Guide To Investing In The Stock Market

Photo by Catherine Karnow

In one of my previous post, I talked about the two ways to earn money in the stock market, stock investing and stock trading. In this post I'll be sharing with you the strategy that I use to invest in the stock market. It's a method, that was taught to me as a member of Bro. Bo Sanchez's Truly Rich Club.

The strategy is called Strategic Averaging Method or SAM for short. The SAM strategy is a passive long-term investment strategy that Bro. Bo teaches to his Truly Rich Club members. In short, it is a buy and hold strategy (without the need to hold a certain stock for 10-20 years). The strategy has five (5) rules to follow in investing in the stock market.

1. Invest small and slowly - invest only small amounts of money regularly, preferably monthly (or twice a month for TRC members, after Bro. Bo email's his stock updates).
2. Buy at Buy Below Price (BBP) - Bro. Bo usually provides a BBP whenever he recommends a SAM stock in his stock updates. The recommended stock should then be bought at the price that is lower than the BBP.
3. Stop buying when prices go beyond the Buy Below Price - once the SAM stock goes beyond the BBP, it's a sign to stop buying that stock. Unless Bro. Bo says otherwise or he adjusts the BBP.
4. Wait for the Target Price (TP). Sell when the TP is hit - Bro. Bo's stock updates also comes with a TP, where you sell the SAM stock once it hits the TP. Unless Bro. Bo says otherwise or adjusts the TP.
5. Reinvest to other SAM stocks - use the money earned after selling the SAM stock at the TP to buy other SAM stocks. In this way, you'll be compounding your previous profits with the potential profits that your newly SAM stock could make.

This strategy is made easier to apply because of the stock updates that Bro. Bo provides to his TRC members. He provides an update twice a month, wherein he mentions the stocks to buy, at what price and at what price to sell them (he also sends out emails, outside of his regular updates, if a stock needs to be sold already or an adjustment with the BBP and TP). This system is basically the treasure map of TRC members to making millions in the stock market.

If you don't want to be a member of the Truly Rich Club, the suggested stocks to buy, when applying this strategy is blue chip stocks (PLDT, SM, Ayala, etc.), as these stocks tend to be safer due to the solid fundamentals of these companies. Then I suggest just sell them when you are happy already with the profits that you made and then just reinvest your earnings.

For those who are interested to be part of the Truly Rich Club, just click the link to learn more.

A Lot Of Money Alone Won't Make You Rich

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Do you believe that having a lot of money is the key to being wealthy? 

Do you believe that earning big amounts of money will instantly make you rich and wealthy?

Sorry to burst your bubble but the answer is no. Having a lot of money alone won't make you rich and wealthy, you'll need the ability to retain some of that money to become rich and wealthy.

Imagine all the money you received since you were a kid up to your present age. If you add all that up, you'd be surprised that you've already received millions worth of money. The problem though is that, the money only passes through your hands, that's why you're still not yet rich and wealthy.

That is the key to becoming rich and wealthy and the secret of wealthy people. It's their ability to retain the money that they receive, either through their job or business. It doesn't matter if you earn only P10,000 a month, if you're able to keep at least half of it, you'd be wealthier than someone who earns P50,000 a month but only manages to retain P1,000 out of the money he earns.

You're ability to retain the money you earned and use it to acquire assets that generate you income, like rental properties or businesses is the real secret to becoming rich and wealthy. Even if you earn one million pesos a month, but spends it all on things that doesn't earn you money, you still won't be considered rich or wealthy. What will you do then if your income generating job or business suddenly disappears? Will you be able to survive for 6 months? 3 months? 1 month?

Remember that having a lot of money alone won't make you rich and wealthy. You're ability to keep the money and use it to acquire income generating assets is what will determine if you're rich or not.

When To Teach Your Kids About Money

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When do you start to teach your kids about money?

Do you start to teach them early or you wait until they reach a certain age?

According to an article that I read way back, there is no age limit to teaching kids about money.

You can actually start teaching them as early as possible and I agree with that. I too was taught how to save money at an early age. I was taught to give my money to my mom for safe keeping until I learn on my own how to save money. Not fully understanding what that meant, I just obeyed and gave her the money that I would receive.

Things changed when I began asking for new toys. My mom would usually buy me what I asked as long as it is within her budget. If it doesn't fit her budget she would tell me to learn how to save my own money so when I have enough I would buy them myself. Since then I started saving and monitoring the money that I get from allowances, birthdays and Christmas in order to buy the toy that I want.

The early lesson on saving money has been one of the valuable lessons I learned when I was a kid, because it's something that I carried with me as I grew older.

It's important to get our kids involved in the financial loop for as early as possible. At least the basic and simple terms, just so they'll have some understanding as to the value of money.

So as they grow older and learn more about money, they already have a good financial foundation to lean on.

7 Steps To Building A Solid Financial Foundation

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More often than not, people focus only on their investments, especially here in the Philippines.

Now there's nothing wrong with focusing on your investments. It's actually a good sign that people are now starting to become aware of what they need to do financially to secure future financial well-being. My issue though comes from the fact that people focus only on investments and disregarding the rest of their financial foundation.

