Why you should invest in the stock market

(Editor's note: This article was written by MoneyMax, the Philippines’ foremost online platform for comparing financial and telecom products and services, for ABS-CBNnews.com. Find out more at MoneyMax.ph.)

MANILA, Philippines - Investing in stocks is one of the most effective ways of making money work for you. Though it involves more time, it doesn’t require you anything but to invest and watch your money grow.

Stocks are shares of ownership in a corporation. Once you invest your money, you will be a shareholder and will get a portion of the company’s earnings or shares.

The stock market is a place where stocks are bought and sold. Here in the Philippines, the Philippine Stock Exchange (PSE) is the corporation that governs the Philippine stock market.

Here are general rules:

• Invest as early as possible. Take advantage of the price appreciation over a greater period of time.
• Invest regularly. For greater returns, regularly add a significant amount to your capital every month, or every year - just make it a habit.
• Invest long-term. Don’t withdraw your shares as soon as you see your profit – the longer-term, the better.
• Diversify your investments. “Do not put all the eggs in one basket” as they say. Allocate your capital to a number of companies in different industries so as not to put too much risk in one area.

How to start investing?

1. Choose a stockbroker. Call PSE or research for legitimate stockbrokers. Compare and choose the best that suits your needs and budget.

2. Open an account. Did you know that you don’t need millions of pesos to be a stock investor? You can start investing in stocks at the lowest amount of P5,000.

3. Be in constant communication with your agent. Aside from representing you in the stock market, a stockbroker can also offer you services such as access to market reports/studies, on-time delivery of important documents, and practical advice on your investments.

Here’s an infographic to let give you more information about stocks:

source: www.abs-cbnnews.com

3 common mistakes in stock investing

MANILA, Philippines - Investing in stocks can be a little tricky.

On ANC's On The Money, Henry Ong, director of the Registered Financial Planners Philippines, revealed three common investing mistakes. He also shared some tips on how to avoid them.

Common mistakes

1. When people try to time the market.

"They try to use a lot of charting. In theory, you can do that. You can buy at this point and sell at this price. But in reality it doesn't follow because markets involve a lot of emotions, it can change. That's one mistake because when people always try to time it, the effect would be frequent trading and it would lead to a lot of losses, expenses and fees that would be involved in trading," Ong said.

2. When people follow and buy on recommendations.

"Some people just don't do their research, they just follow the broker's advice or joining social media discussions about how good a stock is... I think these are very good sources of info but that should not be the sole basis of making a decision. To seriously invest, you should do your own research and validate these claims," he said.

3. When you get too attached to a stock.

Ong said it's not good to "fall in love" with a stock.

"Even when it's losing, you don't want to sell it. Sometimes, it becomes emotional, instead of getting objective when it comes to investments. In investments, sometimes, when a stock is falling and if you think the stock is going to fall deeper, you have to make a decision to cut your losses because as a rule, when the stock is losing 7-8% then that's the best time to cut your losses," he said.

Make a plan

To avoid these mistakes, Ong emphasized the importance of having a plan.

He noted there are two types of emotions in the stock market - fear and greed. "If you invest, you will be easily influenced by what is happening in the market, so if you don't have a plan, you won't have the discipline of knowing when to buy or sell," he said.

He suggested coming up with a strategy and knowing your investing style.

"Is your investment style more of growth investing or value investing? Or is it contrarian investing? Once you have the strategy, you have to stick with it," he said.

Another thing to consider is your risk appetite. "In investing, you have to determine how much you are willing to lose," he said.

Ong also emphasized the importance of setting benchmarks, which will serve as a guide to determine if the stock is performing above to below the market.

"You have to come up with your own target regardless of the benchmark... Decide how much you want to make," he said.

Asset allocation, he said, is one way to minimize your risk. You have to decide how much of your total portfolio will be invested in different instruments such as stocks, bonds or real estate.

Asked if he has a "winning strategy" for investing in stocks, Ong said: "You much have a plan, a target how much you want to earn and where are you going to use the money."

source: www.abs-cbnnews.com

The truth behind 8 biggest investing myths

MANILA – Investors are known to follow a number of rules on buying shares or bonds, but what most don’t know is that some of these rules are actually not true, an expert said.

In an interview on ANC’s “On The Money,” Sun Life Investments Head of Equities Gerard Abad listed the top common myths and mistakes on investing.

While most of these are widely-accepted truths by regular investors, Abad said quite a number of these are actually not true and must be debunked.

MYTH 1. Only the rich can invest.
TRUTH: Investments are now not that costly, and you don’t have to pay a hefty amount to have your own shares or bonds.

“Previously, the thing is you need a thousand or even millions of pesos to be able to invest in stocks or bonds, but right now, there are a lot of alternative investment outlets where you can invest for as low as P5,000,”

MYTH 2. If someone can earn from an investment, then so can you.

TRUTH: One must do research first and study the conditions of the market before plunging in. According to Abad, businesses that work for some may not work for others. It’s a case to case basis.

“This is the typical herd mentality. Let me give you an example: The hype of the lechon manok, or the shawarma— it's [not] for everyone. Just because someone is earning from it doesn't mean that it's for everyone. You need to do a lot of research. You don't go to it just blindly. You have to look at the condition of the market.”

MYTH 3. Invest when the market is positive.
TRUTH: It’s better to buy stocks when the market condition is bad. Abad shares that it’s best to enter when there is a sharp correction, and best to exit when speculations start that the market can still go up.

“Buy when the market condition is bad… it's usually the best time to enter the stock market when there is a sharp correction. Usually, when everything is positive [and] they [are] saying that it can still go up, it is actually the best time to exit the market.”

MYTH 4. Trading in the stock market is investing.

TRUTH: Trading and investing are two different things.

“Actually, when you say investing, you participate in the growth of the company. However, when you say you're trading, you're actually just looking at the price movements. So, when you do investing, you want to participate or to ride a long-term growth of a specific company. Unlike in trading, when you just play around in the volatility of prices…you can lose more in the process.”

MYTH 5. Real estate is the best investment.

TRUTH: A lot of factors including the economy, annual taxes, and property dues play a big part in how real estate properties are priced.

“Many people think that real estate is the safest and best investment. However, if you look at the movement of real estate prices, they actually also fluctuate. When the economy is going great, property prices goes up, and when there is a scare in the market, real estate prices go down. Property also depreciates with time. You can expect additional cost like paying annual taxes, paying dues..."

MYTH 6. All expensive purchases can be an investment.
TRUTH: For a purchase to be an investment, you have to profit from it.

“People justify buying expensive things like paintings, jewelery as an investment. It's more of a want than a real investment. When you say investment, you need to profit from it.”

MYTH 7. If you hold a variety of stocks, it's diversifying.

TRUTH: Diversifying is more on investing in different outlets or companies, and not particularly holding multiple stocks.

“Diversification is really not buying multiple stocks. Diversifying basically involves investing in multiple investment outlets.”

MYTH 8. Any investment poses the same risk for everyone.

TRUTH: It depends on the background of the person investing.

“Risk very much depends on one's own profile,” Abad said. It is dependent also on how much the investor can shell out, a factor which varies from one person to another.

When asked if what should be the mindset of all budding and experienced investors alike, Abad said that it is important to diversify and do research.

“You don't put your eggs in one basket. Don't just invest in one stock. Spread your risk, do you research, [and] look at companies that you feel will perform in this type of environment."

source: www.abs-cbnnews.com