For the uninitiated, the concept of investing may seem intimidating enough to put off doing, or worse, to reject altogether. That should not be the case though. Here, we'll break down the topic into simple, digestible nuggets to help you better understand it and make informed financial decisions.
Before we explore your different investment options, ask yourself the following questions. Knowing the answers to these would better prepare you for when you sit down with your financial advisor.
“What are my investment goals?” List down all long-term goals you are aiming to save up for, such as buying a house in five years or your retirement 30 years from now.
“How much can I afford to invest now?” No one knows your finances as well as you do. Figure out how much you can set aside now, realistically, as you take into consideration your monthly bills and existing financial obligations. Remember to only invest money you can afford to keep away in the long term. This means it’s separate from your savings, emergency fund, and other funds that you intend to access quickly if necessary. That said, you don’t have to be earning a six-figure salary to even consider getting something like a savings and investment plan. Start with what you have, no matter how little you think it is, and invest regularly. Monthly is ideal.
“What level of risk am I comfortable making?” If you are not sure, your personality could clue you in. Do you like the rush of a new adventure? Are you always down to try new tastes and textures, including exotic ones? Although it doesn’t necessarily follow, your general appetite for taking risks may indicate a preference for high-risk investments. If you can afford it, consider building a portfolio with a mix of low-risk and high-risk investments to maximize potential returns and minimize losses.
Diversifying your investments
You’ve probably heard the age-old saying that discourages putting your eggs in one basket. In the context of investments, this technique is called diversification. It allows you to reduce your financial risk by allocating investments across various financial assets (like cash, equity, etc.) and industries. This gives you more chances of earning big in your different investments while also protecting you from potentially incurring a huge loss from dedicating all your resources to just one investment.
For example, you can opt to buy both stocks and bonds. The former gives you the potential for high growth over the long term, while the latter mitigates the risk that comes with the volatility of the stock market by providing more modest and promised returns.
Let’s briefly discuss the kinds of assets you can invest in, by order of lowest to highest risk.
- Cash and cash equivalents – These are the safest of the bunch because they’re the least exposed to market movements. They’re also essential to have in your portfolio since they’re highly liquid, meaning you can easily access them when needed, aside from being a good safety net in volatile market situations. Examples of cash investments include security deposits, money markets, and treasury bills (also known as T-bills). The downside, though, is these assets earn you practically nothing and could even lose their value over time because of inflation.
- Bonds – These offer modest returns in a predetermined period. This is a relatively secure option since the government or a corporation is your borrower, so to speak. -It would be best if you do your research into the entity issuing bonds before you proceed.
- Real estate – Residential or commercial properties that you lease out may bring a steady source of income. Remember to never invest in anything you don't completely understand. That's why it is important to ask your financial advisor as many questions as you can. However, don’t forget to factor in the taxes and expenses related to maintenance. If you decide to sell it, have its value properly assessed and allow time and effort to find the right buyer willing to purchase it at a cost favorable to you. Otherwise, you will be selling at a loss.
- Stocks – This refers to the shares of a company you own, which you can buy in the stock market. Its value is highly volatile, which makes this a high-risk type of investment. On the other hand, it’s easy to move shares either by selling or buying them. Stocks are ideal if you seek higher potential returns and have higher risk tolerance.
The simplest and the most popular way of diversifying a portfolio is investing in bonds and stocks. AXA, a global leader and one of the most trusted insurance brands, offers various investment and insurance plans. These let you invest funds in different asset classes like bonds and stocks and gives you the benefits of life insurance all in one plan. AXA has fund managers that are tasked to expertly buy and sell shares on your behalf. If you're already investing in the Philippines, you may expand your reach and diversify your portfolio further by investing in other regions.
The benefits of global investing
If you already feel comfortable with further diversifying your portfolio, you may now consider expanding your investments on a global scale. It simply means investing in funds or assets outside of your country. Compared to investing solely in local funds or Philippine-based companies, global investments grant you more options for the types of investments you are looking for.
Here are the benefits of diversifying your investments globally:
- Access to more and even better opportunities. In the global market, you can buy stocks of more well-known global brands like Apple, Amazon, Facebook, and the like.
- Better risk management. The increased diversification of your portfolio allows you to better mitigate your investment risks.
- Potentially higher returns. Since you are not reliant on a single economy, you can take advantage of the economic growth of foreign countries.
While investing in foreign markets may seem intimidating or complicated at first, it’s still worth exploring, especially now that there are simpler and more convenient ways to invest globally. You can invest in global markets even without a USD policy, which gives you more flexible investment options.
You can start with AXA Philippines' Peso-Denominated Dollar Funds, which you can invest in via its insurance and investment plans. Its Global Dynamic Allocation Funds (GDAF) Peso and Global Advantage Fund (GAF) Peso are expertly-managed investment funds that allow you to invest globally using the Philippine Peso currency without having to open a separate US Dollar account.
GDAF focuses on different Asian, American, and European markets and offers variants to cater to different risk profiles, while GAF invests in fast-growing technology companies like Apple and Microsoft. You can also create a highly diversified portfolio consisting of local and global investments, all while getting insurance coverage in just one policy.
However, make room for learning by doing. Gain wisdom from experience. Dip your toes in investing today and see where your investments take you.
Know you can game plan your savings and investment goals today. Contact an AXA financial advisor to explore investment plans in the Philippines and learn how to grow your money by making a global investment.
