As I mentioned in one of my previous blogs, investing is the best way to grow your money. Investing is making your money work so that it makes more money for you. Investing your money is said to be the most effective way of building personal wealth and attaining future financial security for yourself. It also safeguards your capital or savings against inflation which erodes the purchasing power of your money.
There are several investment vehicles but in this article I will be focusing solely on stock market investing. What is the stock market? How do you start investing in stocks online? How much money do you need in order to start investing?
What is the Stock Market?
The stock market is a place where you can buy and sell shares of publicly listed companies. Years ago, you needed a traditional stock broker to place trades for you if you wanted to invest in stocks and shares. But today, the internet has swept all of that away. You can now buy and sell stocks and shares online, quickly, easily and cheaply, without ever speaking to a stock broker. All you need is a computer with a stable internet connection and some spare cash in your bank account.
What are Stocks and Shares?
Stocks or shares represent ownership of a company. They are issued by companies to raise capital in order to grow the business or undertake new projects. Thus, anyone owning stocks or shares of the company is called the company’s shareholder or stockholder. Being a part-owner, you partake in the performance, growth, earnings and profits, as well as losses of these companies.
Why do companies issue shares to the public? Instead of borrowing money from the bank, the company issues shares in order to raise money since they won’t need to pay for an interest. With the stock market, they sell their share of stocks to the public and just share the profits to their stock holders.
How do you make money in the stock market?
There are two ways you can make your money grow in the stock market – either through capital appreciation or through receiving dividends.
a) Capital appreciation or capital growth – this means the market price of a stock increases. In simpler terms, the company you own is worth more than when you bought it. This is where the popular rule “buy low, sell high” originates from. You buy something at a low price and sell it at a higher price, the difference of which becomes your gross profit.
b) Dividends – are your share of earnings in the company as an investor. Dividends are given in the form of cash and stocks. But why would the company declare dividends? Simply because they are also shareholders of the company and dividends are their way of paying themselves.
Steps to investing in stocks online
1) First, you need to find an online broker.
One needs a stock broker to invest in the stock market. When looking for an online broker, you must consider the costs of each service the brokerage provides and the level of support you will need from qualified brokers. If you’re a beginning investor with little starting capital, it would be best to pick brokers with the lowest fees so that more of your available money is put into stocks rather than transaction fees.
As a new investor, you may wish to start with a broker that can provide personal advice for your investments. Most online brokers today offer services such as company research and investment guides to help you and some even let you set up a dummy account to get the hang of investing before committing real money.
Some online stock brokers in the Philippines include: COL Financial (www.colfinancial.com), First Metro Securities Brokerage Corporation (www.firstmetrosec.com.ph), BPI Securities Corporation (www.bpitrade.com), and BDO Nomura (www.bdo.com.ph/bdonomura). To get a complete list of accredited stock brokers, you may visit the Philippine Stock Exchange (PSE) website at www.pse.com.ph.
Personally, I use COL Financial, the largest online brokerage in the country and the most active when it comes to promoting stock market education. They offer free seminars to their customers and the general public and have launched an EIP (Easy Investment Program) for passive investors. I am not paid to promote COL Financial but I highly recommend them as a satisfied customer myself and also as per recommendation of the Truly Rich Club.
2) Open an online trading account.
Once you have chosen your online stock broker, you can then open a trading account. Opening an online trading account is pretty easy just like applying for a bank account. You submit the required forms and documents, and the initial amount necessary and then wait a few days for your account log on details to be emailed to you.
Once you set up an account with an online broker, you need to fund your account so you can start buying and selling stocks. Most stock brokers require a minimum of P5,000.00 as initial investment. However, the more funds you have the better you can diversify your holdings to minimize risks.
3) After funding your account, you are now ready to buy your first stocks.
If you do not know what particular stocks to buy, it is highly recommended that you start your stock market self study. Read as much as you can about the companies you’re interested buying. If you do not bother studying particular stocks, you can just buy into a mutual fund which is composed of a wide variety of stocks.
I encourage you to join the Truly Rich Club by Bo Sanchez, it’s the best guidance out there when it comes to investing in the Philippine stock market. You will receive a stocks update newsletter every month telling you all you need to know about your stock investments.
4) Place your order.
Unlike having a traditional broker where you communicate your order through a phone call or text message, online trading allows you to place your order directly through the internet. Once your order is completed, your stock broker will give you a confirmation invoice indicating the details of the transaction.
5) Monitor your investments and evaluate your investment strategy.
Monitor the movement of your stocks in your portfolio periodically to see if it’s working as planned. You may wish to add to your stock portfolio from time to time or allocate some funds to other investment platforms according to the changes in your personal circumstances and goals. You may also want to dispose stocks that are not moving and replace them with more aggressive ones, or add more conservative ones to reduce your risks.
Here’s a screenshot of my 7-month old portfolio in July 2017. Sure I have some paper loss but my gains are a lot more.
Why should you invest in the stock market? The stock market may not be the only type of investment present in the capital market but history has proven that over the long term, investing in the stock market has outperformed all fixed-income instruments and it also offers good protection from inflation.
One important thing to note is that the stock market operates on the power of compounding, which makes time your greatest ally. It makes your investment grow exponentially when your earnings or dividends begin to generate their own earnings. Yes, investing in the stock market is riskier than leaving your money in the bank, but the potential rewards are far greater.
Have you started investing in the stock market? If not, start today! Anyone can invest in the stock market, even you. The stock market is a readily available choice of financial vehicle for you if you want to make your hard-earned money work even harder for you.
Millionaire or not, everyone can earn in the same battle field.