Building an investment portfolio is extremely important towards helping people supplement their exisiting salary and building a long-term financial plan that would lead to total freedom during their later years.
Financial independence is simply a state of having sufficient personal wealth to live, without having to work actively for basic necessities. It should eventually be the goal of every Filipino as they get more affluent. As statistics show that the Filipino economy, and the spending power of the people increase, that opens up many opportunities for investing.
There are many types of investment and, ideally, the one you choose should be the one that’s the most suitable for your objectives.
Often regarded as one of the safest investments, bonds are securities that are founded on debt. Whenever you purchase a bond, you are lending out your money to a company or a government, and in return, they give you interest on your money and eventually pay you the entire amount back, along with the interest.
With the Filipino government currently having concrete and effective anti-corruption measures and laws, buying bonds is relatively risk-free, and definitely more secure than any other investment type. The domestic bond market consist mostly of short and long term bonds, mainly issued by the national government. There is also the Philippine corporate bond market that has been growing rapidly over the years despite it being relatively small to government bonds.
Of course, that safety and stability comes at a cost, as there is little potential return because of little risk. But, dubbed a beginning investment choice by many new investors, purchasing bonds can be a secure way to get fast, secure income, without much effort and risk. Because investments are often stackable you can be taking up other investment methods concurrently with your bonds.
Bonds are usually sold in USD5,000 denominations and with the cost of living still relatively low in the Philippines, more disposable income can be placed into bonds, and the ability to invest in bonds is definitely attainable within a Filipino's 20s. The best advantage would be that you won't be getting into any substantial risk like the other investment types.
More details on bonds can be found here and here.
These are the two basic securities you should know about investing: equity and debt, which basically form the two most common investment types, stocks and bonds respectively. Both have in-roads for beginners in Philippines to venture into without much risk, and even if you do not have the funds and resources to go into them currently you could be getting into them once your job remuneration increases due to promotion and more.
Once you become more familiar with these two basic securities, you could get into more advanced ones like Forex, that are more speculative. Until then, you would be in wiser and better financial shape, building capital with bonds and stocks.
This is one of the most common ways to invest, but is part of a more risky, volatile category than bonds. When you purchase stocks, or equities, you essentially become a business part-owner. You are able to vote at a shareholders' meeting and you are able to receive any profits that the company allocates to its owners. These are often referred to as dividends.
Bonds provide a steady stream of income, but stocks, on the other hand, are always fluctuating in value on a daily basis, and you can only make money if the stock increases in value, and that might not even happen. There are, however, always high potential returns, but you must assume the risk of losing some or all of your investment.
There are basically two different main types of stocks: common and preferred stocks. If you are a starting investor in the Philippines, you would want to go for preferred stocks, even though they offer no voting rights like common stocks, as they are more secure sources of dividends. Certain companies will break stocks down to different classes, with some having more voting rights for more control of the company for these groups.
Knowing these basics is paramount for any sort of success in the stock market, and if you do not know them yet it's best not to venture into it yourself: find confidants who are willing to guide you.
Thankfully, there are less riskier alternatives in the Philippines: Prudential Financial, which is a highly reputable American company, sells annuities, which also offers stock-like dividends, but without the risk of the stock market.
You will also need a starting amount of USD4000, at least, with an additional advisable amount of USD2000 for any transaction fees, making stock investments a more commitment-heavy endeavour compared to bonds.
Beginner Filipino investors (in their 20s) are advised to invest in private companies instead, mutual funds (which will be touched on later) or with annuities, but once you have built enough capital (perhaps in your 30s) you could venture into the stock market itself.
A mutual fund is basically a collection of both stocks and bonds, and retains many of the advantages in both. You will be pooling your money with other investors, who will all be under the portfolio of an investment manager who will select specific securities for the group. The focus could be anything: large stocks, small stocks, government bonds, corporate bonds and the list goes on.
The best advantage that all beginning Filipino investors can take away from mutual funds is that they can invest their money without the time or the experience needed for a sound investment. You would get much better returns as well, because you would be providing resources to a professional who would give you clear indications on where there would be better returns. They would also be giving clearer advice on just how much funds to put in at any given time, whether to go aggressively or slowly.
The costs needed to invest in mutual funds are more complex though and a more intricate look can be found here. Expect to pay the most here though, as administrative costs can be high. Although perceived risk here is low, the high cost of mutual funds are not one for beginning Filipino investors to deal with early on.
About Our Guest Blog Contributor: Jeremy is a firm believer in saving and investing money. His only regret is not doing it earlier in life. He hopes to share his financial knowledge to as many youths as possible. He is also a resident writer at local online shopping deals site ShopBack.
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