How to Invest Student Savings without Losing It All?

FR3D99 on 05/11/2020 - 13:02
Last edited 05/11/2020 - 13:09

Hi all,

about a year and a half a go I made this post about how I had just landed an internship, and didn't know what to do with the income I'd be bringing in. General consensus was that I'm only young, have a blast and get it out of my system, I'll only 19 once.

Well I had my fun while it lasted, but something happened in March that kinda helped me save a little more than I was. After a 6 month extension and roughly now 8 months of WFH, sitting on a larger nest egg than expected at around 50g.

Funny enough doing 16 months at a bank has not helped me understand my financials any more than before. I've been seeing more and more about it being unwise to rush into housing, I'm a little too scared to take a dip into investing as almost nothing has made sense to me this period of why some businesses are soaring. Hoping OZB will help with a variety of opinions and discussion, as I feel almost anything is better than letting it stagnate.

I plan to complete my last year of uni without working, hope the world goes semi back to normal and can enjoy it like my first and second years as a dumb student. Still sitting on very minimal expenses, my parents are giving me the best chance I can to make a head start in this world and I'm infinitely thankful for that.

Hope this doesn't come off as a humble brag, I'm very aware about how lucky I am to have had this opportunity and having thankful to my Uni for making our third year a mandatory internship, insane how much benefit it has brought through experience and savings.

Thanks everyone.

Financial

Comments

  • whooah1979 on 05/11/2020 - 13:11

    Stack up on 3 years worth of ramen.

  • sw0rdy on 05/11/2020 - 13:14
    +3

    eneloops

  • garetz on 05/11/2020 - 13:19

    Investment is a learning curve, if you want to minimise risk, put it in a bonus savings account.

    Maybe open a virtual share trading account, and trade for 3-6 months so you can see how it works and the way the market expands and contracts in the short term.

    Talk to your parents on what they think you should do with the money.

    I have a cousin who was in a similar position to you, and thought he was smart and invested in derivatives, ended up losing over 250k, luckily for him his parents were rich and bailed him out, just be careful you dont get in over your head.

  • spackbace on 05/11/2020 - 13:20
    +1

    as I feel almost anything is better than letting it stagnate.

    Not really, not if the investment would end up in a loss and all that hard work was wasted

  • Hvrd on 05/11/2020 - 13:23
    +6

    what I've done is put 30k in westpac 3% savings account for under 29's and invest the remaining in etf

  • trustnoone on 05/11/2020 - 13:31

    Probably bad advice as I don't think of myself as good with money, but $50k is good, I'd keep it in some savings account so you have some liquidity with it, and spend your last year of uni as you said not working and maybe enjoying it. Once you get out of uni you'll have to start looking for a job, depending on how your job would go would depend on what you may want to do with that money.
    Personally though if you were able to get a good job out of uni, I'd invest in a place, maybe stay there how ever long to get the first home buyer scheme stuff, pay it off with your job, then move back in with your parents and rent it out so you're double paying it off. From there you'd be in a good place financially, even if housing prices crash and you lose your job, you can literally live on centrelink and still have a good life once you have a house. Or even rent it out for passive income and stay with parents.

    The decider though is whether you'll start a family, have kids, schooling or other life changing things that may come up in the next few years.

  • smmoove on 05/11/2020 - 13:56
    +14

    In short:
    1. Keep some in high interest savings account in case of emergencies or you need money for something. I recommend the westpac under 29 acct
    2. Put the rest in an index fund, I recommend ASX:VDHG through selfwealth (use the OzB referral for free trades)
    3. Wait. Compound interest is your friend.

    I'm in a similar situation w/ age, expenses and uni. I keep some savings just in case, some I use as "play money" for individual stocks and most in VDHG. I am transitioning my play money stocks to the index fund though because we've started to reach the point with COVID-19 recovery where there are far fewer obvious picks.

    I recommend https://www.reddit.com/r/fiaustralia/ and https://www.passiveinvestingaustralia.com/.