It's true that investments will determine whether we will be facing money problems or not after we retire. But in investments is just one aspect of the overall financial foundation of person. In fact, it is the last thing that people should be working on, when they are trying to build a solid foundation for their financial future. Investments, without a solid foundation below them will crumble early on in the face of crisis or emergencies that comes our way.

That's why for investments to do what they're suppose to do, prepare for our retirement, a solid foundation is needed to be built below it and here's 7 steps to building a solid financial foundation for our investments to stand on.

1. Increase Cash Flow - Before addressing anything else, people should first start with increasing their cash flow. Doing this first will make addressing the other things that people need to build their financial foundation easier. Most of us rely only on our salary, and more often than not, its not enough to even address our most basic needs. So find way to increase your cash flow first so it will be easier to build a solid financial foundation.
2. Healthcare - Once you increase your cash flow, everybody should focus next on having healthcare, especially long term healthcare (more on this on future posts). Without healthcare, any problems or emergencies caused by unexpected health issues will eat into our investments and disrupt its earning cycle. Having healthcare will solve health problems without touching our investments.
3. Insurance - Insurance is the next thing that people should have for their foundation. Insurance is important to have in case something happens to you or your ability to earn money while your investment is still in its early stages. If something happens to you or your ability to earn money, you or your family will have no choice but to use the investment to shoulder or pay for whatever responsibilities or liabilities that you left behind, even if it is not yet enough to cover everything. So insurance will answer any problems caused by sudden demise or permanent disability that your investment won't be able to do at an early stage.
4. Estate Protection - If you, your parents or grandparents have assets to declare, what usually happens to them when you die? They get transferred to the heir, but this usually takes a long process and it costs money (the tax that needs to be paid is dependent on the value of the asset). It would be a problem for the heir if he/she doesn't have the financial means to pay for the tax and other costs that comes with it. If they have investments, chances are they'll be using the money for investments to pay for the taxes and other costs. Solution? protect your estate, by having your own corporation or holdings company (more on this on future posts).
5. Eliminate Debt - Having zero debt is the next step of building a solid financial foundation. People tend to focus too much on building their investment first before settling their debt. This is a problem, especially for bad debt (check out post on Good Debt and Bad Debt), because interest on debt is usually higher than the interest on your investments. You may have an investment that earns you 15% interest per year, but if you have debt that has interest rate of 25% per year, you're actually losing money per year instead of earning. So settle your bad debts first before you focus on your investments so the high interest rate on your loans won't kill the interest rate you earn from investments.
6. Emergency Fund - This is the money that you put in the bank for easy access. Emergency funds, as the name suggest are for emergency purposes, your house or car needs repair,  a family member needs money, you lost your job, etc. Your emergency money should have the amount of at least 3 months of your salary saved in a bank with ATM for easy access. You need to have this as well so that you don't have to touch your investment in case certain emergencies arise.
7. Investment - Of course once you've established your foundation, you can now start with your investment. With a solid foundation in place, your long term investments will be able to grow without crisis, emergencies or problems disrupting it.

Yes having investments that will make us money and prepare us for our retirement is the ultimate goal of everyone. But it is also important to note that investments alone won't be enough to cover for whatever responsibilities, crisis, emergencies or problems that may arise. So it's important that we build a solid financial foundation to ensure that we covered all of our bases and have the kind of retirement that we want for our life.

The Importance Of Having Multiple Streams Of Income

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I was listening to an audio seminar sent by Bro. Bo Sanchez to Diamond EntrepCircle Members of the Truly Rich Club while I was on my way to Makati. The topic that I was listening to was to "Create Money Machines."

What Bro. Bo was saying in this audio talk is that it's more important to have multiple money machines or streams of income, instead of having more money. He said that more often than not, people pray to God for more money instead of praying for multiple streams of income.

While having more money is not bad and is a short term solution to financial problems, it is better though to have multiple streams of income instead for your long term financial goals. Having more money but with only one or even two source of income is not a formula to fixing a financial problem or achieving financial freedom. With the uncertainty of job security and the continuing financial influx some countries are experiencing, its never been more important to have multiple streams of income to counter whatever financial problems may arise due to downsizing or the continuous recession of some countries.

If you only have your job or your business as your only source of income, you leave yourself vulnerable to the negative impact of financial problems that the world constantly experiences. But if you have multiple sources of income, you'll be able to weather any financial storms that come your way.

But how do you create multiple streams of income?

In the audio seminar that I was listening, Bro. Bo mentioned two types of money machines, the Manual Money Machine and the Automatic Money Machine.

The Manual Money Machine is a form of money making machine that requires you to be present in order for it to work. These machines are having a job or being self-employed. Having a job or being self-employed requires you to be present in order for your machine to make money. You're trading your own time and talent to make money and without your presence, money won't be coming.

The Automatic Money Machine is a form of money making machine that can be set-up in a way that it makes you money automatically even if you're not present there. This is another term for money working for you and passive income. There are three types of automatic money making machines: paper assets, real estate and business.

