Recently I've had a number of enquiries about investment related questions from undergraduates or fresh graduates. One of the most common questions I've seen both in forums as well as being asked is how should I invest my first $10,000. This will be a short article, but I hope to provide my two cents on what I'd do if I stepped into a time machine and become a fresh graduate again.
Invest in Yourself not in stocks
Let me tell you a story
Many years back before I even graduated, I developed a very strong interest in investments. By the time I graduate, I already had paid my dues to learn how to invest reasonably well. As I studied in polytechnic before taking a direct honours in NTU, I spent a total of 7 years in tertiary education. Why is this important?
In my story, I had a very close friend who graduated 2 years ahead of me and I very much wanted to be on par in terms of both income and savings. This friend graduated with first class honours and had a good job thus had a very good head-start. Don't get me wrong, life obviously isn't a competition among your friends however I really didn't want to compromise on the lifestyle and activities we could do together simply because I graduated 2 years later. This is one of the reasons I ended up in sales as a banker. I wanted to accelerate the process. My other strategy was to invest my savings to catch up on the income gap given that I fared pretty well in investing.
Here's what I learnt, if there's a huge gap in your income, even a consistent 10% per annum return in the market won't help you close the gap much in the short run. This is because a lower income would mean lesser savings which in turn means a small capital to start. So after making 30% from DBS stock in 2016 during the China Circuit Breaker Crisis (this is an economic issue, nobody was locked up in China), and still found myself lagging behind my friend in total savings, I concluded that investing wasn't the most optimal strategy when you have limited resources. I've since spent all my efforts in focusing on increasing my income and I'm pretty happy to announce that our savings and income gaps no longer exists.
Let's look at the figures
This illustration is a scenario. Not my friend's and my wage. I tried to keep all conditions similar except for the monthly salary and whether one invested. Investor Joe earns $2500/month, after university he has about $10,000 of initial savings from angbao money and part-time jobs, he saves half his income after CPF and earns about 2 months annual bonus each year. Investor Joe is pretty good at investing and gets a consistent 10% return on an annual basis. Saver Jane on the other hand earns $4000/month, has an initial savings of $10,000 after university, also saves half her income after CPF and also enjoys 2 months annual bonus each year. Unlike Investor Joe, Saver Jane simply leaves all her hard-earned money in her bank account.
From the illustration above, we can see that even with a 10% return on all of Investor Joe's savings, he would still have lesser money than Saver Jane after 5 years due to their income gap. Also, I'd like to point out that this illustration is overly simplified. Logically, with other financial commitments like insurance, mobile phone bills, etc, Investor Joe is likely to have lesser savings than Saver Jane due to a smaller disposable income. Other considerations also include the risk Investor Joe needs to expose his money to in order to close the gap with Saver Jane.
Invest in skills that increase your income
Now, if I get another go at being a fresh graduate, I wouldn't have utilize my initial $10,000 by investing in the market again. What I would have done is to invest this $10,000 in skills that could increase my income. In fact, that's what I did over the years. I've spent money on personal grooming, books and courses that have come a long way in helping my job especially in advisory now. The networks unlocked by some of these courses are worth a lot more too. The more my income increased, the more savings I am able to accumulate. It is then much easier to shore up a sizable amount of money which can give meaningful investment returns in the market at manageable risk levels.
Imagine this, with $10,000, a 30% return would have net you $3000. In order to earn a 30% gain, naturally your risk exposure would be much higher as well. With $100,000, a $3000 gain is simply 3%. That is much easier to achieve in the market and with much lesser heart attacks as well. If you are capable and willing to expose yourself to a higher risk exposure for the same 30% gain, then your gains would be $30,000 which is as good as a fresh graduate's pay. What I'm saying is that a small capital wouldn't give you significant head-ways in wealth accumulation. Moreover, the risk might not be worth it as most of us aren't so skilled to earn 10%-30% consistently. By spending the budget on skills that can command higher wages on the other hand can accelerate the wealth accumulation process by a lot. For instance, if you can upgrade your skills to earn you $4000 instead of $2500, your gain would have been 60%. Is it possible to upgrade your income from $2500 to $4000 in 2-3 years? I know people who have successfully done so, hence I'd say it's definitely possible. What's more, skills are permanent upgrades. If you have a regular job with a consistent income, your enhanced remuneration goes a long way to help you save up a secondary warchest to invest even after you invested your first $100,000.
What's Your Takeaway?
Today if you are a young adult reading this, I'd say go invest your first $10,000 in yourself. Make yourself valuable so that you would be paid more. $10,000 can easily be earned back anyway. Once you are worth more, it is very easy to accumulate your first $100,000 to invest meaningfully. Of course, if you would like to invest smaller amounts along the way while accumulating your first $100K, you can always do so. However, I would suggest to focus on investing only after you have upgraded your skills and placed yourself in a more marketable position to demand meaningful wage increments.
If you are open to a career that can give you a potentially sizable income while doing something meaningful, please drop me a message. I very much would like to meet you and share more about this career with you.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about financial literacy.
Like my page if you would like to read more of such articles. Follow me on Instagram if you would like to receive short lessons/updates on investment, personal growth and savings through my insta-stories.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
Comments