A Beginner’s Guide To Investing: Did You Know You Can Start With Just P500?
A financial coach gives us the rundown.
If you ask any financially independent adult about how to achieve financial freedom, they would tell you that saving money every month is not enough (living within our means and building our emergency fund are part of the equation too, by the way). If we only save, we’ll be working for money until we’re old and exhausted.
This is why several experts always tell us to invest, but the concept seems too vague, doesn’t it? The word “investment” can be a little intimidating, especially if you’re not knowledgeable about real estate, cryptocurrency, or the stock market.
For us newbies to truly understand what “investing” means, OneLife.ph spoke with Financial Wealth Coach Chriselle Soco to give us a rundown.
For Soco, investments are more like a plan than a product. There are investment vehicles that take us from Point A to Point B, such as cryptocurrency, the stock market, or a Variable Universal Life / Variable Unit Link (VUL) insurance. Whichever kind of investment it may be, proper planning and a well-researched investment plan will help you grow your money.
According to Soco, there are two types of investments: Indirect Investment and Direct Investment.
“Indirect investments are investments made in vehicles that pool investor money to buy or sell assets. The investor is not in control of the money because there is a Fund Manager in charge of doing all the work,” she explains. “All you have to do is invest your money consistently and on a long-term basis. Though it seems convenient, it also has risks such as not being able to control which stocks/bonds your money is being invested [in].”
An example of an indirect investment is getting a VUL from an insurance company.
Direct Investments, on the other hand, are investments where the investor owns and manages his assets by himself, which means that you are 100% in control of your money.
“This is a bigger responsibility for you because you’d have to carefully analyze the vehicle you chose and you would also have to develop and learn strategies in order to make your money work for you,” says Soco. “An example would be trading. You will need time and patience to learn how to trade through the stock market, forex market, and cryptocurrency trading. Otherwise, you might be putting your money at a big risk of losing it.”
Why it’s important for young adults to start investing
Young adults have the advantage of time, which allows them to build an investment portfolio, and as plan for retirement, even if it’s decades from now. According to Soco, “Investing [while you are] young is the first step to being financially free in the future. This is what we call ‘long-term investment.’”
Like all things, investing is not a magical plan that solves all our problems. We need to be thorough, patient, and committed in researching about the right path for our lifestyle. And like everything else, it has risks too.
“Risk is any uncertainty with respect to your investments that has the potential to negatively affect your financial welfare. These are things beyond our control,” says Soco. An example of this would be the volatility of market conditions, which can causeinvestment values to rise or fall.
Another type of risk is a “‘business risk’ [like] corporate decisions, such as whether to expand into a new area of business or merge with another company, [which] can affect the value of your investments. If you have an international investment, some events within that country can affect your investment and they are often called ‘political risk’ and ‘currency risk,’” she adds.
How much should you invest?
These are beginner-friendly investments for young adults, as recommended by Soco:
- Pag-IBIG MP2 / SSS PESO Fund
For as low as Php 500, you can invest using these platforms.
Soco says that investing in stocks is admittedly risky, but it is considered to be the most profitable over time. “You would need to know when the best time is to buy and sell. Stocks are a good investment for beginners who are looking for long-term investments. You would need about Php 5,000 for this,” she adds.
If you’re not a fan of taking risks, less volatile investments would be a better fit for you.
According to Soco, bonds are “debt obligations issued by companies and treasuries.” But the good thing about them is that they pay a set amount over a specific period, regardless of the company’s gains or losses. To start, she says that you may need around Php 8,000.
- VUL Insurance
This involves pooling funds from different investors and allocating them in various assets. “This is one of the best investments for beginners, because, unlike in direct stock investing, a professional fund manager makes investment decisions for the investors,” explains Soco. “The minimum amount needed may vary from Php 1,000 to 3,500.”
How to start investing
Before becoming an investor, take the time to research and ask questions. These are crucial to growing your money.
“Make sure you have paid off your debts, [and] make sure you have an emergency fund set up already before you invest,” Soco suggests. “Make a plan. Why do you want to invest? When do you want to enjoy the gains you have with investing? Who is this for? Be specific. Decide whether it’s a long-term or a short-term goal.”
Aside from these, Soco recommends evaluating your financial blueprint, a.k.a. how you manage, earn, and grow your money.
“I highly suggest that you check-in with your finances if this investment is something you can consistently do. In order to make your money work for you, you must be consistent with investing it. There’s no such thing as investing once and gaining millions immediately.”
Most importantly, it’s important to invest in yourself. Read books, attend webinars, and learn new skills that can help you in the long run.
“When you grow, develop and invest in yourself, the money will follow!” Soco says. “There are so [many] things you can do to grow and develop yourself—you’ll be surprised by how much you’ve grown [as an individual] through your experiences, but also your net worth [and] network.”