Paper assets are stocks, corporate and government bonds and mutual funds. You make money through the high interest rate that it earns when you invest your money in these assets. For example, your money can earn as high as 30% interest annually when you invest it in the stock market (see my article on stock investing vs stock trading to learn more about the stock market). The downside with paper assets is that interest rates are not guaranteed because it depends on a lot of factors.

In real estate you make money when you sell property at a higher value than the value that you've bought it in (similar to the buy low and sell high policy of the stock market) or if you rent you're property out. I prefer the latter method because it puts money in my pocket in a monthly basis whether I work or not and I still get to keep the asset. The downside of real estate is that you need big money to purchase a property, unless you're financially literate and you already know ways to buy property with little to no cost at all to you.

The last type of automatic money making machine is businesses. Having a business is different to being self-employed. A self-employed person needs to work in order to make money, while a businessman can still make money with his business even if he doesn't work for a year or more. For me this is the most financially rewarding asset of the three, but it is also the most difficult asset to set-up. It requires hard work at first and a lot of financial education to ensure that you'll put up a business that will succeed. But once you get over that and you set-up your business successfully, you'll have an asset that can make you a lot of money, even if you're not working in it.

Most people have Manual Money Making machines, working for a company or working on your own, to create money. The problem with this money making machine is that you trade your own time and talent to make money. This leaves you little to no room at all to multiply it to create more money making machines for you. So you work to also create Automatic Money Making machines. The beauty of these money making machines is that, since it's automatic, you don't need to dedicate your attention to them once you've set them up successfully, allowing you to create more of them and in the process create more money for you.

Remember that it's not enough that you aim to just have more money, more money won't make your financial problems go away or help you achieve your financial goals. Instead aim to have multiple streams of income and have money continuously flow to you from different directions.

5 Reasons Why Healthcare Is Important

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Disease has been one of the main causes of death here in the Philippines. According to the DOH website disease of the heart, disease of the vascular system, malignant neoplasms, pneumonia and accidents are the top five causes of mortality in the Philippines from 2004 - 2009.

The high mortality rate due to disease is not caused by inefficient doctors or hospitals, its because most people don't have the financial means to pay for their medical expenses. They tend to self medicate and rely on buying generic medicines because its the only thing they can afford. Other's go to doctors or hospitals only to have problems getting the needed attention and treatment because of lack of money.

The lack of money should never be a problem for people to receive treatment for their health issues and this is one of the reasons why its important to have healthcare.

Healthcare provides people with the means to get medical treatment without the use of money. Yes they pay a certain amount for the premium of the healthcare, but its relatively cheaper compared to paying for your own medical expenses using cash.

Here are five reasons why you need to have healthcare:

1. Cheaper - as stated above, getting healthcare is relatively cheaper than paying for your own medical needs. For most its free because their companies pay for their healthcare. For those who have to shoulder their own, its usually P13,000-P14,000 a year for a coverage of P70,000. That's less than P1,500 a month for your health coverage, it may be big for some, but its still affordable with a little money management and lessening of unnecessary spending and you'll be able to afford it. For those who really can't afford healthcare, there are health cards available that really cheap (I remember paying only P1,500 for this one for one year) that gives you benefits of unlimited check-up only for a year to selected health centers (the good thing about this one is at least you'd get proper treatment and recommendation regarding your illness, instead of treating yourself blindly.
2. Convenience - Having healthcare makes it easier for people to get treated in hospitals and clinics. Before getting treated the first that nurses usually ask is if they have a health card. Once the patient says yes, they immediately admit the patient and have them wait in line to get treated. They'll just confirm with the healthcare provider some of your details and let you fill up a form for their records. Once done you'll get your treatment. If a patient says no, its usually a different scenario, more questions are asked and you're required to fill-up forms first before getting admitted or placed in line to get treated. Some even ask for upfront money first to make sure that you'll be able to pay.
3. Accessibility - Healthcare are accepted in almost all hospitals and clinics nationwide, especially the major ones. So you won't have to worry about your health card being rejected by a hospital and you paying for your own health expense. Other's even offer reimbursement in case you get treated at a clinic or hospital that doesn't accept your health card.
4. Peace of Mind - Having healthcare offers you the peace of mind that regardless of what health issue arises, you know that you're capable to deal with them because of your healthcare.
5. Retirement Security - This is for having long-term healthcare. All short-term have age limit when it comes to health coverage (the highest I heard was 75) and after that you're on your own. Having long-term healthcare though covers that. In the period where our health becomes our biggest concern, having healthcare becomes more important because we'll be the security that we'll be covered in our old age, allowing us to enjoy the money we saved up for our retirement.

Healthcare provides people solutions for their health needs, especially for those who don't have the money to shoulder all of their health needs. It is important that everyone has some form of healthcare for their use. Having healthcare is also one of the foundations of your financial foundation, it is a basic need to building a solid financial foundation.

As the saying goes "Health is Wealth" so have your own healthcare and have the peace of mind that your health is already covered.

6 Steps To Spending Your Money Wisely

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How do you spend your money?

Do you spend it on impulse or you think things through first?

Do you use cash or credit card?

