Investing in the Stock Market

Investing in the stock market is a sound option only if you understand what you are doing. Do not jump into stocks because a friend of yours made a fortune in the stock market. It is true that many have made millions in the stock market, but it is also a fact that thousands have lost their hard-earned capital.

It takes a lot of study to be knowledgeable about the stock market, but you can still obtain the benefits (and risks!) of investing in the stock market without buying stocks by putting your money in pooled funds that are managed for you by professionals. However, if you still wish to directly trade stocks, here are the basic steps:

Determine your investment objectives. The most important consideration here is your time horizon and your appetite for risk. The time horizon means the length of time you plan not to sell your stocks for other needs. The longer your time horizon, the better your chances of making money in the stock market. You must be able to let your capital stay for at least 10 years. It is a general rule that the higher the risks, the higher the returns, so you must know how much risk you are willing to accept in making your stock selection.

Have sufficient funds. Although it is currently possible to invest with a minimal amount of around P10,000, depending on the board lot table values, you must also be able to meet the minimum amount of the stock brokerage you choose to transact with. Another factor to consider is the need to diversify your stock portfolio. If you buy only one or a few stocks, you are more susceptible to price fluctuations.

Look for a reputable stock broker. Only licensed stock brokers are allowed to trade in the Philippine Stock Exchange. It is advised that you visit the PSE website for a list of licensed brokers. One advantage in checking the PSE website is that it is more current than most lists. Note that stock brokerage firms that were considered reliable before may possibly no longer be in good standing at present.

Decide on your stock picks. Base your selection on what is needed to accomplish your investment objectives. It is advised that you diversify your selection to minimize risks. Gather information on the companies you are considering. While you should listen to advice from your broker, you must do your own research to validate the suggestions.

Monitor your investment. Some experts advise for you to not spend too much time checking your stocks’ performance because it is highly likely that you would not be able to react fast enough to benefit. But there are still sound practical reasons to monitor your investments—one of the reasons is so that you can balance your portfolio.

Stock market investing indeed offers the potential for much higher returns than bank deposits. However, it is not for the faint-hearted or the financially illiterate. Before investing in the stock market, it is critical to first have a sound knowledge on stock investing.

*Originally published by the Manila Bulletin. C-4, Sunday, December 16, 2012. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.