Putting your money in a low interest savings account is not such a good idea especially if you have big financial goals such as buying a house, sending your kids to college or saving for retirement . The only way to get more money is to make money work for you by investing it. Investments will generate more money for you in the future through interests and price appreciation. In other words, you invest to create wealth.
There are numerous ways on how to invest your money. You can invest in bonds, funds, stocks, stock options, antiques, jewelry, luxury watches, artworks, real estate and even luxury handbags. It all depends on your goals, preferences, time, capital and risk tolerance.
Although there are many investment instruments to choose from, the stock market is a good place for long-term growth to invest your hard earned money . Here are the reasons why you should consider investing in stocks:
1. Best Potential for Growth
Stock market investing is risky. The stocks go down a lot. However, there is a pattern that has always stood the test of time. After each major crisis, the value goes up a lot. In other words, if you think long term, the cumulative gains always outpace the cumulative declines.
Although the most volatile, history has proven that stock market investing gave a high return in the long run. Thus, the rewards definitely outweigh the risks.
2. There is More Than One Way to Invest
Depending on your financial goals and investment appetite, there is no single formula in stock investing. You can mix and match everything. You can invest directly or indirectly through mutual funds depending on your time availability. You can do simple investing or you can do trading if you have advanced knowledge. You can play it safe by investing only in blue chip companies or if you have a high risk tolerance, you can venture into small caps companies also. Again, it all depends on you. The key is to diversify.
3. You don’t Need a Big Capital
Unlike other investment vehicles such as real estate, you don’t need to have a big capital to invest in the stock market. Most brokerage nowadays will let you open an account even with zero dollars. There is also no required frequency nor amount of additional contribution. It all depends on how much you can afford to invest.
4. Trade Anytime and Anywhere
As long as you have an internet connection and a smartphone, you can trade anytime during market hours and anywhere at your convenience. Gone were the days wherein you needed to spend so much time trying to contact your broker on the telephone in order to buy and sell stocks. With technology, you can trade with one click of a button. It only needs a minute or two of your time.
5. Earn Passive Income
Earning from stocks through dividends and price appreciation is the best example of passive income. Imagine yourself earning income even while on vacation with your loved ones. That’s passive income and stock investing can do that for you.
As an investor of a company, you are entitled to receive a portion of a company’s income through dividends despite little or even no effort on your part. Big companies have capable and qualified managers who take care of running the company.
6. Advantage of Compound Interest
Compounding is the process of generating income from your capital’s reinvested earnings. It means you are earning interest on your interest over a period of time. Albert Einstein referred to it as “the greatest invention the world has ever produced” because it is a way to double your money.
If for example you bought Apple shares worth US$10,000 in 1980, in 2017 that initial investment is now worth over US$ 2.7 million through compound interest.
Updated version. First Published in Pinoy Smart Living on 04.09.2019.
Have you ever thought of why you should invest in the stock market? Maybe you have heard of stories from people getting rich from investing in stocks. There are also horror stories of people going broke from risking too much in stock investments. We all have financial anxieties and investing in stocks is one way to ease our financial burdens. Most of us only lack the knowledge on how to do it.
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Common Financial Situation
The chart of expenses below compares the expenses of the regular employee to that of their house helpers. This may seem like a funny comparison but the situation also tugs at reality in a major way.
ITEMS
MS. OFFICE WORKER
MS. HOUSE MAID
Salary
12,000 / month
5,500 / month
Tax
1,000
None
Food
3,000 / month
FREE, from groceries bought by Ms. Employee
Transportation
100 / day or 3,000 / month
FREE ride w/ Ms. Employee
Mobile Phone
1,000 / month
500 / month
Freedom of Time
Need to complete 8 hours of work
Can relax when all household chores are done
Personal Care (e.g., shampoo, soap, toothpaste, etc.)
500 / month
FREE, bought by Ms. Employee
Bills
3,000 / month (Rent + Utilities)
FREE
TOTAL EXPENSES
11,500 / month
500 / month
SAVINGS
500 / month
5,000 / month
Need to save up some more before she can send financial aid to her family in the province.
Has enough savings to send monthly financial aid to her family in the province.
Financial Situation of Ms. Employee vs. Ms. House Maid | Original Source: Flickr
“Ms. Employee” represents all of us who struggle to make ends meet with our monthly salaries. “Ms. House Maid” represents the household helper that we employ to help us manage our households. Not many of our household helpers may be able to save this much of their actual salaries. Most of us are also unable to maximize our savings because we have to take care of our expenses first. That’s why our first lesson is actually to prioritize our investment fund.
In his book My Maid Invests in the Stock Market and Why You Should, Too!, Bo Sanchez shows us that his household helpers do invest in the stock market and they can look forward to a brighter financial future by doing so. Here are some of the lessons Bo Sanchez teaches his maids which we can use so we can start investing too.
Take Charge of Your Finances
In the first part of his book, he encourages us to take charge of our financial future. Most regular employees including household helpers and OFWs do not have this initiative. We are all preoccupied with addressing our family’s present financial needs. We often forget that we should also prepare for our own future.
