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 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.