To most people, learning how to invest seems scary but it's not, you know! Investing your money is actually easier than you think. Everyone can start investing without having to pay attention to the amount of income. Here are some ways, steps to tips for investing!
What is Investment?
Well, for you beginners, especially students and students, of course starting to learn to invest is a very profitable thing. In addition to gaining experience early on, you can become more financially literate. That way the hope we can hope for is that you can have a lot of time to rest at an earlier age.
Self-investment if interpreted literally is any way to set aside your money so that the money can work and grow by itself. You can usually start reaping the results from investments in the future or within a certain period of time. Investment itself is widely used as a means of saving or saving excess money from your income.
A legendary investor Warren Buffet once defined investing as a process of spending money in the present with the hope or expectation of getting more money in the future. Actually it can be concluded that the purpose of investing is to put your money to work by itself on one type or type of investment in the hope that your money will increase over time.
It is different with money used for consumption purposes which will run out in one use, the money you use in various investment ways has a tendency and the possibility to increase from time to time. However, keep in mind that in investing there is also the possibility that you will experience losses.
According to data released by the Indonesian Central Securities Depository or KSEI, at the end of 2020 there was a Single Investor Identification or a total of 3.87 million investors recorded in the domestic capital market. This figure was recorded to be an increase of 56% when compared to data from the end of 2019. Of the total number of investors, it was noted that almost half were from the age group under 30 years old.
So how? Have you planned what you will be like in the future? It is natural from an early age in this digital era to be financially literate. Come on, let's discuss below how to make investments that are suitable for beginners!
How to invest that is suitable for beginners
The Pareto 80% 20% principle found by Vilfredo Pareto can also be applied in financial management. So if you have an income, it's a good idea to learn to set aside 20% of your finances to invest with passive income oriented. Here are some ways to invest money for students and college students, let's first identify the important principle!
1. Understand the Concepts and Risks in Investing
- The first thing you have to understand as a beginner is that investing has a risk that is directly proportional to the return you can get. The higher the profit you can get, the higher the risk involved. Vice versa.
- Before you actually start investing, you should understand and identify the investment risk profile that fits your financial conditions and goals. That way, you can get maximum profit with minimal risk of loss. The following are some types of investment risks that you should be aware of:
- Market Risk Market risk is usually caused by fluctuations (up and down) the value of assets in the market. These fluctuations can occur due to several conditions such as political changes, inflation, riots, etc. Market risk itself can result in investors having to suffer losses due to a decrease in capital ( capital loss ).
- Liquidity Risk The second type of investment risk is liquidity risk. This type of risk is caused by difficulties in the availability of cash in a certain period of time. This can happen if the debtor is unable to sell his assets because no party is interested in buying them on the market.
- Country Risk Country risk or what is also commonly referred to as political risk is important for you to understand if you want to invest in other countries. This risk is closely related to various activities and political conditions that occur in a country. Therefore, you must understand very well the political situation of the country in which you are investing.
- Interest Rate Risk The next risk is interest rate risk. An increase in interest rates alone can cause a decrease in the relative value of interest-bearing assets such as bonds or loans. This can make investment profits and the value of your bonds as an investor decrease, and vice versa.
- Inflation Risk Inflation risk or commonly referred to as purchasing power risk is a type of risk caused by the influence of inflation. This can affect purchasing power which will lead to a decrease in the value of cash investments in the future. This risk can also result in a decrease in people's purchasing power due to an increase in the average price which is above the normal consumption price.
- Foreign Exchange Risk Foreign exchange risk or currency exchange rate risk is a type of short-term risk. Usually caused by fluctuations in currency exchange rates in a country against foreign exchange rates or other countries. Foreign exchange risk ( currency risk ) will occur if changes in foreign exchange on the market do not match expectations when converted to rupiah.
- Reinvestment Risk Reinvestment risk can occur if the income from an investment asset requires you to reinvest the asset. The profit that you can get will usually be worth less after going through the process of reinvesting into a new investment product.
2. Start Early
Speaking of investment, this is a very easy thing to do, especially if you are young. Starting to learn investments and their instruments early on can make you smarter and better at seeing opportunities over time. In addition, the effect you have when you invest is a compounding effect , a term known as rolling interest or interest-bearing interest. So, starting early on investing will certainly make your savings increase over time.
3. Define Your Financial Goals
The initial process of figuring out how to invest begins with determining in advance the purpose of your financial flow. This is so that you know your main goal, the time you want to spend, and how comfortable you are with the investment risks that may be experienced in the future.
Financial goals are actually divided into 2 general categories, namely long-term goals and short-term goals. For short-term goals themselves should not be allocated for investment because it tends to change quickly. So, you may not see any gains in the near future.
If you have long-term financial goals, investing is the right way to allocate or save your funds. Usually people who invest have general goals such as the cost of buying a house, dream vacation, or as savings in old age.
