Personal Finance 101
Asked on 19 Sep 2020
I am a college student with regular savings and now, I am trying to venture into investing in stocks. I have never taken any business or economics subject and so, the guides/tips in investing articles dont really help. I am willing to learn though, any idea on what basics I should learn first to start investing in stocks?
Congrats! You are starting early in investing, and one of your precious assets in investment is Time!
A great investor does not need to a professional/qualified in business,economics studies. Having qualifications in economics and accounts will aid in basic knowledge in investment.
You can start with learning investment by preparing yourself.
Here are some areas you can prepare yourself:
1) set aside emergency funds of 6-12months: emergency fund is important as it preapres us for unexpected life events (losing a job, or growing through low times in entrepreneurship) and help us to tide through hard times by aiding in paying our expenses and debts.
2) Spend within your income means: when comes to personal budget/finace planning, set aside some money for monthly expenses. If your spending is less than your allowance/income, you will have additional funds set aside every month for your investments
3) Read up/Learn about investments: go to NLB library to borrow investment books to read and build up your knowledgeable like stocks /REITS/ETFS/Bonds etc.
Check out on forums like seedly on the blog writeups and answers by seedly users. There are many useful information shared on seedly by experience investors, and its good to understand and build up your understanding on investments
4) Read financial news daily: reading news can be a pain to most students is on reading up news. News around the world are important as events shape today's financial markets. By understanding how events can drive the markets to eithee bullish or bearish, this helps you to build your concepts on investments which helps you make better decisions.
Lifelong learning is the key to improving our knowledge and understanding to investment and we will get better with continuous learning and experiences gained by getting to the investment bang wagon.
Decide on what's the investment vehicle you choose : Bonds/ETFS/Unit Trust/Reits/P2P Crowdfinding; that can bring you to your investment goal with its risk level that you are able to stomach.
The planning process is important prior to starting to invest; without a plan (or at least a skeleton of one), you are planning to fail. Although you are still studying, and your cash flow probably isn't there (unless you are working part time), you can still map out your overall strategy. Stocks are also not the only thing in the market but I'll advise that you keep your mind open about the other asset classes.
Start by setting a goal:
What do you want to achieve?
Save for Retirement? Payment for Mortgage? Children’s Education?
Determine your investment timeframe
How much do you need for that goal?
Next, assesss your financial situation
What is your net worth and cash flow?
List out all resources and expenses that you have
Find out your budget
Then, plan to execute
Make sure you have emergency savings
Make sure you are adequately insured
Know how much to set aside
Know what rate of return you need
Know how much risk you can take
Understand the asset classes you can invest in, their pros and their cons
Exchange Traded Funds (ETFs)
Contract for Differences (CFDs)
Lastly, decide which asset class you would like to obtain that fits you and your profile, and you are on your way. Monitor your investments, refine and review your portfolio regularly.
Start with a simple personal finance book like "Rich Dad Poor Dad", and then strengthen and change your mindset with "Secrets of the Millionaire Mind". Once you are ready, read "One Up on Wall Street" and you will be on your express ticket to Financial Freedom.
The most important takeaway personally for me so far is this:
Discipline (in terms of saving/investing/controlling emotions)
Keep on learning
Don't rush into buying your first stock. It is far worse to buy into a stock without first grasping the fundamental concepts. You can't build a house if you don't know how to read a blueprint or layout a foundation. Investing and personal finance is the same thing too!!
Alternatively, you can read my blog here to read up more :-)
I wish you all the best!!
Hi Anon! I think it is good that you want to start investing in your college days. As they say, the earlier you start, the better.
With that said, I feel that there are some fundamental steps to take before starting to invest. Of course, these are all in addition to the intense amount of research/ due diligence you should be doing at the same time.
Firstly, know the reason why you want to invest. This will allow you to have the correct mindset and not have a 'get rich quick' mindset. This will also allow you to determine your investing time horizon, how long you want to stay invested.
Secondly, know your risk appetite. Know what kind of assets are out there and how to get your hands on such assets. You will find that there are many asset classes out there that may fit your appetite, like ETFs for example instead of single equities.
Thirdly, preparation. Even though it is important to start investing, it is even more important to have a solid base to fall back on should your investing journey not go well in the short-term. Here, you should know what are the certain protections you should use to guard yourself against the uncertainties of investing. As such, I think it is important to create a checklist for yourself to ensure you are prepared.
Lastly, ensure that you have enough savings to invest. Though it might seem simple, if one is not disciplined in saving, it will erode his investment potential away.
If you are interested, I am documenting my personal finance journey here. I am also a beginner in this area. As such, the purpose of my posts is not to teach, but to share my perspectives as a new investor and the processes I undertook.
I hope it helps in providing a new perspective!
Better do not invest into single stocks, that doesn't work out, better use ETFs.
what also to avoid, here:
There are a lot of things you need to do before you start investing.
The most important thing is to know exactly what you're investing in. This makes you aware of the risks involved and what returns you can expect.
Another thing you would need to know is your risk profile. How much risk are you willing to take? Are you able to stomach a huge drop in the value of investments the next day? You should try to invest in an investment product that has a suitable risk for you. That way, you will not be so stressed when there are fluctuations in value!
If you are a beginner to investor, I would recommend starting off with robo-advisors. They are a great way to start as most have a very small minimum sum required, and they help you to invest in a diversified portfolio. As such, your risk is spread out among different investments.
Once you have a better investment knowledge, you can start to consider DIY investing, as it may be more cost effective to do so.
To find out more about investing, you can check out my Investing Starter Guide.
Andy Chan, Computer Science at National University of Singapore
Updated on 19 Sep 2020
You can consider trying to find the answer to these questions:
What is a stock?
What are bonds?
What is an index?
What are the different types of investments you can invest in? E.g. Stocks, Bonds, Commodities etc.
What are the risks associated with each asset class?
These are some questions that can get your started. For the most part, the key is to not be intimidated by the complicated terms you encounter. Find out what the terms are, break down the concepts, and slowly it gets easier to accumulate more knowledge.
Some sites that I found helpful are:
Hope this helps!