The stock market is dropping.
And it seems like it will continue to fluctuate for the rest of the year due to the COVID-19 pandemic.
Scary, isn’t it?
Every single day I read people online expressing their anger and regret that the market value of their current investment is on a negative.
And I can honestly sympathize with that.
I had my fair share of red marks on my investment portfolio.
But, I choose not to let speculations get the most of my sound judgement.
That's the thing about investing in the stock market, it is never for the faint-hearted. Pag mahina loob mo, talo ka.
According to Philip Taylor of PTMoney,
“Time in the market is better than timing the market. Just start saving/investing now. Automate it. Pay yourself first. Your future self will thank you for it.”
What does this mean for you and me?
If you invested your money 10 years ago, you have already won. There’s no need to be greedy at all. Whatever happens to the market in the next 6 months to 1 year is not your battle anymore. Focus on the long-term possibility instead.
Over the years these three things remain the wisest advice I’ve ever read when it comes to the stock market.
Invest now, Invest regularly and Invest for the long-term.
Yung pa-wait wait mo, yung tsaka na lang pag may pera na ko at yung di ko naman alam yan, ayoko will be the biggest regret of your life 10 years from now.
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And ultimately throw whatever doubts and fears you have in your heart?
Reason #1. Investing in the stock market is the easiest way you can make money work for you
Have you ever dreamed of having your own business? Yung tipong CEO ka ng isang kilalang kumpanya?
What if I tell you, you can actually do that by investing in the stock market.
How?
You become part-owner of the company you invested with. And you don’t even need to be a millionaire to buy and own shares of some of the biggest company in the country.
Take for example Jollibee (JFC), the biggest fast food chain in the Philippines.
Franchising a Jollibee branch will take millions of pesos as capital. But, if you own a stock, at Php 108.70/share and minimum of 10 shares investment, you only need Php 1087 to be a co-owner.
And not only that.
Buying JFC shares entitles you to be part-owner of other fast-food chains in the Jollibee umbrella such as Red Ribbon, Greenwich, Chowking and Mang Inasal. These along with all the branches they have in the present and in the future.
Isn’t that amazing.
Now, how do you make money owning stocks?
People make money investing in the Philippine stock market in two ways.
1. Capital appreciation
An increase in the value of your investments due to increase in the potential value and demand of shares in the company you invested.
Example :
Let’s say you bought 100 shares of Jollibee (JFC) at 107pesos/share. The total value of your investment is 10700pesos.
In five years, Jollibee stocks is at whooping 189pesos/share. Meaning you make 18900pesos out the 100 shares you own.
That is 8900pesos earned within 5 years of passive investing. Without you actively participating or working for it.
Example of Capital Appreciation.
The very first investment I made when I started investing in direct stock market was 100 shares of Puregold at Php 44 per share. It went as high as Php 51 per share. This means my Php 4400 before is now Php 5100.
2. Dividends
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/or additional shares.
Example:
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.
Example of Dividends.
I received a number of dividend payments at the start of 2018. Among the stocks that paid good dividends were Cosco, Metrobank and ABS-CBN.
Here’s the key take away:
Invest your money on good companies in the stock market, preferably the blue chip stocks, and all that’s left for you to do is wait and watch your money grow.
Reason #2. Investing in the stock market offers the most potential for growth.
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.
Take a good look at PSEi. PSEi is composed of the 30 “biggest” publicly listed companies in the Philippines based on PSE’s standard.
The Top 30 companies are:
Aboitiz Equity Ventures, Inc. (Holding Firms)
Aboitiz Power Corp. (Energy & Utilities)
Alliance Global Group, Inc. (Holding Firms)
Ayala Corporation (Holding Firms)
Ayala Land, Inc. (Real Estate)
Bank of The Philippine Islands (Finance)
BDO Unibank, Inc. (Finance)
Bloomberry Resorts Corporation (Tourism & Leisure)
DMCI Holdings, Inc. (Holding Firms)
Emperador Inc. (Food & Beverages)
Energy Development Corporation (Energy & Utilities)
First Gen Corporation (Energy & Utilities)
Globe Telecom, Inc. (Telecommunications)
GT Capital Holdings, Inc. (Holding Firms)
International Container Terminal Services, Inc. (Transportation & Logistics)
JG Summit Holdings, Inc. (Holding Firms)
Jollibee Foods Corporation (Food & Beverages)
LT Group, Inc. (Holding Firms)
Manila Electric Company (Energy & Utilities)
Megaworld Corporation (Real Estate)
Metro Pacific Investments Corporation (Holding Firms)
Metropolitan Bank & Trust Company (Finance)
Petron Corporation (Energy & Utilities)
Philippine Long Distance Telephone Company (Telecommunications)
Robinsons Land Corporation (Real Estate)
San Miguel Corporation (Food & Beverages)
SM Investments Corporation (Holding Firms)
SM Prime Holdings, Inc. (Real Estate)
Semirara Mining And Power Corporation (Mining / Energy & Utilities)
Universal Robina Corporation (Food & Beverages)
Source: https://aseanup.com/top-30-companies-philippines-psei/
The movement of PSEi is closely monitored by investors, fund managers, economists and everyone who are into investing in stocks because it indicates how good the Philippine economy is.
