5 Simple Steps, Learn How to Invest for Young People

Having a personal investment in the financial market has now become a profitable way of life for young people or first-time job seekers. The old belief that only people of mature age should invest is no longer valid. The demographic data of investors, which is increasingly dominated by the millennial young age group, demonstrates this.

It was noted that the number of investors, or Single Investor Identification (SID), in the domestic capital market reached 3.87 million by the end of 2020. When compared to the end of 2019, this figure increased by 56%. Almost half of all investors were under 30 years old, with the age range of 31-40 years accounting for 25% of all domestic investors in 2020.

When we are ready to begin investing in the capital market, we should try to follow these guidelines for investing in financial markets:

Investing Guide

1. Recognize Investment Concepts and Risks

Insurance is the most basic financial risk management mechanism. Anything that could jeopardise a person’s financial situation should be insured. Although not everything can be insured, at least two types of insurance are critical to have: life insurance and health insurance.

These two types of protection are frequently ignored by young people because they believe the risk of becoming ill and dying is not too great. Mental health and protection are sometimes regarded as the needs of mature age groups who are already married. Of course, this assumption is false, because no one can predict the likelihood of becoming ill or dying.

So, when it comes to which insurance is more important, the answer is that both purchasing life insurance and purchasing health insurance are equally important. However, if you are still in a position where you must prioritise spending premiums, you can consider the following options.

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2. Establish Specific Financial Objectives

If you want to start investing, the next step is to make a list of the financial goals you want to achieve through investing. Financial goals are simply defined as a condition to be met in relation to specific financial fund targets for a given time period. Because financial goals have clear targets and strategies, the way you invest can be more targeted.

You can also divide your financial goals based on the time frame. To begin, short-term financial goals are those that you want to achieve in less than three years. Homecoming and year-end vacation funds, for example, first-home down payment funds, and so on. Second, set medium-term financial goals, such as the amount of money you want to save over the next three to five years. For example, three-year marriage funds, postgraduate school funds, and so on. Third, set long-term financial goals, such as raising funds in less than five years. Pension funds, university children’s education funds, and so on are all included.

3. Select an Investment Instrument

You can begin determining the right investment instrument based on the time horizon of your financial goals and risk profile once you have financial goals that have been categorise based on the timeframe of achievement. The time horizon is critical because it influences the risk assessment of an investment instrument as well as its effectiveness in assisting you in reaching the predetermined fund target. For example, if you want to save $10,000 for a wedding in three years, you should invest in low-to-medium risk instruments like money market mutual funds and fixed income funds. Stocks are not recommended for three-year financial planning because the risk of price fluctuations in the short term is too great.

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You can use the following reference when discussing risk grouping based on time horizon.

  • Financial objectives for the next three years
  • Financial objectives for the medium term 3-5 years
  • Long-term financial objectives beyond 5 years

In addition to considering the time horizon, when selecting an investment instrument, keep your risk profile as an investor in mind. How can you tell? You can use the risk assessment sheet whenever you want to begin investing. There are three types of risk profiles: conservative, moderate, and aggressive.

Conservative investors prefer stable investments, do not want the principal investment (initial capital) to decrease, and do not like fluctuations in investment value. Then there are moderate investors, who can accept price fluctuations, hope that their initial capital will not be depleted completely, and are content if their investments grow faster than the inflation rate and bank deposits. Finally, aggressive investors, or those willing to take the risk of losing their investment capital, are fine with sharp price fluctuations because they want their investments to grow many times faster than deposit interest ( risk free rate ).

4. Establish an Investment Account

It’s time to put the plan into action after you’ve established your financial goals and selected your investment instruments. To invest in the stock market, you must first open an investment account. It is not difficult to open an investment account. You can do this by contacting the appropriate financial institution, such as a securities firm if you want to invest in stocks, or an investment manager firm if you want to start investing in mutual funds online, and so on.

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5. Put Investment Discipline into Action

When it comes to investing, you must have the right strategy. Strategy assists you in optimising your capital in order to meet investment targets based on financial goals. For example, if you don’t have time to monitor daily stock market movements, you might choose a dollar cost averaging (DCA) strategy or a monthly investment for an equity mutual fund. There is also a value investing strategy in stock investing, as well as other strategies that can be chosen based on your preferences and financial objectives.

Remember to evaluate your investment performance at least once a semester. You can examine the performance of investment returns reports that are sent on a regular basis by securities or related investment managers.

The five investment tips listed above can help you get started.

It is preferable to begin your investment journey with financial preparedness. Financial cash flow conditions are either surplus or not in deficit, controlled debt instalments do not exceed 30% of the value of regular monthly income, and an emergency fund of at least 30% of the ideal emergency fund target value is already in place.

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