4. Determining the Time Period
Determining a timeframe is the best way to get you started in investing. When you understand what target you want to achieve within a certain time frame, you become more confident with the type of investment instrument you choose.
Thus you become more efficient because you have determined the timeframe and amount you expect. If you start investing by investing it in stock instruments, then the long term ideal that you can expect to take is 5 years.
5. Decide on the Help You Want to Use
The next step that you must do after you clearly know your financial goals is to determine specifically the ways in which you want to invest. This includes the type of account, the best place to invest, to the instrument you will use. In addition, you can also choose to carry out the entire investment process yourself or use professional services and assistance.
Currently, there are many automated portfolio management services or commonly known as robo-advisors . Robo-advisor itself is an online service that works using computer algorithms and sophisticated software to build and manage your investment portfolio. You can get various services such as rebalancing the investment value to optimizing investment taxes by using a robo-advisor .
6. Determine Your Investment Instrument
It is recommended that you choose an investment instrument that suits your financial goals and risk profile. That way, you will get more effective results in achieving the target funds that you have set. There are 3 risk profiles, namely conservative, moderate, and aggressive investors.
Conservative investors themselves tend to prefer a stable type of investment. Then for moderate investors are the types of investors who are still willing to accept price fluctuations. The last type is an aggressive investor who is ready to take big risks with very high profit opportunities.
7. Open and Start Your Investment Account
An investment account is the next thing you should have. You can start by registering with one of the right financial institutions such as a securities company or investment manager company. There are several things that you must prepare to be able to open an investment account, including:
Personal Identity Card
Taxpayer Identification Number (NPWP)
Bank account number
Completed Initial Investment Form
Other Terms in Accordance with Relevant Financial Institutions Provisions.
8. Continue to Invest Regularly and Discipline
To be able to optimize your investment activities, you must always monitor the movement and development of your investment periodically. Don't forget to always evaluate the investment performance that you have run on a regular basis.
9. Earn Fixed Income
Avoid investing using loan funds, let alone using emergency funds. So if you really intend to make an investment, then it's a good idea to really make good use of the business. So, every month you can invest. Interestingly, investment has a compounding nature , so if you start early, of course, the profit in the future may be greater than for some people who have just started a business with a large amount of money. So, start peddling what financial instruments are suitable for you where to invest.
10. Avoid FOMO & Overuse
Impulsivity is something that should be kept away from your personality, especially if your impulsive nature comes with unclear goals. For that, when you want to invest, especially if you are a student, let alone a student. It's a good idea not to follow your friends. FOMO (Fear of Missing Out) can get you stuck in a bad financial system. So, it's good to study the risks, company profiles to how the prospects or future of the market in the market.
Types of Investments that are Suitable for Students
For some students who have non-permanent financial flows, it's better if you adjust your finances first, your needs to what type of financial instrument suits your needs. Remind yourself that when you start investing there are things that you must pay attention to, namely risk, in the investment world and already know the theory of high risk, high return . Well, to prevent prolonged losses, here are some types of investments that are suitable for students, namely:
1. Mutual Funds
Mutual funds have several parts in it, this one financial instrument is suitable and suitable for you students or students. The main considerations are of course time, income and inflation. Well, if you invest in mutual funds you shouldn't have to worry about inflation as long as you manage your investments with a period of 5 years into the future.
Mutual funds that are suitable to be developed are money market and bond mutual funds. These two things have a fairly measurable level of risk, rather than choosing a stock mutual fund. There are several things that you should test and analyze indicators such as AUM ( Asset Under Management t), Expense Ratio (operating expenses controlled by investment managers), CAGR ( Compound Annual Growth Rate) which means mutual performance in 1, 3, 5 years to information about BI Rate policy.
2. P2P Lending
P2P lending is one of the funding instruments that can provide a fairly high rate of return. Usually returns can be more than 12%. If you are able to analyze well, of course, more profits will be achieved through various project diversification processes.
Functionally, P2P lending is a platform that brings together lenders and money borrowers . Where money borrowers have a business project or other urgent need and desperately need a quick loan. Well, if you are a student it's good to see business projects that will be funded. Learn and focus on what could be an obstacle, such as what are the future market projections to problems with refunds.
3. F&B Franchise Business
Investing in a business by opening a franchise is one of the good things to get direct profits without the hassle of building branding from the start. However, you must have a large enough capital to buy a brand . Don't forget to make sure the location you choose is a strategic location.
Minimize Investment Risk, Be Smart Young People!
To minimize the risk of your investment, young people should not put all your funds in one investment product. When you are young, it is better if you explore all patterns to analyze which investment products are able to provide high returns. So, spread your funds on various instruments as well as on various portfolios and make sure you know your risk profile in investing . Try to remain calm in the face of investment risks that may occur. Try to always think about long-term benefits so that you always pay attention to potential and discipline. Remember not to panic when you make an investment. Choose the best investment instrument that suits your needs and finances.
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