In a series of two articles, we’ll discuss how to invest in stocks in the Philippines. In the first part, we’ll establish some groundwork for this somewhat challenging yet exciting journey of investing in stocks.
The second part will talk more about the general process of how to buy stocks on the Philippine stock market.
If you want to invest as an expat or high-net-worth individual, which is what i specialize in, you can email me (email@example.com) or use WhatsApp (+44-7393-450-837).
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The Philippines has a relatively young population compared to neighboring countries in Asia. With a median age of 25.7 years old, Filipinos are around two decades younger than those living in Singapore (42.2 years old) and Thailand (40.1 years old).
At the same time, Filipinos have a life expectancy of 71.36 years as of 2020. With many years ahead of them, financially preparing for the milestones in life should be taken into consideration.
There are different ways to go about doing so. But buying stocks is one way in which you can invest in the country. With this, the question of how to invest in stocks in the Philippines will surely come to mind.
First and foremost, let’s establish some basic knowledge about stocks and the Philippine stock market. This can help ground you as you start your investing journey.
What are Stocks?
Stocks refer to shares of ownership in a company that is listed in the stock exchange.
Shares are publicly listed by companies on the Philippine stock exchange. Doing so allows the general public to buy and sell shares of the companies. This is advantageous for the company themselves because they can increase their financial resources, which will be used to pursue growth and expansion.
Buying shares from a company makes you a shareholder of the company itself. This means that you partly own the company in which you bought shares. As a result, you journey with the company through its ups and downs. You benefit when the company grows and makes a profit. And, in the same way, you lose when the company doesn’t perform well.
What is a Stock Market?
A stock market is where stocks are bought and sold.
The Philippine Stock Exchange, Inc. (PSEi) is the only national organization responsible for such trading activities in the country. It was established during the American colonial period in 1927, making it one of the oldest stock market exchanges in Asia. At that time, it was called the Manila Stock Exchange, Inc. (MSE).
A few decades later, the Makati Stock Exchange was established in 1963, effectively creating two exchanges in the country. However, the government has initiated structural changes since then. In order to create a more efficient capital market, the two stock exchanges were unified in 1992. As a result, the Philippine Stock Exchange was incorporated.
Who can Invest in Stocks in the Philippines?
Anyone who is at least 18 years old can invest in the Philippine Stock Exchange.
Nationality is not a hindrance to investing in stocks in the Philippines. So, if you’re wondering if a foreigner can invest in the Philippine Stock Exchange, the short answer is yes. However, this comes with the condition that no more than 40% of the shares of a Philippine-based company are owned by foreigners. This shouldn’t be too much of a challenge because many companies have not gone beyond the legally allowable limit.
The Profile of Philippine Stock Market Investors in 2020
The Philippine Stock Exchange published a report in May 2021 about the demographics of stock market investors in the country the year prior.
More individuals are getting into the habit of investing in stocks in the Philippines. There was a 13.7% increase in the number of total stock market accounts between 2019 and 2020. Among the total number of stock market accounts, 98.5% were local accounts, while the remaining were foreign accounts. At the same time, 97.9% of the total accounts were owned by retail investors. Only 2.1% were institutional accounts.
Retail investors were mostly men (50.8%) and belonged to the 30 to 44 year old age group (45.6%). Investors ages 18 to 29 years old also contributed a sizable portion of 22.0%.
Furthermore, more than half, or 61.2%, of the retail investors earned less than PHP500,000 in a year. They were mostly employees of Philippine-based institutions (80.0%) working as professionals in the fields of advertising, architecture, engineering, and the like (66.9%).
Other investors also earn as self-employed individuals or as overseas Filipino workers (OFWs). But it is not only employed citizens who are keen to invest. Students, the unemployed, and retirees are also in the picture of investors in the country. 75.7% of total accounts are owned by investors residing in Metro Manila.
Lastly, 1.7% of the total accounts are owned by investors residing outside of the Philippines. Many of them are Chinese (21.8%), Japanese (21.5%), and Americans (14.5%). The remaining accounts are owned by different nationalities across the globe, such as, but not limited to, British, Korean, and Taiwanese.
Why Invest in Stocks in the Philippines?
Earn more over time
Long-term investment in stocks provides you with higher returns. This is in comparison to investing in fixed income instruments, which include time deposits, government securities, and bonds.
The ideal situation when investing in stocks is to buy low and sell high. For example, you buy 1,000 shares of company X at a price of PHP 10 per share. This means that you invested PHP 10,000 today. Then, you will have to wait until the price per share increases enough for what you deem suitable.
If, after five years, the price per share becomes PHP 100, it would mean that the 1,000 shares that you initially bought are now worth PHP 100,000. The return on investment in this scenario is much more than what you would enjoy if you invested your PHP 10,000 elsewhere. Because of this, investing in stocks can help you reach your financial goals for the future.
Earn passive income
At the same time, you can earn dividends from companies that give such income to their shareholders. Dividends are given out either as cash or in the form of additional shares. Shareholders often receive dividends once, or even up to four times a year.
Obtain certain privileges
Apart from that, buying shares and, as a result, becoming a part-owner of the company, entitles you to certain privileges. This can include the right to vote for the Board of Directors during the annual stockholders’ meeting. If the company were to close down, you would also receive a share of its remaining assets.
