What is Investing?

What is Investing?

Simply put, investing is a way to save money. Investing means using your money to buy assets that you expect to grow in value or pay you income overtime. Instead of leaving all your cash in a regular savings account, you put some of it into things like

Stocks and bonds

Exchange-Traded Funds (ETFs) or mutual funds

Precious metals

Cryptocurrencies

When the value of these assets increases, your investment grows and when value decreases, your investment shrinks. Some investments also pay interest or dividends, which can be reinvested to grow your money even faster.

Why Should Someone Invest?

For young people, it is crucial to begin saving money and investing early on to set yourself up for success in the long-term. Time allows your money to compound, meaning you earn returns on your returns. Some key reasons for young adults to invest include:

Achieve Financial Goals: Especially in today’s housing market, a goal such as buying a house will be difficult without a good amount of money saved. Investing helps young adults’ savings grow so those goals are actually reachable.

Growing and Building Wealth: Investing allows you to not only save your money, but allows it to grow over time and compound over the years. In the long run, investing can lead to large gains and help individuals to build wealth.

Beat Inflation: As prices continue to increase over time, your total purchasing power decreases and your money loses its value. In the long run, inflation can lead to having a substantially less amount of money. Investing allows people to retain the value of their money, and beyond that beat inflation.

How Do I Begin?

In Canada, you generally need to:

Be at least 18 and the legal age of majority in your province or territory

Have a Social Insurance Number (SIN)

Open an investment account with a bank, online brokerage, or robo-advisor

There are two general accounts: registered and non-registered

Types of Investment Accounts in Canada

Registered Accounts: These accounts are registered with the federal government and give you the ability to grow your money and save on taxes. Examples of this are Tax-Free Savings Accounts (TFSA), Registered Retirement Savings Plan (RRSP), First Home Savings Account (FHSA), and Registered Education Savings Plan (RESP).

Non-registered Accounts: These accounts are flexible for investors and traders as there are no limits on deposits and withdrawals. However, all income in these accounts including interest, dividends, and capital gains are taxable in the year you earn it. People may choose to use these accounts when engaging in more advanced trading or investments.

So What Should I Do?

It can certainly be overwhelming and intimidating for a young adult to decide which account to open and where to start. For many university students and young adults with relatively low income, a Tax Free Savings Account (TFSA) is often the best place to start. TFSA are fully tax free, meaning any gains or income generated in that account cannot be taxed. However, there is an annual limit called your contribution room you can put into this account each year.

How Does a TFSA Work?

You must be the age of majority in your province.

Every year you are given a certain amount of contribution space that can be put into this account and remain tax free. If unused, contribution space is carried into the next year. In 2025, TFSA contribution space was $7000.

Funds can be withdrawn tax-free at any time.

Why is it usually the best for University Students?

For a typical university student:

Lower income → you don’t get as much benefit from RRSP tax deductions yet, so using a TFSA first can make more sense

Flexibility → you can withdraw money at any time for emergencies, tuition, travel, or a future house down payment without penalties

Tax-free compounding → if you start investing early, any growth over many years is completely tax-free, which is a huge advantage when compounding wealth over time

Potential downsides:

Overcontributing → if you put more money than your available room into your TFSA, you pay a 1% per month tax on the excess until it is fixed

Very frequent trading → buying and selling constantly (day trading) can cause the CRA to treat your activity as a business leading to taxes on profits that were previously tax-free

If you’re an average university student new to investing, learning about TFSAs and starting with small, consistent contributions is a great way to build good habits and set yourself up for long-term success.