When it comes to investing in the Philippine stock market this 2019, which is better: Stock Market or Mutual Fund?
There are two ways of investing in the Philippine stock market.
The first is being a direct investor.
The second one is being an indirect investor.
Each one has its own advantages and disadvantages.
Depending on your personal circumstances and desired control, one may be more fitting for you than the other.
How to become a direct investor in Philippine Stock Market
An easy way to become a direct investor in the Philippine stock market is by opening your own trading account in a legitimate stock brokerage firm in the Philippines. By opening a trading account, you get easy and convenient access to buy and sell stocks in Philippine Stock Exchange (PSE).
The good thing is that these brokers paved the way to opening an online trading account by practically anyone, even OFWs abroad, and monitor the day to day performance of their investment anytime through the internet. (It’s just like Facebook but unlike seeing real-time updates about your friends in your news feed, in your trading account, you see real-time updates and fluctuation of the value your stocks investment on your computer or smartphone screen).
You can read a review of some of the popular online stockbrokers in the Philippines here.
Opening a trading account is the very first step you need to do to participate in the stock market directly. Once you’re done opening a trading account in any of these brokers, and added enough funds, then you can start buying shares of companies you like.
In this case, you’re all on your own.
This is what I mean by being a direct investor – you and you alone have all the control when to do all your transactions.
If you don’t do anything, your money will just be sitting in your account without any potential to earn.
If you decide to buy a stock, then you are free to do so thereby risking your money hoping for a favorable return.
If you decide to sell a stock, you can also do that anytime.
In fact, you can sell stock minutes or hours after you bought them (assuming, of course, you know what you’re doing).
At the end of each day, how much you earn or lose is entirely dependent on every decision you managed to play and execute.
From here, it is easy to see the two primary demands from a direct investor in the Philippine stock market – TIME to study and execute trades and SKILLS to come up with the best trading decisions.
Now let’s turn to become an indirect investor.
How to become an indirect investor in the Philippines Stock Market
The easiest way to become an indirect investor in the Philippine stock market is to invest in a mutual fund.
A mutual fund is an investment company that pools money from individuals (or institutions) and invests this pooled fund in financial securities – including bonds and stocks. Mutual fund companies in the Philippines are regulated by the Securities and Exchange Commission (SEC).
I call this option being an “indirect investor” because what you only need to do is to invest your money to a mutual fund company and let its assigned dedicated fund manager do all the necessary work to grow this money (or at least prevent it from losing) during the time period you’re invested.
What you can control when you invest in a mutual fund
Because you’re just placing your money in a pooled fund, you can only have control on two things with respect to the possible returns you can get in the future.
First is in choosing which type of mutual fund you will buy – which dictates where the fund is primarily investing in – equity, bond, balanced or money market (this is in the sequence of decreasing investor’s risk tolerance or aggressiveness).
Second is on the timing when to buy or sell more shares of it.
That is, you can have the option to buy more shares (or top-up) anytime or sell it back to the mutual fund company subject to its conditions.
However, you don’t have any direct control which exact stock the fund will buy or well, and when exactly they will do these trades. That is the job of the fund’s dedicated manager.
Also, since the mutual fund has fund managers and other operational expenses as a company, management fees are charged to your investments and top-ups which can decrease your potential returns.
In contrast, to direct investing, the mutual fund also usually has a minimum holding period, during which an early redemption fee is charged should you redeem(sell) your shares earlier than this holding period. (This is usually at least 30 to 90 days).
Below shows a general details overview of an actual mutual fund namely Philequity fund (an equity type of mutual fund).
Mutual funds generally perform pretty well in the long run.
You can also check here a comparison of the historical performance of various mutual funds in the Philippines. (Note that a fund’s past performance does not guarantee its future’s performance).
You can have both stocks and mutual fund
Personally, I have both investments in direct stock market and mutual fund.
I have a trading account in MakeTrade brokerage company, which enables me to perform my transactions all on my own. (I live in Metro Manila so I just requested them to pick up the accomplished application forms and other requirements from my office.)
MakeTrade as a broker provides lots of information, studies and recommendations to its clients, but at the end of the day, only I as a direct investor can make the decision when to actually hit the buy or sell buttons in my account screen. If I find out a I made losing trade later, I can only blame myself and nobody else.
Also, I have direct control over how many times I will buy/sell, and when to do it. In fact, I can buy some shares of a company, and sell it after a few days, or even within the day (if ever I want too.)
An example is shown below where I bought shares of PLDT and sold it only five days after earning a little profit.
The beauty of directing investing
This freedom to be on your own can be one of the beauties in direct investing.
If you know you can control something, your performance will then largely depend on you.
If you take the time to study, practice and improve your trading skills over time, then your earnings will follow. Ultimately, you can become a one-man team, at the comfort of your home, who is able to perform better than professional fund managers.
This, of course, is easier said than done.
But I’ve seen people who were so passionate that they decided to do trading full-time.
Certainly, you can do both – investing directly in the stock market and in a mutual fund at the same time.
And just like a stocks portfolio, you can also monitor the performance of your mutual fund investment online.
COL Financial actually now offers mutual fund via COL Fund Source, in addition to its main stock brokerage business.
First Metro Securities’ FundSmart online stockbroker also now has its platform for mutual funds.
With this service, you can monitor the performance of your stock and mutual fund investment on a single screen. (Read >> How to Invest in Philippine Mutual Funds Online)
From your review of their returns, you can then compare and do an assessment.
At the end, the decision is all up to you what to do next.
My recommendation is to open both a stock trading account and a mutual fund account.
If you open an account in FirstMetroSec or COL Financial, you can immediately buy a specific stock or mutual fund with a single platform – no need to contact a third-party agent thus saving you some mutual fund entry fees.
Compare your performance after every some regular period (say every three or six months).
From here you will have an idea if you’re better off yourself directly investing, or you find out plainly clear that the fund manager can do a better job of growing your money for you. Do this regularly to help you decide where most of your money should be invested.
Better yet, you can start buying mutual fund first, invest a bigger share of your fund here, and allot a tiny portion of your fund to direct personal trading. With this small capital, you can then in parallel start your discovery to a more profitable trading in the Philippine stock market.
(You can check a trading course here in case you want to learn all the basic necessary training and tools for a more profitable trading.).
Have fun investing!