How to Invest for Young People

Having personal investments in the financial markets has now become a productive lifestyle among young people or first-time workers . The old view that investment can only be done by people of mature age is no longer relevant. This can be seen from investor demographic data in Indonesia, which is increasingly dominated by the young millennial age group.

Based on data from the Indonesian Central Securities Depository (KSEI), it was recorded that the number of investors or Single Investor Identification (SID) in the domestic capital market until the end of 2020 reached 3.87 million investors. This figure has increased by 56% compared to the position at the end of 2019. Of the number of investors, almost half are under 30 years old while the 31-40 year age range makes up 25% of the total number of domestic investors in 2020. In other words, 70% of market investors Indonesia’s capital is young people.

If we are determined to start investing in the capital market, try following the following guide on how to invest in the financial markets:

How to Invest Guide

1. Understand Investment Concepts and Risks

Insurance is basically the easiest financial risk management mechanism. Anything that poses a risk to a person’s financial condition should be insured. Although not everything can be insured, there are at least two types of insurance that are very important to have; namely life insurance and health insurance .

For young people, these two types of protection are often ignored because they feel that the risk of illness and death is not too great. Life and health protection is sometimes considered a need only for mature age groups who are already married. Of course, this assumption is inaccurate, because no one can predict the risk of illness or death.

So, if we talk about which insurance is more important, then the answer is, both buying life protection and buying health protection are both important. However, if you are still in a situation where you have to prioritize premium spending, you can consider options based on the following guidelines.

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2. Have clear financial goals

The next step if you want to start investing is to list the financial goals you want to achieve through investment. Financial goals are simply interpreted as a condition that wants to be realized regarding certain financial funding targets in a certain period. By having financial goals, the investment method you make can be more focused because it has clear targets and strategies.

You can also divide your financial goals according to time targets. First, short-term financial goals are financial goals that you want to realize in less than 3 years. For example: funds for going home and end of year holidays, funds for a down payment on a first house, and so on. Second, medium-term financial goals, namely the target funds you want to collect in the 3-5 year range. For example, funds for getting married in 3 years, postgraduate school funds, and so on. Third, long-term financial goals, namely the target funds you want to achieve within a time span of more than 5 years. This includes pension funds , children’s education funds at universities, and so on.

From each of these financial goals, determine the target funds that we want to realize. For example, the funds for getting married in 3 years are IDR 100 million, the down payment for the first house is IDR 150 million, and so on.

3. Determine the Investment Instrument

After having financial goals that have been categorized based on the time period for achievement, then you can start determining the right choice of investment instruments according to the time horizon of your financial goals and risk profile. Time horizon is very important because it will influence the assessment of the risk of an investment instrument and its effectiveness in helping you achieve the specified fund target. For example, if your financial goal is to prepare a wedding fund in the next 3 years of IDR 100 million, then the right investment choice is an instrument with a low-medium risk level such as money market mutual funds and fixed income mutual funds. Stocks are not recommended for 3-year financial goals because the risk of price fluctuations is too high in the short term.

When referring to risk grouping based on time horizon , then you can use the following reference.

• Short-term financial goals < 3 years
• Medium term financial goals 3-5 years
• Long-term financial goals over 5 years

Apart from considering the time horizon , when choosing an investment instrument, make sure you also pay attention to your risk profile as an investor. How to check it? You can fill out the risk form every time you want to start investing. There are 3 risk profile categories, namely conservative, moderate and aggressive investors.

The characteristic of a conservative investor is that he likes stable investments, does not want the investment principal (initial capital) to decrease, and does not like fluctuations in investment value. Then, moderate investors are investors who can still accept price fluctuations, hope that their initial capital will not run out completely, and are quite satisfied if their investments grow beyond the rate of inflation and bank deposits. Lastly, aggressive investors, namely investors who are ready to take the risk of losing investment capital, are comfortable with sharp price fluctuations because they want their investment to grow many times above the deposit interest ( risk free rate ).

4. Open an Investment Account

After having a clear financial goal plan and choice of investment instruments, it’s time to execute the plan. To invest in the capital market, you are required to have an investment account. How to open an investment account is not difficult. You can do this through the right financial institution, such as a securities company if you want to invest in shares, or an investment management company if you want to start investing in mutual funds online, etc.

Usually what is needed to open an investment account is a personal identity card, Taxpayer Identification Number (NPWP), bank account number, filling out an initial investment form, and other requirements which you can check at the relevant financial institution. Currently, starting an investment is getting easier with the existence of financial technology  ( fintech ) companies which allow you to start just from your gadget without having to go to the physical office of the company concerned.

Oh, yes, investment capital is also not expensive, you know. You can start investing with minimal capital. For example, mutual fund investments can be started with just IDR 100,000. Investing in shares is also not expensive, that is, you only need to buy 1 lot (100 shares) of shares to start with.

5. Invest in a disciplined manner

In investing, you need to have the right strategy. Strategy helps you optimize the capital you have so you can achieve investment targets according to your financial goals. For example, for investing in stock mutual funds, you choose a dollar cost averaging (DCA) strategy or periodic investment every month because you do not have special time to monitor daily stock market movements. There is also a value investing strategy in stock investment, and other strategies that can be chosen according to comfort and financial goals.

Don’t forget to evaluate your investment performance regularly, at least every semester. You can check the performance of the investment results reports that are regularly sent by the relevant securities or investment managers.

The five guides on how to invest above can help you start investing.

Before starting to invest, it would be good to start by having financial readiness. Some indicators of financial readiness include: the condition of financial cash flow being in surplus or not in deficit, the burden of controlled debt installments not exceeding 30% of the value of regular monthly income, and having an emergency fund of at least 30% of the ideal  target emergency fund value.

Likewise, owning personal insurance, try to fulfill basic insurance needs such as health insurance and life insurance to protect your financial condition from various life risks. We can also choose insurance that is equipped with investment benefits, such as the Manulife Investment Protector product or others which can be seen here .

So, if the readiness indicators have been met, we can prepare the next investment steps. On the other hand, if it turns out that your financial condition does not meet your readiness, it is better to focus first on improving it so that you can start investing in a healthy financial condition.