The Philippine Stock Exchange index (PSEi) is at a 32-month high and has breached the critical 7,500 level as of Monday’s closing. It also recorded its 5th weekly advance last week and with continued positive sentiment, it is possibly on its way to a 6th record week.

All this good news is enough to make the most cautious saver and investor look at the stock market as one way to earn more money.  If you’re curious to learn if stock investing is for you, there's plenty of information available online – from the websites of the Philippine Stock Exchange, Bangko Sentral ng Pilipinas, brokerage houses, banks and financial websites.  So let me skip the how-tos, and discuss instead the whys and why-nots.

Why invest in stocks?

#1 BECOME AN INVESTOR WITH JUST P5,000. Decades ago, stock investments were mostly for the millionaires. Today, any Filipino can invest in stocks with as little as P5,000. You must be at least 18 years old to open a trading account with accredited stockbrokers or trading participants of the Philippine Stock Exchange.

#2 MORE ACCESSIBLE WITH ONLINE PLATFORMS.  Gone are the days when you need to fill up a lot of paperwork or make calls to place a BUY or SELL order. Both GCash and Maya allow you to invest in stocks through their apps, and there are several online brokerages as well. Thanks to these online trading platforms, you can place your order directly, as well as enjoy easy access to research reports, real-time stock market information, and portfolio management.

#3 EARN MONEY FROM PRICE GAIN AND DIVIDENDS. When you buy individual stocks, you can earn money in two ways: first, when the stock price goes up; and second, if the company issues dividends which can be once or more times in a year.

#4 ONE WAY TO BEAT INFLATION. As of August 2024, our inflation rate is 3.3%, or an average of 3.6% annually.  In simple math, this means the P1,000 you saved last year can only get you P964.00 worth of goods and services.  By doing nothing with your money, you are letting inflation erode your purchasing power.  If you invest and make the right choices, you can beat inflation and not lose money by simply saving money.

#5 YOU’RE NOW A COMPANY’S PART-OWNER. If you invest in the companies you believe in and also support, being its stockholder can be a nice feeling that what you spend in that company somehow comes back to you.  More importantly, the stockholders of a corporation have the right to vote in the election of the Board of Directors in its annual stockholders’ meeting. In the unfortunate event that a company closes down, stockholders also receive a share of the company's remaining assets.

Why not invest in stocks?

#1 ONE OF THE RISKIEST INVESTMENTS. Stock investing is not for the faint of heart. The market is quite volatile and people’s fortunes have been made and unmade in a matter of hours, minutes and seconds. Just check the disclaimer from your stockbroker that would normally have something like this: Past performance of the stock market or the stock doesn’t guarantee future results.

#2 MORE THAN JUST ECONOMICS. Even if you do your research and carefully choose the companies whose stocks you will buy, there are times when other factors will affect the stocks’ value, and no broker or analyst can explain why. So while historical data can help you see the company’s stability, plenty of other developments can also bring down (or up) your stock’s value.

#3 NEED TO DO YOUR OWN HOMEWORK. It can be time consuming to learn about stock investing, choosing the stocks to buy, when to buy, when to sell and so on. You also have to constantly monitor the stock market itself. While a stockbroker can help, that’s your money so it’s good for you to be part of the decision. You’ll need to know about the company and also its related industry. For example, there was a time when mining companies were on a bull run – but then restrictions were imposed on the industry – so prices started to go down, even crash.

#4 YOU CANNOT TIME THE MARKET. Some investors try to wait for the right time – but there is never the best time to buy, or to sell. That’s why you should only invest your disposable income, or money you won’t need in the short term. The best time to invest is many times over a period of time. This will allow you to enjoy cost-averaging, giving you better yield as you buy and sell.

#5 DANGER OF PUTTING YOUR EGGS IN ONE BASKET.  It’s never a good idea to just invest in one type of instrument (stocks) or a single stock (company).  Yes, you can gain a lot in a bull run, or when your one stock peaks.  But if the stock market turns bullish, and your one company fails, you could lose a significant portion or all your money. It’s best to diversify your investments as well as stock portfolio.

* * *

Stock investing can be an emotional roller coaster.  Many investors tend to buy high when the market is doing great, and then sell low due to fear when there are rumors of a market crash. If you want to build a portfolio with healthy returns, you need to have a stomach for risk, and a steady hand that can ride the bulls and the bears.