Intro to Investing for Students

Risk Appetites

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The concept of investing is not a new one. It is said it originated in Amsterdam in the 1600s but there is also evidence that it originated from the 'Code of Hammurabi' all the way back in 1700 BC. However, the framework for investing has been constantly evolving and its necessity is ever more important in the modern world.

Here we will be covering how you, as students, can learn the basic concepts of investing to make your financial future a little bit more secure and your wallets a little heavier.

So, what does Risk Appetite even mean? Well in layman's terms, it is the amount of money you're willing to lose in your investment. The higher your risk appetite = the higher the amount of money you're willing to lose to gain.

Low Risk Appetite

One of the lowest risk investments are high-yield savings accounts.

These are investments where you park your money and let it incur interest over time with little to no risk of losing your money. The values of these interest rates do vary, as they can start from 2.38% and go up to 6.15%. The percentage depends on the banks itself.

An important caveat is that a lot of these high-yield savings accounts do require you to do certain things to get the maximum amount of interest. Examples are like spending + depositing + investing on their platform or they could even require you to maintain a specific amount in the account; usually these amounts are around RM 100,000 to RM 200,000 (pro tip: the latter requirement is not ideal for students)

If all you want to do is park your money and forget about it while you still make a little money annually, then this method is perfect for you.

Another low-risk method of investing is something called Robo-advisors. These robo-advisors give you a risk assessment to complete and after you're done, it will create a customized investment portfolio that suits your needs.

An amazing feature of these platforms is they also have something similar to high-yield savings accounts, where you can park your money and it will incur interest over time. Also, the interest rates are usually more attractive since you will be earning the maximum interest rate for just using the platform. The biggest benefit is that your money is incredibly liquid; only requiring a couple of days to withdraw and deposit.

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Moderate Risk Appetite

With moderate risk investing, you're going to need to be able to stomach some losses. Usually, this is as far as the average student investor would go but it's not a bad place to keep your risk ceiling at.

Your gains will certainly be higher but at the expense of a potential loss. Examples of moderate risk investing would be spot trading stocks and index funds.

Spot trading stocks is buying a stock at a specified market value, the losses and gains are made at the 1-to-1 increase or decrease of stock price. For example, if you buy a stock at RM1.20 and the next day it goes up to RM 1.40, you just made RM0.20 in profit. It also works the other way around.

However, if your investment value decreases, it doesn't mean your money is gone - just the value of your money within stock decreases. However, if this happens, it might increase over time, and you'll make your losses back.

Index funds are just funds that contain a multitude of different companies to invest in. For example, the S&P 500 is an index fund that includes the top 500 companies in the United States.

(and yes, Malaysian students can invest in it too and it's great!)

How it works is... if you put in RM1000 in the S&P 500, your RM1000 is spread across all the 500 companies. Therefore, your risk is spread out and it limits your losses if some of the companies perform badly on the list. Funds like this have more security and tends to trend higher consistently.

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High Risk Appetite

This is where the hunger of daredevil student investors lingers. While it is not ideal for students to look into due to the earning capacity of the average student being on the lower end, high risk investing is still important and worth mentioning. Especially for those of you who are willing to take that risk.

The most common examples of high-risk investments are currency trading and leverage trading.

Currency trading is certainly one of the riskiest forms of investing, especially for students.

But what is it?

The currency market is the largest market in the world and it's only growing. You are trading pairs of currencies against each other instead of buying a single one like a stock. The value of the currency pairs you may trade are extremely volatile and react to socio-economic or geopolitical landscapes of countries.

The losses can be catastrophic and the gains can be absolutely magical. While it is easy to get into, it is incredibly difficult to master.

Now leverage trading is a whole different bear. It works exactly like the stock market but you are leveraging the odds of a stock to go either up or down. These leverages are as low as 2x and can go as high as 20x.

That means if you trade or invest RM100 at a leverage of 20x, that RM100 is now being traded at a value of RM2000. This will greatly increase your profit capacity but will also increase the capacity of your losses. You will have to pay the loss of that RM2000 value if it goes sideways.

Again, this isn't for the students who cannot stomach this amount of risk or has limited knowledge of these kinds of investments.

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Risk is just one of the basic concepts for students to know before getting into investing. While all levels of risk have multiple methods of investing than the few we mentioned, identifying where you fall among these levels are crucial to step into the world of investing.

Remember that it is always better to step into investing than to never step in at all. Take risks and get your money to work for you early before you start working for your money.