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Investment 101: Where to Invest First for Newbies

Objectives – Horizon – Appetite. Let OHA be your guiding principle in choosing your various investments. Long-term objectives (e.g. retirement fund) allow you longer investment horizon, as such risk appetite may be aggressive.

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Too excited to invest? Thinking where to invest first?

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Let me help you establish your investment O-H-A!

As I have told you previously, I was too excited to invest as well. I started with stocks in 2008, barely a year after I started working. Back then I did not have life insurance yet, and I have yet to set aside 6x my monthly salary as  liquid cash. Basically I was risking what little extra cash I had unlike what mommy said. I was to eager to earn bigger in a shorter span of time.

Not So Good Example

I’m not encouraging you to follow what I did. But personally, I have minimal regrets. Dealing with stocks early on and not in lesser risky investments first taught me to be prudent, leaning more on fundamental analysis and less on technical analysis. It taught me to take calculated risks, and risk only the money I can afford to lose. Am no stock market expert until now, I’ve had my share of winning buys and losing positions. Still a work in progress on the stock market but nonetheless it increased my risk appetite.

Your Investment O-H-A

Objectives – Horizon – Appetite. Let OHA be your guiding principle in choosing your various investments. Long-term objectives (e.g. retirement fund) allow you longer investment horizon, as such risk appetite may be aggressive. Medium-term objectives (e.g. kid’s tuition) call for shorter horizons and more moderate investments. Short-term objectives (e.g. major purchases next year) will have be placed in conservative investments, those that are highly liquid and less to nil risk of loss. Emergency funds should be kept very liquid and should not be risked at all.

An interplay of OHA should be established in choosing your investment options. Now listed below are a number of options.

Less Risky Investments First

With increased risk appetite, and a little extra amount, I was then more open to less risky investments. Have it your own way, anyway it’s your own money. But if you want to follow a general financial advice from financial advisers, you might want to consider it in this order (what I commonly hear and see). Looking at it, basically the ordering is by increasing risk (and return).

  1. Emergency Funds: Worth 6x monthly income or 6x monthly expenses. Should be very liquid, in a bank savings account or partially in a time deposit
  2. Life Insurance: Better be sure before anything happens to you! Do this while you’re young and single!
  3. Long-term/ High yield deposits: Minimal risk, minimal returns. Good for capital preservation but too conservative for long term funds
  4. UITF / Mutual Funds: Varied risk depends on the fund, but at least managed by professionals, smaller investment amount needed. Moderate to high risk appetite, for long term investments.
  5. Bonds: Stable earnings, but normally needs a huge amount to participate. Moderate risk, for medium to long term investments.
  6. Stocks: Need I say more? High risk (potentially high returns) especially for long term investments.
  7. Business / Real Estate: Will need more expertise, more capital, and more time. Not so liquid.

You can mix and match depending on your investment OHA. The younger you are, or the less immediate needs you have on the money to be invested (long term use), the longer your investment horizon is. Especially compared to someone who’s about to raise a family or nearing retirement. With this longer horizon, you can afford to be aggressive (but not stupid) in your investments to maximise gains and growth in the long run.

Since I was too eager, there were a number of times when I had to pull out my mutual funds, sell all my stocks and pre-terminate my time deposits just to have liquid cash. Just to meet cash flow requirements. Then back to zero.

something-greater

The wisdom in setting aside some amount of cash will avoid unnecessary pullouts and sell-offs. The wisdom of setting aside for life insurance is that it makes you (or the ones left behind) a bit more ready for the inevitable death. At least the ending is secured.

And think about this, sum up all the premiums you have to pay for insurance (call this P) and divide this by your insured death benefit amount (call this B). This is your premium-benefit (P-B) ratio. Do you know of any investment with such a high ROI? If you honestly think you cannot earn the same amount of death benefit amount (B) by investing an amount equal to your premium payments (P) in stocks and funds and bonds etc, then getting the insurance is the way to go.

Nail at least the first two investments first then explore your way forward.

Unlike me, don’t be too eager to join the stock market without securing your immediate and unforeseen needs yet. The stock market will not go anywhere, it will just go up
and down in a vicious cycle.

