Learn how to invest
Knowing how to invest your money wisely can make you richer. Many college and university students take part in investment contests. They are run by banks or other financial organisations, so students learn about investing. You can also win prizes and internships.
But making a real investment is not the same as a contest. You use your own money and will lose it, if you make the wrong decision.
As a student, if you want to invest your savings or an allowance from your parents, you must be careful. You will need to judge whether you have enough money, and understand how to invest. You will also need to manage any losses.
Do you have money to invest?
Before investing, check if you have debts, like on your credit card. If so, you should pay the debt before investing your savings.
Also, you should set aside money for an emergency fund, say, three months of living expenses.
If you do not have enough money to invest, you will need to come up with a savings plan. You can start investing when you have enough money.
Do not borrow money to invest. Or invest your student loans. Borrowing money to invest is very risky. If the market goes down, or the share price of your stock falls for other reasons, even experienced investors lose money. Also, you will need to pay fees and interest on your loan. In the worst case, your stock might get suspended from trading. This means you cannot sell the stock until it starts trading again. Your investment is frozen, but you still have to repay the loan and interest. Then, you will experience substantial losses.
Also, student loans are meant to help you through college or university. If you invest your student loan and make a loss you may not be able to complete your studies.
Investment or gamble?
Every investor wants to make money, but the truth is: the higher the potential return, the higher the risk. This is true for all investments, in all market conditions.
Don't think of investing like gambling. Betting on short-term gains can be very risky. It could affect your mood and studies – especially if the market falls.
The first thing you should do is ask yourself, "Why am I investing"? If long-term gains are your goal, you should stick with your investment, even if the market changes in the short-term. If you may need the money in the near future, choose relatively safe and liquid instruments that earn interest like bank deposits.
Do you know key investment ideas?
You may not need to take an economics or finance course to learn how to invest. But, you should understand the basics and have the right attitude towards investing. Our animation series explains the key investment ideas in a simple and enjoyable way, including:
For the past few decades, there has usually been inflation in Hong Kong. Your investment needs a return rate that matches or beats inflation. If not, then your money will be worth less.
- Risk and return
Return and risk always go together. The higher the potential return, the higher the risk. You should never blindly pursue high-return investments. Bear in mind your investment goal, investment period and risk tolerance. Always choose an investment that is suitable for you.
- Risk diversification
Investment involves risk. You cannot avoid it. But you can lessen risk with the right strategy, and therefore reduce the chance of big losses. The simplest and best way is to diversify your investments and spread risk.
- Dollar-cost averaging
This is a long-term strategy. You regularly invest a fixed amount, whatever the share price. In the long run this balances out the cost of buying shares. This lessens the effect of short-term market fluctuation.
- Compound Interest
Your principal (original money paid in) grows because of the interest earned, so you get a higher return. It's a snowball effect – the longer you invest, the more you benefit from compound interest.
There are many types of investments, such as stocks, bonds, funds, structured products (equity-linked), leveraged products (futures and options) and investment-linked assurance schemes. They all have different features and risk levels. To learn more, please visit our financial products webpage.
Read up about money management and pay attention to economic development, this will help you become a better investor as well.