Investment 101: Comparison of Modern Investment Vehicles and Risks

As the saying goes, when one door closes another opens. There is no doubt that the pandemic has hit the Philippine Stock Exchange severely, causing it to fall 8.6% year on year and hit a low of 4,000 in 2020. But the situation is not as gloomy as the numbers. present.

The government has imposed ongoing tax relief programs, such as the new Business Recovery Act and Business Tax Incentives (Create), which help overcome business losses and revitalize foreign interests on the shore. . Experts also remained hopeful that faster vaccine deployments, in addition to favorable weather conditions and the easing of quarantine restrictions, will lead to a faster economic recovery, fully meeting the growth target of 7 to 9% for 2022.

In the meantime, however, the stock market has found an unlikely hero in these difficult times. With stock prices on a downtrend and more and more people finding they have less spending due to lockdowns, it was reported that the total number of stock accounts jumped 13.7% in just one place. ‘in 2020, totaling 1.4 million accounts. Of these 1.4 million, 97.9% were held by private investors and 98.5% were owned by local interests. This increased activity comes at a time when analysts suggest there is likely no longer a downtrend and less selling pressure from foreign funds in the market, creating a good opportunity for current investors. and potentials to make decent profits.

So it seems that now is the time to invest, but how exactly do you start investing?

Importance of investments

Investing in a multi-currency, long-term and diversified portfolio is a way to grow funds and increase the value of those funds over time. Compared to placing money in a regular bank savings account, some investments may offer higher rates of return when the value of the investment increases, when dividend income becomes available, or when the investment or the asset is sold at a higher price.

Young working adults may have heard some investment advice from those around them, such as starting to invest in pensions and life insurance early, buying land and real estate where possible. , save capital and start a business, and open a high-interest savings account. While these remain solid options for investments, they do not quite cover the breadth of investment opportunities available.

Traditionally, investments also include mutual funds, bonds, unitary investment funds (UITF), annuities, etc. Although these financial products may come with a fee, they are generally accessible because they do not require a large minimum initial investment, if at all. It would only depend on the financial goals and risk tolerance of an individual investor as to which products are suitable for them.

For example, although they may ultimately differ on the process, mutual funds, UITFs, index funds, and exchange-traded funds share the same ability to allow investors to buy small stocks of different companies and quickly diversify their portfolio at a relatively lower rate. Banks and insurance companies that offer these products would generally rank them according to the level of risk and aggressiveness of the investor, for the sake of convenience.

Securely trade stocks

Of course, when the topics of investing and building wealth come up, stocks and trading follow immediately after. This is because trading of any kind generally has the appeal of being “high risk and high reward”, especially given the GameStop stock market fiasco earlier this year, where traders with no financial experience have become. overnight millionaires after investing a lot of money in an otherwise declining country. business. Unlike GameStop stock, however, most trades don’t hit an all-time high of $ 347.51 per month after a meme binge, and most stock investing doesn’t have to be that risky.

Simply put, stocks are just actions of a business. It is easier to understand the risk of an investment by understanding how well this business is run, how relevant the products and services it offers are, and what obstacles it might face in the future. While some predictions are involved, such as determining which companies will cross the other side of the pandemic in a better position than before, an investor can be assured that a best-performing company will be a best-performing stock as a result – and that is the same logic applied when buying blue chip stocks.

Cryptocurrency as a modern investment

On the other hand, cryptocurrency trading comes with a whole different level of risk, and that’s even before considering the recent hacking and theft news in a community channel for “Axie Infinity” players. Yet the game itself has provided considerable revenue for early adopters and managers alike, and more and more people are looking to invest in underrated games and coins to achieve the same “flash in a bottle” effect. ‘a high growth investment. So far, the blockchain game’s skill token, “CryptoBlades,” has mimicked success, hitting an all-time high of $ 184.46 in July before dropping to $ 15.80 today.

Although there have been records of high returns for cryptocurrency trading, at its core it still participates in a volatile market and invests in assets that have little or no value. Therefore, the only way to win would be to have someone else buy the asset at a higher price. It is always an investment option; a potential investor just needs to make sure he has the courage to ride the ups and downs in the market.

Factors to Consider for New Investors

Speaking of a strong stomach, planning an investment strategy in advance would help new investors avoid the pitfalls of “emotional trading” and potentially save them from a panicked instant decision resulting in large losses. It’s also important to note that most investments usually come with some degree of risk. Low risk investments always carry the risk of devaluation or of not achieving the target return at the set time period, thus resulting in a loss for the investor. A good rule of thumb is to set aside an emergency fund beforehand, be clear about your financial goals and how long you would need a return on your investments, and diversify your portfolio to ensure you be able to cover any risk that may arise. manner.

Seb Serrano is Senior Audit Manager at P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, consulting and outsourcing firms in the Philippines, with 24 partners and over 1,000 employees. We would love to hear from you! Tweet us: @GrantThorntonPH, Like us on Facebook: P&A Grant Thornton, and email your comments to [email protected] For more information visit our website: www.grantthornton.com.ph.