    Things I wouldn't do:
    1. Invest in property: Too much uncertainty and not very liquid. Also a huge hassle for relatively meagre returns.
    2. Invest in penny stocks: Too much misinformation and ulterior motives @ info. I would probably only consider if I had reliable insider information.
    3. Invest in derivatives: Too much risk.
    4. Do nothing. You have no expenses right now, and time in the market = compounding.
    5. Save all your money. Life is too short.
    6. Buy something stupid like a high yield vehicle. Life isn't THAT short.

    • mskeggs on 05/11/2020 - 14:05
      +3

      I should have just waited an favourited your comment instead of giving the same advice!

    • bazingaa on 05/11/2020 - 15:34

      What is your recommendation on ASX:VDHG or ASX:VAS + ASX: VBND combination ?

      • smmoove on 05/11/2020 - 15:55
        +1

        Depends on your investment horizon and the proportion.

        I'm young so I went with VDHG because has it has minimal (but not zero) fixed interest, and pretty broad exposure to everything else.
        So for me I would pick VDHG out of those two choices because:
        1. VBND is bonds and short term volatility doesn't really matter to me.
        2. VAS is Australian shares only, and there is nothing really special about the Australian market that makes me want to go with them over diversifying across markets.

      • porkflossbun on 06/11/2020 - 14:49

        Can consider superhero for zero brokerage on ETFs

    • Ultimate Gattai on 06/11/2020 - 16:44

      To add further, no matter what you do OP, you will be taking on some risk, even leaving money in the bank will lose you money if you keep Interest VS Inflation in mind, although high yield savings accounts and long term deposits used to help with this. Personally I lost a little on the three index funds I put spare money into (between them though it evens out to a surprising small loss at the moment, I expected worse), but made a big gain on my individual stock pics. Now might be a good time to feed some money into Super and your stock portfolio before stocks bounce back.

      I regular keep some cash on hand for regularly monthly use like bills/play money/other stuff, an emergence fund with 3-6months, funnel money into Super each week and make a large contribution towards the end of the year (plus claim my tax break for it), and keep a personal portfolio outside of Super in case something happens to me before I reach an age that I can draw down on Super.

      I would also read more financial books like Rich Dad, Poor Dad and Boogleheads guide to investing, money can be confusing and society in general encourages you to be financially illiterate, so I would do my own education outside of work/school.

  • mskeggs on 05/11/2020 - 14:02
    +8

    Good for you, in being able to both responsibly spend some of your income on enjoyable things, and accumulate savings to invest.
    Your approach is quite sensible, in my view, and the approach I try to take and communicate to my kids.
    Investing isn't gambling, and the majority of investments have a very small chance of losing all your money.
    But investing isn't gambling the other way too, and nearly all those 'safe' options pay returns that are fairly modest.

    So I'd suggest excluding things with limited track records and high volatility, like crypto coins, cannabis stocks, synthetic markets (like CFDs) and really, anything that is flavour of the month.
    Some of these will probably turn out great, some terribly, and it is all very exciting. But investing is best when it is slow and steady and predictable and profitable.
    For similar reasons, I'd suggest skipping penny mining shares and speculative technology shares, and similar exciting stuff.

    What does that leave? Investments in solid businesses via the sharemarket, such as banks, retailers, miners etc. that make up the 'blue chip' end of the market. Investments in other asset classes too, like bonds that are loans made to governments and companies, property investments in commercial and infrastructure properties, and the same mix of investments overseas to stop putting all your eggs in the basket labelled "Australia".

    You likely already hold some investments like this - this is pretty much the mix of all the super funds default investments. You should also expect the return to be reasonably consistent, say, above 5% but below 10%. This probably means your money will double every 10 years. If you achieve this, all else being equal, you will be doing fine.

    In the old days, to make these kind of investments you had to invest in mutual funds, who typically skimmed a couple of percent in fees. These days, you can buy shares (well, units) in these diversified investments on the ASX by investing in ETFs. Some example ones are run by Vanguard and Betashares, and have slightly different risk/reward mixes.

    So, for example, the Vanguard Diversified High Growth Index ETF (ASX:VDHG) puts more money into shares of growing businesses than those of older, more stable businesses. This should mean they are worth more over time, but at the expense of income payments in the meantime.

