Why do you have to invest?

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source: http://www.9negroup.com

They say this is the best time to invest in the stock market. Why is it the best time? It is because you are able to buy shares of a good company at bargain.


But you are confused.


The news is that the world market is collapsing with the Greek Debt crisis and the gloomy economic outlook in United States why do I say that this is a good time to invest?

source: http://www.hotslive.com

But before we discuss deeper into this I guess the best start for this is for us to define what really an investment is. 


Investment in simple term means a set aside money put in something that gives you back money. 


Simple but a lot of people still don't get the idea about this. A lot of people put money in a savings account and call it already investment. Yes the bank gives you back money by way of interest. I will call this sound investment if we are in the 70's or 80's where interest on savings are in the range of 5-10% but now I would like only to put money in a savings account for emergency fund purpose because banks nowadays pay 0.5-1% only even time deposit are within that small range.


That is why we have some alternative vehicles or funds where we can put money to give us back money. Remember the definition investment is a set aside money that will give you back money. That is why if you read my post about how I divide my earnings into 6 funds one of them is Investment Fund. We have to set aside money for this purpose.


Now let’s focus on investments. I will discuss some investment vehicles and how does these investments give back money.


Many say put it in small business like a computer shop, a taco shack, or a small food cart. Yes this is a good step to becoming into an entrepreneur but if you are inexperience and your funds are limited you might not be able to start it. So while accumulating enough money for the startup engage yourself in learning how such small business operate. Look at established small businesses around you and learn how they started, how they struggled and how they became and continually be successful amidst the economic slowdown. Business gives us back profit. What we can do with the profit is either to re-invest it to the small business, set it aside for another venture, or save it in a savings account for emergencies.


Some banks now offer what we call Unit Investment Trust Fund or UITF. The amount needed to invest in a UITF ranges from 10,000 to 100,000 pesos and has various holding period. UITF are investment funds, not a deposit that is why it is not covered by PDIC insurance, return depends on the performance of the stock these funds are invested. This is a way which you indirectly invest in stocks. You get what these funds earn.


Stocks are still one of the best investments. We earn either through dividends or price appreciation. But the problem is people wanted to profit right away. In times like these the best way to invest is to buy stocks of great companies at the lowest possible price and hold them until their price rise to about 30-100% of their price today. It may take long let say 6 months to 5 years waiting period and people always pull out their investments when their stocks are down and so they suffer the loss.


I am not saying invest now right away. Always make it a golden rule to know where you are putting your money. Ask but ask the right person. Ask people who did it and made money and still make money or still not pulling their investments at this very time of global economic crisis. It only means they know something that others don't know that is why they are still holding onto their investments even if price of their stocks went down up to 20-50%.


Also always remember to invest at your own risk. Investing is not a gamble; it is more of a discipline to be learned. That is the big difference between the true rich and the show off rich people. Find a truly rich person and learn from them. Bo Sanchez calls them "mentors', Kiyosaki call them "Rich Dad", and other people call them their "Idol". Go out and seek these people. Listen to them and learn. Apply what you learn from them in small scale and little by little make it to the big deal. If at first you failed it is good that you only use a small amount of your hard earned money and the bonus is you learned something out of that misfortune.


Life is a learning process and mistakes are part of it. So if you made a mistake don't worry as long as you learn something out of it.


So are you investing at this time of crisis? Well it's your call, it's up to you.

source: http://exploringthemind.com

Revisiting my first post: Is it a good time to invest now?

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source: http://www.stockginger.com

It is worth reading an old post. 

Back then the situation is pretty much similar that is we are in the middle of a financial crisis. (Click here to read my very first post. Please leave your comments on how different is today's crisis from the last). My question was "Why invest?"

Now this is my question: Is it a good time to invest now?

Yup the stock market had a roller coaster ride. The Philippine Stock Market reached its highest two or three times before it succumb to its current level due to US debt crisis. You might wonder why am I asking if it is the right time to invest. Well as I recall again there is no right time to invest because "now" is the right time to invest. But it is so scary out there don't you think. The DOW dive nearly 600 points down then recovered back then went down again, it is so risky and still why do I say it is a good time to invest now.

source: http://www.bloomberg.com/apps/quote?ticker=INDU:IND

Now probably you have to ask me direct, Louis why is it a good time to invest now?

Here are my reasons:

1. Stock prices of blue chips companies went down therefore you

    are getting them at a bargain.

2. The current financial crisis is of the US not of the world yet. So it

   may have affected other markets but surely it is temporary as it

   has always been. So take advantage of the time.

3. Stocks of true value will come out in such situations. Those who

   are really just mere stocks will fall but those who truly deliver 

   profitability amidst crisis will stand out.

4. If you already have stocks it is a good time for you to average

    down big time. 

So what is your move now? Probably you might say you'll think about it. And that is good as well. In stock investing you always have the final word. No one can tell you what to do but only you as an investor have to push that buy button or if you prefer to sell then sell button.

source: http://iamamentallychallengedteen.blogspot.com

So is it really a good time to invest now? Would appreciate sharing your thoughts by leaving comments below.

