“It’s not about the money, money, money…”, sings Jessie J in the song Price Tag. In real life though, it is not easy to “forget about the price tag”.
We have to admit that money may not be everything, but it is still necessary for our needs. Not to mention the wants- *coughs* overseas trips *coughs* fancy clothes-you get the hint.
Whether you are a fresh graduate or a beginner who just realized the importance of investing, this article will give you several investment tips to start investing like a pro with suitable investment vehicles, some with minimal capital.
It is never too late to start managing your personal finances, especially through investments. However, it is definitely better to start early to reap the benefits of compound interest. Warning: you will never look at money the same way again (in a positive way).
Before we dive into the investment tips, let’s get to know some common financial terms.
What are personal finance, financial literacy, and investment?
Personal finance is a term to describe money management through saving, investments, and well-informed spending.
As the first word implies, personal finance is personal because every person’s financial goal is different.
Meanwhile, financial literacy is having the financial knowledge to make good financial decisions.
Though financial literacy is not taught in school (we wonder why), it is our responsibility to learn about it for better financial management. Mr Google is literally just a click away from all your questions!
Investment is an asset acquired to generate income over time. You may have bumped into many social media ads regarding investment recently.
Regardless of whether the featured investments are legit or not (scams exist, so be careful), one thing is for sure: investment is one of the key activities to manage your money better by growing your savings, whether actively or passively.
Why should I start investing as a fresh graduate or beginner investor?
Many fresh graduates or beginner investors may ask: why do I have to go through all this trouble to manage personal finances as compared to my peers that seem to be doing the exact opposite: café-hopping, buying branded clothes, and travelling all over the world?
The answer is simple: compound interest.
Compound interest grows and collects interests from the initial capital over time. This means that starting early as a fresh graduate or beginner investor provides a huge advantage and opportunities for compound interest to grow your personal finance quickly!
7 Investment Tips to Invest Like A Pro For Fresh Graduates And Beginner Investors
Are you excited already? We certainly are!
We have listed 7 investment tips for fresh graduates or beginner investors with the assumption of minimal capital:
Important Disclaimer: The information provided is educational in nature and is not intended to be personalised investment advice. Readers should always consider their financial goals and risks involved before investing in any investment vehicle. PanelPlace and the author shall not be responsible for any financial outcomes regarding the use of information in this article.
1. Fixed Deposit (FD)
Pros: Stable returns
Cons: Inflexible (lose returns if withdraw before the maturity date), relatively low-interest rates and may fluctuate with the economy
A fixed deposit (FD) is a financial instrument offered by banks. The interest rate of a fixed deposit is higher than a regular savings account.
Money in a fixed deposit cannot be withdrawn until a particular maturity date to earn the interest. Duration of fixed deposits can range from months to several years.
Out of all the investment options out there, fixed deposits are stable with a relatively lower risk. However, the returns are low especially for shorter durations. Returns are typically better with larger amounts and longer durations.
Investment Recommendation: Due to its stability, fresh graduates and beginner investors are highly recommended to start with FDs and explore other higher-risk options once you are comfortable with investing.
Return: Varies depending on the economic situation
Pros: Protection against inflation, diversification
Cons: Highly volatile
Commodities are goods used in businesses, often as basic building blocks in the production of other products. They can be broadly categorized as (non-exhaustive examples in brackets):
Energy (oil, natural gas)
Metals (gold, silver)
Agriculture (corn, wheat)
Meat and livestock (live cattle, feeder cattle)
Consumer (coffee, cotton)
Gold is the most common commodity that we grew up with. Gold jewelry is usually reserved for special occasions. It is also in the only category that we can physically keep to pass down through multiple generations, which makes it all the more meaningful. Others are traded through futures or options.
Commodities are good investment vehicles, especially in a diversified portfolio. Generally, commodities and other asset classes have a negative correlation. In other words, when others fail, commodities may not, and vice versa.
Investment Recommendation: Add commodities in your investment portfolio as a hedge against inflation.
3. Real Estate
Return: Low, but a steady increase over the years
Pros: Flexible (REITS), appreciation over time (property), protection against inflation
Cons: Large capital (property), inflexible (property), time-consuming: require research to 1. pick the right REIT/property, and 2. to find a tenant (property)
Real estate is one of the oldest ways of earning money, whether it is through buying and selling houses or being landlords. As property appreciates over the years, it is traditionally considered one of the most stable investments together with gold.
If you have access to funds, buying property early will help you take advantage of the appreciation over the years. Besides, you can also earn by renting it out, though you need to pick the right location and find responsible tenants (or risk having rental nightmares!).
However, as a fresh graduate/beginner investor, funds may be lacking. Investing in Real Estate Investment Trusts (REIT) is more flexible as they require little capital and are flexible to buy and sell just like stocks. However, the appreciation of overtime does not apply to REITs as they are dividend-paying stocks.
Compared to stocks though, REITs can be sources of steady dividend income, as companies are required to pay out 90% of its taxable profits via dividends. A non-REIT company would be taxed on its profits and then only consider distributing after-tax profits as dividends.
Investment Recommendation: Start with REITs and with more capital, invest in buying a property for yourself/rental/flip.
