by admin | Mar 24, 2025 | business, diversity, equities, investing, investment strategies and advice
A key lesson I picked up as I started my investment journey is how crucial diversification can be.
Diversification is crucial since different types of assets tend to behave distinctively. Take for instance last year; local bonds outperformed stocks. Yet, at other points in history, equities have shown superior performance compared to fixed-income securities.
Having assets from different classes will make your investment portfolio less prone to fluctuations and help it perform more steadily over time when contrasted with a portfolio that only concentrates on a single type of asset.
Among the numerous stocks listed on the Philippine Stock Exchange (PSE), their performance levels differ significantly. Take for instance the constituents of the PSE Index (PSEi); Converge emerged as the top performer in 2024 with its share price nearly doubling. Conversely, Bloomberry stood out as the poorest performing stock within this timeframe, seeing its share value drop by 53.5 percent.
Should you unfortunately hold shares in Bloomberry, your investment portfolio wouldn’t have taken as big of a hit if you had other stock holdings too.
A key rationale for diversification is to steer clear of errors that could result in substantial financial setbacks.
In terms of investment, the size of your funds significantly influences the total profits you can achieve. To illustrate, a 20% gain on a ₱100,000 investment yields just ₱20,000 whereas a 10% profit on a ₱1 million portfolio amounts to ₱100,000.
If you already possess P1 million, you wouldn’t want to make errors that could result in a substantial decrease of your funds.
A method to achieve this is by steering clear of putting all your investments into one stock since unexpected events might lead to a sharp decline in a company’s share price, resulting in considerable financial loss.
In addition to investing in multiple asset classes and various stocks or bonds, there are numerous other methods to diversify your investments.
A method is to purchase international shares and debentures. These financial instruments from abroad tend to behave distinctively when contrasted with local equities and fixed-income securities, particularly those issued by nations beyond Asia.
In the previous year, the U.S.’s S&P 500 index surged by 23.3 percent whereas the Philippine Stock Exchange Index (PSEi) climbed just 1.2 percent. As of now this year, both indices have experienced declines. Nonetheless, some markets like China’s are showing robust performance.
The positive development here is that investment funds targeting foreign stocks and bonds are now accessible to Filipinos interested in exploring international markets. You can acquire these funds via asset management firms, banks, and brokers with just a few thousand pesos.
A different approach to diversification involves purchasing stocks and bonds from various sectors. These distinct elements impacting separate industries account for their varying performance levels.
Last year, the PSE Financials Index rose by 24.1 percent due to increased profit margins for banks and consistent loan requests. Conversely, the PSE Property Index declined by 16.7 percent because negative sentiments towards property firms were fueled by elevated interest rates and an abundance of unsold residential condos and leased offices.
Ultimately, when purchasing bonds, you can spread out risk by acquiring those with varying maturity periods—ranging from short-term to long-term ones. This strategy ensures that not all of your bonds will be ready for redemption simultaneously, enhancing both your cash flow flexibility and your capacity to take advantage of new prospects as they arise.
If, for instance, you allocated all your resources into a 10-year bond at the peak of the COVID-19 outbreak when interest rates were extremely low, you wouldn’t have been able to put money into bonds offering significantly better returns currently available.
Diversification serves as a crucial strategy for managing risks since it aids in minimizing volatility and prevents substantial financial losses. While your possible returns may not match those from heavily investing in a single stock that significantly increases in value within a year, you gain peace of mind knowing that the likelihood of suffering major setbacks due to poor decisions is greatly reduced. INQ
by admin | Dec 27, 2024 | investing, investing economy, investment strategies and advice, investors, stock market investment advice
INVESTING stands out as an exceptional method for both growing your finances and protecting your wealth. By putting money into investments, individuals can earn returns and acquire stakes in businesses that serve as a financial buffer when unexpected events demand immediate funds.
Moreover, making investments is an excellent strategy to allow idle funds to increase; essentially, this money expands over time with minimal effort, providing valuable passive income for the investor.
Nonetheless, the idea of investing is equally constrained by its primary element: risk. It might appear as though taking up investment necessitates a bold step forward, demanding resilience, insight, and bravery; however, many misconceptions and beliefs about it can potentially be dispelled through understanding its underlying principles. To decide whether plunging into an asset is justified despite the risks involved, investors should lean on their expertise and acumen.
