Growing Your Money with Stock Market Investments

The stock market is one the vehicles that is available for an ordinary investor to grow his wealth. Investing in stocks is basically purchasing shares of publicly listed companies thereby giving the investor the right to participate in the earnings of the company as well as to affect the company’s operations by participating in the stockholders meeting.

There are two ways on how an investor grows his money through the stock market. One is by receiving interest in the form of dividends and the other one is through the appreciation in value of his shares of stocks.

Dividends are simply the distributed portion of a company’s earnings to its shareholders. It can be in the form of cash which is called cash dividends or it can be in the form of additional shares which is called stock dividends. Dividends unlike interest are not fixed. It is at the discretion of the Board of Directors of the company whether they will declare dividends or not.

Capital Appreciation, on the other hand, is the increase in the market value of the stock over time. This happens during good economic conditions coupled with the company making announcements on developments and strong corporate earnings. Appreciation in value also involves market demand on a stock. The higher the demand for a certain stock, the higher the price will be.

There are a number of reasons why stocks rise and fall in value. If a company is doing well, most probably the stock will rise however there are other factors that affect rise and fall of the markets. Economic factors certainly play a big role. If the overall economy is good, the stock market would probably in an uptrend and the opposite happens when the economy is not performing. On the other hand, disasters, wars and commodity prices also affect and influence the movement of the markets.

Stocks can be purchased in the National Stock Exchanges through local brokers. Stocks that are available to local investors are the ones that are listed in the secondary markets and on over-the-counter markets. The New York Stock Exchange and the American Stock Exchange are two of the major exchanges in America. The Securities and Exchange Commission (SEC) protects investors and oversees all the corporations listed in the local stock exchange.

Before investing in stocks, it is important to know the investment objective and the risk appetite of an investor. This will determine the type of stock that will suit his investment style. Income stocks are those that provide revenue to the stock holders in the form of dividends. This type of stock is suitable for an investor that needs recurring cash flows from his investment. On the other hand, Growth stocks are companies that reinvest profits instead of paying out dividends to help sustain growth and increase the size of the company. This type of stock is for younger investors looking for long term capital growth. Moreover, there are also speculative or penny stocks which are usually companies at their start-up phase or companies that are small but have good future prospects. Speculative stocks as the name implies are the most risky of all stock investments but these investments can also give the highest potential return. These category of stocks are for investors looking for high returns in exchange for higher risk.

The next step in investing is for an investor to decide where to put his investment capital and to choose his investment style. This is a decision that needs to be made by the investor after considering the above factors. A style that works for many investors is the buy and hold strategy. This consists of purchasing high grade stocks that have attractive valuations, reinvesting dividends and holding on the position for a long period of time.

Stocks offer the potential for higher returns specially if taken as a long term investment. Because of the volatility in the markets, stocks are not appropriate to be a vehicle for short term investments. A well managed portfolio of stocks can give a return of as high as 18% per annum on a compounded basis.

Having said that, choosing the right companies that will comprise an investors portfolio is a crucial part in order to make money in the stock market. That is why seeking professional advice can certainly help an investor in making sound investment decisions and thereby growing his wealth in the stock market.

The Simplest Financial Plan I Ever Learned pt.4

Spend 70%

Now, here is the last part of my 4 part financial plan. I sure hope you learned something from my past posts. Well today, I’ll be teaching you about spending. Hmm.. quite catchy huh? Because nobody needs to be taught on how to spend. But I believe that there is a right way to spend in order to survive with only 70% of your income and the first part of that is…

Mindset

Hmm. Mindset? Let me explain. Most people will tell me that it is impossible to live on 70% of their income because even with the 100% of their income they still need to borrow money, how much more with only 70%.

I believe that what we have is a problem with mindset. Ok, Suppose your earning P25,000 per month. Most probably you had a P25,000 lifestyle and of course you survive with P25,000 a month right? Of course you did or else you won’t be able to read this post. Now let’s put things in a different perspective. Let’s play with your mind. Why not think that you are only earning P17,500/month. That is actually 70% of P25,000. Would you survive? I bet you would. Even if you are only earning P5000 a month you would still manage to survive. Right? So what we need is just a shift in mindset. This will entail a lot of sacrifice but believe me, it’s worth it.

Wants and Needs

The other problem is the way we define our wants and needs. According to one of the books I have read, if you wanted something bad enough then it becomes a need. I believe that there is some truth to this and this is precisely the reason why most Filipinos are drowned on debt. We must learn to identify our wants against our needs. That’s the first step then you begin to think of ways on how you can earn more in order to augment your income so that you will be able to buy the things you want without compromising your 10% and 20% funds.

Money Management

I believe that this is as important as the other two as I believe in money management myself. Others call this budgeting but I prefer to call it as money management. Because I believe that the cause of lack and poverty is not because there is not enough resources but because of mismanaged money.

So how do you start your managing your money. First, is by writing down all your expenses each month. I believe that this is a vital part of financial planning because you have a good view on where each centavo goes. Next is plan on how you will spend your 70% to the last centavo of course. Well if you can spend less than your 70% then congratulations. It means you can increase your savings or you can use that money for anything you want (By the way, don’t forget to include your wants budget in planning for your expenses. We all need that).

Last Note: I would like to clear out something before I end. I am not writing all of these stuff to give you a hard life. Maybe your thinking  that what I’m suggesting will lead to a life that is full of sacrifices. No, that’s not it. That is why I want to leave you with something encouraging. I got this slogan from Millionaires Act. A popular blog on personal finance as well. It says Earn More, Desire Less. I believe that this is the key to prosperity and to financial freedom.

It has been my habit that if I want something bad enough then I would look for other ways to earn money without hurting my budget so that I can buy the stuff I want and still continue living within my financial plan.

That is something we should all strive for. To learn how to earn more and to desire less and with that I end my simple financial plan. I hope you learn something from me. I hope you can also share your thoughts by commenting below. J