Investing in the Philippine stock market is easy.
However, whether one will be profitable is another more important question.
In fact, this is a common challenge especially for newbies.
With no enough experience, and limited knowledge, they may have incorrect assumptions that could lead to losses when starting this venture.
This is what happened in one OFW who shared his realization.
And I have seen this happended in way more people simply because of failing to do enough study before diving in.
How to avoid losing big when starting?
Let me share three simple tips you can readily apply as a newbie:
(1) Start small and grow through time.
Starting small allows you to limit your possible losses while you’re not used to investing.
There are as many ways to earn from your trades as there is to lose money, so
this simple principle minimizes the damage you can incur in case you make a wrong move.
(2)Start investing in Mutual Fund.
The good thing about online stockbrokers now is they also allow their clients to invest not just in stocks but also in Mutual Funds.
Shortly, Mutual Fund investment companies pool money from several investors and invest this in an instrument in accordance to its design (with respect to its goals, risk tolerance, etc). Because of the variation of the purpose and investing time horizon of investors, an investment company usually has several types of mutual fund offering, all of which are managed by a seasoned Fund Manager. And among these types is the Equity Type which is a mutual fund heavily invested in a basket of equities or stocks. It is this basket of stocks that also gives you the mutual fund benefit of “instant diversification”, Divesificaton is one form of minimizing risks in investing.
In short, if you wanna experience the feel of investing in stocks but want to minimize the risks that come from limited knowledge as a newbie, an Equity type mutual fund is a good alternative.
In COL Financial and FirstMetroSec, you can buy mutual fund fom the biggest vendors just like buying stocks. Through time, you will see that your investment in mutual fund will also fluctuate, same as what would happen should you decide to buy individual stocks. The advantage here is you ride on the experience of the fund manager in terms of getting the best returns for your money. This is a much safer bet compared to counting on yourself as someone totally new who may be making buying decisions based on whatever “tip” they see in unreliable venue. You can learn more about online investing in Philippine mutual funds here.
(3) Slowly experiment with giant companies.
Once you have enough feel after investing in mutual fund, you can then choose to invest directly in specific stocks. On this, I’d suggest that you choose blue-chips, or those comprising the Philippine Stock Exchange index. This ensures that you’re investing in the biggest companies we have, and there exposed to less fluctuations compared to penny stocks.
Another option is choosing Stock Picks of your brokers in their long-term sample portfolio.
Below is a sample from COL Financial.
While brokers’ recommendations is never a guarantee that you will gain right away, you can at least be sure that there’s some studies made in coming up with their stock picks. Just make sure that you’re looking at their long-term recommendations (usually six months-1 year) and not on their short-term guides which is designed for traders.
Still another option is to bet on the index with Exchange-Traded Fund (ETF).
You do this very similar to buying specific stocks using stock code FMETF.
This ETF mirrors the whole PSE index and therefore follows the trend of the PSEi with very tiny different. Remmeber that our PSE index is composed of 30 representative companies from severla industries so when you buy an index, you’re effectively buying a basket of stocks already, which is already a form of diversification.
Index-investing is actually a good way for people who just believe the market and country as a whole will rise without the need to handpick and do the stock picking analysis.
Do a mix and match
Of course you can do a mix and match of these. You can invest most of your money in a mutual fund or index fund, and invest a small portion in a specific high-conviction stocks you personally screen. After some period, say from six months to three years, you can see which is much better for you: mutual fund investing, index investing, or doing your own thing.
(4) Trade with your play money.
The three tips above pertain to long-term investing.
But if you really want to gain real experience on the heat of active trading, you can do so with play money. By play money, I mean money you can really afford to lose. This mindset allows you to separate your emotions from your money, a common challenge of new traders. At this point, just remember that proper trading follows exact rules, violating which means you’re entering into gambling. This means setting up your own rules – the entry and exit points – before you even go into your first trade.
Doing the above approach will certainly leads you to some lessons and open you up to possible mistakes and hopefully improvements. And that is the best thing about stock market: with continuous experience and humility to start small, and grow through time, one can become better and better, rewarding you until your old age.
Have fun investing,
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