Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The two biggest questions I get asked in relation to investing by young people are- where would I invest? And how much money do I need to invest? These queries are the reason many young people neglect the idea of investing as it can be quite a daunting experience. Being at University/College can also be a challenge, with less time to work during the week meaning you will probably have less funds to invest. Recently I had a conversation with a financial planner about what advice they would give to someone studying at University/College in relation to investing.
The first piece of info was that you ideally should be investing at least 10% of your income. Currently, ASIC estimates the minimum superannuation contribution for a comfortable retirement is $640,000 and taking into account inflation and increased costs of living it could well be over $1,000,000 come 2050. Investing 10% of your income into a fund or into the share market can allow you to gradually build wealth for a comfortable retirement. A perfect way for someone to start investing into a fund that will coherently help you save is RAIZ (not a partner) . Apps such as RAIZ or spaceship allow you to save your income but also invest your money in ETF’s that generate 10-15%* a year which is currently 5x better than any bank interest (COVID-19 not taken into account). If you want to learn more about these apps I have written an article on the benefits of each here.
The second piece of information was when investing in the sharemarket, use a commission-based broker instead of a fee-based. This makes more sense when you breakdown a $500 investment. Generally a broker fee is $20 buy and $20 sell – equating to $40 which is a loss of 8% of the $500 investment. Using a non-advice broker with a 2% commission fee will allow you to enter in and out of the market with a 2% loss plus your total gain. Examples of some cheap brokers include Self Weatlh and CMC markets. However, when you do start earning a generous income it would be more beneficial to switch to a fee-based broker as you will pay more commission on a higher capital investment.
So where and how much should you invest as a student?
RAIZ or another fund that can be accessed easily on your phone is a great place to start. You will notice the correlation between hearing how the market is going and how your portfolio will change. If you have some experience with trading, then I suggest you follow our team’s articles on stocks that hold potential in 2020 to help you get a grasp on basic financials and how key price-sensitive dates will impact the share price.
How much do I invest?
As mentioned by the financial planner, at least 10% and up to 30% may be sufficient enough to sustain yourself with a comfortable future and retirement. An investment could be as simple as putting away $100 into your RAIZ account once a month and let that sit for 5-10 years. The best thing a University or College student can do right now is put some money away every week into a fund or shares and let them grow over the years. You will thank yourself down the track for being pro-active in a time period where you are not working a full time job.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Tyger Fitzpatrick, founder of YIG.