Stock market relevant to students

15 October 2015

Written by:

Students are often typecast as penniless and financially naïve.

One could attribute this reputation to the average student’s lack of free time to earn money, and lack of experience at being financially independent.

In 2014, the Australian government commissioned a study on the financial literacy of young Australians.

The report sheds light on Australian youth’s low financial literacy, and suggests strategies to address the issue.

“It is expected that young people will have more limited financial knowledge by virtue of their limited life experience,” the report stated.

It follows that, with the possible exception of accounting and economics majors, students are unlikely to possess much knowledge when it comes to investing. Nor are they likely to have much money to invest.

So is the share market relevant to students?

Investing isn’t for everyone. But if you’re tired of your money earning a paltry interest rate of say 2.5 per cent, then you might want to consider other options such as share trading.

Investing allows you to take control of your money management.

Starting at a young age gives you one huge advantage over most people – time.

“The earlier you start investing, the more time your money has to compound and grow,” Christian Hudspeth of Business Insider Australia wrote.

“Just think — if [at 19 years old] you were to start investing $100 each month into the stock market and you earn an average return of 8 per cent per year, your investment account could grow to $104,241 by the time you turned 45 and to a whopping $572,477 by your 65th birthday.”

However, doing your research is paramount.

Intelligent Investor analysts provide a straight forward guide for those preparing to enter the share market.

“The share market can be an expensive place to learn lessons about company valuation and your own psychology. But, once you’re comfortable that you know at least the basics, you’re ready for the next step in building your portfolio,” the website stated.

Understanding how investing works can pay more than just dividends.

The knowledge gained from market observation can lead to a broader understanding of the global economic and political scene.

There are many ways to learn about the share market.

You can visit your bank and talk to a financial planner, take a subject at uni, build a mock portfolio or watch list, and follow shareholder forums online.

An effective way to learn how to read the share market is to try your hand at the Share Market Game. The game is a simulation of the Australian share market where you can mock invest in up to 200 listed companies.

There are a variety of helpful publications available that specialise in analysing and providing news and guidance in investing, such as the Australian Financial Review, Motley Fool, and The Bull.

The Australian Stock Exchange (ASX) also has an informative series of video tutorials where key share market terms are defined.

Untitled Infographic

Once you’ve strengthened your understanding and made some capital, you can consider what kinds of investments you want to make.

Some of the most common investment approaches are:

•      Blue-chip investing

Blue-chip stock companies are usually characterised by their success in lifespan and ability to consistently generate large amounts of profit.

“A blue-chip stock typically has a market capitalisation in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name,” Investopedia said.

An example of a blue-chip investment company is Wesfarmers, who own Coles, Bunnings, Kmart, Target and Officeworks.

•     Contrarian investing

Contrarian investing means doing the opposite to the majority. Most investors buy shares when share prices are going up for a company. Contrarian investors, however, will buy a company’s stock when it is going down in price, and sell when the stock increases in value.

•     Investing in a sector

Investing in a sector is like batting the average. Instead of choosing to invest in a specific company, you are investing in a basket of shares from a range of leading companies in a specific sector. Some examples of sectors include healthcare, mining and financials.

•     Ethical investing

Ethical investing is when the investor chooses what to invest in based on their personal ethics. For example, due to one’s opposition to the burning of black coal, one might choose not to invest in a particular energy company.

 

Who knows, you could even make enough money to pay off your HECS debt before graduating.

 

Lindsey Martin

Lindsey Martin is a second-year media and communications student, majoring in journalism. You can follow her on Twitter: @lindseylexicon.