Investment Strategy for a Student

A student emailed me to ask for advice on investment. Without revealing his true identity, let’s call him Ahmad.

Mr KCLau,

I’m a student at a local university and I’ve been following your blog for a very long time.

I must say, due to your articles, I’ve changed from a spendthrift person to a more financially literate individual.

But now I stand at a junction by which need advice to go on.

I’m a 1st year student, doing medicine for 5 years.

My current assets are:
1) ASB savings: RM87 567.00
2) Gold (current market price): RM7268.00
3) Fixed deposit: RM11 258.00 (with rate of 2.5% p.a)

Each month, I will be able to allocate around RM 1200 for the next 5 years.

Based on the above info, what would be the wisest course of action which would generate the most income in a 5-year period?

The current course of action is I’m putting 60% of my income in ASB, 25% in gold and 15% in FD.

With the restrictions such as being a student, I lack the capability to invest in real property and stocks. Being a Muslim, I am not going to invest in non-Shariah compliant investment vehicle.

Your opinion is highly appreciated.

Thank you.

Current Situation

First of all, it is pretty impressive that a student has a total net worth of RM106,093 since most students are in debt with study loan such as PTPTN. Moreover, Ahmad still has a positive surplus of RM1200 to save and invest every month.

The current asset allocation provides some diversification. Gold is a hedge against inflation. ASB provides steady returns every year. Meanwhile Fixed Deposit gives him the liquidity and flexibility during emergency.

Challenge faced

When we see no trouble in his financial situation, Ahmad is asking for advice to maximize his return in 5-year period. This is a common question people would ask when they are investing their money. But I think the more useful question should be

”What should I do to improve my earnings?”

In fact, there is no sufficient information to give the proper investment plan. The first thing we need to know is the financial goals Ahmad wants to achieve. For example, are you going to use that money for a business start up? Are you going to save that money as your retirement fund?

However, I would assume that Ahmad wants to learn what he should be doing with the money within this five years in school to produce the best monetary outcome when he graduates in the future.

Suggestion to produce the best outcome

Ahmad is doing great with managing his money. I would say he is well ahead of most people around him, who are still studying. He doesn’t spend much. He can really save money.

My three suggestions are

1. Continue to accumulate and invest your money
Now, you can continue to accumulate your wealth using your proven strategies to save in ASB, Gold and FD. There are two other options you can consider – stock and unit trust. There are many Shariah compliant funds and also fundamentally strong companies to invest in. But before you make any investment decision, learn about this equity-type investment and the cost involved.

2. Invest to gain knowledge
You can take up some investment courses in the area most interest you. Some courses are not cheap, but most of the time, it is worth the money to pay hundreds or even thousands to attend the courses. You will be able to learn the tricks and knowledge to earn even more money.

Some courses you can consider include real estate investment, stock investment, self-development, business development and leadership program.

3. Invest to broaden your network
As a student, we are expected to spend most of our time for academic result. But in the real world, excellent academic result doesn’t ensure financial success.

“What you know” is important. But “what you know” will only produce the most financial reward when you know the right person. So “who you know” have to be coupled with “what you know” to give you the success you are looking for.

By all means, join some social works, networking groups, relevant societies and become a committee member. Being actively involved, you will show to the people around you that you are capable to getting things done. The trust relationship will be built along the way. This will be very useful when you doing business in the future.

Conclusion

When I was still a student, I don’t have much money to invest. But I have a lot of time. So I invest the time to gain knowledge and broaden my network.

Ahmad, you are even better. Your future profession is a very profitable career. Now you have time and also money. You can invest both time and money on the right area. I am sure you will succeed in a very short time.

Wish you all the best!