hey guys it's adrian here the canadian in a t-shirt and today i'll be breaking down
what is investing what is the stock market and what are stocks these fundamentals of investing
are useful for anyone but i will be targeting my advice towards young beginners and canadians in
particular i'll be covering the basics of what are stocks dividends and capital gains and how
you could use these to build wealth in the long term this is the second video in my millennial
investing guide so make sure you check out my last video where i covered the four steps to building
wealth with investing being the last step it's really important to understand steps one to three
before you dive into investing so click the pop-up at the top right to watch that video first as a
quick recap the four steps to building wealth are paying off your credit card debts reducing your
spending setting up an emergency fund and finally investing this is important you should not even
think about investing until you've paid off your credit card debt and you have an emergency savings
fund topped up for my long time viewers this video is actually a remake of one of my very first
videos from two years ago back then i was filming with my cell phone so the audio and video quality
were awful but the information is still incredibly relevant today so i wanted to make an updated
version to reinforce this important lesson so with that let's jump into the world of investing
investing is anytime you put money aside today with the expectation that you'll be able to
make more money in the future and when i say future i don't mean next week or even next year
investing is a long game people who buy and sell stocks multiple times throughout the day
are not investors they are day traders and i do not recommend this approach to anyone especially
not to beginners in the short term the stock market is very unpredictable so buying and selling
stocks within days is essentially gambling in fact you probably have better odds going to the casino
instead you need to think about investing in the long term do not try to get rich quick
it's not going to happen and if anybody promises you that it's a scam all of the investments in my
portfolio really show their value over the course of 10 20 or 30 years and that's a perfect timeline
for millennials people in their 20s and 30s maybe you're just out of school entering the workforce
and you have 30 years ahead of you before you retire so you really need to start investing now
to take advantage of those decades of investment growth that time is a gift i really want to hammer
home the point about investing in the long term a common misconception is that investing in
the stock market is super risky and you can lose all of your money at the drop of a hat
but that's only really true if you're investing in the short term in the long term the stock market
is very reliable here i have a table showing different time frames and whether the u.s
stock market gained money or lost money between 1926 and 2015. over the course of these 90 years
about 54% of all days the market went up and 46% of the days the market went down so if you're
buying a stock today and selling it tomorrow you basically have a 50 50 chance of losing money
but if we look at a one year time frame 74% of the years saw the market go up since 1926.
even further looking at a 10-year time window 94% of these 10-year windows the market gained
money so if you invest in the stock market at any time and you hold it for 10 years you have a 94 %
chance of gaining money looking at 20 years there has never been a 20-year period in the history of
the stock market that didn't see a positive gain even through the great depression of the 1930s
through world war ii and the financial crash of 2008 and yes even through the stock market crash
of 2020 the stock market has never lost money over the course of 20 years so if you are a young
investor and you invest in a diversified portfolio for 30 years until you retire you are historically
guaranteed to make a profit and a considerable one at that i think of investing as planting a
seed if you come back after a week and dig it up all you'll have is the seed you haven't gained
anything but if you give it time and you let it grow that seed has become an apple tree and now
you can reap the rewards of your investment and cash in on all those apples that you have or even
better let that tree be let those apples fall to the ground and those apples will plant new seeds
and now every 10 years your tree will plant new seeds and those trees will plant new seeds after
30 years your single seed has become an entire orchard of apple trees and that's the mentality
i want you to have with your investments whenever you have a profit don't just cash it out reinvest
that profit and let your investment compound and grow faster and faster that's how your investments
can give you exponential growth and the true power of exponential growth is letting it run
over a long period of time this is very important do not invest with money that you'll be needing
in the next year or so if you know that you're buying a house next year or starting university
do not put that money into any type of investment instead put that money aside in a savings account
where you can earn a modest interest rate of about one percent your savings won't make you rich
but that money is guaranteed to grow at least slightly in value and more importantly it will not
lose value you can withdraw that money anytime at all and it will always be there for you with
zero risk right now the best savings account in canada is with eq bank and they're offering an
interest rate of 1.25% with no monthly fees and no minimum balance if you'd like to get started
click my referral link in the box below to sign up and to help support my channel so if you need
to spend this money in a year or two put it in a savings account where it's safe the money you put
