How Students Can Start Investing From $500 In Three Steps

Many tertiary students are interested in investing, but are clueless as to where and how to start. IAN CHOI WEI EN shows you how.

Singapore stock prices changing live on investment platform Philips Capital’s POEMS. Photo: IAN CHOI

Sitting at the beach with a mocktail, not a worry in mind, is often how youths depict retirement to be. Many youths are in the Financial Independence/Retire Early (FIRE) movement, but most do not know how or where to start.

According to The Straits Times, the movement encourages people to work high paying jobs while maintaining a frugal lifestyle to reach financial goals faster. With a frugal lifestyle, they are encouraged to use the extra money to invest.

Investing can be intimidating, especially for students who do not have an income. Scary stories of investment losses do not help to quell fears as well. “I had a major loss, especially at the start of the pandemic. Sad to say, I recovered my losses but not a 100 per cent recovery,” says Mr Aloysius Lee Jian Xi, 20, a student who invests his savings that are separate from his emergency fund.

However, there are steps everyone can take to build confidence in planning and investing.

Prepare an Emergency Fund

Putting money into a piggy bank helps create an emergency fund that is important to starting your financial journey. Photo: IAN CHOI

“We always tell our clients [that they] must set aside what we call an emergency fund. [An] emergency fund is actually defined as six months of your expenses,” says Ms Isabelle Tan Chee She, a high-net-worth financial consultant.

Emergency funds act as a safety net for unforeseen financial situations. According to Bloomberg, it should cover the loss of income and healthcare costs. However, it should not be used actively for daily expenses or investments.

Mr Jerald Ong Zhi Xian, 20, a crypto investor who invests his National Service allowance and savings, recommends for students to save up about $3,000 to $5,000. “Money can come and go very quickly. You can earn more than $1,000 and you lose it all,” says Mr Ong.

Talk to an expert or an advisor

Ms Tan manages a portfolio for High-Net-worth individuals of more than $180 million in Assets Under Management. Photo: ISABELLE ESTHER TAN

Talking to an expert or a Financial Advisor can help in making informed decisions. Financial Advisors can advise you on steps to take to achieve your financial goals, says Ms Tan.

Like Mr Ong, some are sceptical of Financial Advisors. Mr Ong says that with the plethora of information online, he learns from YouTube, trading groups and tweets of professional investors.

However, Ms Tan says having a partner or an advisor can help manage your emotions and keep you objective oriented when investing as they “tailor your investment portfolio to your needs and goals”. She emphasises that a good advisor provides clear and well-thought-out recommendations when the market performs badly.

Invest a small amount regularly using Dollar-Cost Averaging

Dollar-cost averaging (DCA) is an investment strategy that is recommended by many experts. According to The Straits Times, dollar-cost averaging allows investors to buy more shares of a stock when prices are low and fewer when prices are high. Schroders, an investment firm, noted that despite the 2008 financial crisis, US stocks have grown more than seven per cent annually, between 2007 and 2017. Which means that, although a few shares would lose their value, the majority have gained more value to cover the losses, averaging out to a profit.

DCA also allows for investors, like students, who have a lower budget, to invest regularly. POSB Invest-Saver and OCBC Blue Chip Investment Plan (BCIP) are Regular Savings Plans that allow for investments as low as $100 a month into a basket of stocks such as an Index Fund or Unit Trust. Robo-advisor services, such as Syfe and Stashaway, allow for any amount of investment at any time. Similarly, an actively managed portfolio from Manulife InvestReady allows for investments as low as $200.

Since students do not have a big starting capital, a good way is to “diversify across the various asset classes”, says Ms Tan.

Bonus tip: Set realistic financial goals and expectations

There are many who want to start investing because of the hype on social media and internet memes, according to The New York Times. However, it is important to set a goal you can use to keep yourself motivated to invest in the market. Even the most popular financial guru, Warren Buffet, sets financial goals for himself, according to Business Insider.

“I truly believe that… the way to financial liberty is to keep investing,” says Ms Tan.