How to invest in the IDX Composite Index
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Putting money into Indonesia’s IDX Composite Index could be a good move for you. We’ll walk you through all the different ways to invest in Indices, showing you the pros and cons of each method, so you can make an informed choice.
Where can I buy into the IDX Composite Index?
What is the IDX Composite?
The IDX Composite Index is an index of all stocks listed on the Indonesia Stock Exchange (formerly the Jakarta Stock Exchange or JSX). The IDX Composite Index includes about 650 stocks, containing companies from a variety of different industries. The IDX Composite Index had a market capitalisation of $523 billion as of February 2019 and is one of the key indicators for the strength of the Indonesian economy.
Is it a good investment?
It can be, yes – but the answer to this question predominantly depends on your investment goals. The IDX is one of the 40 largest stock exchanges in the world by market cap, and is full of high-quality, highly liquid stocks. There is a catch, though: If you want to invest directly in the Indonesian stock market, you’ll need to sign up with an Indonesian broker. As you’ll see shortly, other methods are easier and makes more sense.
As with any investment, remember that the IDX Composite Index will perform best under bull-market conditions. Avoid buying into the IDX Composite during bear markets, as these conditions generate falls in the value of indices.
How do I invest in the IDX Composite?
Here are three steps to take:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
As we said earlier, to trade stocks on the IDX directly as a foreigner, you’ll need to sign up with an Indonesian broker that allows you to make those trades. If you don’t want to go through that process, these alternative investment types are used by many investors across the world.
ETFs
An ETF (exchange-traded fund) is an investment fund that’s traded on a stock exchange, in a manner similar to an individual stock. You can trade ETFs any time during regular stock market hours, or hold them over a long period of time to benefit from increases in value over time. ETFs tend to include numerous different assets all in one, such as a batch of bonds or commodities, or a stock index such as the IDX Composite Index. With the IDX Composite ETF in particular, it offers an easier way to gain exposure to the Indonesian market, rather than trying to navigate the world of Indonesian brokers, which might be challenging for some beginner investors.
Individual stocks
Assuming you either live in Indonesia or can find a broker who will execute your trades from outside the country, buying individual stocks from the IDX Composite Index can be a viable option if you’re a selective investor. If you buy shares of every stock in the IDX Composite Index (instead of buying an IDX Composite ETF or mutual fund), you can evaluate each stock as you go, then whittle down your holdings until you own only the top-performing stocks in the index.
The problem with buying the 650+ stocks in the IDX Composite Index individually is that you’ll have to make hundreds of trades to buy each one, plus even more trades when you sell the stocks you don’t wish to hold. That approach leads to large transaction fees and takes lots of time. Beginner investors with smaller budgets and less time on their hands should probably choose a different method.
Mutual funds
A mutual fund is an investment fund run by a professional money manager that pools money from a large pool of investors, then invests all of that money into a variety of different assets depending on the fund’s investment strategy. An IDX Composite Index fund (also called an index fund) allows you to invest in all of the stocks within it at once. This lowers your risk of incurring a big loss, since you’re holding a large, diversified batch of stocks, rather than putting all of your eggs into one basket. IDX Composite funds can either be bought through one of the stock broker platforms or directly from the company that administers the fund.
Unlike IDX ETFs, mutual funds can only be bought and sold at the end of the stock market’s trading day, not during regular stock market trading hours. Also, IDX funds cost more to buy than IDX Composite Index ETFs do. So in general mutual funds are better suited to investors looking to buy and hold their investment in the IDX Composite Index for a longer period of time, with people looking to trade in the short-term being better off with ETFs.
2. Use our top tips to be a successful investor
Before you start on the market, check out our top investment tips:
- Do your research. If you’re considering an investment in the IDX Composite Index, that means a couple of different kinds of research. One is finding an intermediary that will allow you to invest in a stock market that’s not all that open to foreigners. Another is to consider all the pros and cons of an IDX Composite Index investment. The more research you do, the better your chances of investment success.
- Set a budget. Whatever investing budget you set, that budget should account for both your personal level of risk tolerance and the amount of money you can afford to lose from both a financial and emotional standpoint. If you let your losses pile up, that could hurt both your confidence and your ability to afford future trades.
- Select the right platform. It’s important to know exactly what your investment goals are before you even start your search. If saving money is your top priority, choose the platform that offers the lowest fees. If getting the most and best investment advice matters most, choose the platform that places the most focus on that. Again, since investing directly in the IDX can be challenging for foreigners, make sure the platform you choose allows you to make that kind of investment.
- Grow your investments gradually. As a novice investor, it’s best to start by investing a smaller amount of money. You can always grow the size of your investment as you become a better, more experienced investor. So if you’re just breaking into stock market investing and want to try your luck with the IDX Composite Index, start out small and put more money in over time.
- Think long-term. To succeed long-term, you can buy and hold the IDX Composite Index, aiming for bigger gains. Just make sure to reserve buy-and-hold strategies for bull markets, as bear markets can produce big losses.
3. Choose a platform to invest with
You need to decide where and how to invest your money. Here are some of the best available options:
- Brokers & trading platforms. Online brokers offer easy-to-use tools at a low price. If buying stocks listed on the IDX instead of a mutual fund or ETF, however, you would need to go through an Indonesian broker specifically. The IDX has much stricter trading rules for foreigners than most leading global stock markets.
- Robo advisors. Robo advisors are algorithm-powered trading platforms which execute trades automatically. Some robo advisors add to their automated experience by enabling you to discuss your investment strategy with an actual person. Combine that advice with relatively low trading fees and you have an attractive option for many investors. Robot advisors are still a more hands-off approach than you will get if you use a dedicated financial advisor, though.
- Financial advisors. Financial advisors offer the most investment advice to investors of any available option. They’ll discuss your financial goals with you in great detail, and work with you toward meeting those goals. With that level of service comes higher fees than you’ll pay with other platforms, however. Given the level of service you receive, these fees can sometimes be worth the price, that’s not necessarily the case with the IDX Composite Index. While investing directly in the IDX market can be complicated if you’re a foreigner, an ETF or mutual fund is fairly simple. So if you go that route, choosing a financial advisor to buy these products for you probably isn’t worth the expense.
- Banks. Your bank can give you the convenience of having all of your financial instruments in one place. Unfortunately, there are two problems with going this route. One is that a non-Indonesian bank might not allow you to make that transaction, and the other is that banks tend to charge high fees, without providing the level of service that top financial advisors offer.
Here’s our top recommended broker
What should I do now?
If you’re ready to go, then just select an investment type, then buy. As with any investment, you’ll want to keep tabs on this one well after you’ve made your purchase, so you’ll have a good sense for whether you should sell or hold for the long haul.
Try some of our investment courses for beginners
Stock Markets 101
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