Investing in the stock market could be intimidating for many, especially for first timers.
To make investing for starters easier and less complex, seasoned trader April Lee-Tan shared some tips in her January 9 column in the Philippine Daily Inquirer.
First on Tan’s list is to buy equity index mutual funds or unit investment trust funds.
She said equity index funds are professionally managed pooled funds, which remove the stress of stock picking for those who are worried or not aware of what stocks to buy.
“Moreover, since they own all the stocks that are part of the index, they are automatically diversified, reducing your risk as an investor,” said Tan, vice president at leading online brokerage firm COL Financial.
Tan also suggests employing peso cost averaging, or buying small amounts of stocks on a regular basis.
Aside from making investing more affordable for those still building their investment portfolio, Tan said this strategy also creates an opportunity to make significant returns for those who are able to hold on to their investments for the long term.
Tan also advises newbie investors to limit their exposure to an amount they 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,” she said.
Tan, meanwhile, discourages those who spend most of their salary on day-to-day expenses from investing in the stock market.
She said cutting back on unnecessary expenses before starting an investment journey should be prioritized.
“Finally, even if you have a lot of excess funds, ask yourself if you can sleep soundly at night if your portfolio loses money,” Tan said.