This is an all too common scenario outlined in his book that often happens to employees.
“They send most of their salaries back home. They send it to their parents, siblings, nephews, nieces, aunties, uncles, cousins, including their pet carabao. Sometimes, I feel my helpers are supporting entire civilizations. Without their monthly stipend back home, the economy of an entire barrio will cease to exist. People will loiter on the road aimlessly. Children will die of starvation. And the world will come to an end.”
We are all burdened by the financial needs of our families. This puts a lot of pressure on us to send them all that we can. We even end up giving them all that we have. Then, we shelve the thought of our own futures for pondering on another day.
Bo says that everyone ought to be rich but not everyone knows how to do it. This is why we should learn to invest in the stock market — to start building our wealth. In his book, he shows us the basic strategies he teaches his maids for planning their budget and what each fund is for.
Budget Your Income
If you have an income, you need to make a budget. Be sure to include investments in your budget. For his helpers, Bo suggests this simple budgeting system. The first fund for him is the tithe fund.
You’ll grow in abundance thinking, when you give beyond your family’s needs. This will make you think rich and feel rich. And when you change your thinking, you change your living. Soon, you’ll become very rich and you’ll have more to share.
Tithe Fund – Having this fund helps you grow in abundance thinking. He recommends allocating 10% of your budget for this fund.
Expenses Fund – This fund is where you will get all your spending for your daily needs.
Support Fund – What you regularly send for your family’s needs.
Emergency Fund – A savings fund that you use for when emergencies come up.
Retirement Fund – Your real savings.
Because you don’t have a business, the best way for you to grow your money is to invest in the stock market.”
This is a good budget plan to start you off on allocating your money. If you want a more sophisticated budget plan, you can also try out the money jars budgeting system. Of course, if you have loans and debts, such as credit card debts, then you need to pay off those first.
Have a Powerful Vision
Bo encouraged his helpers to follow the budget plan monthly by showing them the best and worst case scenarios that they could find themselves in if they don’t take care of their financial futures.
We should all have a clear vision of what we want to achieve when we have improved our financial situations. This will keep us motivated to stick to our monthly budget goals and help keep us disciplined to spend our money wisely.
Create a powerful vision for yourself in the future. This is where the discipline of delayed gratification can be used to your advantage. Disciplining yourself to live within the limits of your current budget will enable you to enjoy the comforts you want in life in the future, when you are not working anymore and you have all the time and the money to do what you want.
If you don’t own a business, then concentrate on doing great at your job. Then, use the money you earn to invest in the stock market. This is another reason why you should invest in the stock market.
Many people fear the stock market but Bo states that “trading” is the riskier side of the stock market and there is a difference between trading and investing.
Trading is speculation.
In trading or speculating, you don’t look at how strong the company is. Any company is a game–even what they call “penny” stocks. These are companies whose stocks are worth centavos. Because they’re considered very risky. So leave the trading to full-time traders–the people who do this full-time, studying about it 8 hours a day.
Investing is where the investor “invests only on the great companies. Because we’re in for the long haul. Through your business or job, you create the money necessary to invest in the stock market.”
Money Cost Averaging
The best strategy to invest in the stock market is money cost averaging where you buy stocks of great companies, little by little each month. The important thing is to do it regularly. When you adapt this strategy, “you’ll be buying stocks without much thought to the bouncing of the market prices.”
He follows Warren Buffet’s strategy: “Be fearful when others are greedy, be greedy when others are fearful.” This is a simple strategy that anybody can use. This is also another reason why you should start investing in the stock market.
You Can Start Investing Online
Bo recommends that you invest online through Citiseconline, now COLFinancial using their Easy Investment Program (EIP). He states that he is not sponsored by the company but he recommends it because it allows people with smaller budgets to invest since only Php5,000 is required as the initial investment amount.
Each month, or every 3 months thereafter, you can deposit your investment fund to the different branches of these banks: BDO, BPI, Security Bank and HSBC.
These are just some of the lessons from the book My Maid Invests in the Stock Market and also the reasons on why you should invest in the stock market too! Remember though that before you start investing, you should try to eliminate all your current debts first. You should also start learning about the different investment types.
Bo Sanchez’s book definitely gave me a new perspective on how to manage my finances. The budget plan he recommends is a good plan to follow if you are just starting out earning your own money especially if you have no current loans to keep your budget tied up.
There are many resources that you can get your hands on online to help you get started on investing. In the meantime, start growing your investment fund so you can make your initial investment as soon as possible.
Here’s to a brighter financial future for all of us!
If you want to discover the Seven Success Principles from the Ancient Book of Proverbs for your money, work and life; click here to get a free copy of the Ebook from Bo Sanchez entitled Nothing Much Has Changed.
Updated. First published on Pinoy Smart Living on 04.16.2019. Feature Image: Original Photo by Austin Distel on Unsplash.
