f you’ve been thinking about investing as something to do “later”, consider this: “The earlier you start, the more likely it is that time becomes your ally.”
That’s what the cofounder of Investor Muda, Robert Djufri, says.
“It’s better that you put in the work now so that your money will work for you later on down the line,” he added.
If a 23-year-old with a monthly income of Rp 5 million (US$321), he says, can invest Rp 3.5 million and live frugally with the remaining Rp 1.5 million, 10 years later they would have at least Rp 400 million in their bank account. A 5 percent annual interest rate would net them at least a Rp 2 million return each month, enough to cover roughly the same basket of monthly bills.
“With investing, you are competing against time. Investments compound, and if you’re smart, your wealth now can help you be financially free in the future,” Robert says, echoing the educational messages usually found on Investor Muda’s instagram profile @investor.muda.
But before you buy Bitcoin or download a stock trading app and risk losing your hard-earned money, financial planners say you first have to know your risk profile, basically, your investment goals help determine the kind of risks you’re willing to take.
“Just like how people have different food diets, everyone has a different approach to investing. Some prefer stocks, others go for gold, and so on,” Aliyah Natasya, a certified financial planner and financial educator, explains.
In general, investment options with higher potential returns are riskier. That means that while you could theoretically double your money with cryptocurrency in a year, there’s also a big chance you could lose everything. There are much safer investment options, like time deposits or government bonds, but these offer relatively small yet steady returns.
The key to knowing where to invest is understanding your goals: Are you saving for a rainy day, which means you need to be able to cash in at any time? Or for a house downpayment in five or 10 years, which means you can afford to lock in your money for a while? Or are you just trying to get higher returns for your extra money?
“Investing isn’t scary, there’s nothing wrong with starting small,” Aliyah adds. “What’s important is that you start and choose your own goals.”
Knowing your risk profile will help you invest smarter (The Jakarta Post/.)
Level 1: Low risk, no problems
If you’re a fresh graduate or you just started your career, probably with not that much saved up in the bank yet, a conservative risk profile might be the most suited for you. That means putting your money in low-risk instruments even if the returns are not always exciting.
“If I have a conservative risk profile, I would start with safe investments like time deposits, or high-yield deposit savings from digital banks. They can offer up to 6 to 7 percent annual rates,” Aliyah says.
Robert also suggests government bonds for this category, a very safe method to grow your savings over a long period of time.
“With government bonds, you’re conducting secure transactions with the government, amounting to around 6.5 percent in returns. But you’re locked to a specific time frame on how long your money is placed with them.”
While it’s a reliable financial instrument, it’s not a very liquid one. That means you can’t easily get your money back whenever you need it.
“These options have lower risks for beginners. Sure, the return isn’t huge, about 6 to 7 percent per year, but over time, it adds up, especially if you’re young,” Robert adds.
Gold is another option. Aliyah explains that gold has a relatively steady increase in value over time, performing well even in times of financial crises.
“In 1994, 1 gram of gold cost you Rp 25,000, now in 2024 that same amount costs Rp 1.5 million. This year alone from January to October, its value has already increased by 40 percent.”
Read also: ‘Mom, I’m tired. Can I sleep in your house tonight?’
Level 2: You win some, you lose some
If you’re a bit more established, with some money steadily growing in safe but boring investments, you can probably tolerate a bit more risk in exchange for higher potential returns.
In this case, investing in mutual funds could be the bulk of your focus. Depending on the fund and its risk profile, you can see returns ranging from 6 percent to as high as 30 percent a year.
Mutual funds cast a wide net across multiple investments to minimize risk, but it is not eliminated. That means there is also a risk of losing money.
“The thing with mutual funds is that you are trusting a curated set of stocks organized by an investment manager,” Aliyah says.
“For example, investment managers compile maybe 10-20 stocks in a given mutual fund. But there are also mutual funds that have a basket of currencies or state bonds.”
Before investing in a mutual fund, experts say you have to study how they’re allocating the investments and the historical performance. A fund focused on global tech stocks, for example, might have high potential returns but also suffer large swings. A fund investing in blue chip stocks, on the other hand, might offer steadier though smaller returns.
Read also: When art and bots collideLevel 3: Go big or go home
Now, if you have a cushion of funds that is not really being used for anything, then you could perhaps afford to be more aggressive. Obviously, you would rather not lose it, but you can afford to risk it for the potential of significant returns.
“For aggressive risk profiles, stocks and crypto offer higher potential returns but come with greater risk,” Aliyah says.
“Stocks can be highly profitable over time, while crypto, though volatile, has seen massive gains in recent years, attracting more risk-tolerant investors looking for quicker returns.”
But this type of investing requires a lot of studying and more active management. Publicly traded companies are required to share their business plans and finances that investors can study before making their stock picks.
“I always say to people who want to get into stocks: just look around and see what brands you engage with already. You trust and use Apple products for example, so why not invest in them?” Robert says.
Other instruments, like foreign exchange or futures, are even riskier and trickier.
. (Shutterstock/.)
A buffet full of money
Ultimately, investing is a personal journey depending on your goals.
If you want to minimize your risk, you can invest in gold or state bonds, but you could also allocate some savings to riskier investments like stocks.
Inversely, if you want to maximize your gains, you could delve deeper into stocks, but set aside some money on more consistent investments like time deposits.
The key is to do proper research and weigh your options thoroughly.
“The internet and social media have made learning about investment much easier. Many online educators operating on these platforms have the proper certifications backed up by experience. You just have to put in the work to learn and be critical in curating the teachings you want to use,” Robert advises.
While investing is all about knowledge, not everything is relevant to you.
“Be critical of the figures you learn from, curate ones that share similar goals or values with you, and replicate their investing behavior as closely as you can,” Aliyah shares.
But access and information are not enough, an essential factor is consistency. We may think it’s about the amount, but it’s okay to start small, especially if you start early.
Think of it like doing push ups. You may start with five, but by practicing twice a week, your strength will build progressively, in time you can do 50 push ups in a row.
”If you’re young, time is on your side, and compounding interest works in your favor. For example, if you invest Rp 100 million in a bond or mutual fund that gives a 6 percent return, next year that 6 percent will be on Rp 106 million, not just the original Rp 100 million. That’s what compounding interest is,” Robert explains.
“If you give it enough time, say 10 or 15 years, that 6 percent per year can double your money.”
With several available investment platforms, from tech startups like Stockbit or Bibit to more established financial institutions like Bank Central Asia or Bank Mandiri, getting started is as easy as a few taps away on your phone.
Aqraa Sagir is a writer for The Jakarta Post’s Creative Desk. He’s chronically online in the hope it would be a useful asset for the job.