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Stock Investment: One way to make the Money Work for You

6 Aug

(Originally posted on January 24, 2010)
After graduation, most students would end up getting employed in companies that will give pay checks on a regular basis. The salary is based on hourly or daily work rendered in the company. And normally, you will have to work 8 hours a day and 5 days a week. The rest days need not be weekends. It can be any 2 days in the week. Basically, you don’t own your time and more often than not, you spend your days off to rest at home only to have sufficient energy to work for another payout. The cycle goes on and on until your retirement day.

It’s all about the money. It’s all about getting sufficient money to get you through a week or two, for food, taxes, bills and other expenses.

Money, money, money. Most people work hard for money. Have you ever wondered how money can work for you? How about investing in the Stock Market?


Stocks and the Stock Market

We often stumble upon these terms in the movies, television, broadsheets and other forms of media. We are often dumbfounded whenever we see those graphs with highs and lows, its losses and gains.

But stocks and the stock market can be a simple concept.

Imagine a private citizen who decides to sell her restaurant that is worth P1, 500, 000. Some 10 interested people might approach her but do not have P1, 500.00. What she can do is to divide the price of the restaurant in 10 equal parts that would be equivalent to P150, 000. The 10 buyers of the restaurant shares now own the restaurant. A Stock represents ownership of a company’s assets and profits. So if the restaurant makes P75, 000 during the year, then each of the 10 owners gets a dividend or a payout of P7, 500. The owners are now called stockholders or shareholders of the restaurant and can therefore participate in decision making toward the betterment of the restaurant. They can also decide not to get the payouts right away and instead decide on expanding the business by adding more equipment, hire additional employees and even add products offered to their customers.

What if one shareholder decides to sell his stocks for another investment that may potentially give him more profits?

The shareholder can do the transaction by word of mouth or by placing an advertisement in the newspaper but this will be very tedious just by looking for a potential buyer. This problem is solved by the Stock Market.

Just like any other markets, the Stock Market is an avenue where all the buying and selling take place. But in this case, what is being sold or bought are stocks.

In the Philippines, we only have one Stock Market and we officially call it the Philippine Stock Exchange (PSE).

Why invest in the stock market?

According to the Philippine Stock exchange (PSE), “there are 3 rationales for stock investing:

  1. Ownership in a company – when an individual invests in the stock market, he automatically becomes a stockholder of a particular listed company. As a stockholder, he is entitled to the following benefits: a.1) voting rights; a.2) dividends to be declared by the corporation; and a.3) share of the remaining assets of the company if it is to be liquidated.
  2. Liquidity of Funds – a stock market investor has an easier access to funds. Compared to banks which require high minimum conditions for deposits and credit, an individual can start an investment for as low as Php 1,000 and can expect high yields for his initial investment. He can always cash in or out his funds anytime, during trading hours, through his broker.
  3. Make money – investors in the stock market make money through dividends and capital appreciation. When a listed company declares dividends, its shareholders increase their investing power. An investor who buys into the company at a low market price and sells it at a higher price will gain capital appreciation. (http://www.pse.com.ph/)”

Investing in stocks is definitely risky just like any other investment. The challenge is to limit and manage risks and be sure to make calculated decisions. Most of all, remember to keep in mind that money should work for you and not the other way around.