Updated: August 25, 2021
The stock market is a long-term investment. But exactly how long is long-term?
To some, it’s at least 5 years. To others, it’s 10 years minimum. And there are still a few who would say it’s 15 years or more.
When I became a registered financial planner in 2012, I belonged to the “at least 5 years” group. But in recent years, I’ve become more conservative and started saying that one should be invested in the stock market for at least 7 years; sometimes, I’d even advise 10 years.
The reason for changing my view is mainly because of how the Philippine stock market has performed since 2015. To be honest, it hasn’t been good for the equity market, though it’s not quite obvious from the PSEI chart.
The PSEI has made a lot of gains since 1995. However, it’s been moving sideways since 2015, which explains why a lot of stock portfolios and equity fund values of those who started investing in 2015 or later are currently red or negative.
For instance, if within the past 7 years, you bought a new VUL policy or started peso cost averaging on blue-chip companies, then your portfolio is probably showing paper losses right now, and it could have been red for several years already.
This is understandably frustrating.
Historical Performance of the PSEI from 1995 to July 2021
- PSEI is the price of Philippine Stock Exchange Composite Index on Dec 31 of specified year
- Gain/Loss is the % difference of the PSEI price between Jan 1 and Dec 31 of the specified year
- 2021 PSEI price is from July 6
Looking at the table above, you’ll see that if you invested in the PSEI at the start of 2018, then by the end of that year, your investment would have lost 12.76% of its value.
And if you just started investing in the Philippine stock market or equity fund in 2018 (or later), then I will not be surprised if your portfolio is red right now.
In fact, if you invested 100k at the start of the year sometime between 2014 to 2020, then you’re probably thinking that it was a mistake to invest in the stock market.
Note: CAGR is the Compounded Annual Growth Rate from Dec 31 of specified year to July 6, 2021. This means your 100k is compounding annually by this much since you invested it. If it’s a red number, then it’s been losing money every year by that much.
From this table, you’ll see that if you invested 100k on the last trading day of December 2014, then in July 2021, that investment is only worth around 96k.
After almost 7 years of letting your money sleep in the stock market, the value of your stocks has actually gone down. Isn’t that annoying?
Another sad fact is that if you did peso cost averaging and regularly invested 100k at the end of every year, then your portfolio would only be positive if you started in 2012 or earlier.
What this table shows is that, for instance, if you invested 100k at the end of every year from 2015 to 2020, then you would have invested a total of 600k. However, after all those years, your investment is smaller and only worth around 565k on July 6, 2021.
And it will feel like you wasted your time and money by investing in the Philippine stock market.
Why did I create these tables?
During a recent online stock market investing seminar that I did, I mentioned that my stock market portfolio remained strong and positive despite the pandemic.
After my talk, I received an email from someone asking for the reason why his stock investments are so much worse despite diligently investing and doing peso cost averaging since 2014.
“Isn’t this supposed to be positive already after 7 years?” he asks.
I searched for a logical answer to his question, and that’s when I realized that those who began passively investing in stocks, equity funds, and even balanced funds in 2014 or later, are unfortunate victims of the sideways economy of the country.
I created these tables and did the calculations so I can have a better view of what’s been happening in the PSEI.
And as a result, I also began to understand why a lot of young investors are now taking their money out of the local stock market and pouring them into cryptocurrencies.
Furthermore, as probably triggered by the Gamestop short squeeze in January 2021, several investors I know also changed their focus and started investing in U.S. stocks and international feeder funds.
Lastly, even some of my friends who often trade Philippine stocks have slowly shifted towards global markets because of better trading opportunities in cryptocurrencies, forex, and U.S. stocks.
If you’re among those who had the initiative and courage to go beyond our local shores, then I want to congratulate you. You learned to adapt your financial strategies and adjust your ship’s sails to the wind.
But if not, then there’s no need to panic and sell, nor to fear that you’re missing out. The last thing that you should do is to dive headfirst into other markets unprepared.
The thing is… I believe that the PSEI will eventually rise again.
And you… we… we just need to be a little more patient.
There’s no need to sell your shares nor to stop investing. If you’re doing peso cost averaging, you can just continue so.
However, I would encourage you to expand your knowledge and learn more about investments and other such opportunities beyond our local market.
Explore how cryptocurrencies work. Discover global funds. Know how a feeder fund works. Check out what’s happening in the US stock market.
There’s a vast amount of free resources out there. Everything you need to start learning is available online. So, carve out time to educate yourself because as self-made millionaire, Jim Rohn, once said, “Self-education will make you a fortune.”
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