Investment Companies Philippines: Your Best Bet for Long-Term Investments
When it comes to potential investment opportunities, there is a plethora to choose from. In the Philippines, investment companies come in many forms. In order to truly understand how these financial institutions work and operate, you need to have at least a basic understanding of the kinds of investments that you can make.
Types of Investments
As always, your goal is to make the most out of your investments. Keep in mind that every type of commitment you make in this financial playground has the potential to be volatile—nothing is truly set in stone. That’s why you have to be smart and logical with your decisions when it comes to these investment opportunities.
With that being said, here are the most common types of investment that Chinese, as well as Philippine companies, involve themselves in.
When you invest in stocks, you’re basically buying a share of ownership in a particular company. This is commonly referred to as equity shares. In this type of investment, your return on investment (ROI) will depend solely on the success or failure of that company.
When the company that you invested in is successful, you can expect high returns, and the opposite if it fails.
When it comes to stocks, there are two main ways to earn money. The first is through dividends. Dividends are what investors gain when companies decide to distribute some of their earnings to shareholders. These dividends can be taken out as cash or reinvest them to purchase more shares in the company.
Stocks are the go-to investment for retired investors—particularly dividends that generate higher than average dividends. These are often referred to as “income stocks”.
The second option is called capital gains. Income from these kinds of investments is gained largely through trading. Stocks are bought and sold constantly throughout each trading day. Because of this, the value and the overall price of each stock changes over time.
When you sell a stock that experienced an increase in its price after you bought it, you’ll get a capital gain. When you sell a stock that decreased its value after you bought it, you will have incurred a capital loss.
Both of these depend on the success of the company. In essence, dividends are the result of the company’s earnings and capital gains are based on investor demand.
Aside from the happenings of the companies themselves, the performance of individual stocks is also affected by what’s happening with the stock market in general.
A bond is basically a loan that investors make to an organization—be it a corporation, government, federal agency or other organization. These are mostly referred to as debt securities.
Bond issuers go into legal agreements with the bondholders to ensure that the loaned amount will be paid with interest. Most, if not all the bonds have maturity dates—particular dates in which the bond should be paid back. Bonds are also called fixed-income securities because those who pay you interest based on a prearranged interest rate.
Bonds have a maturity rate more commonly known as a term. This is usually negotiated and set when it’s issued. These can range from one day to 100 years, but most of the bonds range from one to 30 years.
Short-term bonds mature in one to three years. Medium-term bonds mature in four to 10 years, and long-term bonds mature well above 10 years.
There are also callable bonds—bonds that the issuer can retire before it matures. The condition that a bond can be called can and should be outlined in the bond’s prospectus and indenture—the documents that explain the terms and conditions.
Keep in mind that not all firms are required to formally document bonds to ensure the call provision terms on the customer’s confirmation statement. One exception is municipal security. Firms are required to provide more call information on customer confirmation than other types of debt securities.
This type of investment is basically a pooled investment vehicle managed by a manager that is allowed to have their money invested in stocks, bonds, and other different investment opportunities. The limitation is that they can also be used for those that are stated in the fund’s prospectus.
Investing in a mutual fund is like entrusting your money to a professional fund manager that can grow it all for you. The investment that you put in is collated along with the money of other clients to make for a bigger capital that will be used for investing. In essence, you’re asking for the service of a professional to do all of your investing for you.
This pool of money is managed by an asset management company for buying equities and other securities in the secondary market for the benefit of the investors. Mutual funds are valued at the end of the trading day and any transactions to buy or sell shares are done well after the market has already closed.
Those who manage mutual funds will passively track stock or bond market indexes. Most companies actively manage mutual funds, often making use of select stocks, bonds, and other investments.
The way you make a profit from mutual funds is a lot like how you do with stocks—particularly in the form of dividends, interest, and capital gains. The difference, however, is that these distributions are taxable if it’s held in a non-retirement account.
Apart from the usual investment opportunities like the ones mentioned above, there are still a few more plausible options. There are many investment companies in the Philippines and some of them offer different investment options from the ones mentioned above.
There are a bunch of alternative places where you can invest your money in. All of which are rather good options for others, maybe, secondary sources of income.
