Following the outcome of the national elections, the ups and downs of the stock market can give even the most seasoned of investors anxiety attacks. I am no exception. Each time I would think this blue chip stock has hit rock bottom, I would be proven wrong, and the unstable cycle just goes on.
Yet this very volatile stock market may just be the best time for new and young investors to start putting aside money. It’s never too early to do it for your golden years, or simply begin saving up for your dream condo or home, a car, or that in-demand designer watch in short supply. The point is whatever your heart desires can be yours if you invest now, and stay invested.
For the Generation Z (born between 1997 and 2012 and hitting their early 20s now) and the Millennials (born 1981 to 1996 with ages between 26 and 41), you have time on your side. In case you do make a wrong move, you can change course and time will be kind to let you reboot and grant second, third, fourth and many more chances.
#1 Tap into the magic of compound interest
Everybody in the world of investments knows this is the surest way to help grow your money exponentially. Basically, compounding allows you to earn interest on the interest you already earned from your principal investment. This will create a snowball effect and increase the value of your investments over time.
How to make this magic happen for you? Just 3 things: start investing early (like now), remain invested (no unplanned withdrawals) and stay the course (keep investing or set a regular investment plan).
#2 In case of loss, you can reboot and recover
Even the biggest investment houses in the world suffer investment losses, so don’t be too hard on yourself if you make a wrong move or bet on the wrong stock. The nice thing with investing early is you have time to recover these losses. That poor investment decision you made at 22 which kept losing money for 3 years? You can chart a new course at age 25. Better to seek professional advice so you will make the best-informed investment decision and recover what you can from that loss plus ensure a great start with your financial reboot.
#3 Set the goals you dream about
One of the best things about investing early is you can actually set the goals you really want, like traveling the world, buying a designer watch (which can also double as an investment), or setting up your own business. Older investors tend to stick to the usual goals, which are also good, but may not be too exciting for you, such as own a home, own a car, and build a retirement fund. The earlier you invest, the more goals you can set, and if you make the right bets, you can enjoy watching all your dreams realized.
#4 Okay to start small, but start now
There is this wrong perception that you need loads of money to start investing. Actually, all you need is money that you can set aside, which you won’t need to pay bills or outstanding loans. Some financial advisers would also tell you to first pay off your credit card debt, if you have any, before you start investing. The reason for this is that credit card interest is usually higher than guaranteed interest offered by banks. It does not make sense to let’s say, place your savings in a time deposit that will pay you 0.5% in interest per year, and on the other hand, you pay credit card debt at 2% interest, at a monthly rate.
I would recommend to start investing when you have P5,000 or P10,000. Choose between the stock market or mutual funds depending on your risk tolerance. The higher the potential reward, the higher the risks to your principal, so make sure to do your homework. If things don’t go too well in your first tries, remember advice #2.
#5 it’s not timing the market, but time in the market
One of the worse things an investor can do is to try to time the market. If you keep watching the market anticipating the best time to buy or sell, be ready to watch your stress levels hit the roof plus you could end up with no life. The trick is to set your highs and lows and then let time do its magic work of correcting and compounding.
Review your portfolio once every quarter, or even twice a year, especially if you are a steady investor. Some review their portfolio around life milestones, like when they get married, have kids or start a business. These impact your risk appetite as well as long-term goals so that’s actually sound advice.
Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.