into investments should be money that you're not going to touch for at least five years
so what are the different types of investments today we're going to be focusing on stocks but
you can also invest in bonds etfs mutual funds reits and real estate i've already made a video
on each of these topics so make sure you check those out stocks are the basic building blocks of
investing a stock represents a unit of ownership of a company stocks are also called shares because
when you own a stock you own a share or a piece of the company so if a company like walmart
has a hundred shares available and you own 10 of these shares you own 10 of walmart and thus you
are entitled to 10 percent of walmart's profits these units of ownership are bought and sold
over the stock market these stock markets include the new york stock exchange and the nasdaq
for american companies and the toronto stock exchange for canadian companies
the interesting thing is that a stock this unit of ownership doesn't have any inherent value its
value is how much someone else is willing to buy it for that's why the value of a company stock
changes every second of every day even if nothing is changing about the company an hour from now if
enough people start offering to pay more for the same stock it's now worth more and its value rises
even though nothing has really changed so when you look at a stock's value over the course of a day
these random fluctuations are meaningless what we actually care about is the long-term growth of a
stock over the course of years this represents real growth in the company for example this is
the value of apple stock over the course of a day these fluctuations mean absolutely nothing
some people were just willing to buy and sell for a dollar higher or lower than other investors
nothing actually happened to apple as a company to explain these fluctuations
but if we look at apple stock over 13 years we can see that after 2008 when the original iphone
was released and gaining popularity apple saw incredible and consistent growth year after year
until today in 2021 when the stock of apple is worth 40 times more than it was back in 2008
this is the real kind of growth that we care about as investors ignore the short-term fluctuations
focus on the long-term growth stocks can earn you money in two ways capital gains and dividends
capital gains means that the stocks themselves are worth more today than the price that you
bought them for so if you bought 10 shares of facebook at 200 each your initial investment is
two thousand dollars fast forward five years and now facebook stock is worth three hundred dollars
you still own the same ten shares of facebook but now each of them is worth three hundred dollars
and so your total investment in facebook is worth three thousand dollars that's one thousand more
than you bought it for so you have a thousand dollars of capital gains but this is important you
haven't made that thousand dollar profit just yet your stocks are worth three thousand dollars but
you don't get that money until you decide to cash out and sell your stock this concept is extremely
important even more so when stocks drop in value let's say there was a data privacy scandal and
facebook stock plummeted to a hundred and fifty dollars a share that means that your ten shares
are only worth fifteen hundred dollars that's five hundred dollars less than you bought it for you
might be worried that you just lost 500 in this investment but you really haven't yet you haven't
lost any money until you decide to sell your stocks the moment you sell your stocks that's when
your gains or losses are realized until you sell that 500 loss is just a fictional number telling
you what you would get if you decided to sell but you don't have to sell instead hold on to those
10 shares you have and after a couple of months or a year facebook stock will bounce back and you'll
be at a profit once again so that's how capital gains work the most basic way to make money in the
stock market basically buy low and sell high the second way to earn money with stocks is dividends
dividends are a percentage of the profits that a company pays out to its investors back to the
walmart example if you own 10 of walmart stocks you own 10 of walmart and so every three months
or every quarter walmart will pay you up to 10 of their net income and this is called a dividend
the best part is that you don't have to do anything to earn this money if you own at least
one share the company will pay you a dividend and the more shares you own the more dividends you get
dividends are a great way to encourage investors to invest in the long run with capital gains you
only make money when you sell your stocks at a profit but with dividends you earn money every
three months whether the stock goes up or down so if you held on to td stock for five years
and over those five years the stock price remained flat then when you sell it you haven't earned any
capital gains but every three months td has been paying you a dividend in cash so over five years
you've still made a profit because of these dividends ideally you want to take advantage
of both dividends and capital gains that means you want to invest in a company that pays you a
dividend every few months and in a company whose value grows year after year unfortunately not
all companies do both in fact there are a lot of companies which don't pay a dividend at all
these are usually new companies who aren't making enough of a profit yet to justify paying
out dividends or they could be tech companies like apple facebook or amazon who pay little
or no dividends the rationale here is that these tech companies would rather invest their profits
into research to develop a new product line to release in a year or two and this research and new
