If you have idle money, even if it's only a little, it's best to invest it so that it grows. In fact, if your investments are effective enough, you will eventually be able to live on income and interest through investments. Start with safe investments, such as bonds, mutual funds, and retirement funds, while you're still learning the markets. When you save enough money, feel free to move on to riskier investments, such as real estate or commodities, which have higher returns.
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Method 1 of 3: Starting with a Low Risk Investment
Step 1. Open a Money Market Account (MMA)
MMA is a savings account that usually requires a larger minimum balance, but has a higher interest rate. Not infrequently the interest rate is the same as the current market interest rate.
- Your money is usually easily accessible, although banks limit the amount that can be withdrawn and the frequency. MMA accounts should not be used as emergency savings.
- If you have a good relationship with the bank, it's a good idea to open an MMA account there. However, it never hurts to look for other options to find out which bank offers the best interest rates and the lowest minimum deposit that suits your needs and budget.
- In the United States, some credit card companies, such as Capital One and Discover, also offer MMA that can be accessed via the internet.
Step 2. Protect your investment with a certificate of deposit (CD) account
A certificate of deposit holds a certain amount of your money for a certain period of time. During this time, money cannot be accessed. At the end of the period, you will receive your money back according to the principal plus interest.
- Certificates of deposit are considered one of the safest saving and investment options. The longer the certificate of deposit period, the higher the interest rate.
- Banks usually offer certificates of deposit in different terms and minimum deposits so you can find the one that fits your needs.
- In the United States, some online banks, such as Ally, offer certificates of deposit with no minimum deposit.
- When opening a certificate of deposit account, read the disclosure carefully. Make sure you understand the interest rate, whether fixed or variable, and when the bank pays interest. Check due dates, and evaluate penalties for early withdrawals.
Step 3. Select stocks from understood companies and sectors
As a novice investor, you don't need a broker to invest in the stock market. You can use a dividend reinvestment plan (DRIP), which is a program to reinvest cash dividends into additional shares, or a direct stock purchase plan (DSPP), which is a program that allows investors to buy shares directly from the company, so that they are not subject to brokerage fees and commissions. buy shares directly from the related company.
- As a beginner, you can start investing little by little, for example IDR 300,000-450,000 a month. There is a list of companies that sell their shares directly at no additional cost at
- If you buy stock in a company that you know and understand well, the research will be fairly easy. You can tell when a company is performing well, and recognize what trends are in the company's favor.
Step 4. Diversify your portfolio with mutual funds
A mutual fund is a group of stocks, bonds, or commodities bundled together and managed by a licensed investment advisor. Because the content is quite diverse, the risk of mutual funds is quite small and suitable for long-term investment.
- In some cases, you can buy shares directly from a mutual fund. However, you usually have to go through a broker or investment advisor to buy shares of a mutual fund.
- Mutual funds are a fairly affordable way to diversify your portfolio when you're just starting out. You can get shares from a mutual fund much cheaper than buying it yourself directly.
Step 5. Open a pension fund
A retirement account allows you to save for retirement without being taxed. The pension fund options that are commonly used are the Employer Pension Fund (DPPK) and the Financial Institution Pension Fund (DLPK). The DPPK is formed by the person or entity that gives the employee to the employee, while the DPPK is opened by investors in a bank or life insurance company.
- For DPPK, the contribution that can be imposed is in the form of a Defined Benefit Pension Program (PPIP) or a Defined Benefit Pension Program (PPMP). For PPIP, the risk of fund development is fully borne by the participants, while for PPMP the pension benefit is based on the formula set at the beginning, which is usually associated with years of service.
- Currently the most popular DPPK used is BPJS Employment. The fee charged is 1% of workers and 2% of the company from the reported wages, and is a deduction in the calculation of income tax. At the time of withdrawal, pension funds are subject to progressive tax rules.
- All DPLK earn compound interest, which means the interest earned is reinvested into the account and earns more interest. For example, the initial deposit of IDR 5,000,000 that was given when you opened a retirement account at the age of 20, will be IDR 160,000,000 when you retire at the age of 65, assuming an interest rate of 8%.
Step 6. Buy bonds for a stable income
Bonds are fixed rate securities. In essence, the company or government borrows at the face value of the bond and returns it in full plus interest in return. Thus, you earn income, no matter what happens in the market.
- For example, let's say Bella Bakeri issues bonds with a 5-year term of IDR 10,000,000 and an interest rate of 3%. Irfan the investor buys bonds, gives Rp. 10,000,000 to Bella Bakeri. Every 6 months, Bella Bakeri 3% of Rp. 10,000,000, which is Rp. 300,000, in return for lending funds. After 5 years and 10 payments of IDR 300,000, Irfan received his IDR 10,000,000 back.
- Usually, bonds have a minimum nominal value of Rp. 15,000,000, so you usually can't enter the bond market until you have raised enough funds.
- Government Securities (SUN) provide interest compensation and protect against inflation. You can buy it directly from the government. Even though the interest rate is low, SUN is still better than the interest on MMA or SD accounts and the risk is very small. This investment is your safety net against inflation.
Step 7. Use gold or silver as a shield against inflation
Precious metals investments provide certainty and stability to your portfolio. Because gold and silver move in opposite directions in the market, they can serve as shields for your other investments.
