EACH of us goes through life transitions, from the time we graduated from college, started working, or started having a family. In this season, globally, we are also facing twists related to the continued rise in oil prices and, at the same time, the rising cost of living. What we do today can impact how we cope in the future.
This is why we should start managing our finances now for Millennials and Gen Z, for the older generation we can look back and learn from our investing experiences. I would like to share some tips on how long-term investing can help us achieve our goals and what strategies we can apply.
Investing is a journey. Whether you want to invest to build your retirement or prepare for your children’s education funds, when you put money to work in the markets, it is better to set it and forget it. But successful long-term investing isn’t just about throwing money at the stock market — here are seven tips to help you master long-term investing.
1. Define or know your time horizon. Each person has a unique investment goal. Understanding your time horizon or when you will need your invested funds will be one of your deciding factors as to when to withdraw or continue investing. It will also help you choose your allocation whether it is a high risk and high return, low risk and low return or medium risk type of fund. The longer the time frame, the more fluctuations you can tolerate which may allow you to invest it in high risk and high return funds and vice versa.
2. Put your finances in place. Before you can start investing for the long term, you must first determine how much you can invest. This includes checking your cash inflows and outflows. How much are your excess funds after deducting your monthly bills? It will be a step-by-step process, like establishing your emergency funds and protecting against life risks. Foundations are essential for us so as not to withdraw our investments too early because of emergencies.
3. Consult a professional for strategies. Once your objectives have been established and your financial foundation established, choosing an investment strategy with the help of a professional will help you determine the one that suits you best. In every financial decision it is good to have guidelines or decision matrices, when to withdraw, what type of fund to allocate your money to for diversification are just some of the things you can consider. But realistically, you need to do what is right for you, a portfolio of assets that you are comfortable with. When we experience downtrends in the market, there is a lot of fear and anxiety, but when your strategy is in place, you don’t worry because you know your horizon and your allocations.
4. Diversify your investments. As part of your strategies, knowing how to diversify your funds will help you manage risk and maximize returns. Our goal is to place our investments in platforms that are uncorrelated. This means that our investments must move in different directions. For example, your allocation starts with a combination of stocks (stock allocation), bonds and some type of money market fund. In the stock component, you can consider the following options:
- Shares of large companies. These are stocks of companies with a market capitalization of 10 billion or more
- Mid-sized company stocks. These are shares of companies with a market capitalization of 2 to 10 billion pesos.
- Growth stocks are stocks of companies that are experiencing bubbly gains in earnings or revenue.
- Value stocks are stocks of companies whose price appears low relative to the financial performance of the company as measured by fundamentals such as assets, revenue, dividends, earnings and cash flow of the company. society.
5. Evaluate regularly. Once your investments are in place, it is essential to assess returns and losses annually. Since we are talking about long-term investments, we can check fluctuations and rebalance our allocations if necessary. Reassigning is important, especially if the season in your life changes.
For example, someone who is still single has a greater appetite for risk than someone with newborn children or someone with college students. Make sure your portfolio remains diversified to maintain a level of risk that suits you over the years.
All in all, there are things that are out of our control, especially right now. Managing the resources we have and doing our part to help build the nation will make a big difference to our family, our communities and our nation.
Karlo Biglang-Awa is a Registered Financial Planner of RFP Philippines. To learn more about personal financial planning, attend the 97th RFP program in August 2022. To inquire, email [email protected] or text at 0917-6248110.