Side Hustle or Reksa Dana? Investing for Young Professionals and Busy Parents
Just the other day, I caught up with a college friend who always had a knack for turning hobbies into side hustles. Now, she's crushing it with a laundry and kost business! She's definitely inspiring.
Juggling a career and personal life can be tough, but many young professionals and parents are also looking to grow their wealth.
In Indonesia, there's another popular option: Reksa Dana. But before diving in, let's figure out which path is right for YOU.
Side Hustle
- Pros: Potentially higher returns, be your own boss, build something you're passionate about.
- Cons: Requires significant time commitment, high risk of failure, initial investment can be high.
- Breaking it down further:
- Potential for Growth: While mutual funds offer steady, long-term growth, a successful side business has the potential for exponential growth and higher returns, but many fail or just break even. The return potential is extremely variable. Mutual funds are well-suited for long-term investment goals, such as retirement planning or saving for a child's education. For example, our All Weather Strategy has returned 6-8% on average every year. By staying invested in mutual funds over the long term, investors can benefit from the power of compounding and potentially achieve their financial goals.
- Passion and Interest: A side business often appeals to individuals who are passionate about a particular product, service, or industry, offering a fulfilling entrepreneurial experience. Investing in a mutual fund may not provide the same level of personal satisfaction but offers a more hands-off approach to wealth building.
- Exit Strategy: Consideration should also be given to the exit strategy. Exiting a mutual fund is generally easier and quicker than exiting a side business, which may require selling the business or its assets.
- Tax Considerations: The tax implications of investing in a side business versus a mutual fund can vary significantly. It's advisable to consult with a tax professional to understand the tax implications of each option based on your individual circumstances.
Reksa Dana
- Pros: Diversification, professionally managed, requires less time commitment, lower risk.
- Cons: Potentially lower returns, less control over investments.
- Breaking it down further:
- Professional Management: Reksa Dana is managed by experienced professionals who make investment decisions on behalf of investors. This professional management can lead to better investment choices and potentially higher returns compared to individual investors managing their portfolios.
- Liquidity: Reksa Dana offers daily liquidity, allowing investors to easily buy or sell their fund any time they wish. This liquidity provides flexibility for investors who may need to access their funds quickly in case of emergencies or other financial needs.
- Risk Management: Reksa Dana is designed to manage risk through diversification and professional management. This risk management approach can help protect investors' capital and minimize the impact of market volatility on their investments.
- Regulatory Oversight: Reksa Dana is regulated by OJK, and registered with KSEI to protect investors' interests. This regulatory oversight helps ensure transparency, fairness, and accountability in the mutual fund industry. Your funds are also kept in a custodian bank account, under your name.
- Accessibility and Affordability: Reksa Dana is accessible to a wide range of investors, including young professionals and parents, due to their relatively low investment requirements. This affordability allows investors to start investing with a small amount of capital and gradually increase their investment over time.
- Diversification: Reksa Dana offers diversification by investing in a mix of assets, reducing the risk of significant losses from any single investment. Starting a side business may lack this diversification unless you have multiple ventures or a very broad business model.
Some questions to ask yourself
- Time commitment: How much extra time can you realistically dedicate to a side hustle?
- Side Hustle: Demands significant time and energy, especially in the initial stages of setting up, and across operations, marketing, finance, etc.
- Reksa Dana: Passive investment requiring minimal time and effort to manage. This hands-off approach is ideal for busy individuals who may not have the time or expertise to actively manage their investments.
- Skills and experience: What skills and experience do you have that could translate into a successful side business?
- Side Hustle: May require specific skills, industry knowledge, and business acumen to be successful.
- Reksa Dana: Doesn't require specialized knowledge or skills, making it accessible to a broader audience.
- Risk vs. Reward: Are you comfortable with the possibility of losing money on a business venture?
- Side Hustle: Could potentially offer higher returns, but it also comes with higher personal risk, as success depends on various factors like market demand, competition, and business execution.
- Reksa Dana: Typically involves less risk compared to starting a side business, which can be more volatile. Mutual funds pool money from many investors to invest in a diversified portfolio, reducing individual risk.
- Investment goals: Are you saving for a short-term goal (like a vacation) or a long-term goal (like retirement)? Understanding your financial goals, time horizon, and risk tolerance is crucial in deciding between a side business and a Reksa Dana. Those with a higher risk tolerance and a long-term investment horizon may be more inclined towards a side business, while those seeking stability and lower risk may prefer Reksa Dana.
Finding the right fit
- The side hustle might be ideal for you if: You have a great business idea, you're comfortable with risk, you want full control over decisions, and you have the extra time and effort to dedicate to getting it off the ground. Keep in mind personal risk involved.
- Reksa Dana might be a better choice if: You have a limited amount of time, want to limit downside risk, and want peace of mind.
Remember: You can also consider a combination of both! A well-managed Reksa Dana can provide a solid financial foundation, while a side hustle allows you to explore your entrepreneurial spirit and potentially earn additional income.
Additional tips
- Before starting a side hustle, research the market, develop a business plan, and consider legal and tax implications.
- With Reksa Dana, choose a fund strategy that aligns with your risk tolerance and investment goals. It’s also critically to choose an Investment Manager that you’re able to trust and who can deliver full transparency over their investment decisions.
- Consider Simpan! Simpan is the only Investment Manager to provide full transparency over how your investments are being managed.
By carefully considering your circumstances and goals, you can choose the investment path that's right for you and start building a brighter financial future.
The author is a co-founder of Simpan. Nicholas was previously at BlackRock, a global investment manager, across its New York, Hong Kong, and Singapore offices. In his last role at BlackRock, Nicholas was dual hatting-between BlackRock’s insurance (FIG) and official institutions (OIG) practice, where he worked with large institutions like central banks, sovereign wealth funds, insurers, pension funds, and endowments. Nicholas earned a Bachelor’s Degree from the Pennsylvania State University.