Why rich people grow richer and poor people become more poorer?

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Okay such topic is a long discussion but my aim here is to connect that topic to investing in the Philippines.

One key thing that makes such happen is the word we all know especially when you are an employee. Yes you got it right the word is TAX.

If you notice it especially if you are an employee, before your paycheck lands to your wife's hand(so that she can start paying bills and buying the household needs) or before even you see it yourself your paycheck will surely have a line called tax withheld or tax withholding. You will also notice that this amount is different from your co-worker who is either single, married, or with dependents. If you are single the government will tax you more thus your jaw always drop especially if you are on commission based. If you made a big sale and in your check you will see that line with a whopping amount deducted to that sale you made.

Remember that as an employee you are taxed based on your earned income which we usually called active income. Active income is the earnings you get by doing something like working, doing business and the like. The opposite of active income is passive income. To simple define it, it is the income you earn by doing nothing; which in reality is passage of time.

Passive income are taxed differently. They are taxed with the same rate without regards to the amount. 

Now connecting this to stock investing, in the Philippines capital gains through stock trading is taxed at 1/2 of 1% which is 0.5% which when converted to decimal is 0.005. Remember this figure 0.005. Why because this is the figure you will multiply to get tax that will be deducted to your gain when you completed a trade. Imagine that, if you earn Php1,000.00 in a single day you will pay the government Php5.00 and what you keep is Php995.00 less other small charges and broker's commission. What if you gain Php20,000.00(let say this is your monthly salary), you will just pay tax of Php100.00. 

Now capital gain in stock are passive income because you never do any work. You just waited for the value of your stock to rise up to the level that you will be able to exceed your breakeven. One can compute its earnings thus all we we have to do is wait. That is why rich people seem to grow richer without them really exerting effort because they have well invested there hard earned money before. They have learned the investing game and they have learned the tax rules thus they chose where the tax is lesser.

I am not implying that rich people don't work to earn money, most of them do work. One thing more why they grow rich is that while working they keep on re-investing whatever they earned thus making lesser tax payment because there tax on there earnings from work are compensated by passive earnings in investments. And also earnings from stock trading are not taxed in your income tax because such was already subjected to final tax which means that is the total tax to be paid for that income source.

So now you know why rich are growing richer. Lets all learn, lets be wise in how we handle our money and taxes.

How much do you have now?

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One question you may ask me "I don't have any money, how can I invest?"

The people today has this mentality problem. People's purchasing power is  reduced to their salary and that they have been practicing what most call "Scarcity Mentality". In simple language people believed they cannot buy or acquire things or afford things because they think they don't have anything and that they look at what they have right now as very small. There is a bad effect of Scarcity Mentality. Whenever there is a sale or there is free item that goes with the item they wanted to buy they jump on to purchase it thinking that they got a good deal. The tendency on this is that one becomes an impulsive buyer. There is nothing wrong in searching or buying specially when it is on sale only that this becomes a habit. One may think that when there is a sale he or she must buy. Wise buying is not always buying because it is on sale; in the end one ends to be broke and from there one may brand themselves as poor and thus your mind programs you that you don't have any money to invest.

Number one rule in investing is investigate. Never ever jump into something that you don't know. Today's world has many means of getting information. We have the internet and print media to learn about where to best put our money. Second is invest only your excess. Many people end up losing all they have because they have invested all they have on stocks then suddenly lost everything due to financial crisis. Always only invest your excess.

So the question still stands, how much do you have right now? Many people think that you need a lot of money to invest in stocks but that is not correct. If you look around and check the newspapers or the investment news channels like CNBC you will notice that stocks are in the range of less than a dollar or peso to hundreds or thousands. With this in mind one can buy stocks base on how that particular market's rules. Some are sold in board lot just like in the Philippine Stock exchange where board lots ranges from 10 - 1000 depending on the trading value. So for example a stock trading at Php 50.00 may have a board lot of 100 making the total required investment to be around Php 5,000.00 only. Off course you have to open an account with a broker which requires a deposit of around Php 25,000.00 and up depending on what acount you are opening.

With that in mind you can see how much you are saving. I know you will say I don't even have left after I pay my bills. The problem with us is that we contend ourselves with whatever is left on our salary, we our satisfy first bills rather than satisfying pocket. I suggest you do the reverse. It seems impossible but when there is a will there is a way. 

In order to do this one must first look at his spending habits. One must segregate what are needs and wants. By doing this one can identify which should be given priority. Do this on a daily basis. Everytime you pull your wallet to make a purchase think if it is a need or want. In the process you will be able to control how you spend on the need or want. Master this until it comes to the point that you will not spend for wants anymore and from there you can start building your savings. Make a note on your savings. Writing your savings entices you to save more. Then after making a considerable savings ask yourself again if how much do you have now. Remember the amounts a I gave you  that is Php 25,000.00 and the stock value ranges of Php 1.00 - 50.00. From here you can visualize how near you are and that you have a money to invest in stocks or any other investment