Stock Market: An Overview

All of us want financial security in the future.  We plan to have our own dream house or a car.  We also want to give the best education to our children and of course when our working days are over, we will all retire.

“The wise man saves for the future but the foolish man spends whatever he gets” – Proverbs 21:20

Aside from the bible verse above which inspires me, my primary reason for investing in stocks is to beat the inflation.  You might be asking why we don’t just put our money in a bank for long-term.  Let’s say, savings or a time deposit account?  Yes of course you can but banks will just give you a measly and tiny interest rate for your money of 2.5% per annum; this is mainly for a time deposit account which is the biggest interest banks can give.  Yes you got it, only 2.5% interest per year less 20% tax of the amounting interest.  If you have 100,000 pesos and put it in a time deposit, it will only earn 2,000 pesos (2,500-500 tax) per year.  Well, if you compare this to the average inflation rate of 7% per year, time deposit interest rate is very low. I still remember in 2010, the price of unleaded gasoline costs about 40-45 pesos per liter.  At 1,700 pesos, my car’s tank is already full. But today it costs almost 2,500 pesos.  Therefore, banks are not good for long-term investments.

So where will you invest your money?

Money can be invested based on the level of risk you want.  It could be in a business, real estate, mutual funds, UITF or the stock market.  For me who still enjoy my day job, I’m investing part of my income per month in the Philippine stock market.

Stock Market: What is it?

A good definition of stock market can be found in Citiseconline’s web site, an online stock broker in thePhilippines.

Stock market is the place where you can invest in other peoples public listed companies.  You can visit the Philippine Stock Exchange website to check these companies.  A company sells shares of stock through an Initial Public Offering (IPO) to raise capital to grow their business.  For example, when you choose to buy stocks of San Miguel Corporation, you become part owner of the company.  But do take note, even if you have thousand shares of San Miguel, it doesn’t mean you will get discounts when you buy a bottle of San Miguel beer or Petron Blaze car fuel.

How will you profit from the stock market?

Your investment grows over time by capital appreciation and by receiving dividends.   Let me tell you a story of my friend to clearly illustrate capital appreciation.  Roughly 11 years ago, he bought 400 shares of PLDT at a price of 300+ per share.  So that’s about 12,000+ pesos of investment.  When the price per share reaches 600+ he was tempted to sell all his shares and take the profit off the table.  But today at the time of this writing, the price per share has increased to 2,746+ per share so his 12,000 pesos is now 1,098,400 pesos if he decided to wait and forget about his investment for 11 years.

capital appreciation

Capital appreciation works over time, so time is one of our greatest assets in the stock market.  Moral lesson: the earlier you start investing the better.  Capital appreciation is one of my bases why I decided to invest my money in stocks for the college education of my kids instead of putting it in an educational plan offered by insurance companies.

Dividends on the other hand, are the profits distributed by the company to its shareholders given in the form of cash or additional shares.  I remember, last July, I received my first dividends from SM Prime Holdings.  I’m very happy although it’s just a small amount the fact that, I didn’t work for it.    I realized my money actually grows!  I also received dividends from SMDC, AyalaLand and First Philippine Holdings.  Click here to view actual dividends.

What if the stock market is down?  Isn’t it dangerous?

When the stock market is down, most people are panicking specially the “Tsupiteros” or the traders.  But for me as a long-term investor, I’m happy!  Why?  Because my favorite “blue chips” stocks which are solid and giant companies are “on-sale”.  It’s like I’m buying sale items in Megamall where all items are 30-50% off.  My money can buy more shares than ever before and one day, when the crisis is over, these “items” will stabilize and will go back to its normal or higher prices then I earn!  For me, there’s nothing wrong investing in giant companies like SM and Ayala Land even in the time of crisis.

So instead of buying sale items in the department stores like shoes or bags, I choose to buy shares that are “on sale” in the stock market especially when there’s crisis like what happen September last year (2011).  Nowadays, my Ayala Land has a gain of 27% (after 14 months of continuous investing) while Metrobank has 20% gain.

This concludes my overview of stock market investing.

Happy investing!



The views expressed herein are that of the Website’s owner unless otherwise stated.  This blog does not solicit the reader to buy because of the articles posted here. Due diligence must be exercised before buying shares of stock.  The Website owner doesn’t hold responsibility in any manner arising from reading this blog.

Understanding Pooled Funds – by Fely Santiago

I started investing in pooled funds in 2008; then the market crashed!  I was so scared in being a first time investor of pooled funds. But today, after two years of regularly investing, even as low as P1,000.00 each month, my rate of return stands at 30 percent. Not bad for an amateur. I wish I started this 30 years ago as soon as I started earning from employment.

