Updated: July 28, 2020
Welcome to the second part of this post.
If you missed part 1, then you can read it here. Otherwise, you can now continue reading about the biggest investing problems below.
LACK OF DISCIPLINE TO BE CONSISTENT
Some people are able to overcome their fears and indecision, and have succeeded in actually investing. Their biggest problem now is how to do it regularly.
Procrastination is one of the culprits, but the top reason for their inconsistency is because they often give in to the temptation to spend instead of investing their income.
How to be more disciplined when investing
Make it automatic. Nowadays, there are facilities and products that allow you to invest regularly.
BPI has the Regular Subscription Plan for their UITF products. The same way for BDO, who has the Easy Investment Plan. These are just two examples, there are many other similar services in banks, stock brokers and mutual fund companies.
But beyond these, the best way to have the discipline is to set meaningful financial goals.
For example, one of the reasons why I invest is because I want to travel. Among my favorite TV shows as a kid was Travel Time, and I promised to myself back then that one day, I will visit all those places where Susan Calo Medina went to.
The desire to travel was so strong that it kept me disciplined in my investing habit.
After several years, I finally redeemed my investment around three years ago, and have been traveling ever since around the country – attending festivals, visiting historical locations, and enjoying the pristine beaches of our islands.
I love it and it was all worth it!
TIMING THE MARKET
A lot of people are invested in the stock market and their biggest concern is when to buy and sell them.
They don’t know when to enter the market and when to get out to either cut their losses, or to take profits. Timing the market is their biggest problem.
How to properly time the market
Read the news and analyze the market sentiment. Learn fundamental analysis. Do technical analysis.
Never, ever, base your buying and selling decisions on what you see in online forums and social networking sites – simply because you don’t know who those people are and I will tell you now that most of them are as clueless as you are, and simply giving stock market advise as if they’re experts.
Do your due diligence. Come up with your own investing strategy based on your financial goals.
And if there’s one concrete advise that I can give you when it comes to timing the stock market, it is this: Buy when the price bounces at the support, sell before it reaches the resistance and cut your losses when the prices breaks down at the support.
If you didn’t understand any of that, then you shouldn’t be timing the market and instead, simply using your time learning more about how the stock market works.
DIVERSIFICATION OR ASSET ALLOCATION
Those who are able to invest regularly are looking for ways to diversify, but they don’t know how and where.
Moreover, because they have limited financial resources, they don’t know which investments they should prioritize and get, so they can have the best results.
How to allocate your investment fund
The design of your investment portfolio is primarily dictated by your financial goals. You cannot simply copy what others are doing, and invest where they are invested.
For example, since 2012, I’ve been investing P1,500 every month in a fixed income fund which I’m planning to all redeem by December to buy the new iPhone.
If you copied this part of my portfolio, then you too will have enough money to buy an iPhone by Christmas. But that’s assuming you’d want an iPhone. But what if your goal is to buy a car? Then you’ll certainly come up short.
Prioritize investments that will help you achieve your most important goals. You can choose up to three instruments per goal, and stick to it until you reach your desired amount.
If you find yourself with more money to invest, then define a new goal, and put it in an investment that will help you achieve that objective.
Do this and you’ll soon find yourself with a diversified portfolio that’s smartly designed to help you achieve your financial goals.
OTHER SPECIFIC QUESTIONS
“Right now I’m currently stuck completing my emergency fund and that’s my biggest problem (challenge).”
That’s actually a “good problem” and you’re already far better off than most people who don’t even have an emergency fund. So just hang on, be patient and you’ll eventually complete your EF.
Nevertheless, you can still actually invest. After you’ve saved 50% of your EF goal, put half of it in a 30-day time deposit, then start investing in a low-risk UITF until you reach the other 50% of your EF requirements.
“What investment gives the highest yields?”
Be an entrepreneur. Investing in your own business will give you the highest yields.
Just look at the richest billionaires in the world – they all have their own businesses.
“Should I do cost averaging even when the market is not good?”
Yes. Cost averaging is a passive investing strategy. It requires no market timing, which means you simply invest regardless if the market is good or bad.
When you begin timing the market, then you’re no longer doing cost averaging, but doing strategic averaging, which is a completely different strategy that requires fundamental and technical analysis.
“How to monitor the various investments that I have? It takes a lot of time.”
Monitoring and analyzing my investments only takes me at most, four hours every month, and I have a pretty diversified portfolio.
I believe it’s taking a lot of your time because you are timing the market. My suggestion is to switch to a more passive investing strategy, like cost averaging, or invest in less instruments.
I have a friend who used to own 20 stocks and it drove him crazy monitoring all those companies. I told him to sell his shares and reduce his portfolio to only 5 companies, and invest passively in an equity fund instead.
Now, he’s not stressed anymore and is actually happy with his portfolio’s performance.
“What are the risky investments to avoid?”
Avoid investments that you don’t understand. Invest in knowledge first.
On a practical side, do not invest in instruments that GUARANTEE returns of more than 2% every month, or 24% every year.
The operative word here is GUARANTEE – and any investment that promises you such high returns would probably be a scam. So turn around and run away from them.
My biggest problem related to investing is temptation. I am usually torn between living life to the fullest while I am young (by that I mean spending money on travel, tasting good food and buying good things or such other things I can do while I am still young) or saving and investing my money and spend it later when I am already older and more stable.
It is a mistake to think that you have to choose between enjoying life today and securing your financial future.
You can do both, if you’re smart with your finances.
Investing is not just about long-term goals such as your retirement, or buying big ticket items such as a house or a car. It is also about being able to afford your short-term and medium-term goals.
Save and invest for LaBoracay. Save and invest for that iPhone. Save and invest for that Spiral Restaurant buffet. Save and invest for that Thailand vacation.
Investing is all about deciding how you want to spend your money in the future – and that future can be as near as next year, or as far as three decades from now.
It’s all about proper financial planning.