How much should you invest in the Stock Market?

Many Filipinos don’t invest in the stock market because they think it’s only for the rich people or that they need to have a lot of money in order to buy stocks. But this is not exactly true.

The common rule for beginner investors is to start out at the lowest amount possible and to increase from there. For example, you can start out with just Php 5,000, then add on to it in the future.

The minimum amount and the amount you will add on will depend on different factors such as the broker, the transaction fees, and the number of stocks that you will buy.

  • The broker

The amount that you need to create an account usually depends on the broker. Different brokers allow you to invest for different starting amounts. If you are signing up with COL Financial, for example, you can open an account with Php 5,000, Php 25,000 or Php 1,000,000.

  • The transaction fees

It is important to understand that not everything you spend in investing in the stock market will go towards buying stocks. If you have a certain amount, let’s say Php 20,000, this does not mean that you will be able to buy Php 20,000 worth of stocks.

As discussed previously, there are transaction fees that have to be paid when using brokers. Again, full-service/traditional brokers have higher transaction fees than online stock brokers.

If you are a long-term investor who buys stocks only about once or twice a year, the transaction fees would not be a significant factor. However, if you are an active trader and a short-term investor, many transaction fees may reduce the profit that you are getting.

  • The number of stocks

There are some investors who already know how many stocks they wish to buy. For example, a trader may want to buy 100 stocks of a company. That’s okay — however, there are those who believe that they should always buy shares in “blocks” of 100.

This leads some people to spend more than they are comfortable doing, just to meet the 100-stock “quota”. This is not exactly the case. There is, instead, a “board lot” system that has to be followed, especially in the Philippine Stock Exchange. This will be discussed in full detail in another post.

Another rule is that short-term investors usually have larger starting amounts than those who are thinking of investing in the long-term. This is because of the larger risk attached to short-term investments.

Some short-term investors also start off small, just to gain experience. But it is important to always just invest only the money that you can afford to part with for the moment. If you think you will be needing the money immediately or within the year, it may be better or safer to just place it in a bank.

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What Stocks to Buy

There is no definite, complete list of which companies you should own stocks in. The general rule is that you should try to buy those stocks that have shown continuous increases over the past 10 years on average.

You can find this out by doing research on the companies you are interested in. Some sources such as financial newspapers and websites also show lists of the highest performers in the stock market over a 52-week period.

Investors can also get their information directly from their stock brokers. Brokers offer their research materials for free, so long as the investor signs up for an account with them. This is a great help in deciding which companies to buy. You can also check the Philippine Stock Exchange and other stock related websites for historical records about a company or stock.

It is also standard practice to “diversify” — to not put all your eggs in one basket. This means that you should not only invest in one company or one industry. Why not? Because when that company or industry goes down, all your money goes down with it. It may be safer to buy stocks from different kinds of companies and industry sectors to have a balanced portfolio.

How to Buy Stocks

Once you have a stock broker, you can now buy stocks. If you sign up with an online stock broker, you will be given a username and password and you will use these when you login to their online platform. Once you’re logged in, you may now buy the stocks that you want.

If you have a traditional broker, the process is also simple. All you have to do is contact your broker and tell him what stocks you wish to buy, and how many. The broker will make the trade for you. In the past, contacting the broker is done via telephone — you have to literally place a call to give them instructions on buying and selling. Now, this traditional process is only restricted to those who have millions of pesos in their account — such as businessmen and millionaires.

When making the order, you can direct the broker to buy stocks via a “limit order” or a “market order”. The limit order is when you want to buy the shares for a limited price. For example, you wish to buy Meralco stocks at Php 300 each — but the current price is at Php 400. The broker will then wait for the price to drop before making the order.

In a market order, you will be purchasing the stocks at the current price in the market. If you don’t have the regular or traditional broker, you will do all of these by yourself under your online brokerage account like COL Financial, which you will have access to once you open an account with them.

Don’t worry, most online brokers now offer free seminars on how to get started in the stock market and how to use their platform. You just have to inquire directly or check their website for the list and schedule of seminars available.

Read the Stock Market Series:

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