What are pooled funds? They are investment vehicles that offer a higher rate of return compared to bank deposits but not without risk. They are measured in terms of net asset value per unit (NAVPU) or net asset value per share (NAVPS). There are two kinds of pooled funds here in the Philippines –unit investment trust funds (UITF) and mutual fund.

UITF versus Mutual Fund

The major difference is that UITF is a bank product managed by the treasury department. Unlike in mutual fund where you buy shares, you buy investment units in UITF. Therefore you do not have shareholders right when investing in the latter.

Although UITF is a bank product, it is not covered by Philippine Deposit Insurance Corporation (PDIC). This means investors bear the risk of losing their money. Additionally, UITF is not governed by any specific law but since they are offered by the banks, they are still under Philippine banking laws regulated by the Banko Sentral ng Pilipinas (BSP).

On the other hand, mutual funds have strict regulations from Investment Company Act of the Philippines which are highly regulated by the Securities and Exchange Commission (SEC).

So what is a mutual fund? Many people still don’t understand what it is.  Well, struggle no more. Mutual Fund is like a cooperative where you put your money together. It does not matter how much each member initially puts in. Some can put in minimum required amount which is P5,000.00 in most cases; and for additional investment,  as low as P1,000 pesos. This money is then handled by a Fund Manager who is responsible for fund allocations. The Fund Manager chooses which stocks or bonds to invest on. However, he is limited by certain guidelines of investments as promulgated by Securities and Exchange Commission.

Mutual Funds are offered by investment companies independently registered with SEC. Therefore, when you buy a mutual fund share, you become a shareholder of that company and you acquire the rights of a regular stockholder; including right to vote and right to receive dividends, among others.

Types of Funds

Financial goals and risk appetite will determine which fund is most suitable for an individual. The more popular funds one can get into are:

Bond Fund

This fund primarily invests in government-issued securities. It’s like giving your money to be used by the government with the promise that the government will pay it back with interest. In short, this is your money lend to government.

It is considered risk-free because the government has two ways of paying investors: print more money and raise revenues through tax collections. On the average, Bond Fund performs four to six percent a year.

Money market fund

Similar to bond funds, money market fund also has a conservative stance since they invest in fixed income securities. These securities mature in one year or less hence, the term money market. Money market fund performs two percent a year on the average.

Stock fund or equity fund

Equity fund primarily invests in shares of stock of listed companies. The bigger allocation of equities within the portfolio allows the fund to attain a more aggressive growth rate. Thus, this is riskier, more volatile, and can result to either higher gains or high losses. Since equity fund tracks the index, the rise and fall on a daily basis is reason for the volatility of the fund.

In 2008, Philequity Fund, one of more popular mutual funds lost 41 percent.  In 2009 however, it recovered and recorded a high of 65 percent! A lot of those who knew how to invest in the mutual funds earned a lot.  For the past 16 years though, Philequity Fund grew at an average of 20 percent despite the ups and downs of the market.

Balanced fund

Balanced fund invests in both bonds and equities. It combines the low-risk-low-gain of the bond fund and the high-risk-high-gain of the equity fund.

Instead of having the money allocated on the risky equity funds, or on the conservative bond funds, the money pooled together is invested by the fund manager on both giving investors the best of both funds. Balanced fund performs 12-15 percent on the average.

Today, there are a total of 42 mutual funds listed in the country. 20 of these are bond funds, nine are equity funds, eight are balanced funds while the remaining five are money market funds.

On the other hand, there are 78 UITFs listed in the country.  32 are peso bond funds, 21 are dollar bond funds, 10 are peso money market funds, five dollar money market funds, nine peso equity funds and one dollar equity fund.

Now that we know what mutual funds are, I challenge you now to transform this knowledge to action and reap the harvest later. If you invest on a fund that can earn a rate of 12 percent a year for the next 25 years at P1,000.00 pesos a month, you will be able to accumulate P1.8 million (P105,881 in present value).

Make that P5,000.00 per month and you’ll have P9.4 million after 25 years (P552,939 in present value). So who says, it’s difficult to accumulate millions?  Continue investing ten years longer and you’ll accumulate P32 million (P606,064.97 in present value)! The higher the rate of return, the higher your money will grow in the long run to meet your needs for retirement, child education and cash fund.

So there you are! It does not take you much money to accumulate millions. What you just need is the financial literacy how and where to invest; and the discipline to put in small amounts on a regular basis that will soon accumulate to millions.

Now that you know what are pooled funds, don’t delay. Start investing NOW!

Original post can be found here.