5 Things to Consider before Investing in the Stock Market
Investing in stocks is one of the most profitable investments you can make as an investor.
The Philippine stock market is pretty lucrative. However, if you are not careful, you can lose a significant amount of money.
This is why you should know about the fundamentals of investing before you actually make investments.
1. First of all, you should identify your investment goal.
- Why do you want to invest?
- What do you expect to get from it?
- Do you want to make it your source of income or do you want it to be your form of saving up for your retirement?
Your goals will ultimately dictate which investment you should make, whether it is in the stock market, insurance, fixed-rate investment, or time deposit.
2. You have to know what the stock market is.
If you do not have any idea on what it does, you should study it before you plan to make an investment.
The stock market is actually a place wherein you can buy shares of companies, such as Jollibee, SM, BDO, etc.
Make sure that you attend seminars and training so that you can be guided accordingly.
3. You also have to identify your risk profile.
Will you define yourself as a risk taker or a conservative investor?
Your investing strategy must reflect on the stocks that you buy. Remember that some stocks have great earning potential, but at the same time they come with great risks.
Conversely, there are stocks that remain steady as the market goes up, but does not have a lot of damage when the stock market crashes.
- Assess yourself.
How much do you think you can invest?
Make sure that you factor in your financial status and career. If you are doing well and have no problem paying for your needs as well as having some savings, then you can go ahead and be an aggressive investor.
4. You should set aside some money and time for your investments.
When you trade in the stock market, remember that you do not have any guarantee for returns. This is why you need to set aside some money for it.
As an investor, you need at least Php 5,000 to open a trading account.
- Remember that the more funds you have, the better your chances are at diversifying your holdings to minimize risks.
A lot of experts recommend allotting not more than 25% of your savings to play safe.
If you are about to retire, you should risk less money and be more conservative.
Do not put more than 10% of your savings.
Never risk anything that you cannot afford to lose.
5. Don’t put all your eggs in one basket
While all investments involve some degree of risk, it is important that you know how to diversify and balance your portfolio.
The stock market is one of those financial instruments that has the greatest risk and highest potential returns.
- Avoid investing in just one company or stock. In other words, don’t put all your eggs in one basket.
Diversifying your portfolio or investing in different companies reduces risk. We can do our research on the financial status and background of the company, but we have no way of knowing which of them will perform well or poorly, or when.
When your investments are spread out over several companies, those earning profits can cushion the ones that are not as profitable.
- Similarly, don’t invest all your money in the stock market alone.
Learn how to invest in other financial instruments like mutual funds, UITF, or VUL.
This way, in case the stock market doesn’t do well, you have other investments to count on.
Prepare your requirements
Once you decide to finally invest in the stock market, you will need to present requirements, such as a couple of valid ID’s, a proof of billing, and specimen signature cards.
Once you opened an account, you need to choose a stockbroker and monitor your investments.
You may visit the Philippine Stock Exchange’s official website at www.pse.com.ph to get a list of the accredited stock holders.
Make sure that you only transact with reputable and legitimate stock brokers.
Read the Stock Market Series:
- Stock Market for Beginners: What it is and How it works
- How to Choose a Stock Market Broker in the Philippines
- How much should you invest in the Stock Market?
- Stock Market Strategies: How to Analyze and Value Stocks
- Stock Market Strategies: How to Maximize your Profits and Minimize your Losses
- 5 Possible Risks in Investing in the Stock Market
- What you need to know about the Philippine Stock Exchange