Investing towards financial freedom

CEBU, Philippines — Investing is one of the wisest decisions a person can make in his or her life.

Yet a lot of people today are still afraid of investing probably because of lack of knowledge or the fear of losing money especially in investing in the stock market.

For book author, personal finance expert and stock market trader and analyst Marvin Germo, it's time for more and more people to take the step towards financial freedom especially at a time when the country’s economy continues to grow and there's no better way of riding on this growth except through investing.

In particular, Germo wants to see more Cebuanos and people from Visayas and Mindanao investing in the stock market, noting that roughly 75 percent  of investors in the market come from Manila and only less than 5 percent come from the Vis-Min area.

He said Cebu is the country’s second largest economy and yet Cebuanos seem to be missing on the action.

It's indeed about time that Cebuano investors take a bigger piece of the pie and the fact that Cebu is the second biggest economy after Manila should encourage more Cebuanos to take a bigger role in the market.

While the economy continues to grow as infrastructure development increases, which means more jobs and better economy, the better way to ride on this growth is to invest in the market.

Another compelling reason to invest is that the stock market is poised for growth, said Germo, who is author of a book series called Stock Smarts which teaches people about stock market investing.

Studies have shown the stock market is one of the best long-term investments available and that people need to take that opportunity.

Considering the culture of financial dependency among Filipinos, there is definitely a need to cultivate a generation of investors and education plays a very vital role in the process.

Smart Investing

"People love to invest. People love the returns. People love the yields that they can get when their stocks would amazingly go up," the financial speaker said. "But what people don’t see is that there are risks when it comes to investing and one way to somehow beat or move around the risks is to try to at least have all your bases covered.  After all, it’s your money you are investing and it's best that you do due diligence on how you manage it.

In other words, people should plan their investments, Germo said.

The stock market is fraught with a certain level of risk, so it's imperative that investors arm themselves with smart strategies before they invest their hard-earned money.

When one buys a share in a company, he or she becomes a part owner without worrying about running its daily operations.

An investor makes money when the company earns a profit. However, he or she also loses money when the company does.

Making a profit from the stock market is done by selling your stocks when the market prices are higher than when they were bought.

What to consider before investing

As already said, investing is undoubtedly a wise decision anyone can make as it helps him or her beat inflation, have income and secure a comfortable lifestyle at present or in the future.

But before a person actually start investing —whether in stocks, bonds, forex, real estate and other instruments — it is very important to consider key things that need to be in place, Germo said.

First people should build first an emergency fund. This means that would-be investors need to have first a safety net in place before putting their hard-earned money in investment instruments.

Ideally, an emergency fund is a 3-6 months' worth of expenses and should be place in a bank, which should be used in case of emergencies like hospitalization.

Once an investor has this emergency fund, he or she now feels more secure knowing that a back-up money is ready when emergencies occur.

Another thing to consider is insurance.

Like an emergency fund, an insurance is also deemed a back-up plan should the policy holder die at an unexpected time.

An insurance policy gives the beneficiaries of the investor the much-needed funds for their living expenses in the present to the future.

Germo said would-be investors must also have an investment plan which should detail their specific goals and strategies.

Basically, an investment plan details the required rate of return, the target amount, the investment strategy and the investment vehicles — things that are highly dependent on the financial goals of an investor.

At some point, investing should be taken seriously and that making sound investment decisions is very important.

In other words, due diligence is key.

Investors are advised to back up sound investment decision with good research from trusted entities and from their own research.

While investing means growing one's money, it should also mean getting measures in place for managing risks.

Investors normally make money through gains, but these gains may lose if they fail to manage the risks that come with investing.

One effective risk management measure is diversification.

This means spreading investments in different vehicles so that when one investment goes down, the investor has still other instruments to depend on.

For Germo, money is there to help people accomplish their purpose but it is not their purpose in and of itself.

"Money is the byproduct not the end goal. In the same way, stock investing and businesses are there to help you achieve your purpose and help others earn also," he said.