This is probably the most commonly asked question about the stock market that I’ve received from my friends, relatives, and blog readers.
Well, the answer to this depends on your net worth, and I usually throw questions back to them like:
- How much money do you make?
- How much money do you keep or save?
- And how much money can you afford to lose?
Ideally, you should keep at least six to twelve months’ worth of your living expenses (also known as emergency or contingency fund) in short term liquid investments like bank savings time deposits and invest the rest of your savings in medium or long term investments, such as stocks or bonds.
You should never invest the money that you intend to use to pay for your next utility bills. Neither should you invest your child’s tuition fee hoping that it would double its value in the stock market in a short period of time.
What Experts Recommend
Experts generally recommend investing 20% of your income, but not more than 25% of your savings.
If you are below 30 years of age, you can take a higher risk with your investments. However, if you are about to reach your retirement age, you should be more conservative and risk much less money.
It is not a good idea to use more than 10% of your savings for your investments.
Also, you should never risk money that you know you cannot afford to lose.
6 Things You Need to Know Before Investing in Stocks
Before you decide to open an account and invest in the stock market, you may want to learn about these things first.
Choosing a Strategy
- For starters, you can buy and hold.
When you do this, you buy a stock and hold it for a long period of time until its value goes up.
- You can also engage in active trading.
This strategy basically involves buying low and selling high.
- Then, there is cost averaging.
This is actually an excellent strategy. It involves buying shares of stocks regularly over a certain period of time. You can buy shares monthly or anytime you want.
Choosing a Stock Broker
If you want to invest in the stocks, you have to choose a stockbroker or trading participant.
You can choose from over a hundred licensed stockbrokers in the Philippines.
You can either choose an online stockbroker, whose platform is online-based, or a traditional stockbroker, who assigns licensed salesmen to handle accounts and take orders via phone calls and written instructions.
Most stockbrokers require you to have at least Php 5,000 to open an account. You can open an entry-level account at this amount.
When you become more familiar with the stock market and the strategies involved, you can be an active trader and increase your investment to Php 25,000.
If you think you are ready to be a premier investor, you can go ahead and invest Php 1,000,000.
Opening an Account
You have to download and complete the forms from your preferred stockbroker. Afterwards, you may send in your requirements.
When everything is ready, you have to fund your account. It is very easy to fund your account if you are using an online stockbroker.
Online banking can be done anytime, anywhere.
Making your first trade
Once you have your stocks account ready and you’ve done enough research on the stocks that you want to buy, the next thing to do is to put your buy or sell order online.
You can also call your stockbroker to inform them of your buy and sell order.
Tracking your Investment
Of course, you need to keep track of your investments. You need to monitor your account to ensure that everything is going well.
Simply log into the website of your stockbroker and check the information regarding your investments as well as your transaction histories.
With some online brokers, you can view the history of your transactions for the last 1 year or 12 months.