Just like in any other investment instrument, it is vital for beginners to learn more about the specific investment that they are getting into. Building wealth through investing in stocks is a great way to start for those who have no experience in investing. We share with you a basic information on how to invest in the Philippines stock market.
What Are Stocks
Stocks are simply ownership of shares in a corporation. This means you are a part owner of that specific corporation. This enables you to participate in either the profit or loss of the company. As with any investment, there is a risk, you can either make a lot of money or lose a lot as well. Stocks or shares are also known as equity.
A stock market or equity market is simply a place where people buy and sell stocks. The next question that we need to answer is why invest in the stock market? We all know that there are a lot of financial instruments out there which include bonds, real estate, time deposits, and mutual funds.
The reason why many financial experts recommend investing in the stock market is because it is proven that equities have outperformed all other investment instruments on a long term or 5 year minimum basis.
The PSEI or Philippine Stock Exchange Index shows that for a span of 14 years, starting year 2000, returns show yearly growth of as high as 32% and a low of 1.33%. Brokers recommend investing in stocks for those who have a long term investment window from about 5 to 10 years.
Despite the potential for growth as shown in the stock market performance, there are only less than 1% of Filipinos who invest in the Philippine Stock Market. Compare this to our Asian counterparts with 33% participation in Singapore, 25% in Japan and 18% in Malaysia.This is partly due to less education given about stock market investing in our schools.
How To Make Money In Stocks
One of the ways is capital appreciation. This means that the value of the company goes up or appreciates. You make money when you buy low and sell high or buy high and sell higher. An example we can give is BPI. In 1992 BPI price was P4.31 per share. In 2012 it grew to P95 per share. This shows an 18.9% compounded rate of return. An investment of P1M in 1992 will be worth P37.71M in 2012.
You can also earn through dividends. This is when companies decide to give a part of their earnings to their shareholders. Dividends can be in the form of shares or cash. Companies are not obligated to give out dividends on a regular basis.
How To Get Started In The Philippine Stock Market
In order to start investing in the stock market, one must have the money to invest. This means you should have a source of income first before you get to invest in the stock market. It is not advisable to loan money in order to invest.
Next step is to get a good broker. Your stock broker will be the one who will monitor the market and notify you about good investments on either buying or selling stocks. Online brokers are now available so you can just check on them and choose who would be the best fit for you.
Stock Market investing does not need to be complicated. You don’t have to be a genius in order to learn the basics. Armed with the right knowledge and making the right decisions can help anyone build wealth through investing in the stock market.
Buy and Hold. This means that you buy stocks with your initial investment and holding on to your stocks for a long period of time say a minimum of 5 years.
Peso cost averaging. This strategy involves buying stocks from great companies on a regular basis. Depending on the capital you have, stocks will be bought on a regular time interval regardless if the price is high or low. History has proven that this strategy works in the long term, but you need to choose the right company to invest in