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May you have a richer life!

 

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About Geri (355 Articles)
Founder and main author. Husband, used-to-be-breadwinner, God-made multi-millionaire, employee, financial planner and adviser, investor, stocks trader, entrepreneur, agri-preneur, book author. Firm believer that all Pinoys deserve a richer life. Not a guru, but a forever student of the investments world, a work-in-progress.

8 Comments on Investment 101: Where to Invest First for Newbies

  1. Marie Aquino // January 28, 2017 at 11:22 pm // Reply

    I am one of the millions of Filipinos who rely on her job for a living. I am naturally a miser person but I have never thought about investing before until my job was threatened by the war in Yemen. Several years ago, I bought a piece of land, not for investment purpose but because the situation came up. Someone wants her land sold, I have the money so I bought it. I kept on working and totally forgot about it. 4 years ago, I thought of having a house on my own and my younger sister suggested that I should have an apartment instead of a house. I hesitated at first but complied in the end, a move that proved to be a wise decision. I get a regular but a modest passive income from it now. 2 years ago, the war broke here in Yemen. I panicked. I couldn’t go home because I had a debt to pay from that apartment construction and I had no savings yet. This situation made me realized that I can’t forever be an employee. I am on my early 40’s now and I know it’s not yet too late to be financially independent. I am still in Yemen but I’m debt-free and have a six months emergency fund now. I am still saving ( and investing it on Pagibig/HDMF ) all the money I can save and spending little on my occational wants. I’m also trying to read as much as possible about investments to learn and hopefully become financially independent before I turn 50. I am considering bonds as I want a regular income and also, because I have a low to moderate risk appetite. I just thought about sharing this story so newbies, like me, can learn the value of investing at a young age.

    Liked by 1 person

    • Thanks Marie. It’s good that you are many steps ahead in terms of financial literacy (compared to most Pinoys) and it’s also good that you are aware of your risk appetite. Keep on sharing with us your stories and hope you learn a thing or two from our website. May you have a richer life!

      Like

  2. Thanks Ms Rosalia.

    Like

  3. There's much knowledge shared through this blog. As there's a dearth of valuable information on topics such as this, it is quite enlightening to see one that's well researched and also well-written. Two-thumbs up! Anyway, for those looking for a reliable insurance provider with more than a century of efficient service, consider Insular Life. For VUL products that provides you the liberty to choose from a number of money market instruments including stocks, bonds and notes, government securities, etc. IL also provides regular insurance products that can serve as a savings, health, education, to cover for an MRI or fire insurance for your housing or home improvement loan, and can even be reserved as a retirement fund either for individuals, as well as for groups. You may want to drop me a note for more info: iamrosalia.marco.vidanes[at]gmail.com.

    Like

  4. This is true. Nonetheless, Juan gets insurance not for a pressing need now but for an inevitable reality later on.

    Timing. It's much cheaper to get insurance while still young (presumably single) compared to getting one when much older (and when you have other financial obligations such as having family).

    Dependents. A single person may not have clear dependents now aside from Juan's parents and siblings. And in Filipino society this is common where parents depend on their children due to lack of financial planning in their prime. Lack of dependents should not hinder us from investing in insurance since dependents can easily be added or changed while insurance is pretty much a function of time and age.

    Investments. Policies nowadays don't just cover for death but also in case of sickness and likewise it comes with an investment portion like mutual funds. As such the other benefits may be helpful to a single individual. Especially in investing where starting small early on can beat playing catch up.

    Like

  5. why would you need life insurance if your single? you have no one to leave your money behind. life insurance is used to cover your estranged beneficiary who have no source of income other than you as the bread winner

    Like

  6. Agreed KR. I used to feel the same way. Now thankfully I have more patience. Keep commenting.:)

    Like

  7. I get you. We are too excited to invest in high yielding high risk investments even if we have so little to invest precisely because we have so little, and we want it to grow at a faster rate. Sort of impatient. If I had just 5k savings, then I'd probably invest in stocks indeed than savings account since stocks gives me a higher chance of gain/loss. But yeah, in case I need that 5k again, I need to sell my stocks.

    Small time investors dilemma?

    Like

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