The stock market is not just for middle-aged individuals who have millions in their bank accounts anymore. Nowadays, there are fewer barriers to investing in stocks. Different options are readily available that suit various incomes, ages, risk appetites, and competence in the field.
Getting Started with Investing in Stocks in the Philippines
Before actually buying stocks, there are a few considerations that you should take into account. Investing should start first and foremost with who you are and what you hope to achieve by doing so. This can guide you as you make decisions about what exactly to do with your hard-earned money.
1. Define your goals
First, ask yourself what you want to achieve by investing in stocks. There are different reasons why people invest in stocks. Some of which are to save up for a house and lot, a new car, travel across the world, or retirement. Knowing your reason for investing can help in determining your investment horizon and risk tolerance. At the same time, it keeps you grounded when you experience the volatility of stocks up close.
2. Determine your risk tolerance
Second, take a look at what level of risk you’re capable of and are willing to take. Although investing in stocks has historically been shown to provide higher yields, it does not guarantee such to all investors. There are risks that come with it because of its volatile nature and dependence on non-economic factors.
With this, you must evaluate just how much of a risk you’re comfortable with. This can depend on your investment horizon and the amount of money you are willing to lose should market conditions become unfavorable.
Generally, if you have the luxury of time, you can afford to take on more risks because it gives you enough room to recover from downward market trends. You might not want to risk much of your savings as you near retirement.
3. Determine how much to invest
Third, decide on how much you can invest in stocks. This is highly dependent on your earning capacity and financial responsibilities.
In general, it is not advisable to invest the money that you are set to spend within the next few months. This can include your emergency fund, the tuition fees of your children due next week, or money to pay off debt. The prices of stocks can change from day to day. Even if you have the potential to earn, you also risk losing money that you know you’ll need soon.
In terms of determining the exact amount of money to invest in stocks, there are different ways to go about this. One way is to subtract your age from the number “110.” This means that if you were 30 years old, you should invest 80% of your investable money in stocks. The remaining 30% can be allocated to fixed-income investments, which carry fewer risks. Take note that “investable money” means money that you have allocated for such purposes. It does not mean the whole of your income.
Others may advise you to save 15% to 20% of your income. However, these are not hard-set rules. You should adapt such pieces of advice according to your situation.
4. Set your expectations and prepare for downward trends
Fourth, though you might have seen stock investors becoming millionaires overnight, that would require an equivalent hefty amount of money, skills, and luck. So, it would be best to manage your expectations of how much you can earn with how much you invested in the first place.
In addition to this, history may not always repeat itself. What could have been profitable in the past may not always hold true in the future.
At the same time, be prepared to see dips in the prices of stocks. It would take mental fortitude (maybe a whole lot) to remain steadfast in your goals when you see those numbers in red, indicating losses.
This is also applicable when you see the prices of stocks increasing. Though it may seem enticing to buy more stocks in such situations, it may not always be the most reasonable thing to do. Given the volatility of the market, prices can plummet just as dramatically as they skyrocket.
5. Diversify your portfolio
Fifth, make sure not to invest in just one stock. As was said, the prices of stocks change rather frequently. Because of this, putting all your money in one company means that you could lose all of it if the company doesn’t perform well. Diversifying your portfolio allows you to manage risks because if one investment loses money, you may have others that make money.
So, make sure to research which companies are most likely to perform well in the next few years or even decades to come. You can start by looking at blue chip companies in the Philippines, which will be introduced in another article. These companies have shown excellent financial performance throughout the years.
Similarly, make sure to invest in different sectors as well. Just as companies experience ups and downs, so do the sectors to which they belong.
6. Invest regularly
Sixth, investing regularly can also help manage the risks of fluctuating markets. The so-called “peso cost averaging” method has been promoted for long-term investors. This involves investing a specific amount of money at a set interval for a period of time.
For example, you can invest PHP 1,000 every month for the next 5 years. Doing so allows you to buy more shares when the price is low. Conversely, you buy fewer of them when their prices increase. As a result, the average amount that you spend per share is lower. However, for this method to become advantageous, you must be willing to invest even when the market is down.
To help you invest regularly, you can automate a portion of your salary into your investment account. This removes the inconvenience of doing the transfer yourself and makes you less likely to forget.
7. Decide on your investment approach
When investing in stocks in the Philippines, you can either invest in individual stocks or in index funds. Investing in individual stocks means purchasing shares of one company. This involves doing your research on the historical performance of the company and its future outlook. Doing so gives you more freedom to choose what to invest in, but also requires more of your time.
On the other hand, investing in index funds allows you to put your money in different companies. An index fund manager pools together the resources of its investors and invests them in a list of high-performing companies on the stock market. It is meant to track the performance of the market index. This comes with the advantage of being able to invest in more companies at a lower cost compared to when bought individually. At the same time, it is less tedious since you don’t have to choose what stocks to buy one by one.
Furthermore, if you don’t have the time and perseverance to regularly monitor your portfolio of investments and the stock market itself, then you don’t need to do it on your own. You can ask for help from someone who can manage your portfolio better. This can free up your time and energy to do something that will give you higher returns.
With this, deciding on how to invest in stocks in the Philippines should start with asking yourself about your priorities and approach to doing so. When you have given yourself enough time to think about these important considerations, you can then continue the process of investing by placing your first buy order, which can be found in another article.
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