As the year comes to a close, Filipinos are increasingly looking for ways to be more financially successful. One investment avenue that is worth trying is the equities or stock market, the place where people trade or buy and sell stocks in publicly listed companies in the Philippine Stock Exchange (PSE).
You can start investing in the local stock market by opening an account with a stock brokerage firm, where you can enlist the assistance of its licensed broker in carrying out your trades, or use its online stock trading facility if it has one.
If done right, stock investments can be a good source of additional income that will help you meet your different financial goals.
An initial investment amount of P10,000 can already earn a significant amount of income, which is higher than what you can earn monthly from placing this amount in money market placements such as time deposits.
To help you have a favorable experience in investing in the equities market, here are some useful pieces of advice from AB Capital Securities, Inc. (ABCSI), one of the country’s pioneering stock brokerages.
1. Manage Your Expectations
There is always a chance of losing out in this kind of investment. That is why it is advised that one puts in an amount of investment that he or she will not have to pull out in case of emergencies.
The good news is that risks can be managed if not totally avoided, and earnings will be realized if you do some research first before carrying out your stock trades. The important thing to remember is not to over expect, or to manage your expectations.
2. Invest according to your risk profile
“Investment risk profile” refers to someone’s amount of tolerance for the risks that investing entails.
The rule of thumb is: The smaller the risk, the smaller the return. Conversely, the bigger the risk, the bigger the return.
For example, putting your money in a time deposit account will earn interest income of about a quarter of one percent or 0.25 percent. So, if you have P20,000, that will give you a gross return of P50 per month, exclusive of taxes.
The return is miniscule, but the risk is nil as well. So this is an example of a low risk, low return investment.
However, if you invest in a growth stock, for example, you can earn a varying amount of income, depending on the quality of your investment decision, or even on luck sometimes. That’s why stocks are high risk, high return investments.
Case in point is that of Anna, an investor who bought 10,000 shares of a second liner stock at P11.00 for a total of P110,000 on July 18, 2016. Then she sold it later on July 22, 2016 at a price of P11.94 with gross proceeds amounting to P119,400. Gain from this stock investment was at P9,400, realized only after a four-day period. But of course, earning experiences vary at different times.
To diversify simply means not to put all your eggs in one basket. This advice is true across all types of investments.
Thus, you should avoid buying stocks of companies owned by only one group or conglomerate, because if market sentiment becomes unfavorable to this group, this might affect all the stocks in your portfolio.
In the same token, you should not buy stocks belonging to the same industry as negative news about the latter will affect all your stocks.
4. Invest regularly and preferably long term
There is also wisdom in investing incremental amounts of money in a certain stock. This will give you a better average cost of the stock.
Take the case of Danny, an investor who buys 100 shares of a blue chip stock every month. By investing regularly, he is able to avail of the stocks at different prices as these fluctuate over time. His stock purchases over time average at a level that is just at the median of the lows and the highs of the stock’s price range.
It is also advisable to be in the market for the long term, because equities tend to grow in value over time. Aside from a possibly higher market price or what is called value appreciation, the investor can also earn cash dividends, in cases when the company decides to distribute a portion of its retained earnings to its stockholders.
To learn more about stock investing and avail of free seminars, visit the ABCSI website at www.abcapitalsecurities.com.ph and Facebook page at @abcapitalgroup.