Stock Market Investing For Beginners

With interest rates in time deposits no longer keeping up with inflation, many people are looking for better ways to invest their money. For those who are willing to take more risks for higher returns, investing in the stock market is a good option. Unlike bank deposits, however, you need to know about the stock market in order to invest wisely.

The stock market is the place where shares of stocks are bought or sold. However, you need to have a stock broker to carry out your transactions since you must have a seat in the stock market to participate in the trading. There are presently brokers that allow you to trade over the Internet. You need to have at least 10,000 pesos (as of Jan 2012) to be able to invest in the stock market.

Since there are many scammers nowadays, you should check if a broker is reputable before transacting with them. You can do this by visiting the PSE website (www.pse.com.ph) for a list of their accredited brokers. A good broker not only handles your trades but also gives out information on what stocks to avoid and what to buy, besides other important guidance. However, you must also double check if the advice is accurate.

An important thing you must learn is that you actually become a part owner when you buy the shares of a company. Because of this, you share in the risks of its operations. When a company is gaining in profitability, the price of its stocks also tends to increase. However, if it incurs losses, its stock price is almost certain to go down; and if it goes bankrupt, you may lose your entire investment. In addition to the potential increase of the stock price, you may also earn if the company declares cash dividends.

There are many kinds of shares you can buy. Some of the types are common shares, preferred shares, Class A shares and Class B shares. Common shares can vote, while preferred shares are normally not allowed to vote but have priority over common shares for claims on the assets of the corporation. Class A shares are reserved for Filipino investors, while Class B shares can be purchased by both Filipinos and foreigners.

You will also learn that some stocks are blue chips. Blue chips are stocks of companies with the best reputation for stability, earnings, and management. This is the type of stock for conservative investors since blue chip stocks are the least likely to go bankrupt even in economic turmoil. But their disadvantage is that they are pricey.

If picking and monitoring stocks is too much of a bother, you can invest in mutual funds that are handled by professional fund managers. In this case they will just charge you a fee for investing your funds.

Investing in the stock market promises higher returns, but it should only be for the long-term investor. It is certainly not a get-rich quick scheme, and trying to treat it as such will probably make you lose your investment. Before investing, you need to know the basics first.

*Originally published by the Manila Bulletin. 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.