Anyway, regardless of how you decide to spend it, I believe though it's important that you spend your hard earned money wisely. Why? It's because you worked hard for it. You poured in your time and energy to earn it, so it's only fitting you spend it wisely.

I'd like to share something that I read more than a year ago. It's an article that mentions 6 steps to becoming a wise spender. It's a great article that, I believe, doesn't have an expiration, so the steps written there can still be applied even today.

Here are the 6 steps:

1. Buy for quality, not cost - Cheaper doesn't necessarily mean better. The author states that in buying something always go for quality than lower price, this will save you money in the long term as a quality product lasts longer than a cheaper one.
2. Keep detailed track of your expenses - Know where you spend your money. The author states that keeping track of your expenses is key to understanding on how you can spend wisely and minimize expenses.
3. Find alternatives - Look for cheaper but also better options. The author said that once you have a list of your expenses, take a look at it and see where you can cut your cost by finding alternatives for a particular activity or item that you spent on. Like instead of going out on a date, try having a romantic dinner at home instead.
4. Become less dependent on credit - Cash is still king. Using credit card requires discipline that most people doesn't have. The author said that unless you are 100% on top of your finances, its best that you use cash instead of credit cards.
5. Do your research - Don't instantly buy something that you like that you saw at a store. The author states that do a research first, canvass the item you want at a different store, you might get it a cheaper price from a different store.
6. Wait it out - Don't give in to impulse. The author says that we're all usually guilty of purchasing something because of impulse. So instead of giving in, wait it out for a few days, the urge to buy might be gone, or you might get the item on sale.

These tips are really useful to follow if you want to be a wise spender. But like in any advice that comes our way, the decision is still up to you. Unless you decide that you want to be a wise spender, no amount of tip or advice will be able to help you.

To read the full story click here.

How To Become Debt Free

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It's important that we become debt free first before we even start investing and building for our retirement (if you have the money to do both go right ahead). This is because interest rates in debt are usually higher than the interest rates earned from investments. So any money you earned from your investments will just be eaten up by the interest of your debt and you'd be money in the process (not all debts are bad though, there is what we call good debt as well; click here to know more).

For example lets say you put P10,000 in an investment vehicle that is earning you 10% annually. So you're money would be earning P1,000 pesos in its first year. Now let's say you have a personal loan of P10,000 payable in 12 months with an effective rate/annum of 17.07% (This is the rate for an Asenso Kabayan Program - Secured in BDO), so you're debt will grow by P1,707. Now your investment earns P1,000 but your debt grows by P1,707 so you're still down by P707 Instead of making money, you're losing money because of your debt. So its important that we become debt free first before we start investing (especially those who don't have money to do both) so our money can truly grow without worrying about interest rates on debt eating it up.

But how do we become debt free? Is there an easy way to eliminate our debt without using up your entire income to pay it off?

There is actually a way to do it. Its a method that I learned from reading Robert Kiyosaki's Rich Dad's Guide To Becoming Rich Without Cutting Up Your Credit Cards.

His method involves you finding additional money from your budget (this can be easily done by cutting some of your expenses and spending wisely, check this article for more ideas). Then cut off your other credit cards (not all, but some to refrain you from using it and add to your debt already).

Using the methods that I learned, I added some modifications in that its important to pay off you're smallest debt first regardless of interest rate.

More often people tend to pay off a little extra to each debt in hopes of paying it off sooner. The problem though is that it usually doesn't happen that way, the debt just doesn't seem to lessen. Robert Kiyosaki suggested to add the extra money you can find in your budget to pay off one debt and pay the minimum in the others. My suggestion though is to pay off the debt with the smallest amount first while paying minimum in the others.

In short you should eliminate first the debt that is easier to eliminate so you'll actually lessen the debt that you have. Once you've paid off the easiest debt to pay, add the amount that you pay to that debt to pay off the next debt that is easiest to pay off.

For example:

Debt A is worth P1,500

Debt B is worth P5,000 

Debt C is worth P10,000 

The minimum amount for each debt is 10% of the debt amount (P150 for debt A, P500 for debt B and P1,000 for debt C). 

Your budget for paying off your debt is P2,000 so this is how you divide it:

P500 for Debt A

P500 for Debt B

P1,000 for Debt C

Let's say you have an additional P300 out of your budget due to some financial management, so add that to pay off Debt A.

So with P800 a month budget, you'll be paying off debt A in just 2 months. After that use that P800 and add it to pay off debt B, increasing your budget for debt B to P1,300. You'll be paying off debt B quickly that way (even if the debt increased in amount because of only paying the minimum, the added amount to pay for your debt will more than cover the increase due to the interest rate). Follow this method as well to pay off debt C and you'll see yourself eliminate your debt.

This method might not eliminate your debt quickly, but it will surely eliminate it at a rate faster than if you just keep on paying all of your debt just above the minimum in hopes of eliminating them faster.

Becoming debt free is important if we want to fully see and feel the earnings that our investments are making. You can also use the added money to fund your other ventures. So rid yourself of bad debt and take full advantage of the interest rates that our investments are earning.

