Frequently Asked Questions on How To Invest in Stocks
Since my announcement that I'm investing in stocks I received an overwhelming number of personal messages from friends and colleagues asking how investing in stocks works.
I am both happy and proud that my post have ignited the fire within these particular people to also invest for their future.
Stock investing can be scary, confusing and complicated. And so today I gathered some of the frequently asked questions about stock investing I received and the answers.
I hope this will serve as a primer before you jump into making that big decision to finally invest.
What is a stock?
A stock is a share of ownership in a corporation. A company will need money to support and maintain its overall operation. Thus, it may opt to open its company to the public. You, as an individual, can now invest in the company by buying its available stocks.
What does it means to own a stock?
Owning a stock makes you a shareholder of that particular corporation. This means you are now part of the growth and success of the company.
How do you make money owning stocks?
People make money stock investing in the Philippine market in two ways.
An increase in the value of your investments due to increase in the potential value and demand of shares in the company you invested.
Let's say in 2013 you bought 100 shares of Jollibee (JFC) at 107pesos/share. The total value of your investment is 10700pesos.
At present 2017 Jollibee stocks is at whooping 189pesos/share. Meaning you make 18900pesos out the 100 shares you own.
That is 8200pesos earned within 4 years of passive investing. Without you actively participating or working for it.
A payout issued by some profitable companies to its shareholders/investors that reflects the company's respective earning. This can be by additional cash to the shareholder's accounts and
Given the example above let's say Jollibee also gave a 1peso/share dividends to its shareholders every three months from 2013 to 2017.
This means above from the 8200pesos you earned from the capital appreciation of the money you invested, you also gained a dividend of 1600pesos.
Why invest in the stock market?
Although every investment comes with a risk, stock investing proved to be one of the wisest decision anyone could do. History has proven how investing in quality stocks over a period of 10 to 20 years can provide greater returns than parking your money in a bank. Investing in stocks gives any individual a chance to beat inflation and achieve financial goals on or before reaching the retirement age.
What are the risks involved when investing in stocks?
There are two major risks that comes with investing in the stock market.
First and foremost, investing in stocks doesn't have a guaranteed return. Although the history of stock investing shows extraordinary returns there is still no guarantee on how the stock market will perform in the future. No one can foresee whether the stocks will go high or whether the company you invested with will still be open after 10 or 20 years from now. Remember the Financial Crisis of 2007-2008 also known as the global financial crisis?
Second, you may lose money in it. Because of risk #1 it is possible for you as an investor to lose some or even all of your money in stocks. The stock market can change for various reasons without any sign or warning at all and this can cause you to lose money.
How do I buy stocks?
Choose your stock broker. Here in the Philippines you can only buy stocks through a broker. Accredited Philippine Stock Exchange brokers are paid to trade stocks on your behalf. Brokers provide you with a platform where you fund your account and start investing or trading. This same platform is used to manage your investments. Every time you buy a stock as well as every buying or selling you do your broker gets a commission.
Now there are plenty of brokers you can choose from depending on your budget and confidence. COL Financial is one of the leading and recommended brokerage firm in the country. I have created a blog post about them you can read here. BPI Trade is BPI's own broker platform. If you are already a BPI user then this could be a better option for you. They have easier application for BPI card holders. Philstocks is another platform available for those who want to invest in the stock market. And of course First Metro Securities, my choice of broker, which is Metrobank's investment firm.
Next you need to open a trading account. Just follow the account opening instruction, answer important investor surveys and submit the needed requirements. You will receive an email confirmation once your account application is successful.
Lastly fund your account and start investing. Decide on how much you will invest to the stock market. You can buy your first stocks via the platform provided by your broker.
Read Next: How To Open a First Metro Sec Account Online
How much do I need to open a stock account?
With most of the stock brokers in the Philippines today you can start as low as 5000pesos. Know that initial investment will be used to buy your first stocks. This post shows the list of Best of Stock Brokers in the Philippines and how much you need to open an account for your reference.
How is stock investing different from Mutual Fund?
Mutual Fund offers a ton of advantage than individual stock investing. The greatest advantage is diversification that investing in mutual fund can do. The money you put in your mutual fund account will be invested into various stocks from different industries which follows your fund prospectus.
For example if you choose an Equity Fund you will have shares from companies in the industry of telco, properties, power and transport even with your 1000pesos (minimum additional monthly investment). When it comes to individual stocks on the other hand your 1000pesos can only buy a limited number of stocks on a specific company.
Mutual Fund by definition is an investment made up of a pool of funds collected from many investors/shareholders for the purpose of investing in securities such as stocks, bonds and other money market instruments.
Read Next: How To Invest in Mutual Fund for Beginners
What stocks should I buy?
This will solely depend on your goal as a stock investor. You can go for blue chip stocks such as Ayala (AYYLF), Jollibee (JFC) and/or PLDT (TEL) where the returns maybe slow but steady. You can also invest on small companies which you think will grow in the next 10-15 years and see your investment boom.
