Studying for a degree typically takes a minimum of 3 years. Nowadays, interest rates are so low that term deposits and savings account generates next to no income, so it is an opportune time for students to get involved in the share market – either as a way of learning about financial markets and businesses, or to seek compounding capital or capital gains.
Here are 3 approaches to the ASX that young investors can take to get closer to being HECS debt-free on graduation.
1. Dividend shares
Students can approach equity markets for safer investments that are less volatile and provide reliable and consistent dividend yields. The objective here is to compound your capital over the medium-long term. This may not be as flashy as investing for capital gains, but ensures that your capital is protected and that your investment horizon is more long-term orientated. Here are 2 examples of dividend shares:
WAM Capital Ltd (ASX: WAM)
WAM Capital is a listed investment company that provides investors with exposure to many sectors in an actively managed diversified portfolio, including consumer discretionary, financials and information technology. The company pays a market-leading dividend yield of 7.0%.
BHP Group Ltd (ASX: BHP)
The mining sector has outperformed the ASX200 following strong material prices, notably iron ore and a recent rebound in copper prices. Prices are expected to remain firm in the short-medium term which allows BHP to pay a premium dividend yield of 5.6%.
2. Growth with dividends
Alternatively, investing in growing companies that fetch a modest valuation can provide exposure to both growth and dividends. For example:
Collins Foods Ltd (ASX: CKF)
Collins Foods is the largest KFC operator in Australia and KFC franchisee in the Netherlands and Germany, as well as owning and franchising the Sizzler and Taco Bell businesses. The company has been consistent in delivering mid-teens earnings growth for the past 5 years.
Its share price is currently experiencing a sharp pullback following legal action from Australian restaurant Taco Bill. Taco Bill claims that members of the public will be misled or deceived to believe that Taco Bell and Taco Bill are the same, connected or affiliated with each other. Once the noise subsides, it may be an opportunity to enter a reliable growing business that current pays a 1.9% dividend yield.
3. High risk, high reward shares
As a student that has minimal financial outgoings, it could be a time to go hard or go home. Shares such as the Afterpay Touch Group Ltd (ASX: APT), A2 Milk Company Ltd (ASX: A2M) and many others have soared in the span of a couple of years. Students could opt to jump on board existing growth stories that have a proven track record of performance, or look for emerging companies that have the potential to join the big leagues.
A prime example is the smaller buy-now, pay-later players such as Sezzle Inc (ASX: SZL) and Splitit Ltd (ASX: SPT). Could they rise to the occasion and challenge the likes of Afterpay?
Foolish takeaway
Being a young investor gives you more options, especially when you have no major financial outgoings or dependents. If students want to play it safe, they can opt for a long-term dividend play while also holding onto cash. Alternatively, those that want to 'risk it for the biscuit' may want to hop on existing growth stories or search for the next big thing.
Now really is an opportune time for students to get involved in the share market in a way that suits their risk tolerance, and maybe finish their degree with more than just their savings.