5 Reasons Why It's Important To Prepare For Your Financial Future Earl

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In the health industry, they say that prevention is better than the cure. That also rings true in the financial industry.

Preparing for your financial future now is better than waiting for a financial problem to appear before you do anything. This is because its harder to look for possible solutions to existing and current financial problems than to prepare for them in advance.

To help you fully understand why preparing for your financial future early is important, I've prepared 5 reasons why you need to do it:

1. It's cheaper to prepare for your financial future early - You might think that getting insurance, long term healthcare and investments now are expensive. But if you look at the long term implications of these financial tools, you'll actually be saving more money (especially for healthcare and investments). Once you start approaching retirement age, these financial tools become even more expensive to acquire. And it will be more expensive for you and your family in the future if you don't get them. Because as we get older, we tend to experience more medical problems, so having long term healthcare will address that need. Once we retire, we stop earning money already. Yes you might receive a big retirement package from your company, but will that be enough to cover for everything you need until you die? That's where investments come in. If you were able to start early, you might have accumulated a big enough amount already that can cover for everything you need, until you die.
2. It's easier to prepare for your financial future early - It's easier to get financial tools early in your life, when you don't need them yet. Healthcare and insurance companies don't just give plans to anybody. They conduct a background check first to see if the person has undergone or is currently undergoing any major health problems. They also check the family medical background to see the likelihood of them experiencing major health problems. This is because it's going to be costly for them to give plans to people who will be using them in less than a year of paying for their plans because of a major health problems. Imagine these companies just giving plans to everyone regardless if they are more likely to get sick or not, they'd go bankrupt in less than five years. That's why it will be harder, not to mention costlier for older people to get these services. Because of the higher risk they provide.
3. It's more convenient to start early - Healthcare, insurance and investments are financial tools that you'll need to acquire before you actually need them. Yes, it is possible that you may not need them in the future. But what if you did? You can't just suddenly go to any healthcare company or insurance company and demand that they give you a plan because you've been diagnosed with a terminal illness. Or go to any investment house and demand for a big amount of retirement money because you're savings won't be enough to cover you. So it will be more convenient for you to get them when you don't need them yet, just in case you will in the future. This will be your protection from any unwanted and unctrolled circumstance happening to you.
4. Time is precious - All of grows old, no one stays young forever (unless you're immortal or something). So preparing for your financial future while you're still in your 20's or early 30's gives you ample advantage to grow your investments or get plans at lower prices, as opposed to starting in your 40's or 50's. Take a look at investments. If you start investing P10,000 in a mutual fund that grows at an average rate of 12% a year while you're still at 24 years of age, you'll have grown your money to P640,000 by the time you reach the age of 60. Save the same amount of money at the same mutual fund with the same 12% average annual growth at the age of 40, it will only reach P100,000 by the time you reach 60 years old. So which do you want to have, P640,000 or P100,000? So start early.
5. No one will do it for you - If you don't prepare for your financial future, no one will do it for you. You can't expect your company, your friends or anybody else to do it for you. Because it's not their life, it's yours, and you are the one responsible for it. So be responsible enough and take care of your own financial future.

It's important that you prepare for your financial future as early as possible. You never know when you might need it.

Stock Market Trading And Stock Market Investing

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In my previous post of the series, I mentioned about the two main types of stocks and how they trade.

Now I'll be talking about the two ways you can make money in the stock market, stock trading and stock investing.

Stock trading is buying stocks at a low price and selling them at a higher price. This is usually a short-term way of getting into the market as you're in and out in a matter of months, weeks, days or even hours. This is because stock prices are always volatile, constantly going up and down at a rapid rate. In order to make money through trading, you need to be able to predict (as accurately as possible) whether the price of the stock that you want to purchase will go up or down.

For example, BDO's current price is at P30 per stock and through analysis (more on this later) you predicted that it will rise to P60 in the next few days, so you bought 100 shares of BDO for P3000. And after 3 days BDO's stock price rose to P55, so you decided to sell 60 shares for P55, earning you P3300. So you got your investment back with a 10% increase and still have 40 shares left (There are certain requirements to the number of shares you can buy and sell depending on the price of the share. This can bee seen in a board lot in your brokerage account).

Stock investing on the other hand is buying shares and holding them for a long period of time (long-term). You basically buy stocks from blue chip companies that you believe will still be around in 10-20 years (in the Philippines, these companies are Ayala, BDO, PLDT, Metrobank, and so on). You don't have worry about the volatility of the market, you just keep on buying stocks of the blue chip companies. This is because, on the average, the stock market have grown in value for the last 20 years, regardless of the economic or financial crisis that the country is experiences.

For example, Ayala's stock prices is at P80 and through analysis you saw that the company is considered a blue chip company and will be around for the next 20 years. So you bought the stock at P80 and you keep on buying it monthly, regardless of the price fluctuation. Since the value of the market grows on the average, it is safe to assume that Ayala's value will also grow, so you're investment will then grow for as long as you're holding Ayala's stock.

So how do we know which stock to choose from and how can we know if the're prices are going up or down? Well there are two ways to do this, Fundamental Analysis and Technical Analysis.

