Suck at money? Congrats. You’re part of the 99 percent of people in their 20s floundering when it comes to finance. Adulting is hard, and money is harder—especially when it’s your own and not your parents. My Two Cents is here to break down everything you need to know about finance, business, and entrepreneurship. We’ll tackle all the basics, from how to get a business permit to how to invest in stocks, to educate the fledgling adults on how to not go broke.
Welcome to the idiot’s guide to money. Tenth lesson: Where and how to invest money.
As 2019 comes to a close, here’s one thing you should add as one of your New Year resolutions that you can and should fulfill: investments. New year, new (financially responsible) me. With the New Year fast approaching, it might be time to review your money spending habits in 2019 if you want to achieve your financial goals in 2020, and perhaps every year after that.
Why we don’t invest
Investments are one of the smartest moneymaking decisions a person can make, but unfortunately, it’s not as big in the Philippines as it is abroad. There are number of reasons for that, with the main one being the relatively low income of most working Filipinos that requires them to live paycheck to paycheck. For those who do make enough money, some reasons that stop them from investing include lack of financial knowledge and the need for instant (not delayed) gratification.
Filipino culture is hardwired for small, not big, goals, making the motivation to invest in long-term bonds and funds difficult to muster. But for the sake of your family, and perhaps just your personal financial goals, investments are the road to building wealth for true financial stability.
Where to start
Once you’ve decided on making the big step to invest, first make sure you’re actually ready to. One way of doing this is by making sure you already have the right attitude and behavior for a big responsibility like investing.
First, you should ask yourself if you have good money (and debt) management. Can you follow a budget? Do you spend spontaneously? Investments aren’t like an ATM card. This is money you’ll lock away for a long time and will have to do without until the term is over.
Also, make sure you already have an existing emergency fund before setting up an investment fund. As mentioned before, you can’t rely on investment money for everyday spending, so having a reliable (and large) emergency fund is important.
Last, do you have life insurance coverage? If not, then don’t consider setting up and investment fund just yet. Because the first investment you should be making is for your life—and your beneficiaries if ever that life ends.
How to invest money
If you’ve determined that you’re ready to really invest, here’s how to start. Contrary to popular belief (caused by lack of financial education), you don’t need hundreds of thousands of pesos to set up an investment fund. While it depends on what investment vehicle you choose, some, like time deposits, require as little as P1,000.
Investment vehicles differ mainly in their level of risk. High-risk investment vehicles (like stocks and equities) can potentially give you higher return of investment, while the opposite is true for low-risk investment vehicles (like simple savings or time deposits).
With that said, now it’s time to determine what type of investor are you: conservative (low-risk investments), moderate (medium-risk investments), or aggressive (high-risk investments)? Now it’s a matter of deciding how capable (in terms of financial stability) and willing (in terms of risk-taking) you are in your investments.
Before you say you’re willing to risk it all for the slight chance of a high return of investment, make sure you’re knowledgeable about your investment vehicle.
Common sense says, don’t invest in something you don’t understand.
Type of investment vehicles
There are far more investment vehicles than the ones listed below, but here are some of the most common forms you’ll encounter on your investment journey.
Bonds
Bonds, also known as fixed-income securities, are basically loans you give to the government or a company. Unlike traditional loans, this time, the government or company owes you money. In return for purchasing a bond, the loaning entity will pay you interest during a set period throughout the year, as well as a stated sum on the maturity date. These are low-risk investments that will give you about one to five percent interest per year, but some bonds are known to return more. You can get these at banks and brokerage firms.
Mutual Funds
With mutual funds, you’re able to buy an entire “basket” of stocks instead of individual stocks. This mutual fund is handled by a fund manager at a trusted stock brokerage. A group of people basically pool their money together into this mutual fund, which will purchase stocks from the best-performing companies in the stock market. The appealing part of a mutual fund is that it’s designed for people who don’t have the time to handle their own investments, and trust someone else to do it. This is a pretty low-risk investment, but that can change depending on your preference of “baskets.”
Stocks
Arguably the most popular form of investment, this is a risky vehicle that also promises some of the highest returns. You can buy and sell stocks on the stock market and receive dividends from a company’s profit. Stocks are far more complicated as they’re not locked in for a certain amount of time, like bonds. Your success depends largely on your or your stockbroker’s strategy.
Real estate
Real estate is probably the most underrated form of investment. It’s a medium-level risk vehicle because of its illiquid nature. Return on investment can come in many forms, such as rental income, appreciation of property over time, or simply buying and selling property. This is handled best by real estate brokers, and made for investors with existing large capital.
Where to go
Head to your bank or one of the Philippine Stock Exchange’s trusted brokerage firms to open your investment account. They’ll direct you on how to set one up, and if you choose a brokerage firm, you’ll be guided by someone who can further help you on how to invest money.