4. Exchange-Traded Fund (ETF)
Return: Varies depending on the performance
Pros: Liquidity, diversification (if buy multiple ETFs in different sectors), immediately reinvested dividends
Cons: Require longer period to reap substantial profit, management fees, lack of diversification (if only buy 1 ETF)
If you heard about Robo-advisors, chances are you have stumbled upon the term ETF.
An exchange-traded fund (ETF) is a form of security which collects different securities and often tracks an underlying index. Similar to stocks, they are also traded throughout the day.
There are 6 main types of ETFs that you can invest in: stock, sector, bond, commodity, currency, and international ETFs.
You can buy ETFs through a broker, or use Robo-advisors to create a portfolio of different ETFs based on your risk preference (more convenient option).
Singapore-based Robo-advisor Stashaway utilizes ETFs from various sectors and the concept of dollar-cost averaging to encourage long term diversified and stable investment growth.
Investment Recommendation: Use the concept of dollar-cost averaging to put a fixed amount of money in various investment platforms (including ETFs) for diversification and long term growth!
Return: Generally high, but varies depending on company performance
Pros: Relatively high returns, liquidity, easy diversification
Cons: Time-consuming: require analytical skills and knowledge to pick the right stock, and to know when to buy/sell (day traders)
“Stocks are dangerous. At the end of the day, you will always lose money”. That was what my parents said, and your parents/other older adults may have told you the same.
As with any stereotype, there is always more than meets the eye.
For starters, stocks are investment vehicles, just like any other items on this list. The dangers are the lack of financial literacy and the reliance on insider information instead of analysis.
A stock (also known as equity) is a form of security that indicates the investor’s proportionate ownership in a particular company. Units of stocks are called shares. The more shares you have, the more part you have in the company’s profits, paid out in dividends throughout the year.
There are 2 ways to earn from stocks: trading and dividends. Value investing a.k.a “buying and holding” is a safer, less troublesome approach used by investors such as Warren Buffet to accumulate wealth over time at a slower pace but steadily via dividend payouts.
Investment Recommendation: If you are a first-timer in trading, why not practice trading with their demo accounts and see for yourself the effects of your decisions? After you have more confidence in your knowledge and skills, you can begin trading.
6. Peer-to-peer Lending (P2P)
Pros: Personal satisfaction to help businesses, higher interest rates compared to FD/savings account
Cons: Risk for default when the company is unable to repay investors, management fees
Peer-to-peer (P2P) lending is done through a platform (usually website/app) to facilitate direct lending from investors to companies. This means investors provide the money for the loan, instead of the typical loan route from banks/credit unions.
The platform, companies and investors benefit from this relationship.
The platform earns fees from both parties and facilitates the transaction, the company pays a lower interest rate compared to a bank loan, and investors get to earn more from their hard-earned money through better interest rates.
Although the minimum capital is small, fresh graduates/beginner investors have to be especially careful with the default rates of platforms.
Once a company defaults payment, it may be hard to retrieve the money invested. This is as opposed to holding on to failing stocks with the paper loss which can be recovered when the prices go up again.
Investment Recommendation: Only invest in P2P if you are comfortable losing your capital on the occasion of default.
7. Side Hustle
Freelancers and small businesses are increasingly dominating today’s workforce, contributing to the growth of the gig economy.
Although many are professionals desiring a more flexible option compared to their office counterparts, there are also many doing freelance work/business out of passion, to secure a side income, or both. If successful, the side hustle may even turn into a full-time job!
Fresh graduates and beginners investors should not only consider monetary investments but also think of creating alternative sources of income through side hustles. This is also to increase the capital for monetary investments.
For starters, you can offer any area of your expertise through freelance websites such as Fiverr and Upwork. Love social media? Start your own social media-based business. -
Do take care of your health though. The payout may be attractive, but it still pales in comparison to more important things in life, such as health, relationships, and self-care.
Fresh graduates without much capital may consider working for startups as a form of sweat equity investment with time and effort too.
Even though startups may not pay high salaries, many of them do offer profit sharing or employee stock options which could be worth a fortune when the business becomes successful (think Google, Alibaba, Facebook).
If you are an enterprising individual with a viable business idea, you could start your company too! However, the majority of startups fail, so this is also an investment with risk.
Bonus Investment Tip: Introduction to the FIRE Movement
The FIRE movement is spreading like wildfire, and it is easy to see why.
Short for “Financial Independence, Retire Early”, the main concepts were first introduced via 1992 best-selling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez and gained traction in recent years.
Sounds too good to be true? It is legit, but with an important catch. The FIRE movement requires extreme discipline, by saving more (as much as 50-70% of salary) and spending less.
After achieving savings approximately 30 times of yearly expenses, often roughly $1 million, FIRE devotees may quit their day jobs to pursue passion projects or retire early. Small yearly withdrawals of 3-4% can be made from the portfolios to sustain the post-retirement lifestyle.
Although the FIRE movement is not for everyone, fresh graduates/beginner investors can certainly take the intensity down a notch while applying the core concepts of saving more and spending less to manage finances better.
Which Investment Tips Would You Consider To Try?
The sky is the limit when it comes to investment options, even for fresh graduates or beginner investors with minimal capital. We hope you find these investment tips helpful in your investing journey.
As emphasized earlier, do be careful of scams and remember to do your homework before making any investment decisions. Managing personal finances well is not easy, but in the long run, it is definitely worth it.
Stay safe and most importantly, have fun!