Know the 4 Golden Rules of Investing before you Invest!

If you are in search of an investment that yields high returns and low investment capital, you should consider putting your money in the stock market.

Even if the Philippines is not as prosperous as other countries, you can still make a lot of money by investing in stocks.

In fact, a lot of people have already made millions by buying and selling stocks.

However, there are also a lot of people who have lost millions due to negligence, ignorance, and sometimes bad luck.

If you want to minimize your risk of losses, you need to have adequate knowledge of the stock market.

What are Stocks?

Stocks are ownership shares in a corporation. They are typically sold and bought at the stock market.

In the Philippines, the stock market is governed by the Philippine Stock Exchange (PSE).

When you become a shareholder, you can take part in the growth and success of the corporation by earning dividends and through price appreciation.

Before you invest, see to it that you possess self-discipline as well as follow the four golden rules of investing in the stock market.

These four golden rules are:

  • invest early
  • invest regularly
  • invest long term, and
  • invest with diversification

1.You have to invest early so that you can benefit from compounding longer.

For example, if you are 25 years old and you invest Php 25,000, your money can potentially grow by 8% in a year assuming a rate of return of 8% per annum (the PSEi has averaged about 10%).

Over 40 years, your money will grow to Php 543,000.

In another example, if you’re 35 years old and you invest Php 25,000, your money can potentially grow by 8% in a year and over 30 years, it will grow to Php 215,000.

See the difference?

That’s the power of compound interest.

The earlier you invest, the more money you can reap in the future.

You have to be mindful of your investments, though.

Ideally, you should invest according to your age. Your age will practically determine if you should be a conservative or an aggressive investor.

Millennials or individuals between 20 and 30 years old can take high risks and be aggressive investors. This is because they still have a lot of time ahead of them to get back up in case they incur losses.

Those who are older should take medium to low risks.

2. You have to invest regularly.

It is not enough to just invest one time. Each year, you should make an effort to add the same amount to your investment to make a significant difference.

Using the same example above, adding another Php 25,000 to your previous investment will eventually yield to Php 7 million by the time of your retirement.

3. You have to invest long term. 

Remember that long term investments are better than short term gains. Corporations also need time to grow and improve.

As a stock market investor, you should remain open to the possibility of prices going up or down, depending on the economy.

Nevertheless, you should not worry because the PSE always manages to bounce back during tough times.

4. Finally, you have to invest with diversification.

Your investment choice should always go together with risk management.

One of the best ways to manage risk effectively is to diversify or spread your investments around.

You should avoid putting all your investments in just one asset class. This way, you can stay protected in case something unforeseen happens.

It is ideal to maintain good balance in your investments.

For a more detailed explanation of these 4 golden rules of investing, please visit the COL Financial website.

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