Fundamental Analysis relies on a company's balance sheet to determine the value of the company (you don't need to study everything in the balance sheet, just the cashflow and past performances). This indications will determine whether a company's stock value is over priced or under priced. The company's management is also an indication of a company's value. Good management means the company is solid and will be able to perform well. While a company with bad management means the company won't last long and could very well be in trouble.

Basically you use Fundamental Analysis to know the real value of the companies that you want to invest in. The stock price of a doesn't necessarily tell you the real value of a company as prices are subject to a lot of factors, mainly of course the supply and demand of the market. So to know the real value of a company, you need to do a Fundamental Analysis. You use this to know which company you need to invest in (especially for the long-term).

Technical Analysis on the other hand relies on the  company's stock price performance. Technical analysts makes use of the charts found in brokerage and stock market websites. These charts represents the stock price performance of a company. Reviewing this charts can help determine whether prices will go up or down. There are patterns that can be used to determine the direction of the stock price using technical analysis. These patterns help determine whether the stock price is on its way up or down.

You use Technical Analysis to make a, close to accurate, prediction on whether prices of a stock will go up or down. You read charts to check for indicators and patterns and base your prediction there. The charts will show you historical trends and cycles of how a certain stock moves. Through this data, you'll be able to forecast the future movement of stock prices. You use this to know when to go in and out of the market.

So after learning the basics of stock investing and stock trading, what will be the best way to earn money in the stock market? All indications point towards stock investing as the safest, surest and easiest method of earning money in the stock market. The downside with stock investing is that you have to be in it for the long term. You have to be willing to keep on putting money in your investments and just let it grow for at least 10 years before you can see the fruits of your investments.

Stock trading on the other hand allows you to earn money outright. You buy a stock today at a low price and sell it a higher price in just an hour or so. The market is so volatile that you can easily make a lot (or lose a lot) of money within the allotted time to trade in the stock market. The downside is that it would require you to study and monitor the market almost entirely to make sure that you make money instead of losing it.

So if you don't feel like taking the time to learn and study how the market works, than its best for you to just invest for the long term. But if you like the excitement that monitoring the market daily brings, than stock trading is for you.

Whatever you choose though, make sure that you don't put your entire savings and funds into this. The worst thing you can do is use money that you have saved, for emergency, education, or other things to invest in the stock market and hope that it grows. Even if you are an expert or you're following an expert, its important that you use extra money for the stock market. You can never be sure on where the market will go, so you still have to protect yourself from unforeseen events.

Sources: Truly Rich Club, Investopedia

Good Debt And Bad Debt

Photo by Whisson

Do you know what debt is?

Debt is defined as a state of owning money. Meaning you are considered in debt if you owe any money to an entity.

So are you in debt right now? To whom? How deep in debt are you?

I used to think that being in debt is a bad thing, because to me it meant that I spent money that I don't have. I overindulged in my expenses and now my debt is an additional expense that I need to cover. My thinking that debt is bad also originated from stories that I heard when I was still young, about families being so in debt that they just spend most of what they earn paying it off. Worse they need to go further into debt just so they have enough money to cover their basic needs.

My notion of debt is not unusual as this is how most people see debt, as a means to purchase something that they can't afford with their current income. The stories that I heard were also common for most people. Some are even worse as their debts are so big that it have been passed on from one generation to the other.

However, as bad as debt may seem, it can actually be used for something good. According to Robert Kiyosaki, best selling author of Rich Dad Poor Dad, debt can be a great tool in building wealth if it is used correctly. He also called this good debt or debt that puts money in your pocket. If it is used wrongly though, it is a tool that can destroy your wealth or keep you in poverty. He calls this bad debt or debt that takes money out of your pocket.

An example of a good debt is debt you use to purchase a property and rent it out to someone. You take out a loan to buy the property, pay the down payment, then pay the rest of the loan in installments, let's say, 10 years. So every month for 10 years, you'll pay the bank a certain amount. For example P15,000 a month. So for it to be a good debt, you need to rent the property out for more than P15,000 a month. Let's say someone is willing to rent it for P18,000 a month. So P15,000 will pay for your loan and the remaining P3,000 will go to your pocket.

Monthly installments = P15,000

Monthly rent payment = P18,000

Profit = Monthly rent (P18,000) - Monthly installments (P15,000) = P3,000 (this will be the monthly income your property puts in your pocket).

An example of a bad debt is debt you use to purchase a personal car. So you take a loan to buy a car, pay the down payment, then pay the rest of the loan in installments, let's say for 5 years. So every month for 5 years, you'll pay the bank a certain amount. For example P15,000 a month. Since you'll be using the car for personal use, it won't be earning you any money, so the P15,000 to pay for it monthly will come out of your own pocket.

Monthly installments = P15,000

Monthly income = 0

Profit = Monthly income (0) - Monthly installments (P15,000) = - P15,000 (this will be the monthly expense your car takes out of your pocket).

These are just rough and basic example of good and bad debt. Bottom line though is that debt can be used to put money in your pocket (good debt) or take money out of your pocket (bad debt).

