1. Determine your end goals.
Understand why you’re investing. Are you aiming for a comfortable retirement? A trip around the world? College matriculation? Capital for a business venture? A new car? Knowing what you want and need (and how life-threatening losses on your end may be) will enable you to gauge the amount of risk you can afford to undertake as an investor.
2. Have an emergency fund prepared: have two if you can.
So that you won’t be easily tempted to prematurely liquidate your investments when dilemmas arise, have two types of emergency funds prepared: a short-term one and a long-term one. Your computer crashed? No worries: pull out a few bucks from your short term emergency fund to have it repaired. Got laid off? Rely on your long-term emergency fund for your sustenance while you’re on the lookout for a new job.
3. Determine how much time and effort you can commit as an investor.
Ask yourself how many hours a week you can allot to study your investments and the market. Can you afford being an active day trader at the stock market or would you be better off as a passive UITF investor instead? Certainly, you’ll have to monitor your investments from time to time. You can’t just purchase stocks and pray they triple in value the next time you check on them in ten years because that’s no better than blindfoldedly crossing the streets. Even long time investors will sometimes have to sell away their shares to temporarily safe-keep their money and avoid grave losses when the market is really doing badly.
4. Learn the rules of the game.
Learn your options and your jargons. Study how the Philippine stock market works. Learn the difference between mutual funds, UITFs, and VULs. Research what the terms ‘buy,’ ‘sell,’ ‘blue chip,’ ‘bullish,’ and ‘bearish’ mean. Go ahead and ask Uncle Google for tips or visit PSE Academy for tutorials.
5. Develop a strategy.
Your investment strategy will definitely depend on your resolutions to the earlier points discussed. What investment vehicle will you opt for? Will you opt for a conservative investment, a medium-risk investment, or a very risky yet potentially highly profitable investment? Learn strategies such as technical analysis, fundamental analysis, value investing, growth investing, and buy-and-hold investing, and find what style best suits you.
"You have to learn the rules of the game. And then, you have to play better than anyone else." ~Albert Einstein