As we start the new year, it’s always a good idea to reflect on how we can improve our financial health through investments.
Here are some of my personal advice for newbie and veteran investors this 2024.
If you are a newbie who plans to start your investment journey this year, one of the first things you should do is go to your bank and learn how to automatically set aside a certain portion of your salary for investments. Aside from making investments more affordable, this process will help you stay disciplined, making it easier for you to accumulate wealth.
If you can’t commit to a monthly savings and investment plan because your salary is just enough to cover your expenses, consider tracking how much you spend with a spending app. Knowing how much you spend on certain items will allow you to identify areas where you can cut back without affecting your standard of living.
For investors who already have large investible funds but are risk averse, consider locking in the high-interest rates prevailing by buying three- to five-year bonds. This is because inflation and interest rates are already showing signs of peaking. By buying longer term bonds, you can take advantage of higher yields a little longer, even if interest rates already start going down later this year.
However, be selective in buying bonds. Only buy government issued bonds or those issued by companies with strong cash flows and balance sheets.
The year will be filled with risks and challenges. Because of these, it would be wise to focus on issuers that have minimal risk of defaulting even if the yields of their bonds are lower.
Admittedly, stocks might continue to suffer from a volatile performance this year. Although the peaking of inflation and interest rates is good news, local stocks will be vulnerable to contagion if the United States suffers from a recession and a bear market. The risk of this happening this year is elevated given the Fed’s aggressive rate hikes since 2022.
In the past, it was very rare for the Fed to raise interest rates without triggering a recession and a bear market, especially if rates were increased significantly enough to cause the two-year bond rate to go above the 10-year bond rate.
However, if you have long-term money that you are sure you won’t need any time soon, now is a great time to start accumulating stocks. This is because valuations of stocks are very cheap. Most stocks are trading significantly below their historical average valuation multiples.
Moreover, there are many stocks that are trading at single-digit price-to-earnings ratio and at a significant discount to their book values. In fact, because of their very cheap valuations, many companies and their insiders are buying back shares of their own companies.
If you have excess funds and the luxury of time, you can follow their lead and also capitalize on the prevailing opportunity to accumulate stocks. Your patience will eventually be rewarded as prices of stocks should go up significantly in the future once investor sentiment normalizes.
Like bonds, only buy stocks of strong companies, preferably those that are part of the Philippine Stock Exchange Index as these are expected to go up first once the stock market begins to recover.
Also, make sure to buy companies that provide cash dividends as these will help you become more patient as you are being paid to wait until the market turns around.
With these tips, I hope 2024 will prove to be a very profitable year for your personal investments. INQ