If you would be seeing this chart, how would you feel about it? Will you be excited? Will you be envy for those having this already? Will you be afraid? Others would be probably bothered but others would just ignore it. Others may say that they don’t understand it, but others will be thrilled, and by their delightfulness they would truly go for it!
This was actually the PSEi from April, 2014 up to this month hitting its all-time high, and again just today, March 31, closing into another record-breaking 7,940.49 points. Seeing such bull market, many Filipinos gets attracted to also start their stock investment. While other people are still scared with what they called “sugal” (sometimes), others find it so loud. They start. They buy. They sell. They join forums. They research. And here all starts a roller coaster ride.
It’s been almost two years since we have started investing, and yes we are chunks of those people who became so excited with everything also. The only thing we have during that time is pure excitement and confidence that we can make it, that having such will actually let us make more money for our future and do all the things we have dreamt and wanted.
But since the universe really revert all the good things you are doing, sixteen months after, we have learned so much things. Things that was so important, much important than our investment. From then on, we have realized that all the happiness of being a shareholder will be lost in just a snap without proper financial planning and foundation.
And here are the things we would like to share that we must consider before investing:
1. Cashflow. In simple terms, we need money. Cashflow is our main stream, our basic instrument.
2. Long term Healthcare. Long term healthcare is one of the things we need to consider before getting started. As we all know, we should take care of ourselves first. We should have a fund that we can use when we grow old, something that we can use when our body became mindless already. We’re not claiming that we will be getting sick (in fact when we are investing, we should take care of our health: eating healthy food, drinking a lot of water, replenishing our soul and mind), but this is in preparation on again, life uncertainties.
In case we live too long, we will need it. And in case we get sick, we will not be forced to pull our investment especially when the market is down. Take note that the market is volatile. It can be bullish, and at times bearish too.
3. Protection. While the healthcare is for ourselves, insurances are the one for our families. In case we can’t be there to catch them (let’s face the reality, we can die too soon), make sure we can leave them with a safety net. Insurance will serve as an income replacement for our family especially if we are a breadwinner.
You may probably ask, why insurance first? Taking an example:
You have a 10,000 peso investment, when you pass away, this will still cost 10,000 pesos depending on how the market goes. But if you have an insurance that you probably buy at same cost, this will be converted into the coverage amount you have bought, most likely to 1M and up. Investing it on a conservatively interest earning vehicle will surely let your family live the same way when you are still there and working.
Anyhow, there are also things we need to consider on having insurance:
*Insurance formula should be Annual Income x 10.
*Always understand the policy.
*Strategize! Buy term, invest the difference.
*Insurance is not bought for the rest of your life, once you already achieve your financial goal, then you don’t need it.
Apart from income replacement, insurance is also an important tool in estate planning, to pay an estate tax incase the investor pass away.
Take note that Healthcare and Protection are the things we can’t buy once we already need it. These two matters so much before investing so that we will not be able to pull down our investments in case unexpected things happened.
Remember that there are two IF’s in our life, we can be living too long wherein we will be needing healthcare together with our investment, or the other way round, we can die too soon in which we will be needing an insurance for our loved ones. These two truly matters with the market volatility.
4. Managing debt. Debt, this is known as the termite of our financial house. Imagining you are having an investment that accumulates average interest of 12% annually, but you are also having debt compounding to 15%, then, you are still losing the game.
Debt is something we shouldn’t neglect about, this will never help our own economy.
In case we are at this point, it’s not too late. There are strategies on managing debt, on how to eliminate it properly. The only requirement is open-mindedness, willingness, and discipline in doing it.
5. Emergency Fund. As said, this fund will be used in case of emergencies. This should be about three to six months of our salary. Let’s say, we are currently earning 10,000 pesos monthly, then we should have around 30,000 to 60,000 pesos. This is the money that we should have in the bank where we can easily get once we need it. Money that we can use in unexpected happenings like — losing a job.
We should be aware that all of these are crucial before starting investing. Building these will ensure harmony in every aspect of our lives, and in our investment lives.
But behind all of these, financial education is still the most important. Once we are financially educated, emotional preparedness comes along.
Stock market and other investment types need emotional preparedness. If the market goes down and you’ll be losing around 50% of your portfolio (paper loss), will you still go through or will you be afraid and sell it all the while? Such question will dig you and check how ready you are, in all economic fallbacks, oil price volatilities, and other factors affecting the market. Lack of financial education is usually the cause of losing money by investors. We need to understand what we are doing.
We must always put in our mind that investing is longterm. This is something that we will be doing for at least five years, ten years, something that we will be contributing monthly or quarterly, and something that we will be forgetting about. In such case, all the factors that can possibly pull us down will never win. It will be turned into an inspiration of placing more and more to achieve our financial goal.
To add up, you should also measure your risk appetite. There are also different investment types that you can consider that will possibly suit you, like mutual funds.
And to be more inspired, we should never be tired of reminding ourselves with all the things behind why we are doing it. Our family, our friends and other purposive things we are aiming to. Still, our deepest whys and desires.
Share your thoughts below.