A Beginner’s Guide to Investing (Part 1): What Is Investing and Why Does It Matter?

You are a young person in your twenties or early thirties. You have finished your education, started your career, and are finally earning a steady income. For the first time, you have some money left over at the end of each month.

Like many people, you start reading articles, watching YouTube videos, and hearing advice from friends about the importance of saving and investing. So you decide to put aside a portion of every paycheque.

Then comes the question almost every beginner asks:

“Now that I’m saving money, what should I actually do with it?”

Should you leave it in your chequing or savings account, where it earns little interest, or invest it and allow it to grow? While you are familiar with chequing or savings accounts, the world of investing might feel entirely foreign.

This guide is written for people asking that exact question. We’ll start with the very basics and explain everything in simple, everyday language. By the end, you’ll understand the key concepts and feel confident taking your first steps as an investor.

What is Investing?

If you look up the meaning of investing in a dictionary, you will come across something like this:

putting money into something to get a financial return or profit later

In other words, investing means using your money to try to make more money over time. Instead of letting your savings sit in a standard account earning next to nothing, you put that money into something that has the potential to grow in value or generate income.

For example, you might:

• Earn interest: Keep your money in a high-interest savings account or buy a Guaranteed Investment Certificate (GIC).
• Lend your money: Buy a bond, which means loaning money to a government or a company in exchange for regular interest payments.
• Buy a piece of a company: Purchase shares (also known as stocks), hoping that the company grows and your ownership becomes more valuable over time. Some companies also share part of their profits with shareholders through dividend payments.
• Buy physical assets: Invest in real estate by purchasing a property to earn rental income.
• Buy precious metals: Purchase gold or silver, hoping that their value will increase over time. Unlike many other investments, gold and silver do not produce regular income such as interest or dividends.

The goal is the same in every case: to use your money today with the expectation that it will be worth more in the future. Different investments achieve this in different ways, and each comes with its own potential rewards and risks.

Why Should You Invest?

Saving money is a great habit, but it’s usually not enough on its own. There are three critical reasons why investing matters.

1. The Cost of Living Keeps Rising

Think about how much everyday things used to cost just a few years ago and how much they cost now. A cup of coffee, a grocery bill, or a tank of gas is likely more expensive today than it was then.

This happens because of inflation, which means the prices of goods and services tend to rise over time. As prices rise, the same amount of money buys less than it used to. In other words, your money gradually loses purchasing power.

If you keep your savings in a standard bank account, the rate of interest you get is generally less than the rate of inflation. In other words, your money may grow slightly in raw dollars, but it actually becomes less valuable over time because it can buy fewer things. Investing allows your money to grow faster than inflation, helping you maintain or even increase what your money can actually buy over the long term.

2. You Want to Achieve Important Life Goals

Most people don’t invest just to grow their money — they invest because they have goals they want to achieve.

You may want to buy your first home, purchase a car, travel, get married, start a business, or save for your children’s education. These goals often require a significant amount of money, and saving for them can take several years.

Keeping your money in a regular savings account may not be enough to keep up with rising costs. By investing your savings, you allow your money to grow over time and help you reach your financial goals.

3. You Need Income When You Stop Working

For most people, their biggest source of income comes from their job. But at some point, you will stop working, and your employment income will stop.

Even after you retire, your expenses will continue. You will still need money for housing, food, transportation, healthcare, and the activities you enjoy.

In Canada, government programs such as the Canada Pension Plan (CPP) and Old Age Security (OAS) provide some income during retirement. However, for many people, these benefits alone may not be enough to maintain the lifestyle they want.

This is where investing becomes important. Over your working years, your investments can grow and eventually provide the money you need to support your lifestyle during retirement.

What’s Next?

This article is the first in a comprehensive series designed to take you from a complete beginner to a confident investor. Over the course of this series, we will cover everything you need to know, including:

• Before You Start: Building a bulletproof foundation.
• Investment Types: Understanding your options (GICs, Stocks, Bonds, ETFs).
• Risk & Return: Balancing market volatility with your goals.
• Compound Growth: Harnessing the snowball effect of time.
• Common Mistakes: Crucial traps to avoid along the way.

Now that you know what investing is and why it’s essential, it’s time to look at the crucial steps that must happen before you buy your first asset.

Read Next: Part 2: Three Things to Do Before You Buy Your First Investment

Disclaimer: This article is for educational purposes only and is not financial or tax advice. Please consult a qualified tax or financial professional before making any decisions.