How And Why To Invest In The Stock Market?

5/9/2017

The act of saving and investing money regularly will significantly change the way you live your life in the future.

Without faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.

Benjamin Graham

Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.

When you hear the word “stocks” or “stock market” what comes into your mind?

What you may be thinking is that the stock market is only for the rich. Or the stock market is a gamble. You are not alone because many have already told me that.

Well, let’s discuss first, what is a stock?

What is a Stock?

Stock is a type of security that signifies share/ownership in a corporation. There are (2) two main types of stock: the first one is "Common Stock", which entitles the owner to vote a shareholders' meetings and to receive dividends. The second is "Preferred Stock" which generally does not have voting rights but has a higher claim on earnings and assets. Owners of preferred receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

Maybe you’re still confused?

A simplified explanation would be a pizza, when you and nine of your friends contribute equally to buy a pizza. The pizza arrives, so everyone has a piece of the pizza — say the pizza has 10 parts. That is the same way stocks are, the more shares of a corporation you buy, the more of the corporation you own.

So, what is the Stock Market?

Basically, the Stock Market is a place where stocks are bought and sold. Here in the Philippines, we have The Philippine Stock Exchange, Inc. (PSE), the national stock exchange of the Philippines.

Why do most companies sell shares of stock? What is Initial Public Offering or IPO?

An Initial Public Offering or IPO is a process in which a company sells its shares of ownership to the public for the first time. It is also known as, “Market Debut.”

Through an IPO, a company shifts from being privately owned to publicly traded and owned by institutional and retail investors. Hence, when a company files an IPO, it is also called “going public.”

Companies sell shares in their business to raise money. They then use that money for various initiatives: A company might use the money raised from a stock offering to fund new products or product lines, to invest in growth, to expand their operations, or to pay off debt.

Why invest in a Stock Market?

There are many different securities that you can invest your money but based on history, it was proven that investing in quality stocks can provide greater returns than most investment instruments.

This offers you the best chance in achieving your financial goals and gives you the ability to later enjoy the benefits of your money working for you.

How to make money in Stocks?

Price Appreciation

A company's growth and success usually drive its stock price higher.

Dividends

Companies also give out a portion of their profits to shareholders, called dividends.

How Can I Start Investing In The Philippine Stock Market?

You need a Stockbroker to invest! A stockbroker or trading participant is an individual or company accredited by the Philippine Stock Exchange and Securities and Exchange Commission to place buy and sell orders on behalf of investors.

There are two types of stockbrokers: traditional and online. Traditional stockbrokers provide a licensed salesperson who takes orders through phone calls or email. Online stockbrokers enable their clients to make buy or sell placements through their web-based trading platform.

Did you know that for only PHP 1,000 to PHP 5,000 you can now open a stock trading account? With the help of an accredited online trading broker, you can start to participate in the Philippine Stock Market. For the complete list of stockbrokers,visit https://www.pse.com.ph/

Diversification is protection against ignorance.
It makes little sense if you know what you are doing.

Warren Buffett

Before this article end, I would like to share,

The 4 Golden Rules of Investment

Remember these golden rules of investment in order to achieve your financial goals and freedom.

Invest Early

 - take advantage of compounding over the period of time. The earlier the better.

Invest Regularly

 - be consistent by making it a hobby. Investing is a good thing.

Invest Long-term

 - rich people think long-term. Discipline is just choosing between what you want now and
what you want most.

Invest using Diversification

 - As the saying goes, "Do not put all your eggs in one basket."

Study first before you invest in something. Make sure you have a piece of knowledge in every investment instrument that you are going to choose, especially the risk and other basic concepts.

I hope you learn from this article, thank you and God bless!

4 Comments

Karylle

6/10/2022 05:40:39 am

Hello! I would like to ask, what is the difference between common stock and preferred stock? Thank you very much!

Ralph link

6/10/2022 06:23:21 am

Hi Karylle!

When companies become publicly listed in a stock exchange, investors then can buy pieces of a company called stocks or shares. However, there are two types of stocks or shares a company may offer to the public: Common or Preferred.

So, what are the difference between the two stocks?

📍Common Stock

It entitles the owner to vote a shareholders' meetings (proportionate to the amount they own) and to receive dividends.

👉 Majority of stocks issued in the stock market comes in this form.
👉 Shareholders are last paid after creditors, bondholders, and preferred shareholders.

📍Preferred Stock

It generally does not have voting rights but has a higher claim on earnings and assets. Owners of preferred receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

👉 Function similar to bonds as investors are guaranteed a fixed dividend.
👉 Not as abundant in the stock market as common stocks.

Shey

1/1/2023 08:45:36 pm

Hello, I'm new to the community. Can I ask for an opinion, because I have 1.5M and it's only in the bank. I plan to invest in stocks, what stocks should I buy? Thank you very much and happy new year!

1/1/2023 09:27:24 pm

First, never get into something you don't understand. Your 1.5M, is it life-saving? Second, never put your life savings into high-risk investments. Practice due diligence. Study, invest in yourself. Due diligence simply means doing your homework and finding out which statements are opinions and which are facts. Beware: Too much due diligence is also called "Analysis Paralysis."

Question: What are your financial goals?

You must first decide what your financial goals are. What do you want to accomplish, and in what period? What's your risk tolerance, the amount of risk you're comfortable with? Without a clear understanding of your desires, your needs, and your potential concerns, what to invest in is not clear.

Question: Are you a first-time investor?

Here are some investment vehicles that you may consider, especially if you have no experience or knowledge in investing. Mutual Funds, Unit Investment Trust Funds, and Exchange-Traded Funds (which pool the money of many investors to purchase various securities) are a good start for first-time investors.

Reminder, before you invest, make sure you have to build a solid financial foundation. Consider the following:

👉 Know and Increase your Personal Cash Flow

You need to increase your income. Never depend on a single income, create multiple income streams. A budget is a cash flow plan that will let you know how much you can afford to invest each month.

👉 Health Care

The greatest wealth is health. Some companies provide HMO for their employees. HMO (Health Maintenance Organization) plan will help shoulder the cost of healthcare. Most medical procedures, emergency assistance, and even confinement are covered. More savings for the employee or person who has an HMO plan.

👉 Life Insurance

Getting life insurance just makes sense; it's one of the responsibilities of having a family you care about. Our family is very important to us. So if we think good for our family, we need to go for a good life insurance policy. Getting life insurance will give you the maximum benefit in the future. If someone you love relies on your income, you need life insurance. Protect yourself and protect your loved ones.

👉 Debt Management and saving early

Control your debt or your debt will control you. A lot of people go into debt just to keep up with those who already are. Eliminate debt, especially credit card debt.

Paying less in interest is like an investment gain. Don't compare yourself with others. If you buy things you don't need just to impress others, soon you will have to sell things you need. Change your mindset about money. Save money and money will save you.

Rule of saving money, "Every peso counts." Discipline and consistency are the keys.

👉 Emergency Fund

Emergencies will happen, so be prepared so they don't derail your financial plan. The main purpose of an emergency fund is not an investment, it's protection with one purpose - to protect you and your family just in case there's an emergency situation. You should set aside 6 months or more than 1-year income to help cope with emergencies and unexpected changes.