Should I be investing in stocks now?By Randell Tiongson on March 3rd, 2016
QUESTION: I have been following Money Talks on Viber and I have been seeing a lot of posts saying it is a good time to invest in the stock market. Is it really a good time? What are the things I need to prepare for before investing?—Asked by Michael via Facebook Messenger
Answer: Thank you for subscribing to our Viber chat group. I am sure you get a lot of insights from our discussions there.
I am sure that you are referring to the substantial decline in the stock market, in the last month or so which was brought about by external issues like the slowing down of the Chinese economy and the alarming drop in oil prices, among others. Although the market has made a significant rebound, it is still not clear from a downward trend. In other words, it is very difficult to determine if the rise in stock prices will hold. The stock market is behaving the way it is supposed to, reacting to perceptions of investors and the prevailing mood of many stock market investors of fear and caution. They say that when it comes to the stock market, investors are overly optimistic or severely pessimistic and when a market is sentiment-driven, expect volatility.
Stock market investing is about timing and also about time. Should you come in now? It really depends on your investment objectives. Is it a good time to invest? I always say that it is always a good time to invest if you know what you are doing and if you are prepared. Stocks go up over time, but they do not do so in a straight line.
The chart reflects how the Philippine Stock Market performed in 10 years. You will see that despite volatility, it does go up over time:
So to answer your question if you should be investing now is really dependent on what your investment objectives are. If you are investing for the long run then my answer is yes.
A bigger question that needs to be answered is what you need to do before investing. Many people jump in unprepared, which ends in mixed results. Before even thinking about putting your money somewhere, there are a few things that you need to take care of first:
1) Money Management—Proper management of your finances is the foundation of your quest for wealth.
If you are like most of us, your money doesn’t come in just one shot—they come in and dissipate in just one instance. You can only keep on adding to your investments if you know how to save properly … and you can only save properly if you know how to spend properly. Create and stick to your budget, as that will be your most important weapon in building your wealth.
2) Emergency fund—I cannot overly emphasize the importance of building a buffer fund before investing. Investments are volatile. There is always a danger that when you liquidate your investment, it may not have earned yet or worse, it’s lower than its original amount. The buffer fund will allow you to keep your investment funds untouched since you have another fund to dip your hands into when emergency strikes. At least three to six months worth is a good emergency buffer fund.
3) Investment objectives and timeframe—What are you investing for? Many people invest without really knowing why they are investing in the first place. Knowing your objectives and timeframe will allow you to match the right investment instruments with what’s best for you.
4) Risk tolerance—It is good to determine your risk appetite before jumping into any investment. A lot of people invest in risky instruments and yet they are not prepared to handle investment risks, which cause a lot of frustration and stress. Never invest without knowing the risks.
5) Time—Think long-term. There are no shortcuts to wealth and you need to be patient in building your wealth over time. Do not take shortcuts and do not be in a hurry as those actions can cause you to make a lot of financial mistakes.
Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty. (Proverbs 21:5, NLT)
Get 2 of my books with a discount! No Nonsense Personal Finance and Everyday Moneyfesto. Click HERE