Three writers answer Facebook’s question: What’s on your mind?
As soon as we were old enough to handle cash, we’ve all been told by our elders to save up. The cash ninong gave last Christmas? Put it in the bank. The savings you generate because you’ve begun to work and yet still live with your parents? Keep it in the bank.
It’s not a bad thing, really, when the only alternative is to splurge on new clothes, gadgets, and frequent clubbing with friends. But neither is it good if all we do is save up and be content with the low interest rates offered by the bank.
At some point in our lives, we graduate from being savers to investors. It’s a natural progression in our FQ or financial quotient to learn how we could make money work for us instead of the other way around. Experts agree that putting all your money in a savings account isn’t going to do the trick. A long time ago, living on interest was fine, but with interest rates now at record lows, it’s almost a sin to just rely on deposits alone because the interest could only be eroded by inflation rate.
Diversification is the new mantra. Especially for young people looking to build wealth and who have five or 10 years—even longer—to maybe buy a car or a house in the future and plan their retirement, conventional wisdom dictates that stocks should be part of the portfolio.
Fund manager Marvin Fausto and his wife Mary Rose, also financial literacy advocate, have raised their three boys Martin, Enrique, and Anton to be high-FQ kids who regularly save and invest. It all started with stocks given to the kids as gifts 15 to 20 years ago. These stocks have since appreciated in value and earned cash dividends, which were then likewise reinvested. The kids made it a habit to invest all cash gifts they get from their ninongs, ninangs, aunties, and uncles, as well as the savings they get out of their allowance. As young adults now, the Fausto kids have enough seed money to set up a business or start their own family.
Buying stocks is simply buying into a company for a chance to participate in its future growth. Think of a property company like Ayala Land Inc., developer of the Makati central business district and Bonifacio Global City, or SM Prime Holdings Inc., the company behind the household brand SM Malls. Then there’s Jollibee Foods Corp., a familiar brand to every Filipino child and now one of the world’s largest fastfood chains. There are utility stocks the likes of Manila Electric Co., the company that provides electricity to the metropolis. Look at ABS-CBN or GMA7, which are thriving on political advertisements during the run-up to the May presidential elections.
There are over 300 companies listed on the Philippine Stock Exchange but the 30 largest in market capitalization, the most liquid, and the most closely watched—ergo the best representatives of this market—are part of the local stock barometer called PSE index or PSEi.
Buying shares in these companies is like being business partners with the tycoons who built them, even if they do not know you personally. Even if you just have a few shares in these companies, you have the right to scrutinize them and voice any concern during the annual stockholders meetings. The shares of these publicly listed companies are traded in a stock exchange where investors can buy or sell shares through their brokers at any time during trading hours (9:30 am to 3:30 pm, with market recess from 12 pm to 1:30 pm).
But as risk is inherent in any business, the investor also participates in the risk-taking. He must thus know more about the company he is investing in. Many investors pick stocks based on underlying fundamentals, but to determine the best timing for trades, they study the charts or technical analysis.
The more risk an investor is willing to take, the higher the prospective returns. This means the more aggressive investor will have more stocks than cash in his portfolio. But prudence dictates that one should invest in stocks only the money he won’t need for quite sometime, that money meant for your car loan amortization or for your child’s tuition fee next semester is better kept in cash or in a savings account. Investing in stocks works best for those who are willing to take a long-term view.
To date, less than one percent of Filipinos invest in stocks, which means a small portion of the domestic population had reaped the rewards of the bull run seen since 2009.
For newbies trying out stock investing, the common strategy recommended by experts is peso cost averaging. This means choosing one solid stock that you like best—PLDT or Ayala Land, for example—then buying the same stocks
regularly over a period of time. The logic is, since it’s difficult to catch market peaks and bottoms, one can even out risks and generate good returns over time.
For investors with neither time nor confidence to pick their own stocks, a good alternative is to invest in funds that invest in a basket of stocks, then let the professionals manage them. Mutual funds were invented by financial wizards to pool investment and allow investors to generate the same return in proportion to their investment. It can be as simple as a fund tracking the PSEi or a fund that invests in a mix of equities and bonds.
Recently, the local stock market took a heavy beating due to a number of global uncertainties like the economic slowdown in China and the start of interest rate hikes in the United States. As the country has done extremely well in the last six years, achieving a sovereign investment grade rating for the first time in history, the upcoming presidential election is making investors jittery.
From a record high closing of 8,127 in April last year, the PSEi is now trading at the 6,600 levels, marking a retreat by nearly 19 percent. The country’s leading online stock brokerage COL Financial calls this the “buyer’s market,” a chance for investors to pick up quality stocks at cheaper valuations. As legendary American investor Warren Buffet has said, “Be fearful when others are greedy, and be greedy when others are fearful.”