- Gold and silver prices tend to increase in times of uncertainty. Geopolitical events and instability are likely to play a big role in this. At the same time, the stock market does not respond well to uncertainty and instability and so falls.
- Precious metals are not taxed and can be stored and sold easily. However, be prepared to spend more money for safe storage if you decide to buy a lot of gold and silver.
Method 2 of 3: Invest in Riskier Investments
Step 1. Dive into the real estate market for long-term investments
Real estate investment can be either active or passive. Active investment, such as buying and selling property, which is much riskier because it is not very liquid. When you need to give up an asset, don't be surprised if you don't find a buyer.
Passive investing is less risky, and is suitable for those who are new to the real estate investing market. The option that people often take is to buy shares in a real estate investment trust (REIT). Each stock represents a diverse bundle of properties, a kind of mutual fund for real estate properties. You can buy this stock through a broker
Step 2. Switch to the exchange market if you like a challenge
Forex, the foreign exchange market, is the largest financial market in the world. Currency exchange rates change over time, usually depending on the economic strength of each country.
- To be able to trade exchange rates successfully, you need to have a good understanding of geopolitical trends and events. Be prepared to read a variety of international news every day to find opportunities.
- It is recommended that beginners focus on 1-2 currencies so that they can fully research the state of the country's economy and not be left behind by the latest news.
Step 3. Try trading options to limit your exposure
An option is a contract that gives you the right to buy or sell an asset at a certain price at some point in the future. Since you are under no obligation to buy or sell at this point, the possible loss is limited to the price paid for the contract.
To trade options, open a brokerage account, either over the internet or with a traditional broker. The brokerage company will set limits according to your trading skills, based on your investment experience and the amount of money in the account
Step 4. Practice hedging to reduce risk
If you want to trade in riskier investments, put a safety net on your portfolio using a hedging strategy. The basic concept of hedging is to cover the opportunity for loss in one security by continually investing in other securities that are likely to move in the opposite direction.
- Most passive investors, who only save for retirement or long-term goals, (eg for children's education funds), do not need hedging. However, if you dive into more risky and aggressive investments, hedging can be insurance that reduces the impact of losses, especially due to short-term market fluctuations.
- The role of a financial planner or advisor is very important if you plan to enter the more aggressive short-term investment zone. They will help you design a hedging strategy and ensure that your portfolio remains protected.
Step 5. Diversify the portfolio with commodities
Commodities can be used to reduce risk because they tend to respond to a variety of factors, which are often completely beyond human control.
- Commodities consist of hard commodities, including precious metals, and soft commodities, including wheat, sugar, or coffee. You can invest in commodities in 3 ways: buying commodities directly, buying shares of commodity companies, or buying futures contracts.
- You can also invest in commodities through a more passive way, namely investing funds. Exchange-Traded Funds (ETFs) own shares of commodity companies, or can monitor commodity indexes.
Method 3 of 3: Preparing for Success
Step 1. Gather an emergency fund
Set aside your money for 3-6 months of income as an emergency fund in case unexpected events occur. This money should be easily accessible, but separate from your investment account.
Keep your emergency fund in a savings account (so you'll earn at least some interest) separate from your savings account. get a special debit card for this emergency fund so that it can be withdrawn quickly when needed
Step 2. Pay off high-interest debt
All interest earned on investments is usually less than 10%. If you have a credit card or installment with a higher interest rate than that, over time the interest on the debt erodes the entire investment profit earned just to pay off the debt.
- For example, let's say you have $40,000 to invest, but also have the same amount of credit card debt, plus 14% interest. Even if you get 12% return on investment, the amount is only IDR 4,800,000. Because the credit card company charges IDR 5,600,000 in interest, you still owe IDR 800,000 even though a smart investment strategy has been implemented.
- Not all debt is the same. You don't have to pay off a mortgage or student loan before you start investing. Usually this type of debt has low interest rates and you can save money if you reduce taxes through interest.
Step 3. Write down your investment goals
Your investment goals determine your investment strategy. If you don't know how much money you want to make, and how quickly you need it, of course, the right strategy can't be determined.
- You should more or less have short, medium, and long term goals. Determine how much money is needed for each goal, and the time you have to generate it.
- Setting goals also helps you choose an investment method. In some investments, such as pension funds, you will be penalized if the investment funds are withdrawn early. This type of investment is certainly not suitable for short-term goals because funds cannot be accessed easily.
Step 4. Consult a financial advisor
You don't have to need a financial advisor to invest, but an expert who understands market trends and studies investment strategies will help you invest as effectively as possible, especially for those just starting out.
- Even if you decide not to use a financial advisor long term, he or she can still guide you in the right direction when you're new.
- Bring a list of your goals and discuss it with a financial advisor. He will be able to provide the most ideal options to help you achieve your goals as efficiently as possible.
Tips
- The standard advice for investing is "buy cheap and sell high." Ideally, investments are bought when the price is very low and other investors are also buying. Then, you can make a profit as your investment becomes more popular and its value increases.
- Even if you have short-term goals, you shouldn't view the stock market as a quick way to make a profit. The rule of thumb, is to focus on investing in the long term instead of gambling in the short term.