    Or, for example, BetaShares Diversified Conservative Income ETF (ASX: DZZF) puts more into bonds, with their regular payments, so that you get a nice little dividend each year, but the value of the investment goes up less.

    Note I don't know anything about either of those funds except what showed up on the first google results for diversified etfs, so read their brochures before deciding if they are any good.

    Generally speaking, people advise younger investors to seek out growth over income, as it has some tax advantages, and if you are just going to reinvest the income payments anyway, you might as well pay less tax. But it also means there is more volatility in the prices.

    Finally, I 'd say a reasonable approach from here is to put 1/4 of the money in a bank account as your rainy day/emergency fund, and invest the other 3/4 in a few funds you decide are a good match for your risk appetite. Maybe stagger the investment purchase over the next year, every few months, just to stop the risk you invest all your money then the next day the market crashes.

  • Seraphin7 on 05/11/2020 - 15:03
    +1

    How to Invest Student Savings without Losing It All?

    If you want (next to) no risk, but it in the bank. You'll probably be lucky to make 1% p.a. the way things are going.

    If you want to make money, you need to accept risk. This could be via property, local and/or international equities, or any other individual asset that's out there.

    Using Australian equities as a proxy for this discussion, the long run returns of Australian equities are about 9% p.a. Use this chart (see page 3) to consider what I'm talking about. Over the 30 years of this chart, $10k invested in Australian equities would now be worth about $130k. At various times, the value of those shares has tanked (and will tank again in the future), but the long run returns balance out this risk. This really only becomes a problem if you "need the cash" after a tank and before the market has recovered.

    Cash has returned 5.1% over the same period (note, you won't get anywhere near that for the forseeable future), but ultimately would have made your $10k worth $44k. You would have achieved this "without risk", but lost all the potential upside. Effectively, you will never "lose money", but at the same time you will miss out on this growth.

    So the question starts to come to what do you mean by "lose money". If you're talking about the value of your investment never going down … money in the bank and accept a close on zero return. If you're talking about generating return over time (and not "losing money" by missing out on opportunities, you might need to consider a different perspective.

    • whooah1979 on 05/11/2020 - 15:31

      If you want (next to) no risk, but it in the bank. You'll probably be lucky to make 1% p.a. the way things are going.

      Lol. The safest thing about lending one’s savings to the banks is that it will lose some of its value at the end of the year.

    • Ultimate Gattai on 06/11/2020 - 16:30

      Thankfully inflation is pretty low at the moment, so I guess he isn't losing that much leaving it in the bank.

  • cloudy on 05/11/2020 - 15:04

    Can I ask, do you want to learn about investing your money or just care about the result?

    If you want to learn you need to be able to handle loss and you need to lose money. Your biggest lessons in life will probably be your mistakes.

    If you just want to be safe and get better than bank account returns look to Smmoove and mskeggs comments.

  • rockman117 on 05/11/2020 - 15:04

    are you into cars? buy a future classic car like honda s2000. i sold at start of COVID and it has gone up a lot since then :(

    • rockman117 on 05/11/2020 - 15:05

      im only half serious. not a good time to buy cars at the moment. think of a hobby you can collect/monetise somehow.

  • Bid Sniper on 05/11/2020 - 15:26

    and its gone…

    wait, study the market yourself, paper trade then decide what to do after deciding. Give it a year, huge turmoil happening and dominos yet to fall.

    Nothing wrong being in bank at this stage, its a safe harbour and still not past eye of the storm IMO

  • EightImmortals on 05/11/2020 - 15:32
    +3

    Put it all on Trump to win!

    Currently at $6.50!

    :P

  • brad1-8tsi on 05/11/2020 - 15:36

    Read some investment books. It's possible to invest and make reasonable returns with moderate risk, especially if you don't panic and sell when the market drops a bit (that's a buying opportunity).

    Have a look at Tracey Edwards on YT. Read the Barefoot Investor and use the bits that make sense.

    If your income is low then throw $1k into super and get the government co-contribution.

    If you are earning OK the max out your 25k tax free limit. It won't be useful for 50 years but you'll be happy when you do get access. 50 years of compounding would be awesome.