If PSEi is up then it is a good indicator that the general economy of the country is doing well. Thus, it is the best time to invest.
PSEi through the years continues to go up. Even if the individual stocks fluctuate on the daily basis, the entirety of the index is still rising.
Between 1986 to 2018, the PSEi went from 129.52 to 9058.62 in the year 2018 (when PSEi first hit the 9000 mark) and back to the 5,838.84 level at present time.
So if you are getting worried now that the market is below 8000 again, fear not.
Finance experts say now is the best time to buy the stocks you really want because sooner or later the market will be up again.
There is so called a stock market cycle that says what goes up must come down.
But, how much can you earn investing in the stock market?
According the Sir Omeng Tawid of Smart Pinoy Investor, the answer will depend on the following:
(1) the skills of the investor when it comes to timing – this affects capital appreciation
(2) the time horizon of the investment
(3) the dividend rate of the stock (if there’s any)
(4) and the specific strategy employed (as a way of maximizing the three above)
Here’s a short breakdown of the above:
(1) The skills of the investor when it comes to timing – this affects capital appreciation
Remember my Puregold investment? Buying at Php 44 per share turned out to be a profitable decision for me.
Now that the market is down, slowly buy shares from your losing stocks. Why? Because you may want to rebalance my loss.
So when the market is up again, you will have better position.
Of course never ever follow this advice sa mga patapon na stocks. Only rebalance on stocks that you believe will have great potential and the intrinsic value is still on point.
(2) The time horizon of the investment
Investment horizon is the total length of time that an investor expects to hold a security or a portfolio. Time horizons play a crucial part in every investment especially in the stock market.
Buying blue chip stocks are good call for long-term investments. These blue chip stocks are from companies that had (and continuously) withstand the test of time such as Ayala, SM Holdings and Meralco.
Investing in IPOs or new companies listed in the stock market are for short-term investments. If you buy stock in small, new companies, you could lose it all. Or the company could turn out to be a success.
This happens with Cemex Holdings Philippines. It’s initial public offering became hyped that it grew to Php 10.75. Today, CHP is valued at Php 1.06.
A contrary to Wilcon with an IPO of Php 5 per share in 2017 and became Php 15.20 per share now.
You should also take note of time horizon whenever you are setting financial goals.
For example a downpayment for a home could take up to three to five years of investment while a major purchase only takes a year. Retirement, on the other hand could be up to 20 years.
To learn more about IPOs visit this post.
You don’t need to invest all your money in the stock market too.
Put some on managed funds such as Mutual Fund, ETF, Index Fund or PERA, considered as the best retirement accounts in the Philippines. For major purchase you can definitely try companies that are still undervalued.
(3) The dividend rate of the stock (if there’s any)
A dividend is a cash payment from a company's earnings.
But, not all stocks or companies pay dividend to its investors.
I’ve been investing directly in the Philippine stock market, I am now able to take advantage of dividends.
In 2018, I got paid for both my Cosco and Puregold investments. It was such a good news and a proof that making your money work for you is possible.
Now, not every stock you invest with will pay you dividends. Some companies will choose to reinvest in the company whatever earnings they have into for further growth.
According to Investopedia, there are two reasons why companies choose to issue dividends:
- Many investors like the steady income associated with dividends, so they will be more likely to buy that company’s stock.
- Investors also see a dividend payment as a sign of a company’s strength and a sign that management has positive expectations for future earnings, which again makes the stock more attractive. A greater demand for a company’s stock will increase its price.
