Investments for Beginners: A Comprehensive Guide

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Investments for Beginners in the Philippines | Moneymax

Many of us Filipinos believe that there’s only one way to make money—by working for it. Either you’re paid to provide a service or you earn from running your own business.

However, there’s a second but less popular way to make money—making it work for you. This entails investing your money so that it earns more money. When you invest, your money earns interest over time, or you buy an asset and sell it later for a higher price when its value has increased.

Only a few Filipinos invest, though. The Bangko Sentral ng Pilipinas (BSP) 2017 financial inclusion survey [1] found that only one in every five adults in the Philippines have some sort of investment.

Although it’s true that money doesn’t grow on trees, it can definitely grow if you invest wisely. Start with knowing the basics of investments for beginners through the information in this guide.

What is the Meaning of Investment?

Investments for Beginners in the Philippines - Meaning of Investment

Many people use the term “investment” rather loosely for a number of things, despite not completely understanding investments for beginners.

A newly bought BMW can be labeled as an investment. Buying MAC Cosmetics instead of the local brand is often considered an investment in quality makeup. You might even be guilty of “investing” on the latest mobile phone.

With these labels, there’s a fine line between the difference between investing and splurging. By learning about the real meaning of investment, you can figure out exactly when a purchase becomes an investment.

An investment, as defined by Investopedia [2], is “an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.”

Based on this investment meaning, there are two keywords to remember: time and appreciation. The goal of any investment vehicle is to grow your money over time.

Let’s say you are planning to invest in real estate. Simply buying a house to live in cannot be called an investment because it does not automatically generate money.

But if you buy a house to rent it out, then it becomes a viable investment because it provides you money for your future needs.

There has to be a return on investment (ROI), which is a performance measure used to assess how efficient an investment is. The higher the ROI, the more profitable your investment is.

Best Investments for Beginners in the Philippines

Investments for Beginners in the Philippines - Best Investment Opportunities

Wondering where to invest your money as a first-timer?

You can choose from a wide range of investment opportunities that best fits your personality and budget. It is best to select an investment based on your goals (short, medium, or long-term) or based on your risk appetite (conservative or aggressive). Check out the recommended investments for beginners below.

Read more: Achieve Your Goals with These 7 Best Investments

Pag-IBIG MP2 / SSS PESO Fund

Among Filipino adults who invest, the most common types of investments are those by the SSS (80%) and Pag-IBIG Fund (30%), based on the BSP financial inclusion survey findings.

This is not surprising, as the two government agencies’ investment programs offer plenty of benefits to their members. For one, it’s affordable to invest in the SSS PESO Fund and the Modified Pag-IBIG II (MP2) programs. You can start for as low as PHP 500 (for the MP2) or PHP 1,000 (for the PESO Fund). Earnings from these investment schemes are tax-free and guaranteed by the Philippine government.

Read more: Pag-IBIG MP2 vs. SSS PESO Fund: Which is the Better Government Savings Program for You?

Stocks

Stocks are among the types of investments considered to be the riskiest yet most profitable. Even so, stocks are a good investment for beginners who are comfortable parting away with their money for at least five years.

Investing in stocks makes you a part-owner of a company, giving you the right to a portion of the company’s value and income.

Read more: How to Invest in Stocks for Beginners (Even with Little Money)

Bonds

Stock investing and running a business are both risky ventures. If you don’t like taking risks, you can try investing in less volatile investments such as bonds.

Bonds are debt obligations issued by companies and treasuries. The good thing about bonds is that they pay a set amount over a certain period, regardless of the company’s gains and losses.

While this means that you won’t be left empty-handed, you also won’t be able to take advantage of a company’s growth. It’s a low-risk but low-profit investment.

Read more: 5 Smart Reasons to Invest in Bonds

Mutual Funds

Mutual funds investing involves pooling funds from different investors and investing them in various assets such as stocks and bonds. This is one of the best investments for beginners because, unlike in stock investing, a professional fund manager makes investment decisions for the investors.

Read more: Mutual Funds Investing for Beginners in the Philippines

VUL Insurance

Variable universal life insurance (VUL) combines life insurance and investment into one product. Investing in VUL is ideal for first-time investors because, like in mutual funds, their money is handled by professional fund managers. It’s also a good choice if you don’t have a life insurance policy yet.

Read more: What is VUL Insurance and Should You Get One?

UITFs

Unit investment trust funds (UITFs) work the same way as mutual funds. They just differ in what handles them and what regulates them.

Mutual funds in the Philippines are managed by insurance and brokerage companies, while UITFs are handled by banks. Mutual funds companies in the country are regulated by the Securities and Exchange Commission (SEC), while the BSP regulates banks that offer UITFs.

Read more: Investing for Beginners: UITF 101

How Much Money Do You Need to Start Investing?

Investments for Beginners in the Philippines - How Much Money to Start Investing?

“Can I invest with little money?”

Yes, you can start investing for as low as PHP 1,000 to PHP 5,000 in vehicles like stocks, mutual funds, and government investment programs.

If you can’t afford to invest at least a thousand bucks per month, you may consider cheaper investment options, such as the GCash Invest Money [3] that allows investing for only PHP 50. Because the investment amount is just minimal, don’t expect to earn high profits. However, it’s a good way to start the habit of investing for beginners.

Although in the Philippines, investments for beginners can start with little money, it’s better to have more funds for investment. The higher the amount you can invest, the better you can diversify your investments to minimize risk. This means you can put your eggs in different baskets. For example, you allocate a portion of your investment funds to stocks, another to bonds, and another to Pag-IBIG MP2.

Now the next thing to determine is how much of your income should go to investments. That depends on your investment goals and how much you can afford to invest. The rule of thumb, however, is to invest 10% to 15% of your monthly income. So if you’re earning PHP 20,000, you should be investing at least PHP 2,000 every month.

In the end, what matters more than how much you invest is that you actually get started.

Investments for Beginners: 5 Tips for First-Time Investors

Investments for Beginners in the Philippines - Investment Tips

1. Save up for Emergencies

Don’t forget to set up your emergency fund, ideally before you start investing. It serves as your cushion when any unforeseen expense comes up, and you won’t have to touch your funds for investment.

Investing money you might need in the short term can hurt your finances. When you invest, you’re leaving your money for several years. Taking your investment money too soon will keep you from maximizing your ROI.

2. Set Your Investment Goals

You can plan to use your investment returns to buy a house or a car in the future, fund your children’s education, build your retirement fund, or be an extra source of income.

Whatever your purpose is, your investment goals should be clear to you from the beginning to help you make the right investment decisions.

3. Invest Regularly

Investing at regular intervals, like monthly or quarterly, is a good strategy for managing risks, especially in long-term stock investing when prices of shares rise and fall. It also forces you to set aside money for investment regularly.

4. Educate Yourself Continuously

When it comes to investing, knowledge is power. If you continue to learn new things about investing, you can make more informed decisions and maximize your profits.

Final Thoughts

Investment is all about making your money work for you. As learning about investments for beginners, knowing what an investment really is leads you to your first step to achieving financial independence. So learn as much as you can about investing in the Philippines before and while you’re making your money grow.

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