Tips on how to start investing in the stock market in 2023
Many start the new year with plans to improve their finances.
For those who already have enough funds set aside for emergencies, starting an investment in the stock market is one of the possible next steps.
Despite good intentions, many who plan to start investing never get around to doing it because of the challenges in knowing what and how much stocks to buy and when to purchase.
Nevertheless, here are some tips that can make investing in the stock market less intimidating.
Start with MFs or UITFs. If you don’t know what stocks to buy, I suggest buying equity index mutual funds (MFs) or unit investment trust funds (UITFs) instead.
Equity index funds are professionally managed pooled funds that buy stocks that are part of the Philippine Stock Exchange index (PSEi).
Because they are professionally managed, you don’t have to worry about stock picking anymore. Moreover, since they own all the stocks that are part of the index, they are automatically diversified, reducing your risk as an investor.
Equity index funds are available through several channels such as your stockbrokers, banks and even mobile wallets, making them easily accessible. They can also be bought for only a few thousand pesos making them very affordable to retail investors.
Employ peso cost averaging. Numerous studies have shown that time in the market is more important than timing the market.
Although the stock market could stay volatile in 2023, valuations are very cheap, creating an opportunity to make significant returns if you are able to hold on to your investments for the long term.
To improve your average cost while the market is volatile, you can choose to set aside a small portion of your paycheck every month (example, a few thousand pesos) to buy stocks instead of buying all at once. This strategy of buying small amounts of stocks on a regular basis is called peso cost averaging. This also makes investing more affordable if you are still building your investment portfolio.
There are also solutions to help you stay disciplined with your investments even if you are busy with work since there are now banks and stockbrokers that automate the process. This also reduces the temptation to delay the start of your investment journey.
Limit your exposure to an amount you can keep for the long term. To determine how much stocks to buy, set aside only an amount that you can afford to keep for the long term. This is because stocks are very volatile in the short term even though they provide higher returns over the long term. The amount you decide to invest in stocks should depend on several factors including your age, how dependent you are on your salary for your everyday expenses and your risk tolerance.
For example, if you are young, you should set aside more since you will still be working for many years and won’t be needing income from your investment portfolio to fund your needs.
Meanwhile, if you spend most of your salary on day-to-day expenses, then maybe investing in the stock market is not for you. Prioritize cutting back on unnecessary expenses before starting your investment journey.
Finally, even if you have a lot of excess funds, ask yourself if you can sleep soundly at night if your portfolio loses money. As discussed earlier, stocks provide higher returns over the long term but are very volatile in the short term.
With these tips, I hope that you are better equipped and more confident to start investing in the stock market this year. Happy investing! INQ
