Where to invest as a beginner?

Do you know the book “What I wish I knew when I was 20”. If you don’t, it’s fine, I’m not here to talk about the book, I just want to say that “The earlier you start investing the better” is what i wish i knew when i was younger. I always thought that I’ll invest when I have a lot of money, but the correct way to think is to invest when I have money. Investment sounds intimidating but there are ways to do it with any amount of money. Let’s check out the most popular ways people have been doing for decades.

1. Types of investment

In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor’s selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics and strategies appropriate.

Source: wikipedia

If you  do your own research, there will be many types of investment, but I like to separate them into 2: Passive Investing and Active Investing.

If we don’t know much about finance, macro-micro economics, it’s easier to categorize investment in terms of how much effort we want to put into the investment.

Passive Investing is the strategy where you focus on buying and holding investment in the long term. By this, we don’t have to constantly check the market, so we can concentrate on our main job.

On the contrary, Active Investing is the strategy where you need to constantly monitor the market and trade when you see an opportunity to make money. And ofcourse, you need a deeper understanding of how the market operates.

Each strategy has pros and cons, no strategy outgrows another. Since the blog is from someone, who is an amateur investor and whose job is not about tracking the market, it will only be about Passive Investing.

You can read more about the differences between these 2 strategies here.

2. Where to invest

I actually took a personal finance management course myself and there are many topics in the course but the main point is that they help people stay away from investing as gambling.

It means that, if you know how the market, the stock, the enterprise work and what the financial report says, you’re good to go, but if you don’t, then invest where there are people who know those things.

Let’s cut to the chase, there are 3 investment channels that you can put your money in, when you don’t know much about how things work. The order will be from fastest to slowest to withdraw money.

a) Good old bank saving account

Feel free to argue that this is saving, not investing. But, let’s be honest, saving is just a way of investing with much lower risk and ROI.

This must be the first thing we think of if we have some extra money in our early adult life, and everyone should have this first, before thinking of other investment plan. Consider this as your backup plan, always have a savings account, just enough to maintain your life for at least 6 to 12 months but not too much.

At different stages of the economy, your savings account may not remain their value because saving interest can’t compensate for inflation rate.

=> How to invest:
Create your savings account in the application of the bank you’re using or go to the bank directly.

b) ETF funds

Exchange-Traded Funds are a basket of assets that are traded like securities. They’re technically investment funds that trade like stocks on a stock exchange. They hold a basket of securities, similar to mutual funds, but offer more flexibility with intraday trading as they can be bought and sold on an open exchange just like regular stocks.

Source: https://www.investopedia.com

These funds are managed by Fund Management Companies, where people with expertise in finance and economics decide how to distribute money in order to maximize profit.

Why does it suit beginners and amateurs? Because we don’t have to keep track of the stocks, we don’t even have to know what companies they (people from the Fund Management Company) invest in, using our money. All we need to do is to choose the funds and the companies that have high credibility so we can be guaranteed that they do their best to make more money and minimize loss.

=> How to invest:

• Choose your trading app. Most banks and Fund Management Companies have this, the difference is how the app performs, how easy to get support when needed and fees (transaction and trading).
• Create an account.
• Trading app will have stocks of publicly listed companies, not just ETF funds, so search for the ETF funds you want to invest in and buy their stocks.
• The income you get is from the raise of the ETF’s stock price, not the earnings of the fund itself.

c) Open-end funds

Similar to ETFs, Open-end funds are also managed by Fund Management Companies, the income is from the raise of Net Asset Value (NAV), but the differences are:

• We don’t buy stocks, we buy Investment certificates.
• Each Fund Management Company uses their own trading app, and manages only the funds they have.
• Fund Management Companies usually categorize their funds based on risk and profitability, normally 3-4 types of fund but there can be more.
• The information about each fund is public and regularly updated. You can always check who manages the funds, what is the portfolio (distribution in invested companies and industries), price and financial report.
• You can trade as you wish but each company will have different trading time. When we create a selling or buying order, some companies will make the transaction on the same day, while some companies complete the trade on certain days of the week.

Based on the funds portfolio, you can decide which fund matches your investment taste.

• The lowest risk funds are those that invest in bonds, cash, and savings.
• The higher risk funds are those that invest in stocks of blue chip companies (top 50/100/500 companies in the stock market).
• The highest risk funds are those that invest in midcap companies (which are developing and have growing stock prices) and new companies but with lots of potential (these companies usually have low stock price and only expertises with constant analyzing can recognize them).

=> How to invest:

• Choose the Fund Management Company. These companies may have funds with similar portfolios but different prices (NAV/unit).
• Download the app from that Fund Management Company.
• Create an account
• Choose the open funds based on your acceptance of risks and ROI.