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Smart Millennial: A Millennial’s Guide to Stocks

Here’s the 101 you didn’t know you needed.

| July 19, 2016

40556996 - a city worker analysing stock market data on a monitor.Smart Millennial:
A Millennial’s Guide to Stocks

By Zia Frem

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Anyone can invest in the stock market. Even you, young millennial.

One can start their paper investment at small capital especially now when many financial institutions promote retail investing; with a minimum P5,000, you can open a trading account (COL Financial) and jump start your stock investment.

Invest only what you are willing to lose.

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This is a very basic concept and the most important idea: Invest a part of your savings that you are willing to lose. Just like many investments, there is a risk of losing the money you will invest in stocks. Don’t put all your savings to stock investment Since the stock market and the economy are, by their nature, very volatile and uncertain. Even the best people in their fields can’t escape this unpredictability, but wise decision-making and caution go a long way.

 

Short-term vs. Long-term.

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For retail investors, the stock market is not an easy money investment especially if you do not have the skill and big capital to actively trade. However, TIME is the key in stocks investment. I heard this from a reputable speaker that if you maintain a long-term horizon on your stocks investment, it is very unlikely to lose your investment. It is highly recommended to go for long-term investing ideally within a period of 10-15 years. Short-term is also good as long as you have perfect timing on your entry where the economy is past the down turn and transitioning to and upward trajectory.

 

Cost-averaging method.

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Never mind the Buy Low, Sell High concept for now, because that technique is most effective for  professionals and aggressive investors. It is recommended for  many starters and conservative investors to do the cost-averaging method. In this method, you don’t need to time the ‘when and at what price’ to buy the stock because you will consistently invest a fixed amount of money in that stock for a certain period of time.

Here’s a rough example: If you’re earning P15,000/month, committing at least 20% of your salary (P3,000/month), is more than enough to invest in stocks. But remember, stocks require a minimum amount of investment depending on their price.

 

Picking your stocks.

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There are many stocks out there to choose from. It can be confusing a lot of times and more tempting to ‘play’ to get the most out of your investment. Unless you are well-skilled for it, just don’t. Leave the rat-race activity to the professionals, or else–you’ll end up burning yourself. When picking stocks, this is my golden rule:

Invest only in companies you believe in, and have the confidence that they will stay in business for a long time.

If you are into long-term investment, consider stocks that pay out dividends consistently to their investor. For short-term investment, look at  the company profile and businesses they are engaged in. If you are a lazy and don’t want to study at all, just go and pick the blue chip stocks (e.g. Ayala Corporation), or stocks under the PSE index; this is the easiest approach of all.