Why Invest in Stock Market?

by Gily Tenorio on April 26, 2010

in Stocks

Investing is one way to grow the money you have. It is not only meant for the rich people. Even ordinary people like you can invest in different and legitimate ways.

In the Philippines, there are several ways how you can invest money. Normally, most people put their cash in savings account or coin banks. However, there are other legitimate ways where you can put your money such as Philippine stocks, unit investment trust fund (UITF), mutual funds and bonds.

Stock is the share of ownership of a publicly listed company. When you buy stock, you became a shareholder or stockholder of that company. Buying and selling of stocks is done in the stock market or in a stock exchange. In the Philippines, there is Philippine Stock Exchange. Before you can buy or sell stocks, you need a stockbroker who will act in your behalf when you place order in the stock market.

My Story When I First Deal with Stocks

Six years ago I encountered the word stock when I was working in a California-based manufacturing company located in the Philippines. As one of the benefit programs, the company gave each employee a certain amount of common shares stock depending on the job position. As far as I remembered, my total benefits for the stocks given to me during my three-year stay in the company amounted to almost P50,000.

It really helped me a lot in my finances at that time. The sad part is that I wasn’t able to study deeper on the benefits of investing in stocks. I only do know that when the stock price is going high you need to sell it quickly or else it may go down and you may lose. It’s nice to see the stock price going up but you will greatly worry when it went down.

Reasons to Invest in Stocks

Stock has really big potential in building your wealth if you have the right knowledge, discipline and patience in managing it. Remember that you only lose in stock only in two events, when you buy and sell it. So as long as you know when to buy or sell stock, you will not worry on losing any money that you will invest.

Moreover, investing in stocks in long term will definitely give you higher profit compared to other investment instruments available nowadays. When it said “long term”, it means you invest a certain amount of money each month in well performing stocks (blue chips) for 5 to 10 years.

In the Philippines, blue chips are those stocks included in PSE Composite Index (PSEi). According on the information from PSE and BSP, the stocks invested in blue chips will give you a 14% average annual total return based on the previous performance of Philippine stock market from January 1989 to August 2009.

Moreover, for the last 20 years, investing in stocks gives you higher average annual total returns compared to Treasury bills (T-Bills) and savings account with 11.0% and 2.3% average annual total returns, respectively. Thus, investing in stocks for long term is the best strategy you can do if you want high return for your money.