommend this one if you are a beginner investor. 
5. Cryptocurrency: I am sure everyone has heard of cryptocurrency… These are digital currencies (like the Canadian Dollar) that can increase and decrease in value. I am by no means a cryptocurrency expert, but I will say I do not recommend investing in crypto as a beginner investor, as I have seen the value of these be very volatile (so they are much higher risk). 

Why should you invest?

Now that we have explored the definition, let’s dive into why this is important for YOU as a beginner investor. One of the main reasons you need to start investing ties into inflation (booo). Essentially it boils down to: when you go to the grocery store, $100 cannot buy you nearly as much as it could 5-10 years ago. This is because the cost of EVERYTHING is constantly increasing due to inflation. Investing is a way to counteract that. If you are investing your money, you will earn income, and the income can often offset these inflationary increases in your everyday costs.

My main concern when I considered investing was: how do I know I will make money? In the long run, if you invest in low-to-mid risk investments, your investments will likely earn money. This is because the stock market has shown to always show a steady increase (even after ‘stock market crashes’). [Side note: The stock market is like an online grocery store, but for shares in companies, where the value of these shares increase and decrease based on how well the company/industry/world is doing]. As long as you invest in the low-to-mid investments that I described above, it is very likely that you will continue to make money (yippee!!!). 

How can you start investing? 

Now I have officially convinced you to start investing, but HOW do you do that??? There are multiple investing sites out there, but the one I use is Wealthsimple (and I love it). You can create a Wealthsimple account, then select the option to open a TFSA (or whatever account you want). In Wealthsimple, there is an auto-trading option that is managed by Wealthsimple and has no fees associated. Wealthsimple will then gather information based on your risk level, investing plans, etc to see which auto-trading plan works best for you! Once you get that all set up, all you need to do is add money and Wealthsimple does the rest. I have automatic withdrawals from my bank account into my TFSA each month, and I don’t have to do ANY trading. 

Questtrade is also a common investing site, though it is most known for its self-directed trading (not auto-trading). Your bank will likely have investing options as well – this was not my favourite though because I didn’t want to have to talk to someone at the bank to start investing. 

This is just the basics to all things investing to get you started – there is a lot more to investing/stock markets (and there are lots of resources online). I hope this article empowers you to start investing your money today!! If you have any questions about anything related to investing, please drop it in the “Contact” box.