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Money Matters

Don’t reinvent the wheel

Question: I would like to take advantage of the current low prices of stocks. What would be the best stocks to buy at this point? I will be investing from time to time in stocks to take the opportunity to buy low in this volatile market, which I believe will be the new normal. And don’t worry about holding periods. I am an employee who periodically sets aside a good portion of my income for investing and I am willing to wait for a long period before I see returns on my investments. Asked at “Ask a Friend, Ask Efren” FREE service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook.

Answer: At our company, the Personal Finance Advisers, we espouse the alphabet of investing. The first five rules are what we call the ABCDEs of investing and they are detailed as follow:-“A” is for assessing and quantifying your financial goals and balancing them with the risks you are willing to take. You are currently looking at the tool, which is investing in stocks, to achieve your goals. If you have not yet assessed why you are investing in the first place, then we highly recommend you do so prior to any investing action. That alone will save you a lot of money and perhaps, stress.

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-“B” is for knowing the bases for whether you should invest directly in stocks or indirectly through funds managed by professionals. A subrule is that you need to be all S.E.T. to invest directly. This means that you need to have: “S” or sizeable funds not just to open a brokerage account but also to be given vital information you will need to make informed decisions; “E” not only for the expertise to understand all the information you will gather but also for experience in knowing what to do in various trends of the stock market, and “T” or time to fully manage your investments. Even if you lack just one of those, you will be better off investing indirectly through professionally managed funds like mutual funds, unit investment trust funds, single-pay variable unit-linked insurance and investment management accounts with trust departments of banks.

-“C” represents the need to check and recheck the investments you wish to get into. As the Securities and Exchange Commission says, you will need to investigate before you invest. Even if you are investing through professionally managed funds, you will need to do your research on them before plunking your hard-earned money.-“D” is for diversifying your portfolio to achieve the same target returns for a lower risk. Fortunately, with professionally managed funds, diversification is applied either as part of regulatory compliance or espoused in line with global best practices.-“E” is for evaluating your performance periodically to see whether you are still on track to meet your financial goals within the designated time.

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And to ensure that you do not act irrationally with investing, especially when major upheavals happen like global economic and health crises, you will need to take out the FGHIs or the wrong actions and behavior that will throw a monkey wrench into your investing. These stand for fear, greed, hope and ignorance.Given that you are an employee, it will do you a lot of good to not reinvent the wheel but just to reinvest at will periodically in managed funds so that you can focus on the goose that lays the golden egg—your job. INQ

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