Ask Community #3: On Investments, Assets and the Stock Market

Updated: January 31, 2013

It’s been months since I featured questions from the ASK Community and thought it would be a good time to feature some again today.

Hopefully, I’ll be able to do this on a more regular basis, probably towards the end of every month.

So without further ado, here are a few questions that people have asked on the site. Hopefully, you will find the answers given by the community informative and helpful.

How much do I need to start having an investment?

This is a question from CJ who’s planning to save 25% of his salary so he can raise money for investments. He asks how long he should wait before he can start investing. One of the members, Carlos, gives an excellent answer:

“Technically speaking, 10K will already allow you to invest in various UITFs and mutual funds.

It seems you’re trying to save but without a specific purpose yet. Good news: you don’t need a specific reason to save. Just go ahead and save. Or, if you don’t have an emergency fund yet, you can save until you have 3-6 months worth of your expenses saved up.

But for investing, you don’t need to wait for anything either. But it is advisable to have a goal first. Is it for retirement? a car? house? new gadget? It’s important because higher-return investments carry higher risks. So if you don’t need the extra money, why take the extra risk?

Being a beginner I would suggest starting with low-risk (but unfortunately low-return) investments like Time Deposits and money-market UITFs. Let your money grow while you decide what your financial goal is.”

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I agree with Carlos. CJ should first save for an emergency fund if he does not have one yet. After that, he can start investing immediately in low-risk instruments while he decides on his financial goals.

And once he is able to define his investment objectives, then that’s when he can start looking for better investments that will help him achieve those goals.

What would you do if you were ME?

Frank asks for help regarding his financial situation. To give you an overview, he’s currently able to save P60k a month and plans to buy a vacant lot soon, then build a house there in 5-7 years time. Currently, he’s paying for a house he loaned through Pag-Ibig, and a car which will be paid up in a couple of years.

A lot of members shared their thoughts, and the most helpful answer according to Frank came from ForsakenOne, here’s a part of the many advise he shared:

“My only advice (and you’re probably doing this anyway) is to maybe use high-yield but riskier investment vehicles like mutual funds for stocks and bonds for long term savings (~5+ years).

For short term savings continue using money market UITFs or mutual funds (basically those invested in Special deposit accounts or time deposits. Or you can shop around and create your own time deposit savings account with your chosen bank.

I’d recommend shopping around for loans (for the lot) already, just to get you familiar. Terms are mostly the same across the different banks, but ask around as some might be offering “promos” or more favorable rates.

Also, for the pag ibig loan, I think it’s a good move. Although the loan lasts 30 years, the purchasing power of what you pay goes down steadily. So what you’re paying now will seem like a small amount towards the end of the loan. The only real risk is if you won’t be working still in 30 years.

If you’re feeling industrious, you may want to use some of the savings to start a small business (and hence, a second income stream).”

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Frank is currently in the “Asset Accumulation” stage of his financial life. This is the time when you’re already done with laying a good foundation for your finances and now more actively preparing for the future, particularly for his retirement.

Personally, I believe his current plan with regards to the purchase of the house and lot is already sound. And if I were to give an advise, that would be for him to consider adding passive income streams to his cashflow.

Buying a business franchise, or maybe investing in real estate for rental income, as ForsakenOne also suggested, are excellent options for him.

Lastly, I’d like to encourage everyone to check out the actual question and read all the comments there. Thank you to all the community members who shared their answers, all of them are great.

Is today a good time to enter the stock market?

Community member, mdc27 asks if it’s still a good time to invest in the stock market given that it’s at it’s peak and could go down anytime soon. ChrisTIPID gives a reasonable and logical answer to his concern:

“Our market has set its peak 38th times for this year. Who knows that it might reach its new peak by tomorrow. On the other hand, knowing the risk, it may go the other way around. But whichever way it goes it is most of the time (if not always) best to buy stocks today. It looks like you are in the knowledge of the cost averaging method and it’s the best thing to do if you don’t have too much time to spend in studying the charts and spending hours in analysis. Your best weapon to lessen the market risk would be 3 to 5 years of cost averaging in blue chips that has their way up.”

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One of the reasons why I like the cost averaging strategy is that you can do it anytime, with little regard to proper market timing.

As I always say, nobody can ever predict where the market will go, and one of the best ways to lower your risk is simply to invest small amounts, regularly, over a long period of time.

And with that, I’d like to end this feature on the Ask Commmunity.

But before we finally wrap up, I’d like to invite everyone to check out these questions, and maybe perhaps share your thoughts too.

By MondC:
What stocks do you own and why?

By FLORANITA:
What”s wrong with me?

I’ve answered both questions on the site, so I hope you can check them out, and please sign up as a member and become a part of our community, registering is free!

Get more answers to your investing questions by subscribing to Ready To Be Rich.

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Photo credits: thinkpanama and pinksherbet