Last year, Esquire published an article on the 5 High-Dividend Paying Stocks. The list includes Leisure and Resorts World (LRP), San Miguel Corporation (SMC2B), First Gen Corporation (FGENF), Phoenix Petroleum Philippines (PNX3A) and Megawide Construction (MWP).
(4) The specific strategy employed (as a way of maximizing the three above)
I’ve been asked a couple of times by members of the SavingsPinay Community on Facebook what my strategy is when it comes to investing my money.
You see, I’ve been investing since I was 19 and to be honest all I know is I am saving up money for my(future)self.
This ultimately means, I invest whatever money I have in excess to reach financial independence and early retirement in my early 40s.
Strategies to use when it comes to investment could be vast.
It’s like me telling you my skincare routine – it works for me but it doesn’t mean it will work for you too.
Also there is no promise that the strategy I use today will be the same strategy I use forever.
There are three common types of people in the stock market:
1. Investors. You pick and hold a particular stock for a number of years or until you decide to reap your returns. Investors’ focus is to buy stocks that can bring great earnings in the future at the lowest possible price.
2. Traders. You buy and sell stocks within a short period of time, often holding a particular stock on less than the trading day.
3. Index Fund Investors. You invest on an index with the aim of mimicking the market. This index is composed of a group of stocks on a specific field that offers passive returns.
Reason #3. Investing in the stock market can beat inflation
Inflation is a state where the prices are rising and value of purchasing power of money is decreasing.
So, for example, if a 3-in-1 coffee costs Php7 today, it’s highly possible that it could cost Php 10 one year from today. So maybe your Php 100 can buy 14 3-in-1 coffee but next year, that same Php 100 can only buy 10 sachets.
Inflation happens without us even realizing.
To mitigate the effect of inflation in your current money, you can invest some on the stock market instead.
Stock market is the most accessible investment vehicle that could equal or even beat inflation
Buying stocks from good companies can give you a possible return of 10-20%, way higher
If you buy stocks of decent companies, you can easily get a return of between 10-25% depending on how good the stock is and how much time you invested in choosing the stock.
Reason #4. Investing in the stock market helps you earn compound interest
Investing in stocks allows you to take advantage of compound interest, the eighth wonder of the world.
The longer your money stay invested in stocks, the more it will generate interest over interest.
What earning compound interest means for you?
You can reach your financial goals faster
Your financial goals like buying a home, starting your own business can be achieved faster because your money is earning higher interest rate than parking in the bank.
You Receive Higher Return of Investment
Compared to normal savings account and other traditional investment vehicles, you have better chance in building wealth over time through stock market.
You generate passive income
Make your money work for you and not against you by putting it on the stock market! As long as you stay invested, your money will be earning interest even while you are asleep.
Final Notes from SavingsPinay
With what's happening in the stock market, here are some winning strategies I want you to apply to mitigate the risks.
1. Invest only in stocks that you know
Choosing which stock to purchase can be very confusing. So I personally suggest you only invest in stocks familiar to you. What commodities do you always use? What fast food giants do you often visit and dine-in? What services do you frequently avail?
2. Invest in giants
Make your stock portfolio more stable by investing in giants. Although the return is not as high, you be assured that there is a return for your investment!
Giants such as any of the companies in PSEi will make your investment portfolio strong. They may be expensive but they are most likely worth it to own.
3. Invest in yourself. You know the drill in personal finance – the more you know, the better. If there is a chance for free seminars on stock analysis, join them! Your broker mostly host seminars on a weekly/monthly basis which will enable you to make sound decision on your stock moves. Read next – 7 Ways You Can Invest in Yourself
4. Invest in accordance to your goals
In every investment you do define your why. And make sure that you follow your why. This is important so you avoid getting easily swayed by your emotions in case the market goes down or you see most of your investments hitting rock bottom.
Your objectives will also clearly define who you are as an investor. Whether you are conservative – can’t withstand risk, balanced – can moderately withstand risk or dynamic – can withstand risk no matter how high it can be.
Because you know who you are as an investor it is easier for you to determine which investment vehicle is right for you.
5. Invest with your spare money Before you even begin investing in the stock market, I plead you to do two things:
Pay your debt, if any
Secure your emergency fund
It is important to only invest with your spare money because investing in stocks comes with certain risks. If you invest your emergency fund or your savings and your investment became negative you will be forced to sell at a loss.
What are your thoughts about investing in the stock market?