Updated: November 25, 2020
Because of my recent posts about the stock market, especially after the last one on Compound Annual Growth Rate, a good number of readers started asking me questions about stock market investing.
Below, I’m sharing with you the answers I gave to the most common questions they sent. And for clarity and brevity, I’ve formatted this Reader Mail as a simple Q&A. Let’s begin.
What companies should I buy in the stock market?
Companies that you believe in and willing to support.
In the article, Philippine Stocks That You Should Buy for Long-Term Investment, I emphasized the GEMSS criteria which I learned from my broker, COL Financial. I recommend you buy companies that meet those specifications.
But don’t just buy randomly. Choose companies that you actually love and support.
I have JFC shares because I love eating in Jollibee. I have BDO shares because most of my bank accounts are in BDO. Do you get the point?
How much should I invest in the stock market? Is P100,000 enough?
Invest an amount you can afford not to touch for at least five years.
If you’d like to do cost averaging, invest at least P5,000 every month until you use up that amount. For P100,000 – buy P5,000 worth of one stock every month for the next 20 months. If you can afford more later on, then do the same.
It’s always better to invest a small amount regularly, than a big amount in one go. The only exception to this rule is if you know how to analyze the market and pinpoint its resistance and support levels. This requires both technical and fundamental analysis.
If you don’t have time to study the market, then just do peso cost averaging. Much simpler, and it works most of the time.
Is it a good time to invest in the stock now?
It’s always a good time to invest.
If you want a further explanation, then please read: How Do You Know If It’s A Good Time To Invest?
When should I sell my stocks?
When you need the money.
Every time you invest, you should have an objective. That objective should be five years or longer from today because you’re investing in the stock market.
For example… my goal is to buy a P3 million condo unit five years from now. I have P1 million that I can invest in the stock market today. The question is, when do I sell my stocks?
The answer is when those stocks reach a paper value of P3 million.
If that happens in just after 3 years, then you can either:
- Sell your shares immediately and buy the condo unit already.
- Sell your shares and put the money in a zero-risk investment like a time deposit and wait for your target date to buy the condo unit.
If you don’t reach your goal amount after five years, then some of the things you can do are:
- Wait a few more years until the value reaches P3 million.
- Sell your shares and apply for a housing loan to cover the difference.
- Sell your shares and buy a condo unit that fits the budget.
Remember that your investment decisions should always be guided by your personal objectives. And you should never invest to simply have more money, you invest because you want to be able to afford your dreams.
This concludes another edition of Reader Mail. To receive more articles like this, please subscribe to Ready To Be Rich.