Intro to Investing for Students: Picking the Right Investments

It is very important to do two things before you even consider what you are even going to invest in: understand your 'Risk Appetite' and 'Not Planning' your investments. Once you understand your appetite for risks and actually plan out how you want to accomplish your investment goals, you should move on to actually choosing your specific investments.

1. Index Funds

An index fund is a specific type of mutual fund or exchange-traded fund (ETF) that is specifically constructed to match or track parts of a financial market index, like the S&P 500.

For the beginner investor, this is an ideal core portfolio for investments. Following a more passive investment strategy, the risks involved are rather minimal, but the performance of many ETFs is very positive.

Because managing an index fund is considered low-cost, the fees involved are very minimal; most hover around 0.4%, with the highest being around the 1% mark. This maximises your earning potential without a big chunk being drained away by exorbitant fees.

However, do keep in mind that index funds are vulnerable to market crashes and significantly lack choice flexibility. It is also important to note that the gains you may receive are limited as your investment pool is incredibly spread out across the index fund, which is ideal for long-term investing but not short-to medium-term investments.

2. Individual Stocks

Investing in individual stocks is one of the more attractive methods of investment. It has plenty of benefits and can be extremely rewarding when done right.

However, it is a method of investment that does require much research, and I do mean A LOT of research. Ideally, you'd want to pick companies that you are familiar with at first, especially ones that you purchase products or services from, since you have a vested interest already.

There is significantly more flexibility in the choice of stock and type of investment strategy, be it spot or margin. Investing in individual companies can be extremely profitable if done right, so that means that it requires more attention than an index fund, and it is certainly an investment type that requires you to be more active depending on your strategy.

However, it is important to note that individual stock investment can be incredibly volatile compared to index funds. This could mean bigger returns or even bigger losses. That's why it's always recommended to invest in multiple companies across different market sectors to minimise your losses and maximise your gains.

3. Commodities

Stocks translate into company ownership, while commodities represent goods that are included in the agricultural sector, mining sector, oil sector, etc. and are considered to have significant profit-making potential. But it is traded in different marketplaces than stocks and index funds.

As the commodity market is a marketplace for goods, it does fall under two categories:

- Soft Commodities
- Hard Commodities

With the latter being gold, oil, and metals and the former being eggs, wheat, cattle, etc.

These contracts bind two parties to carry out a transaction at a defined price and on a predetermined date. Farmers and businesses frequently use futures contracts to protect themselves against potential losses. However, these also serve as an amazing tool for profit realization.

Due to most commodities being traded through a futures contract, the investment timeline is more suitable for short-term investments. Unlike the stock market, commodities play more into supply-demand than the aforementioned investments.

Please be aware and note that the commodities market, while very profitable at times, is also the most volatile market as it is also affected by geopolitical factors as well as supply-demand.

Otherwise, it is an excellent investment option for diversifying existing portfolios and serves as a hedge against inflation.

Remember that the investments you make are only as good as your research. However, do note that no matter how much research you do, there is always a risk to undertake, so analyse your risk appetite and plan out your strategy before diving into the investment world.