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Notes for Youth to Start Business and Investment

Berita Baru, Essay – People store their wealth in various forms, starting from cash, physical assets, to paper assets. The purpose of such a pulse of saving and investing is to transfer available purchasing power to the future. Investing is not a gamble; they have to keep their assets to something that is understandable.

One of the investment instruments that retail has begun to enter is the capital market. Bruce Lliyd explained that the capital market acts as a bridge between investors and corporations as well as public agencies through trading long-term instruments such as bonds, stocks, and others.

The Indonesian Central Securities Depository (KSEI) reports that the number of retail investors in the Indonesian capital market has grown by 92.99% from 3.88 million investors at the end of 2020 to 7.49 million at the end of 2021. By the end of June 2022, it has even reached 9.11 million. investors.

Investment

Demographically, 59.72% of retail investors in the Indonesian capital market are under 30 years old, which means that they are still dominated by millennial and Gen Z investors. 61.41% of investors even have a high school education background with assets of IDR191 trillion (about USD12.8 billion), followed by the undergraduate as much as 28.78% with assets of IDR509 trillion (about USD34 billion).

Why is the capital market so sexy in the eyes of Millennials and Gen Z? It is known that individuals base their demand for an investment asset on three main characteristics: return, risk, and liquidity.

If it is focused on the demand for stock assets, the investor’s view is based on the expectation that the investment invested will be profitable in the future.

Previously, shares were simply part or ownership of a corporation. They invest their money in corporations that are expected to continue to grow from time to time. As already mentioned, three (3) characteristics of stock investment can be dissected:

Asset Return

The purpose of people investing is to provide future consumption, or in other words as a means of beating or avoiding inflation. Therefore, we can judge the demand for an asset largely on the basis of its rate of return.

Return on assets is generally a percentage increase in the value offered by an asset over a certain period of time, so asset purchase decisions must be based on an estimate of the rate of return.

As investors, they generally consider the real rate of return in selecting an asset, usually by taking into account the estimated inflation rate and so on.

Expected real returns are important to note due to the ultimate goal of a person investing is future consumption, and only real returns measure the goods or services that a person can buy in the future in exchange for holding back some of the consumption he can currently do.

The types of profits generated from stock investments are in the form of capital gains and dividends. However, it should be understood that stock investment is a form of long-term investment, a different concept from trading which generally pays attention to the short term from the difference between buying and selling prices.

For this reason, stocks can be used as investment options for certain financial goals in the long term (e.g. the cost of children’s education, preparing a pension fund, and so on). Throughout 2021, the JCI recorded an increase of 10% year-to-date (ytd).

Nevertheless, stock price fluctuations, if drawn on a shorter time line, cannot be separated from sentiments, both for the company’s condition and the macro economy. A simple example, when interest rates tend to rise over a period of time, maybe people are more interested in saving their assets in deposits than the stock market.

However, both the dividend paid out per share and the resale price of the stock may not be predictable with certainty. Therefore, an investor’s decision should be based on the expected rate of return over a certain period of time. Investing in stocks that have good fundamentals and are sustainable is a good foundation in the long term. For example, in bluechip stocks, which refer to the top leader stocks of an industry and are proven by large market capitalization.

Investment Risk

The risk in investing can also be called the cost of return. The size is said to be an element of certainty of an asset in providing additional wealth to its owner. Everyone hates uncertainty and is reluctant to buy assets that make their wealth uncertain.

But the risk of all types of investment cannot be eliminated or in other words there is no risk-free investment product, even in principle when investors expect high returns, they must be tolerant of high risk (high risk, high return); stock investment products fall into this category.

Every time the stock price is very likely to fluctuate, it is wise to choose stocks with reliable analysis, both technically and fundamentally. Stock investors must be familiar with the term junk stocks; stocks with high price volatility.

This kind of stock is usually used by aggressive speculators to aim for high capital gains in a relatively short time (even intraday), of course with a high risk of capital loss as well.

Therefore, as investors, identify their respective risk profiles (conservative, moderate, or aggressive) because in stock investing there are usually two psychological problems, namely greed and fear.

The parable in the investment world “don’t put all your eggs in one basket” remains relevant advice not to put all your assets in one investment product. Because if the investment falls, we can lose everything. Asset diversification can be a way to reduce the level of investment risk.

Liquidity

An asset is said to be liquid when it can be easily resold or exchanged for other goods. The quality or attractiveness of an asset can also be distinguished on the basis of the size of the transaction costs and the speed of utilization by the owner.

Stocks are quite liquid assets, unlike deposits, for example, which can be subject to penalty fees when withdrawing funds prematurely. However, the liquidity of a stock can be different depending on the stock liner; which is divided into tier 1 shares containing bluechip shares with a large market-cap of around IDR10 trillion or about USD667 million (these stock liners are classified as the most liquid and have the greatest weight in influencing JCI price movements).

The higher the number of transactions of a stock (trading volume) in the capital market, the higher the level of liquidity of the stock. Next, tier 2 shares (second liner) contain corporate shares that are developing and have a medium market cap of between IDR500 billion (about USD33.35 million) to IDR10 trillion or about USD667 million (these stock liners are quite liquid and relatively cheaper). And finally, third liner stocks which many Indonesian investors call junk stocks because they are often included in the Unusual Market Activity (UMA) category. The Indonesia Stock Exchange accommodates stocks with high liquidity and is supported by good corporate fundamentals in stock indexes such as IDX80.

The capital invested in the stock market is also not too high, in contrast to deposits, which do not increase significantly if the nominal is small. But the thing to remember is that investment capital must be taken from “cold” money or such an idle funds that do not come from funds for daily needs and not money that is saved as an emergency fund. The large number of stock investors from young people (millennials and Gen Z) makes stakeholders have to provide relevant rules and technology for them.


Notes for Youth to Start Business and Investment

Moh Thobie Prathama, Alumnus of the Faculty of Economics and Business Brawijaya University and Researcher at The Reform Initiatives (TRI).