Important points before you start investing in mutual fund and online stock investing

1.       Make sure that you have enough cash in your savings account allocated for emergency situations. This should be atleast equivalent to 6 months of your monthly salary. If you still do not have the 6 months cash cushion, 3 months is acceptable then from thereon, increase your cash position every month when you receive your salary. You can do this by setting aside 20% of your salary and then out of which, you put 50% in your savings account and the remaining 50% in your investments.

2.       There are various types of investments ranging from mutual funds, stock market, ETFs, real estate properties, buying a franchise and starting your own business. Remember that before you start investing in any of the business I have mentioned, it should be started only after you have carefully reviewed the risk-reward aspect of it and if only you are able to answer the following questions.

-          Is it something that you like doing even if you are not compensated, you would still find the time and enthusiasm to do it?

-          Is it within your core gift?

-   Are you the aggressive type? moderate? Conservative type of an investor?

I believe that the 1^st 2 questions are applicable if you are buying a franchise or starting a business. But if you are investing in mutual funds or the stock market which are also called paper assets, you need not ask yourself these questions. You put your money in mutual funds and stock market because of the great returns that these funds can give in the long term. On average, mutual funds return a growth rate of 12-15% per year. Infact, there are great mutual funds out there that give a return of 20% average per year. While investing in the stock market can give an average of 15-17% per year if you will stay invested for 15-20 years.  Assuming that mutual funds and stocks give a return of just 7% which is very conservative and will most likely happen should there be a recession that will last for 5 years, it is still a viable investment platform compared to time deposits being offered by banks which can only give you a 2-5% return minus withholding tax of 20% from the total profit every year.

3.       I always emphasize this to newbie investors. Invest only if you are in for the long haul. Meaning your time horizon is from 5 years to 30 years. If you are not into the idea of long term investing, better put your money in banks and let it grow by only 2% every year less withholding tax. What banks will do is they will invest your money in mutual funds, stock market and lend it to businesses and individuals. Personally, what I do is I buy shares of profitable and well managed banks such as Metrobank, BDO, China Bank and Security Bank through my online brokerage firm Citiseconline.com. Because these banks are well managed, individual and institutional investors and fund managers chase them. Since these banks are patronized by these investors, their price per share shoot up from which I earn aside from the dividends that they declare every year.

4.       Make it automatic. When you receive your salary, when you have an extra money. Make it a habit to put something for your future by investing it in mutual funds and the stock market. Increase your cash position in your savings account so that you are liquid and your comfort factor increases and then use whatever is left to manage your expenses. If there is a little extra, that is the time that you can go to malls.

5.       Sure there will be a recession, sure inflation is inevitable, sure there will be crisis, calamities etc. Nobody can predict when these things will accurately happen. Even PH.D holders are unable to give us a definite answer. Sure they are good at estimating but again, these are only estimates. So as investors, we are not bothered because we only do 2 things. First, we look at company earnings and Second, we invest every month no matter what because if your time horizon is 10-30 years, these occurrences are nothing. We look at crisis as opportunities to buy stocks or mutual fund shares at bargain or fire sale prices. Try to google successful investors who are billionaires now such as Warren Buffet, Prince Al Waleed, Peter Lynch and so many other investors. They became a lot richer because they did their shopping during the down period while the rest were panicking. “Long term investors get rich when there is blood in the streets”.

So there, the above should serve as an easy to follow guideline so you can kick-start your plans for investing. Buy mutual funds first because I believe this is the basic commodity followed by stocks. Nowadays, one can invest money in stock market or do mutual funds investing online. The latest technology has made online stock market investing and mutual funds investing so much easier. Watch out for my next article where I will be discussing in detail the different types of investments with emphasis on mutual funds and stocks which are popularly known as paper assets.