The investing low-down to help get your money hustling happening (Image Source: Sabine Peters/Unsplash)
By Anna Day
Ever thought you should be investing or doing something with your savings?
Most of us know investing has valuable benefits, but it can often be a confusing world to step into.
Knowing how to save your money and the best ways to do it can be daunting and difficult to navigate, particularly for university students.
UniSA Financial Planning Lecturer Geoff Pacecca has worked in the Financial Services industry for more than 25 years, and stands by the adage that the best time to invest is yesterday.
“I think the earlier students, or anyone for that matter, start investing the better,” Mr Pacecca said.
“The best place to start is by setting a savings goal for the next 12 months and focus on achieving that – no matter how small that is.
“It is essential to understand that if students do decide to invest, they need to have a long term outlook of around 7-10 years.
“That is a plan to not sell before that time and invest in a diversified investment portfolio and do not embark on investment trading for short term gains.
“And if possible to get professional advice.”
Talking with a professional financial planner will help you develop a personalised strategy that can set up your long-term savings plan.
However, Mr Pacecca cautions against investing money you have an inkling you’ll need later down the track.
“Share markets are very complex,” he said.
“Anything can happen at any time, which could cause you to lose your money.
“You should not invest any cash you think you may need for a holiday or car or anything else over the next 7-10 years.
“You do not want to find yourself on the wrong end of a market cycle should you need the cash in a down market.
“If this happens, you will crystallise your losses.”
Two main ways to invest your money include the property market and the share market.
The good news is that through your superannuation fund, your money is already being invested in the share market.
The flip side to this is you can’t freely access this fund until you’re ready to retire.
So that leaves the conundrum: what market is best to put the money you’ve set aside in?
Mr Pacecca said “it’s a tough question to answer”.
“There are several different issues at play when investing in either market: things like taxation, interest rates, and return and cash flow needs, to name a few,” he said.
“I think it is vital for students to realise that any intention to invest should start by understanding first your financial goals.
“Once you are clear about what you want to achieve from a financial standpoint, then you can put together an investment strategy from there.
“And that could mean only saving enough money to buy your first home or it could mean building up your superannuation asset if you have one.
“Once again, I think students need to ensure they have a long term investment time frame, a well-diversified portfolio and, where possible, that they access professional advice.”
By well-diversified, Mr Pacecca means the right mix of asset classes, such as Australian and International shares, property-based investments (direct or indirect), and cash-based assets like government bonds.
Australian and International shares
Shares, which can also be referred to as stocks, securities or equities, can be best described as a tiny fraction of a company.
If you purchase a share, you’ll own that small part of the company and are entitled to a portion of the company’s profit.
You can buy shares from the Australian domestic market (think Westfarmers, BHP or the Woolworths group) or from the International Market (think Apple, Microsoft or Amazon).
According to the Australian Securities and Investment Commission (ASIC), buying a property to rent out is a popular form of long-term investment in Australia.
While buying a house is known as a direct property investment, there’s also another property investment option.
You can make indirect investments into the property market with property dealings companies that pool investor money to buy or sell assets.
According to ASIC, when you invest in bonds, you are effectively lending money to a government or company at an agreed interest rate for a set time.
In return, the borrower promises to pay you interest at regular intervals and repay your loan at the end of the term.
Mr Pacecca cautions that “being over-exposed to any one particular asset class is risky”.
“With this in mind, I would steer away from investing in one parcel of shares based on a friend’s tip, with the aim of a quick short-term gain,” he said.
“Markets are very unpredictable and investors should proceed with caution.
“But I have always been an advocate of aiming first to own your own home and building your wealth from there.”
And Mr Pacecca’s final piece of advice?
Investing is like life: you get out what you put in.
“I would say to students that your biggest asset is you,” he said.
“They should focus on good grades and doing well in their field of education, getting some work experience in Australia or even overseas, and be open to getting involved by volunteering and contributing in some way to their local community.
“Students need to be patient and avoid getting into the trap of wanting things to happen quickly. The best things in life take time and patience.
“Set your goals, show up each day, and you will get to your destination.”
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.