MONEY MATTERS : MANAGING RISKS WHEN INVESTING IN STOCK MARKET

Only a few handful people wants to talk about risk. It seems like a taboo at some point. "We only live once, we should enjoy life." "Who cares about risks?" "Only old and boring people do that!"

"Just party and make the best out of life" a hippie guy says. "Anyway, what you don't know won't hurt you. Right?"

I guess these cool words are taken out of context when we speak of Financial Literacy. Sorry to burst your bubble but NEWSFLASH! we are taking risks though we are not aware of it. If your Php 100 can get you a burger today, don't expect that this hundred peso can purchase exactly the same burger 5 years from now. 

That's a simple illustration of how inflation works. BUT (there's a big BUT). That's only one half of the coin, the other half is WE CAN DO SOMETHING ABOUT IT.

Risk is a point of uncertainty. If you are dating / courting a girl, risk is her answer can be YES or NO. If you're applying for a job, risk can be if you're IN or OUT. And the list goes on. Same scenario when we do stock market. Risk is that the market (and therefore your gain or tubo) can be UP or DOWN.  

If you know someone who says your investment 100% guaranteed and you can double your money after a specific amount of time, chances are it's a SCAM. Run away! Nobody in his sound mind can warrant your investment 100%. That's NOT how it works. All LEGAL businesses have risks. As a fan of making things simple, here are my:

TOP 3 SUGGESTIONS ON MANAGING RISKS 

WHEN INVESTING IN STOCK MARKET:

Diversify your portfolio

Don't put all your eggs in one basket

 

In stock market, we can buy or sell shares of companies. Philippine Stock Exchange (PSE) has about 300 companies to choose from. Since we are investing our hard-earned money, we want to put our funds into companies that were there for the past 20 years and will be there after 20+ years. These companies are also called blue-chip companies. Wikipedia defines it as a common stock of a nationally known company whose value and dividends are reliable. To know of the 2 ways on how to earn in stock market, click HERE.

Let's go straight to the point. What do we mean by diversify? Simply put, if I have shares of Jollibee, Mc Donalds, Burger King - that means I only have shares of food companies. If I invest all my shares into BDO, Metrobank and BPI - then I put all my eggs in a bank basket. What's ideal is your portfolio or basket has a bit of Jollibee (consumer goods), BDO (bank), Ayala Land (real estate) and Meralco (utility).

Why is it? So that if we have some issues for example about banks and it's on downtrend at one season, we're not on a complete loss (lugi) since we also have other other stock types in our basket. Cool. Huh?

Learn 

“Anyone who stops learning is old, whether at twenty or eighty. 

Anyone who keeps learning stays young. 

The greatest thing in life is to keep your mind young.” ~Henry Ford

As with any other field, learning is a must. You want to be a good singer? Practice. You want to be a good make-up artist? Hone your skills. Same with stock market. You want higher gains from your investments? Do your homework too. It doesn't need to be such a BORE though. We can LEARN by talking to our friends who knows about stock market. You can read blogs like ahem yours truly ☺

Seriously, there are lots of creative ways to know more on what stocks to pick and other basic things. Remember: You DON'T need to KNOW EVERYTHING because that's just impossible. I believe GOD sees our hearts and if HE sees your passion to learn things, He will crown your efforts with success. Learning, like being rich, is not an overnight process. However, we'll get there one step at a time.

Make investing a habit

It takes 21 days to make or break a habit.

  Have you heard of that quote? That it takes 21 days for a habit to be formed or broken? I'm not sure if it's true but it wouldn't hurt to give it a try. 21 paydays. Invest 20% of it in stock market. Let's see how it goes. Bottom line is, it takes discipline and good habits to be financially free. You want to go to Paris for 2 months in 5 years time? Then, muster up a courage to set apart a portion of your sweldo and make it grow! 

Some things (specially financial words) sound complicated but not really. If we take the concepts out of it - we'll see that it depends on one factor... YOU are that one factor. -CMK