Debt is a powerful leverage that you can use to achieve financial freedom, you just have to learn to use it wisely.

Types Of Stocks and How They Trade

Photo by Lito C. Uyan

This is the second of a series of posts about the stock market. 

In my first post, I talked about the basic definition of the stock and how you can get in. Now I'll be talking about the two main kinds of stock and where you can trade them.

There are two main types of stock: the common stock and the preferred stock.

Common stocks are the stocks that most people are referring to when they talk about it. Majority of the stocks are issued in this form and it is the stock that you're buying in your online brokerage account. The features of this stock are what was discussed in the first series (see Basic Introduction To The Stock Market).

Preferred stocks are stocks that represent some degree of ownership in a company but doesn't have the same voting rights that the common stock have (varies depending on the company). The good thing about preferred stocks is that dividends are usually fixed and guaranteed forever (dividend in common stocks are never guaranteed). Preferred shareholders are also paid off before common shareholders in case of liquidation, when the company goes bankrupt (but they are still paid after debt holders). Preferred stocks can also be bought back by companies from shareholders at anytime for any reason (usually for a premium of course).

These two are the main form of stocks. Of course other companies have the option of customizing the different classes of stocks that they issue. This is done by companies who want to give voting power to certain group of people.

Now that you know the two main types of stocks, let's proceed to how do we trade them.

In my first post of the series, I mentioned that you can buy stocks through an online brokerage. Now these brokerage are just medium for you to buy and sell stocks. Stocks are bought and sold on exchanges. Exchanges are the market where buyers and sellers meet and decide on the price of the stock. It's like a market place where stock brokers gather to buy and sell stocks at an agreed upon price with other stock brokers. 

Before this is done physically, where stock brokers gather in the stock exchange and starts yelling and signaling each other buy or sell when they hear or see the preferred price of a stock that they want to buy or sell. But with the advancement in technology, this is now done online.

The purpose of the stock market is to facilitate the exchange of stocks between buyers and sellers, thus reducing the risk of investing. Now there are two market when it comes to stocks, the primary market and the secondary market.

The primary market is where stocks are created, by means of an Initial Public Offering (IPO). This is where companies first sell their stock to the public. The secondary market is where stocks that have been previously issued are traded without the involvement of the issuing company. This is the one that people refer to as the stock market.

The name of the exchange in the Philippines is the Philippine Stock Exchange (PSE). The PSE is the one who facilitates all of the stock trades done in the Philippines (it was formed in 1963 when the Makati Stock Exchange and the Manila Stock Exchange were combined).

Next I'll be discussing about the two ways people make money in the stock market.

Source: Investopedia, PSE

Tip In Managing Your Money

Photo by Judith Haeusler

I often hear people complaining that they're not making enough money, their salary is not enough to cover their expenses or how they wish they are making more money to solve their financial problems. Now this may be true to some extent, but more often than not, most financial problems are caused by people mismanaging their money.

Most people tend to spend more than what they're making, thus putting themselves in a financial hole that they struggle to get out of. Earning more won't solve their financial problems, because what usually happens is that people just spend more when they earn more.

One way to solve this problem is to live within (or even below) one's means. Meaning spend only the money that they earn on needs, and eliminate unnecessary spending.

But living within one's means (or even below it) is very hard to do. Considering the slew of advertisements and promotions that people are bombarded with on a daily basis, urging them to spend and spend and spend.

One Tip I can give that will help people in managing their money is to follow what we The Prosperity Formula.

This is what most people usually do when they receive their income:

INCOME - EXPENSES = SAVINGS

The problem here is that there's usually no money left to go into savings. Most people use up their income paying for the expenses that they end up not having any money left for savings (some even go overboard with their spending).

Now The Prosperity Formula goes like this:

INCOME - TITHE (optional) - SAVINGS = EXPENSES

How do you divide your income in this way? Here's a suggested way of dividing your income:

INCOME - TITHE(10%, this is optional) - SAVINGS(20%) = EXPENSES (70%) you budget your expenses on only 70% of your income.

Before you react violently, here are the reasons why its good to follow this formula:

10% to tithes is basically the money that we give back to God. It's our way of saying thanks for all the blessings that he has given us (tithes are optional though, we don't force people to give to God, its more meaningful if they do it on their own accord).

20% to savings is just saying that you should pay yourself first before you pay for your expenses. You've worked hard for your money, you've earned it, so its natural that you pay yourself first before paying McDonalds, Jollibee, Starbucks, your utility bills, and so on. No one will will do this for you, so its important that you take care of yourself first before you take care of everybody else.

Following this formula will help you monitor your expenses to live within the 70% that 0505you'll be allotting. It will also help you instantly make money, without needing to get a second job to earn extra cash.

It's going to be hard to follow at first, but with constant practice, you'd be able to do this without problems. And once you're able to do this, you'll see an increase on your savings and your wealth (you can check out my article on How To Budget Your Money for additional guide).

Basic Introduction To The Stock Market

Photo by Catherine Karnow

With the good economy that the Philippines is enjoying, I believe that it's important for Filipinos to learn how to ride and take advantage of the many investing opportunities available.

