Money is precious. As they say, it doesn’t grow on trees. But you can make it grow, even in this time of economic hardship. How? Simple. By investing wisely.
There are indeed many ways to invest in today’s markets, but none is growing faster in popularity than mutual funds. Although this investment instrument has only been recently introduced in the country, mutual funds are prevalent in European, North American and even some Asian countries. But what is a mutual fund anyway?
A mutual fund is a professionally-managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities. After realizing capital gains or losses, the investment proceeds are then passed along to the individual investors annually, through the fund manager, also known as the portfolio manager. The value of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently outstanding.
Know your investment goals.
It is important to choose investments that match your goals. Ask yourself the following questions: Why do you want to invest? How much risk are you willing to take? How long is your investment time horizon? Your answers to these questions will help determine the suitable investment for you.
Set definite and achievable savings and investment targets. Don’t invest money you don’t have. It does not help to set goals that are too ambitious or require a level of savings beyond your present financial state. Decide what you can realistically set aside for investment and work from there.
Protect yourself against inflation.
Ten thousand pesos can buy a lot more in the 1970s compared to what it can buy today. Inflation has eroded our buying power and it will continue to do so unless we invest wisely. The first step is to include inflation protection in your investment goals.
Like the famous saying, “Don’t put your eggs in one basket,” in investing you shouldn’t put all your money in one place, stock or business. Spreading your investment across different assets can help trim your risks. The prices of different assets do not always go in the same direction and even if they do the amount of change varies.
Practice peso cost averaging.
Make investment purchases on a regular basis so as to average your cost over time. For instance, you decide to invest P5,000 in mutual funds every month. On the first month, the price of the mutual fund share is P5, so you buy 1,000 shares. If the price of the share doubles to P10 the following month, you buy another 500 shares. Your average cost is therefore P7.50 per share. Since we don’t have perfect foresight, peso cost averaging allows us to improve our share cost in the face of fluctuating share price.
Buy low, sell high.
This is easier said than done. There is a common misconception that you should buy stocks when the market is good, and sell when it is bad. Without an investment plan, you would easily follow the crowd – selling when prices are already falling and buying when prices are already rising. To avoid this mistake, take time out to create your own investment plan.
Invest for the long-term.
The value of securities tends to rise and fall over the short term over time. Your ability to withstand volatility, especially on the downside, will generally result in greater returns over time. A long investment time horizon will give you the flexibility to include investments that may provide high returns but will require taking additional risks.
Balance risk and reward.
Every investment has a certain degree of risk, and its return is proportionate to the level of risk of the investment: the lower the risk, the lower the return; the higher the risk, the higher the return. Investors need to understand the levels of risk or volatility associated with their investments.
Choose a fund manager that offers you different investment options.
Every individual has his/her own investment needs. Investment needs will also change over time. What works for a 30-year-old may not work for a 50-year-old.
For more information, contact:
Sun Life Financial
12th Floor, The Enterprise Centre Tower 2
6766 Ayala Avenue cor. Paseo de Roxas, Makati City
Phone: (02) 886-6188
Call Centre: (02) 849-9888
Web site: www.sunlife.com.ph
source: wikipedia, sunlife.com.ph, photo from gizmodo.com