Marvin Germo, well-know speaker and author of the books series Stock Smarts a mythycal five of stocks to buy and hold for the long term as follows:
In his own words:
Center – Metro Pacific Investments (MPI) – As the center is the anchor of the defense in every basketball team, MPI is one centerpiece that should be in your portfolio for years to come. First it is an ultra defensive stock that will stand the test of time. It is exposed in almost everything that is essential that every Filipino needs – electricity, water, hospitals, and toll roads! This are the bare necessities that we as country would need and I think no amount of recession can close this company down!
Power Forward – Ayala Corporation (AC) – The power forward plays a similar role to the center as it is their responsibility to protect the post, make the rebounds, and score close to the basket. As they are known for their sheer size and stability the same is true with Ayala Corporation! One of the biggest conglomerates in the country gives you the exposure to growth and large earning potential via its property development and mall operations courtesy of Ayala Land and it’s ever profitable BPI. It also has a facet of a defensive stock as it can give you a steady source of cash flow from Manila Water and Globe Telecoms.
Small Forward – Banco De Oro (BDO) – The small forward is the most versatile position in basketball as it they are positioned in a way that they get to score either inside or outside, rebound, run with the guards, and do almost anything that the other positions can do. The same is true with BDO, it is the biggest bank in the country and as the economy grows banks have the biggest exposure to almost every industry imaginable. As the economy expands banks make the biggest money. As Ayala Corporation already has BPI you already have a good exposure of banks under your arsenal.
Shooting Guard – Jollibee (JFC) – Michael Jordan, Kobe Bryant, and Dwayne Wade. This are prolific scorers who at one point or another have taken game winning shots and have brought scoring when it counts the most. This is what we can see in Jollibee as we see its business just rake in cash every time. Jollibee continues to deliver and expand not just in the Philippines but now the world is becoming its playground. This is a consumer story, that as Filipinos get richer and richer you can expect more of Jollibee, Mang Inasal, Red Ribbon, Greenwich, Chowking flourish in the country!
Point Guard – SM Prime Holdings (SMPH) – The point guard sets the pace of the offense, delivers the ball and makes everything cohesive. That’s what SMPH does! Like Jollibee you can see an SM Mall in almost every major location in the country! That trend will continue to increase as more OFW remittances come into the country and our BPO industry continues to increase you can expect more people spending and spending money! As this happens you can see SMPH as a stock setting the pace in increasing your portfolio!
If you want to have shares in the top 30 companies in the country also known as the Philippine Stock Exchange Index (PSEI) then buy First Metro Exchange-Traded Fund (FMETF).
This is a 2-in-1 product which combines a fund and stock together. You are basically buying a stock which has shares from a diversified portfolio already.
As of this writing a share of FMETF costs Php 120. The highest it has been since inception is Php 138 when the market reached 9000 mark in 2018. Also, FMETF is the first and only exchange-traded fund in the Philippines so it really is a good stock in buy and hold on to.
You can learn more about First Metro Exchange-Traded Fund here – www.firstmetroetf.com.ph
What should my investment strategy be?
Stock investing is not a get-rich-quick scheme. Time is your biggest ally to success. This means the longer your money stays invested the higher the chance it will earn.
Take for example the Jollibee stocks. In 2008 you can buy JFC at 38pesos/share but today it is already 188pesos/share. Let's say you bought 1000 shares then your 38,000pesos investment is now 188,000pesos.
And so instead of an investment strategy I urge you to do the following:
1. Invest now. The earlier you invest the better.
2. Invest on a regular basis. It is ideal to fund your account on a monthly basis if you want to earn more. Instead of investing just once try to invest monthly, quarterly or yearly.
3. Invest long term. This should be emphasize above everything else. As mentioned earlier you won't get rich in stocks overnight. It takes time to make your investments grow.
Other resource links you can provide about investing?
Final Notes from SavingsPinay
Part of the things I do to improve my financial life is INVESTING. I have my pure confidence that in 10 to 15 years time I will get to enjoy the fruits of my labor as a young investor.
Investing in stock market is a big financial decision. My number 1 tip is as always is to study it first. Read financial and investment books. Learn from other investment stories through blogs. The more you know the better. I hope this post helped you.
Why Should You Invest Your Money?
– If you care about your future then you should, invest.
– If you want your money to generate income to earn interest, invest.
– If you want your money to work for you aka passive income, invest.
– If you have long term goals that will need a higher amount of money, invest.
– If you want to amplify your current life, invest.
– If you want to learn more about how money how the rich get even richer, invest.
Note: This post will be updated for new valuable links and resources as well as additional question to be answered about stock investing. Please bookmark this post.
What's your investment goal this year?
Izza of SavingsPinay helps Filipinos bridge the financial literacy gap one content at a time by providing insights and tips on budgeting, saving, investing, side hustle and growing your net worth. Aside from this blog she also writes at www.izzaglinofull.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her at firstname.lastname@example.org