product should increase the value of the company significantly and so the investor should be
earning more money through this capital gain than they would be if they received a dividend instead
sometimes this trade-off is justified and other times it's not but you have to be prepared for the
fact that some companies just don't pay dividends and some companies can decide to stop paying
their dividends since dividends are more or less optional for a company we can divide stocks into
two main categories growth stocks and dividend stocks growth stocks are the companies that pay
no dividend or they pay such a small dividend that it's negligible again these companies would rather
use that money to invest in themselves to grow to research a new product or to expand into a
new market when investing in these growth stocks your only goal is capital gains that means you
want to buy these stocks at a low price and sell them years later at a higher price growth stocks
include new companies which are just starting out like tesla and shopify but they also include
older tech companies like apple and microsoft on the other hand dividend stocks are the companies
which are known for paying significant dividends and for increasing their dividends over time these
are usually well established industry leaders that we call blue chip stocks these companies
are worth tens of billions of dollars and they've been around for decades because
they're already so large there isn't a whole lot of room for them to grow they're still extremely
profitable but they're not going to quadruple in size the way a new company like netflix did
instead these companies attract investors by consistently paying dividends every month or
every quarter dividend stocks are generally much safer than growth stocks because these companies
are so well established still it is possible for a huge titan to fall like blockbuster nortel and
enron but these are incredibly rare dividend stocks include well-established companies which
are staples of the industry and they reliably make profits no matter what is happening in the markets
these include banks like td and BMO energy and utility companies
like enbridge telecommunications like rogers and telus and consumer goods manufacturers like
coca-cola and procter and gamble i've talked about my favorite dividend stocks in my stocks to buy
playlist so check those videos out the strategy with dividend investing is to buy a company which
has a long history of paying dividends and increasing its dividends every single year
for example BMO the bank of montreal has never missed a dividend payment in 190 years
ever since 1829 BMO has paid dividends out to its investors every single quarter and almost
every year they increase their dividends dividends are a fantastic source of passive income as long
as they are sustainable and that leads me to a very important warning do not invest in a company
just because they pay out a huge dividend most of my favorite dividend stocks pay out a dividend
yield between four and six percent anything more than six percent is probably too good to be true
and is cause for concern there are some companies out there which are in financial trouble and they
are desperate for investors to help them out and one way to attract foolish investors is to
offer ridiculous dividends of 15 or 20 this is a trap sure it gets my attention and on paper
it looks like i'll be earning 20 returns every single year but if you dive into the financials
you'll see that there's no way that this company can sustain this kind of dividend in a lot of
cases you'll see that these companies are paying out more than double their income out to dividends
just to attract investors so every year these companies are losing money and digging themselves
deeper and deeper into debt until eventually they'll have to cut their dividends or even worse
they'll have to file for bankruptcy i've already made a whole video on dividends and how to invest
in them the smart way so make sure you watch that video before you get super excited and start
chasing those high dividend traps whether you want to invest in growth stocks or dividend stocks make
sure you check out my step-by-step walkthrough on how to buy stocks in canada using questrade
which is my favorite online broker i also cover how to buy u.s stocks for canadians and how to
open an investing account so click the pop-up at the top right to check out my investing tutorials
and if you want to get started with investing i'll include my referral links in the box below
to both quest trade and wealth simple trade which are my two favorite investing platforms in canada
so there you have it that's my quick intro into the world of stock market investing
i hope i gave you a solid understanding of the importance of investing in the long term
how to earn money through capital gains and dividends and the difference between growth stocks
and dividend stocks if you'd like to see exactly which stocks i'm invested in and to help support
my channel hit that join button down below to gain access to my exclusive members only videos
like my tfsa and rrsp portfolio reveals and to see exactly which stocks i'm buying every few weeks
but remember don't just blindly follow a random guy on youtube everyone has their own financial
goals and circumstances i don't want you to copy what i do but i hope that seeing my portfolio
might offer you some guidance especially if you're just getting started thanks for
watching guys and be sure to like comment and subscribe if you found this video helpful every
thumbs up and comment really does help me build this channel on youtube and hit that bell icon
to be notified of my new videos and if you'd like to follow me on instagram or facebook
at canadian t-shirt click the link in the box below or click the links on my home page
thanks everyone and i'll see you guys on the next episode of the canadian in the t-shirt bye guys