    Personally, if you don't want to think too hard, I'd buy $5k of IVV every 2nd month and $5k of VESG in the months in between.

  • whooah1979 on 05/11/2020 - 15:41

    Op, you’re a Zoomer and should DYOR into financial instruments that is relevant to your timeline.

  • screensaver on 05/11/2020 - 15:48

    Westpac 3% first 30k and BOQ has 2.5% for 18 to 24 years old for the next 10k and ING for the rest 1.5%

  • Drakesy on 05/11/2020 - 15:53

    Yeah at your age liquidity is an important thing. I dumped my money into Santos last crash ~$15k @ $8, it proceeded to go to $2.70, not a good feeling losing that much money on paper especially at only 20.

    Left it in there (luckily i didn't have to call on it) and 6 years later it had recovered to $8, sold it then covid came and crashed it again. Very happy i got out of it.

    Thoroughly recommend ETFs, at least they shouldn't halve in value and you keep the majority of the liquidity if you're lucky.

    • whooah1979 on 05/11/2020 - 15:58

      STO recovered 110% from March to June or about 80 days. It's a shame that you didn't go back in.

      • Drakesy on 05/11/2020 - 16:03

        I did think about it, although with the shut down of air travel, holiday travel, general commuting and reduced consumption (less goods needed to be transported) during covid i was hesitant.
        In addition the Saudis, Russians and Americans going at it to drive up supply and crush prices to reduce competition i feel will ensure oil will stay suppressed.

        With battery technology going the way it is i feel oil is not the safe bet it once was, especially in this economy

  • avoidfullprice on 05/11/2020 - 15:55
    +2

    You need financial goals written up and understand your risk appetite.

    If you don't want to lose it ALL, then you need to choose lower risk (so lower return option)

    Timeframe in your goals are important. Your tax bracket is helpful. Is salary sacrificing into super something you want to do? Is super co contribution a good way to invest? There are opinions on both sides.

    So yes, in short, write up some goals.

    Not advice here.

  • dasher86 on 05/11/2020 - 16:35

    $49.99k on black
    Keep $.01k so you don't lose it all.

  • hoey888 on 05/11/2020 - 16:38

    You know losing it all aint that bad at 19. Losing it all in your 40s and 50s will be a big bummer when you are approaching retirement.

    The best investment is education and making the mistakes and learning from them when you are young. You have plenty of time on your side to bounce back.

    Investing is like roulette. You can pick single number (single shares/asset class); multiple number, rows and columns (industries and or specific, LICs, ETFs,Manged Funds), or even whole house (Indexes/ETFs/Diversified Funds). There are also some more further exotic strategies (Call/Put options, gearing).

    PS: Don't be the guy that goes all in at the roulette table on a single number on the first spin. You want to stick around for a few spins at least.

  • Flyingpotato on 06/11/2020 - 07:33

    Have a look at this page created by the Australian personal finance subreddit: Australian Personal FInance

    There's also a great flowchart on site about what do if you have $x amount saved Flowchart

  • OzHunterNSW on 06/11/2020 - 10:01

    So you think a bank was going to make you rich.

    If only you bought gold.

    If I were you, I would place it all in a super fund, and do it now.

  • porkflossbun on 06/11/2020 - 14:51

    Have you considered using Plenti? Can check that out

  • channys on 06/11/2020 - 16:08

    Go all in on Crypto. Then store that crypto in a Celsius acc, earning interest each week, compounding it very fast. Nothing else can come close to the returns

    • cloudy on 06/11/2020 - 21:47

      I heard blackjack is comparable

      • channys on 07/11/2020 - 16:56

        Maybe not all in maybe 30%, Bitcoin is looking extremely bullish and is at the beginning of its market cycle. Could hit $100000 in the next 2-3 years.

        • cloudy on 07/11/2020 - 20:27

          i'll place a calendar reminder to look back on this comment, hehe

          • channys on 07/11/2020 - 21:05
            +1

            @cloudy: haha, we shall see. emphasis on the could

          • channys on 22/02/2021 - 19:59

            @cloudy: Looking good so far. 😉 far surpassed any other recommendation here.

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