Today I will share a super-newbie guide on how to invest in stock market. As the title says, this will focus on newbie investors or those who are just starting out in stock market investing. If you’re a beginner, this might help and provide you additional information in your stock market investing journey.
If you’re a professional investor or a seasoned investor, this might not be for you. Perhaps you can help us by sharing your knowledge and giving smart advice on how to invest in stock market.
If you’ve been reading this blog for a while (thank you!) you’ll see that we talked about the basic of personal finance in previous articles. Pinag -usapan natin ang pagbubudget, pagbuo ng emergency fund, setting financial goals, insurance, and basic investing.
Those are the basic steps we need to take or understand before we dive into the different investment vehicle that will help our money grow. In fact, my first post on this blog is the best investment that could give us more than 1000%, which is investing in ourselves.
I strongly suggest especially to other newbies to follow those steps first before diving to a more advanced topic or venturing to different kind of investments.
If you’re done, that’s good to hear. If you’re ready to know how to invest in stock market, let’s go ahead and start.
What are stocks?
Stocks are shares of ownership in a corporation. When you buy stocks of a publicly listed company, you become a stockholder or shareholder of that company.
In other words, you become part-owner of that company. Meaning, you participate in that company’s growth and future profits but you may also lose if the company suffers a loss or performs below market expectations.
What is the Stock Market?
A stock market is a place where stocks are bought and sold. The Philippine stock market is the place where people can invest in ‘publicly listed’ companies in the Philippine Stock Exchange (PSE).
The Philippine Stock Exchange, Inc. (“PSE” or the “Exchange”) is a private organization that provides and ensures a fair, efficient, transparent, and orderly market for the buying and selling of securities.
PSE traces its roots from the country’s two former bourses: the Manila Stock Exchange (“MSE”) and the Makati Stock Exchange (“MkSE”). Founded in March 1927, the MSE was the first stock exchange in the Philippines and one of the oldest in Asia.
MkSE, on the other hand, was established in May 1963 and became the second bourse to operate in the country. While trading the same listed issues, MSE and MkSE remained separate entities for almost thirty years.
December 23, 1992, marked a milestone for the Philippine capital market when the MSE and MkSE were unified to become the PSE. At present, PSE maintains two trading floors—one in Pasig City and another in its head office in Makati City.
How can we make money on the stock market?
As some of you may already know, there are two ways on how we can make money in the stock market. The first one is from the price increase of stock or capital appreciation and the second way is from dividends.
Let’s get a more simplified explanation.
1. Price increase of stock or capital appreciation
Capital appreciation is an increase in the market price of your stock. It is the difference between the amount you paid when buying shares and the current market price of the stock.
However, if the company doesn’t perform as expected, the stock’s price may go down below your purchase price. For example, if you buy a share of stock at Php100.00, and it rises to Php110.00, your capital appreciation or gain is Php10.00.
Keep in mind, though, that you only realize your gain of Php10.00, if you sell at Php110.00. If you choose to hold it and it further increases to Php150.00, your capital gain would be Php50.00.
However, if your stock decreases to Php100.00 then sell it at that price, your capital gain is zero.
Dividends are paid out to shareholders, representing earnings of the company that is not going to be reinvested in their business. In general, there are two types of dividends that can be given by companies: cash and stock dividend.
A cash dividend is the earnings for every share of stock declared by the company. So, if the company declares a dividend of 25 centavos per share, a stockholder with 10,000 shares will receive a cash dividend of Php2,500.00, gross of tax (Php0.25 x 10,000) in cash.Stock dividends are additional shares given to shareholders at no cost. If the company declares a 25 percent stock dividend, a stockholder with 10,000 shares will be entitled to an additional 2,500 shares of stock. These shares can also be sold anytime after the shares have been issued.
Read more about dividends here.
Why invest in stock market?
History has proven that investing in stocks over the long-term provides potentially higher returns and protection against inflation than other fixed-income instruments, such as savings accounts, time deposits, government securities, and bonds.
You can see the image above the history of yield from the stock market (taken from COL’s Financial website). The image shows highest return over any other paper assets investment vehicle in the long run.
When to start investing in the stock market?
The longer your time horizon is, the more time you have to make your money grow. Compounding is, in fact, the single most important reason for you to start investing right now in stocks.
It is the multiplier effect that occurs when earnings or dividends on your investments begin to generate their own earnings. Every day you are invested is a day that your money is working for you. Investing helps you ensure a financially secure and stable future.
Note: The above hypothetical examples are assumed to grow by 10% a year. This is for illustrative purposes only.
Those who start investing sooner rather than later have a tremendous advantage. If you keep your money in good quality stocks over the long term and then reinvest the dividends earned as you receive them, your investment grows exponentially over time.
How to invest in stock market?
Getting started in the stock market is a simple process. To simplify, we’re sharing the five steps below.
1. Choose your stockbroker or trading participant.
There are over 100 licensed stockbrokers accredited by the PSE. Your choice of stockbroker should depend on the type of service you will require and who will best suit your needs. The types of stockbrokers can be classified into:
Traditional – Traditional stockbrokers are those who assign a licensed salesman to handle your account and take your orders via a written instruction or through a phone call.
Online (via the Internet) – Online stockbrokers are those whose main interface with their customer is through the internet. Clients execute their orders and access market information directly online.
* See the list of the online stock broker in the Philippines on my new article here.
From own experience, I suggest COL Financial as a stock broker. They are my current stock broker right now and I’m very satisfied at their service. They have a simple yet best online platform.
They are also offering a FREE stock market seminar every week. You can open an account with just 5,000 pesos. See them here.
2. Open a stock brokerage account.
Opening an account with COL Financial or any other broker is very easy. You just need to download the forms, complete them, attached the requirements and send it back to them. The best and easiest way is to get to their office to personally open an account.
In the future post, I will share the exact steps on how to open an account in COL (you may also check their website).
3. Fund your account
You need to fund your account to purchase the stock you want to invest in. Funding your account is easy nowadays especially if you chose to have the online stock broker.
Almost all of them accept online banking transfer which can easily be done if you have an online account in your respective banks.
You can also fund your account via bank deposit or personally depositing the money to your broker’s office.
4. Place your buy or sell order either online or by making a phone call to your stockbroker.
Placing a buy and sell order could be a long discussion. I will create a separate article for that in the future. For now, it simple means to order or sell the stock we decided to purchased.
It is advisable especially for beginner to buy stock on a regular schedule with the same amount of fund over the long term. That’s called peso-cost averaging. That’s where we can make our money grow over time.
For additional information, you can also check my article about 15 stock market terminologies a beginner should know.
For now, let me also share you the simple image below showing the process of buying and selling stock in the stock market.
5. Monitor and keep track of your investments.
Monitoring our stock investment is also part of the process. This can be done via logging into their website. From there, you can view all the information about your investment and the history of your transactions.
Alright there you go, I hope the information above provides you basic information on how to invest in stock market. All these information are taken from PSE_COL primer ebook which can be downloaded in COL’s website.
On future articles, I will share more information that can help us achieve our financial goals.
Let’s share financial literacy, one blog at a time.