I am sad that when I go to the bookstore, I can count with my fingers the number local investment books. It either shows us where our country is in terms of investment knowledge or the level of acceptance of non-bank investments.
I'm taking up a class being conducted by the local chapter of the RFP (Registered Financial Planner) Institute, and our professor told us that in the country's list of top investment options, ranked #2 are 30-day time deposits. Now that's really depressing. You won't fight off inflation if you invest it in that kind of instrument. The 30-day TD should be an investment for liquidity, not for returns.
Let me just post here an email I sent to an e-group I belong to, on mutual funds and investing in the local stock market.
On Mutual Funds
IMHO, I think start first with a goal. What is your objective for investing in mutual funds? Investing is an option an individual can take to fast track his way to financial freedom, but one needs to set a financial goal first.
Have you analyzed your own risk tolerance? Mutual funds may not be for everyone given the inherent risks of investing, i.e. it's not principal protected.
Apart from economic indicators, you also have to take an honest look at yourself - age, risk tolerance, amount of investible funds, how long you will leave the money with the mutual fund
In general there are 3 types of mutual funds:
- Bond Fund - invested primarily in T-bills/bonds/notes
- Equities Fund - invested primarily in stocks listed in the Phil Stock
Exchange
- Balanced Fund - combination of both bond and equities
There are many Mutual Fund Companies in the country, most of them invest in the same bonds/equities. It will depend on the fund manager's expertise to give the investors the best returns. To look for the returns on each mutual fund, you can go to http://www.icap.com.ph or http://money.inquirer.net
Besides the return, ask the financial representative about the portfolio of their mutual funds.
A good example are equities funds, although there are only about 200 listed companies in the Phil Stock Exchange (and trust me, 200 is a very small number), only a handful are considered 'stable' / 'safe' companies. Given that there are various Equity Mutual Funds out there, they will pick their own 'winners', ask them what these stocks/companies are so you can sleep at night. :-)
Hope I was able to help you :-)
On Stock Investing
I commend you for considering stock investing as part of your investment portfolio. Diversification in various asset classes is the best way to fight off inflation and distribute your risk.
To start off, there are basically two methods in making money in the stock market. One is being an investor while the other is being a trader. In the shortest definition, an investor is someone who buys a stock and holds it for a long time. A trader is someone who buys a stock and sells it based on the fluctuations that happen in the market.
There is no tried and tested formula to say which method has an edge. It really depends on your personality, level of risk tolerance, and even level of greed.
The space here will not be enough to enumerate the do's and dont's in stock market investing. But the best rule of thumb is this -
The Don't
Don't be greedy.
The Do
Keep on repeating the don't.
The other important thing is determining the total amount of money you want to risk. Remember investing in the stock market isn't for the faint hearted. Fluctuations of a stock can be +10% or -10% in a span of one week.
I think the PSE has made efforts to educate the public. Try checking their website: Http://www.pse.com.ph for updates
You may also try the http://www.citiseconline.com. It's an online brokerage firm that holds regular seminars for new stock market investors. I am not affiliated with this company, just sharing with you.
Lastly, there are two schools of thoughts in choosing what stocks to buy. One is fundamental analysis, which is the study of the company via analysis of financial statements, projecting cash flows, etc. The other one is technical analysis, which is based on reading charts to determine entry and exit points for a certain stock, regardless of whether the company is making money or not.
Until the next post gueristas.
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