08 Jul 2018

Facts you need to know before investing in the Stock Market

Facts you need to know before investing in the Stock Market

Recently, a lot of people are eyeing investing in stocks because of the significant decline of the stock market. But of course, comes the sea of questions.

What is a stock?

A stock is a portion or “pie slice” of a company. A “public” company is the one that sells shares to the general public. Once those shares are sold, investors can trade the stock to other investors on the market.

When you buy shares of a company, you become a co-owner. As a co-owner, you have, in theory, a right to percentages of the profits the company makes but the size of those profits may vary from stock to stock.

A company can pay out a portion of the profits in the form of regular dividend checks, which may be paid quarterly or in the form of “one-off” special dividends.

How do you make money on stocks?

There are generally two ways to make money on stocks.

First, is when a company pays a portion of its profits to you as a shareholder in the form of dividends.

The second is when the price of a stock you bought appreciates in value. This means people are willing to pay you a higher price for your shares than how much you actually paid for.

If you let a stock that has gone up in value be stagnant, it automatically becomes “unrealized” gains. You lock in those said gains only when you sell them. Because stock prices fluctuate almost frequently, you never really know how much you’ve made until you sell.

So why do you have to invest in Stock Market?

Investing in stocks that can potentially appreciate in value can provide greater returns than most investment methods.

The track record of the stock market also shows that a good stock trend climbs more often than decline – reducing risk over the long-term.

Another reason why stocks can outperform other asset classes is because it can compound the value of your investment.

Companies can reinvest the profits they make to generate even more profit. The dividends you receive can also be used to buy more shares and can magnify your overall profit as well.

Here are some of the secrets to a successful stock investment:

Invest early to take advantage of compounding over a greater period of time.

If you invest Php 25,000 at the age of 25 with a growth of 8% a year, 40 years later your investment will be worth Php 543,000.

Ref: https://www.colfinancial.com/…/new_to_i…

Instead of investing just once, regularly add the same amount to your investment every year.

If you invest Php 25,000 at the age of 25, allowing this to also grow by 8% a year, plus adding another Php 25,000 every year thereafter until you retire, you will eventually retire with an estimated Php 7 Million.

Compounding and regularly adding to your investment is the key.

Ref: https://www.colfinancial.com/…/new_to_i…

Investing long term solves short-term volatility or the choppiness in value.

There are instances wherein some issues may cause prices to swing up and down whether due to economic, political or natural events. But as you can see, the PSE index always bounces back to new highs even through the lowest of times.

Ref: https://www.colfinancial.com/…/new_to_i…

Invest during diversification
One way of containing risks is through diversifying or by spreading investments in different stock classes.
Try to disperse your capital evenly to a number of stocks in different industries or sectors so as not to put too much risk in one area.

Ref: http://time.com/…/2791…/what-is-a-stock/
Ref 2: https://www.colfinancial.com/…/new_to_i…

As the famous saying goes, never underestimate the power of a planted seed because they are the trees of tomorrow. Investing your money is the same. It is always a risk, but for it to flourish, of course you have to look for healthy soil.

Research & Study by: Joyzee Ranara

Writer: Joyzee Ranara

Editor: Radge Cabral

Producer: Dr. Carl Balita