One of the most popular, and probably easiest investment to get into, is the stock market. Now I didn't say easy to understand, just easy to get into. But before I get deeper into that, here's a little basic information about the stock market.

A stock is basically a share in the ownership of a publicly listed company. It means you become become part owner of a company whose stocks you own. For example, you own a stock of Banco De Oro (BDO), then you are technically a part owner of that company and have a claim (a very small one) to the earnings of the company.

Owning a stock doesn't mean that you have a say in the day-to-day operations, or you can just walk in the company and make suggestions on how it should be run, or take any of the products for free. It just means that you have a share (depends on the number of stocks you own) in the company's earnings and a vote (one vote per share) in electing the board of director's during the annual stockholders meeting of the company (this doesn't usually hold any value, unless you own a big amount of shares in the company).

So what do you get then for owning stocks?

Well owning a stock in a company, entitles you to a share in the profits earned by the company. Profits are usually paid in the form of dividends (a small percentage of the company's earnings given to a class of shareholders, decided by the board of directors). You also get to grow your money as the company's value increases. For example you purchased the stock of BDO for P50. After a month, the mangement was able to increase the value of the company to P80. So your P50 then gets a P30 increase in value because of the increase in the company's value.

Of course you can also lose money in the stock market. If the management of BDO did a poor job and decreases the value of BDO instead to P30, then your P50 investment loses P20 in value. (There are a lot of underlying factors that determines how the price of a stock will move, company's earnings, market sentiment, and so on. That will be discussed in future posts).

So how do you get into the stock market?

Before, you purchase a stock through a stock broker. Then you get issued a stock certificate as a representation of the stock you own. But in today's computer age, you can now do things online. You just need to register an account with an online brokerage (I'm currently familiar with two, First Metro Securities [I use this] and COL Financial) and provide the necessary documents needed. Then you just need to deposit money (usually there's a minimum requirement for this, First Metro Securities requires P25,000 minimum deposit to those without Metrobank account). Once you have an account, you can now start buying stocks.

Now this is just a basic introduction to the stock market to give you an idea of what the stock market is and how you can get in. There's a lot more information and knowledge that you need to learn in order to understand how the stock market works and how you can benefit from it that I'll be sharing with you in a series of posts to follow.

P.S. Stock Brokerage companies also offer free seminars to help you understand more about the stock market. Just click the links above to learn more.

Source: Investopedia

How To Budget Your Money

Photo by Jamie Grill

Do you have problems in saving money? Always ending up spending more than what you can afford?

How about setting aside a portion of your money to save for emergencies or your retirement, are you having problems doing those as well?

Saving money is not that hard, you just need to have a system that you will follow to help you achieve the kind of savings that you want.

I'd like to share with a system that I learned from Bro. Bo Sanchez, author of My Maid Invest In The Stock Market. In his book, he taught his maids how a simple system to follow to properly save their money so that they'll have income to put in the stock market for their retirement.

His system for budgeting was to put their money in envelopes and to label the envelope to know what they are for. In his book he taught his maids to label five envelopes (you can use more, depending on your requirement).

The five envelopes are:

• Tithe Fund
• Expense Fund
• Support Fund
• Emergency Fund
• Retirement Fund

Tithe Fund is where you put the money that you give to God. Bro. Bo explained that it is important to also give to God's work. He said that we'll grow in abundance thinking if we give beyond our family needs.

Expense Fund is where you put money for your daily expenses, like clothes, food, house, entertainment, bills, etc. This is basically where you put the money you'll use for all of your personal expenses.

Support Fund is where you put money that you send to your family in the province (or for your family here). This is the money that you'll use to support the needs of your family. His maids send money regularly to their family in the province so this is where they put the money for it.

Emergency Fund is where you put money for other expenses that are not found in your budget. This is basically for added expenses. Bro. Bo's maids use this in case a relative calls them and asks for more money because of an emergency.

Retirement Fund is where you put money that you'll use for retirement. In the case of Bro. Bo's maids, the money they put here is used for investing in the stock market.

Bro. Bo's maids have a total of P7,000 in earnings every month and here's the breakdown of their budgeting:

• Tithe Fund:                 P700
• Expense Fund:            P1,000
• Support Fund:            P2,000
• Emergency Fund:        P1,000
• Retirement Fund:        P2,000
• Miscellaneous:            P300

The system that Bro. Bo taught is a good system to follow for monitoring and budgeting your expenses. If you follow his system, you'll be able to your money. You don't necessarily have to follow them, you can customize them that will fit your lifestyle.

I don't have a support fund, for that envelope I label it reward fund, where I put the money I used to buy stuff that I want but doesn't necessarily need  like gadgets, a new shoe, etc (This is usually the last envelope that I put money in and it usually contains the least amount). My expense, on the other hand, fund is divided into three parts, (bills, entertainment and personal expenses)

It's really up to you on how you will divide your money. But the point is to monitor and properly budget your money. This will greatly contribute in your road to great wealth because you can set priorities on how you use your money.

Take control of your financial future