The Easy Way of Investing - Peso Cost Averaging

Many say that the stock market is dangerous.

And you know what, I agree.

Statistics says that an average of more than 80% of all the stock market players lose money.

Geesh..

Mark Twain once said, “October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”

An officemate once shared to me his first impression on investing in stocks. He said he couldn’t see the returns being worth of the time, energy and brain cells being poured into it.

And I also think he’s somewhat correct. With the many things that need to be factored in when evaluating entry to and exit from the stock market, it’s really very hard to discern when to start and actually plunge into it.

But the last time I checked, ignorance remains to be not an excuse in trying out something. Most of the times, you only need to know the very basics of anything to make it sense for you.

The Easier Option

History acclaims an established way of investing in the stock market that requires very little effort. Your fifteen minutes time every month to browse the internet would be enough for this method of investing. That translates to three hours every year - the same amount of time you spend in liking status in facebook a day! :p

It’s called Money Cost Averaging, or in the Philippine context, we say Peso-Cost Averaging.

Peso Cost Averaging (PCA) only means buying stocks of great greatest companies, little by little, month after month.

The strategy is to invest fixed amount of money a regular intervals over a long period.

Very simple, right?!

This is a very passive approach. Here you’re eyeing for the long run. You don’t expect big earnings in the near term, but instead sure profit in the long haul.

If you’re the type dreaming for instant money back and returns, sorry, this is not the strategy for you.

But if you are the type who just wanted to make something more meaningful out of your money, without breaking your day to day routine, this is the exact method for you.

All you need to do is buy every month of a company which you believe would continue to perform spectacularly in the next 10 to 20 years.

You do it little by little, not putting all your money in one big shot.

You simply invest fixed amount month by month, without worrying about the present market condition.

You don’t mind the slips and turns, because you know those are just tiny pixels of the uptrend larger picture in the future.

When will you sell??

Oh, you sell after ten or twenty years or more. Seriously.

That’s why you need to select only those companies that you believe would still be operating even after decades. Their solid history and consistent earnings will serve as the safety net surrounding your investments no matter what kind of financial tragedy may come to the world’s economy.

Photo credit

Personally,

I have two savings accounts.

One is my investment/retirement fund, and the other my emergency fund.

I am still completing my emergency fund which, according to financial advisers, should be three to six times of my monthly salary.

 It’s part of the budget that’s strictly for emergencies, and therefore is saved in short-term liquid investments, making it readily available anytime.

Too bad the camera of my dream doesn’t fall in the emergency list, which means I have to allocate another budget for that toy. :p

But once I finish attaining that amount, all my savings shall then go to my investment fund and toy fund. J

The Four Rules

In Bo Sanchez’ book My Maid Invests in the Stock Market, Bo simplified investing, and shares four sure-fire rules of making millions in the stock market:

RULE 1: Invest Small Amounts Every Month for 20 Years or More

RULE 2: Invest Even When There’s a Crisis

RULE3: Invest Only in Giants

RULE4: Invest in Many Giants

(You can download a free copy of that book here).

Obviously, the rules only make things straight leveraging on the Peso Cost Averaging technique.

EIP – Easy Investment Program

Citiseconline, the leading stockbroker in the country, has launched EIP, making it easier for its customers to apply the method of Peso-cost-averaging.

Under this program, investors are to put consistently fixed amounts every month into solid giant companies with GEMS (Growing Industry / Earnings Visibility / Management Credibility / Superior Products or Services / and a Strong balance sheet).  These criteria assure that clients only choose solid fantastic giants and dynamic corporations that compound their expansion over time

Since it started last Aug 2008, the EIP list has included only six companies namely ALI – Ayala Land Inc,; BPI – Bank of the Philippine Islands; JFC – Jollibee Foods Corp; MWC – Manila Water Corp; SMPH – SM Prime Holdings and TEL – PLDT.

 

 As of this writing, they expanded their recommendation list to sixteen (16).

But evaluating its performance within the 33 months monitoring since it started until April 2011, the six premier EIP stocks did perform pretty well.

ALI had 41%, BPI had 27%, JFC had 49%, MWC had 15%, SMPH had 21% and TEL had 11% effective annual yield. 

Keep the habit

So you now see the importance of your regular saving habit as your first step in investing. A portion of your savings, that which you can afford not to use within the next 10-20 years, should leverage on PCA, letting it grow steadily year after year after year.

Invest that small amount regularly every month, and then go back to your normal life.

No need to watch the market, or hear news about our economy, or be aware of the Wall Street, or gossip about our bachelor president’s love life.

 Enjoy time with your loved ones instead. Focus on your job or business.

Then after ten or twenty years, go back to me.

 Subtract from your millions by treating me and my children a Jollibee hamburger! J

Take charge of your financial future. Retire a millionaire multimillionaire.

Have fun investing!
Omeng

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