That’s partly why certain individuals hesitate to invest; they fear losing funds without knowing whether those investments will yield returns. Yet, one of the captivating aspects of investing lies in how it challenges our assumptions and disrupts conventional practices—even unpredictable start-ups and innovative tech companies shake up traditional ways of conducting business. In such scenarios, investment can prove highly gratifying.
New investors might get discouraged when starting out, but they should remember that investing isn’t based on chance. Instead, it’s about employing strategic skills and thoughtful analysis to ensure that their choices can turn investment into a rewarding experience.
Based on insights from Ritchie Teo, the Chief Investment Officer at Sun Life Investment Management and Trust Corp., here are five key pieces of advice for newcomers who are considering diving into investments. These guidelines can also aid novice investors in managing risks and crafting their financial plans effectively.
Understand the fundamentals of investing
Initially, avoid entering an investment without careful consideration. According to Teo, this is the crucial point that newcomers must remember since it will provide them with insight into whether an asset deserves their financial commitment or not.
Having knowledge isn’t just about understanding the asset you’re investing in; it also involves grasping market trends that can influence whether your asset grows or loses value. This insight ultimately dictates what kind of returns an investor will see.
Prospective investors ought to familiarize themselves with basic concepts of investing, including understanding financial jargon, recognizing distinctions among various types of investments, and acquiring skills for effectively handling their money.
“Get familiar with the fundamentals of the funds or assets you plan to invest in. Educate yourself through reading books, finding a mentor, or joining online seminars about investing. Gaining this understanding can assist you in accurately assessing your risk tolerance,” according to Teo.
Always make sure to conduct thorough research to enhance your comprehension.
The initial advice connects to the subsequent guidance, which stresses performing thorough research every time investors explore a fresh investment opportunity. Frequently, because of accessible communication channels and platforms like social media, individuals can be swayed into investing without fully grasping what they’re committing to. This lack of understanding heightens the chance of financial loss.
As per Teo, this constitutes a significant error often committed by beginner investors. Driven by the apprehension of being left behind, these individuals hastily commit funds to an endeavor without thorough examination. Consequently, when such ventures falter, they may become even more hesitant to invest subsequently.
“Always remember that some individuals may showcase their achievements [on social media]. Avoid getting lured into following them recklessly out of FOMO (fear of missing out). Ensure you conduct thorough research as the consequences will solely affect you; they won’t be shared,” Teo emphasizes.
Ensure your investments align with your tolerance for risk.
Use the sleep mark examination to confirm that the risk can be controlled effectively.
Should thoughts of an impending investment keep you from sleeping well at night, this indicates that you might be assuming excessive risk. Consider reducing the size of your investment or opt for lower volatility options like fixed-income securities to better align with your acceptable level of risk,” said Teo.
After novice investors gain knowledge and confidence regarding the details and potential risks of their investments, it’s time to turn that preparation into practice. According to Teo, those just starting out with minimal capital should consider investing in diversified funds that have lower initial requirements and easy access. Doing so can assist them in building up their investment portfolios effectively.
Discover ways to handle both victories and defeats
Investing truly presents itself as an unpredictable domain due to shifts in market trends, economic conditions, and various societal elements. Success does not come guaranteed every time; hence, newcomers should embrace losses as opportunities for learning instead.
“Nobody will consistently win every trade they make. The key is learning from each transaction you engage in. With increased experience, your tolerance for risk and mental fortitude will naturally expand,” asserts Teo.
Investing can be an enriching yet daunting endeavor, however, it doesn’t necessarily harm your psychological or economic well-being. By acquiring proper understanding, assessing your tolerance for risk, and committing effort and hard work, investing isn’t just a way to alleviate monetary troubles; it’s also about celebrating triumph over obstacles encountered along the path toward achieving your goals.
Begin investing at the earliest opportunity possible.
Starting investments at an earlier stage provides multiple advantages that can shape someone’s financial destiny. When people invest sooner rather than later, they allow their funds greater duration to grow through compounding, which may result in significantly higher earnings.
Moreover, beginning early offers the chance to capitalize on market ups and downs and bounce back from potential losses, thereby lowering total risk. This approach also fosters consistent saving practices and fiscal discipline, establishing a solid base for accumulating wealth over time.
Eager to begin your investment journey? Discover more about Sun Life Investment Management and Trust Corp.’s offerings by paying them a visit.
www.sunlife.co/SLIMTC
