Where Should Beginners Invest Their Money?

{{ vm.tagsGroup }}

28 Jul 2021

8 Min Read

Amirul Aqil Athallah (Guest Contributor), Ailyn Low (Editor)
IN THIS ARTICLE

Thinking of investing? Understand these different terms before you start.

 

We’ve certainly made huge progress in the way we make income. 

 

While many of us strive towards financial freedom by exploring our entrepreneurial skills or working hard at our day job, there’s also a smarter way to make the money we earn work for us. With the help of technology, a little financial literacy, and accounting or math skills, it’s possible for many of us to consider making extra income through financial instruments (read as: it’s time to invest!)

 

But with the different instruments out there, it’s easy to get overwhelmed. As a beginner, you may be thinking where should I start or which financial instruments should I choose to invest in. Don’t worry about it! 

 

Here’s a breakdown of what you need to know, where to get started, and how to go about it.

Familiarise, Build, Then Diversify

Before you get started, it’s important to know the different things you can invest in to build your portfolio. Once you’ve understood and taken the first step, diversify your portfolio by investing in areas that you’re comfortable with, depending on your risk appetite. 

 

Here are 5 areas you can start off with:

1. Fixed Deposit

A perfect starter for beginners and the safest of them all. A fixed deposit is an account that’s usually linked to your bank’s savings account. Considered one of the safest investment instruments with the lowest risk factor, you’re guaranteed a return over a fixed interest rate and period of time, usually set by the bank.

Interest is calculated based on the amount stored inside and continues to increase until the given maturity date. However, that also means you wouldn’t be able to withdraw your money until then or you’d risk lowering the fixed interest rate. 

 

So, how much should your deposit be? If you’re a student and you’ve the means, I’ll strongly encourage you to place a bit of your savings here and invest in other instruments that might give you a higher reward.

You can find out more about fixed deposits and their rates in Malaysia here.

2. Mutual Funds

A mutual fund is a financial instrument that pools money to invest in securities like stocks, bonds, and other portfolios related to the market. The best part? It’s usually handled by a professional portfolio manager so you wouldn’t have to worry about reading up — though it’ll be a good idea to have a sense of what kind of portfolio and stock your manager is getting into.

 

Unlike fixed deposits, you’ll be getting your rewards through dividends that’s paid out to shareholders. It’s also more dependent on the performance of the market so it’ll be riskier compared to investing in a fixed deposit.

 

Something you should be doing before investing is to check the person or company that would be managing your funds. Ask questions like ‘what are the funds that you’d invest in’, ‘how did it perform in the past’, and ‘how risky is it?’

 

Thinking of investing in mutual funds? Check out this comparative list of banks here.

Gold bars of various sizes on a dark wooden surface

3. Bonds

Imagine your friend really wanting the latest gadget but unfortunately, they need some extra cash so you loan it out to them for a small interest rate.

 

Similarly, bonds are when you loan to an institution or government and, in return, they pay you through interest. Generally, the risk with bonds lies in the type of bonds they hold. Government bonds are safer and less risky because they are already guaranteed by the government whereas corporate bonds are slightly riskier because if the company goes bankrupt or defaults, there’s a chance of you losing your money. 

 

In addition, you’d first need a brokerage account which may induce a high fee. However, it isn’t as risky as investing in stocks as they’re less likely to fluctuate based on the market.

4. Stocks

Want to ‘own’ a bit of the business or area you’re investing in? Then, investing in stocks is something you should find out more about. A stock is when companies sell shares to raise money for different purposes for their business and investors can gain profit usually based on the company's profits or losses or a predetermined dividend payment.

 

However, stocks, like mutual funds, are heavily impacted by the stock market but, higher risk, higher rewards! So make sure you do more research about the company before investing in one so that you’d be better informed with your decision. Similar to bonds, one of the steps you’d need to take before investing in stocks is to set up a brokerage account.

 

If you’re a beginner, you might want to give StashAway a try to familiarise yourself with the different investment instruments out there (e.g. stocks and bonds).

5. Cryptocurrencies

I’m sure you’re familiar with ‘Bitcoin’ or ‘Dogecoin’ especially with the hype of people investing in it earlier this year. Before you jump into investing in them, do you really know how it works or what it is?

 

Cryptocurrency is a digital currency made by the public (not the government) using blockchain technology. Think of it as a token that you buy and in some cases, you’ll be able to use it as a form of payment for goods and services. With that being said, is cryptocurrency worth investing for a beginner? 

 

That depends on your risk-appetite and your commitment to studying the market. Here’s a scenario: a person who invested USD100 in Bitcoin in the year 2011 would have seen his assets rocketed to a whopping USD1.5mil today (10 years later). If you’re basing your decision solely on this, then you may not be ready to invest in crypto. 

 

Due to market volatility, the value of cryptocurrencies often fluctuates resulting in massive dips which may cause you to experience a huge loss. Hence, you may need some knowledge and experience when it comes to trading cryptocurrencies.

 

If you're worried about the different myths about cryptocurrency, you've got to read this article.

A physical Bitcoin in front of a digital screen displaying financial charts

Your 5 Actionable Tips

Now that you’re aware of the few popular financial instruments available, here are 5 action plans for you to start your investing journey:

  1. Identify your goals and consider your risk tolerance before you start.
  2. Do your due diligence. Read up on the different financial instruments and consult a financial advisor, if necessary, before you start investing in them.
  3. Don’t put all your eggs in one basket. Diversify your portfolio by allocating your money into different investment instruments according to your risk tolerance and goals to balance out any profit or losses.
  4. Remember to do your homework! Track, revise, and check your different investment portfolios and how they’re performing.
  5. Let it grow and be patient. Whether it’s in investing in something or taking out your investments, don’t be too hasty when making your decisions. A long-term goal would usually reap better rewards.

  1.  

And there you have it, some investment tools and actionable tips that can help you make the first steps in investing! It’s time we learn how to make our money work for us so that we’ve one less thing to worry about.

 

Equip yourself with the basics of Fintech here.

Amirul Aqil Athallah is an alumni of the Bachelor of Business (Hons) International Business & Marketing. He was also a member of the Taylor’s Lakeside Model United Nations.

Taylor's University/College does not take into account of your personal investment objectives, specific investment goals, specific needs or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here.

 

The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Taylor's University/College.
BACK TO NEWS & ARTICLES
YOU MIGHT BE INTERESTED
{{ item.articleDate ? vm.formatDate(item.articleDate) : '' }}
{{ item.readTime }} Min Read