INVESTMENT: A Road to Build Wealth
Whether we like it or not the truth is we can never be rich, or at least build wealth, when we depend solely on employment. Time has proven it. Only those who engage in investments ought to achieve what they need and want in life. Thus, this is now the right time to venture into the world of investments! But how and where?
It is always difficult to decide to invest because what we have is hard earned money and there are a lot of scams out there that promised real good interest but it is too good to be true. Beware! Make sure that we get into legal investments that would give us high returns. Investments that would give us passive income—that is we earn while we sleep! In other words, let your money work for you. Here are the lists of instruments where you can safely invest your money:
For companies and shareholders stock market has been a significant and interesting source of income especially when they want to expand their business. People view stock investments as a good and fitting only for the rich who have a large sum of money. This might be coupled with the understanding that to be a shareholder is to be a millionaire. This is a wrong notion because with only 5000php one can already start investing in stocks. With the advent of technology, we don’t need to go to PSE to trade. All we need is a computer and an internet connection. So we can do stock investing anywhere where there’s internet.
Stock market investment is based on the principle of buy and sell. Because companies need capitals in expanding their business, they end up selling shares to the people. So when you buy shares of a certain company you become a shareholder of that company. If the company gains, you also gain based on your number of your shares. If it losses, you also do the same. The great Warren Buffett provided us the stock market investment rules: 1. Don’t lose money. 2. Always remember rule 1.
Stocks are considered volatile and prices fluctuate most of the time. Risk is regarded as high in this investment. But risk can be reduced if you follow simple principle in stock investing, that is: Only buy giant companies with tract records of good earnings. Make sure these companies would last 50 to a hundred years from now. Then don’t panic when prices go down but be happy instead for you can buy more stocks at a low price. “Be greedy when others are fearful and be fearful when others are greedy” (Warren Buffett). Sell only if the price value of your stock is high. In other words, buy at a buy-below price and sell at a target price! In this way, you are sure that your investment is at a maximized growth potential.
There are investors who don’t want to put their hands on their investments but instead they want somebody to do it for them. So basically, mutual fund is a collection of funds from different investors that are being invested in various avenues like stocks, bond, money markets, or other mutual funds. The fund is managed by somebody, a fund manager.
The risk is low for this kind of investments because your money is diversified and most importantly it is being cared by a professional fund manager. But when there is low risk, your money’s growth is also low. And besides, you also pay for your fund manager for his job. Unlike in stock market, you manage your own investment and your money’s growth is limitless depending on your strategy. It is good especially if you have a mentor or a club that guides you step by step all the way to learning how to buy and sell stocks by yourself.
Money Market Fund
Another cash investment tool is money market fund. It is a kind of mutual fund but the funds are invested in short term instruments and matures at a maximum period of 13 months. The risk of investment is reduced by keeping a short time-frame. In a money market fund, the average maturity of all investments must be less than 90 days. Remember that the longer you loan money to someone the higher is the chance that something will happen and that he won’t be able to pay back.
If people buy and sell stocks in the stock market, then people buy and sell money in the money markets. Buying or selling money simply means loan or borrow money, respectively. Because this is a low-risk investment, the average return is also lower than long term investment in stocks. In addition, inflation will eat up your returns over a long period of time. Interested? Banks offer this type of investments.
Lending money to any borrower is called a bond. It is a loan and you are the lender. The borrower could be a company, state, or a local municipality. These entities need money to operate. In exchange for money, the borrower issues a debt security to the lender. The borrowed money will be returned with interest.
If you are buying properties and letting them generate income for you, then you are on direct real estate investment. Rather than living in these properties you bought, you think of making money instead. You gain income from renting or by selling at a higher price as the properties appreciate as time goes by.
For instance, you buy a condo and let somebody lives in it for 8,000php a month as a rental payment. If your condo’s monthly amortization is about the same price, then that already covers your mortgage payments. And if the value of the condo increases, you can sell it for a capital gain.
Like any other investments, there are specific risks and rewards in the real estate investments. Aside from the maintenance especially in a house or a condo, real estate market may fall and prices may go down. A land or lot may not be affected in this scenario as lot appreciates more than a house. But make sure that you are prompt to face any challenges in your investment to defy losing your money.
The author is a Truly Rich Club member of Bro. Bo Sanchez.
Happy investing and may your dreams come true!