Real estate investing is booming in the Philippines. It’s when you buy your own property, construct a house or any residential establishment and then let tenants live there. The money that you’ll get will come from the rent that you collect and the appreciation of the whole property.
Dabbling into real-estate investments comes with many headaches so you have to make sure that you’re ready to become a responsible and disciplined landlord. Keep in mind that even if you’re the one that is making the rules, you don’t have that much power over them. However, there are other options that you can choose if you don’t want to become a landlord.
You can hire a property management company to handle the responsibilities that come with property ownership. This includes dealing with tenants, collecting rent, repairs, and more.
Another alternative investment for you to consider is Gold itself. It is highly regarded as a tangible inflation hedge, a liquid asset and a long-term store of value. It’s one of the most sought-after asset classes and is considered a competitor to stocks. Gold is known as a good diversifier thanks to its low correlation with other kinds of assets. That said, it’s still recommended, particularly for smaller investors, to opt for more direct methods of investing in gold. That means buying gold bullion, coins, bars, etc.
Choosing the Right Type of Investment for You
Investment companies in the Philippines are not there to limit you on what kind of investments you should make. In fact, they’re there to offer you a choice. What’s important is that you know what type of investment you are willing to do.
Keep in mind that you can’t just go and invest in every little thing that you want. Be it through stocks, bonds or mutual funds. You have to be careful in choosing what you’re going to invest in because it will have an impact on your finances and your life in general.
For now, here’s a short guide on how you can choose the ideal kind of investment for you.
Stocks and Bonds
These two are probably the most time-consuming out of all the ones that will be mentioned. That being said, they’re also the choices that would benefit more when it’s just you who’s handling it. People who want to invest in things alone and are comfortable in being responsible for their portfolio’s performance, then these are what you’re supposed to look for.
Aside from being time-consuming, these might also be the most rigorous when it comes to tasks that you should regularly do. Some activities that you should continually be doing include the following:
- Research and compare hundreds, even thousands of companies—particularly regarding the performance of their stocks.
- Follow trends that affect specific industries and keep track of them.
- Understand and follow the changes in the bond market. This includes the price and yields of your own bonds.
- Be updated with the latest economic news and strategize on how it may affect your choices.
- Maintain a disciplined mindset to avoid emotional responses to market volatility.
This type of investment will still require a bit of research and involvement from you, but not to the extent of stocks and bonds. You don’t need to put in the same amount of time and effort in managing your own portfolio of securities by yourself. With mutual funds, you have someone else managing and rebalancing your investments.
With that in mind, the more capital you have, the better—meaning this kind of investment is great for groups of friends that have the same objective in mind. There are many considerations when choosing a specific fund to invest in such as the following:
- The background of the fund—their investment philosophy, the people behind the team, and their track record.
- Choosing between actively managed or passively managed funds.
- The cost of having a fund manage your investments.
Important Considerations with Investment Companies in the Philippines
Of course, investing isn’t something that you should spontaneously do. As was mentioned above, you need to be knowledgeable when it comes to many financial terminologies and concepts before you even consider doing it.
Investments are great as a secondary source of income—but when you dedicate a significant portion of your life to studying it, it can be your main source of income as well. That being said, here are some points that you need to consider if you’re planning on investing.
Is it the right time?
Investing in stocks, bonds, or other forms of investments will require a large amount of money. And yes, it’s arguably more beneficial for you to enter into investing early, however, you also have to take note of what you should currently be paying.
Things like debts you have to pay, the utilities of your home, and other kinds of expenses should always be kept in mind. It’s highly suggested that you protect yourself from experiencing any unforeseen financial catastrophes first before going deep into investments. Always have a safety net for these. Health insurance is one great example as it will protect your money against the high costs of being treated for health problems.
What’s your goal for investing?
Believe it or not, investing is not just for making your money grow for long periods of time. Some people make use of niche short-term investments that allow you to grow your money quickly, though with large risks involved.
Some people even use these investment strategies just to keep their assets safe. This strategy banks on investing in stocks or assets that are not very volatile—preferably those that are becoming stagnant.
And of course, there are the most common, long-term investments that minimize risks.
Are you open to risks?
Investments will always have risks involved. As a general rule, the higher the risk of investment, the more potential for higher return. That said, not everyone is comfortable with the ups and downs that being an investor entails. That would mean you would be limited to safer options such as bonds.
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