INVESTING in the stock market can be an exciting and rewarding way to grow your wealth, especially with the Philippine Stock Exchange Index declining. However, as the market continues to fall, it's important to be aware of the potential pitfalls that can derail your financial goals. Whether you're new to investing or have been in the game for a while, understanding and avoiding common investment blunders is crucial to safeguarding your hard-earned money. Here are some key mistakes to watch out for and how to steer clear of them. – Investing in products you do not understand. If you cannot explain the investment product properly with a peer, chances are you do not understand it, and if you cannot understand it no matter how many times it is explained to you, you're better off walking away from that investment product. Educating yourself and understanding where you invest your money is a halfway victory for you. – Investing from borrowed money that carries high interests. This has been one of the most common questions I get from people who desperately want to invest. Can I take out a loan and invest the proceeds in the stock market or pooled funds? They think that by borrowing money and investing it in the stock market will yield them positive results. Not necessarily. Remember that the amount that you borrowed carries interests that are fixed and guaranteed while your investment offers no guarantee to earn interest higher than what you are paying from your loan. – Investing while carrying huge outstanding credit card debt. One of the best investment strategies that you can embrace is paying off first what you owe. There's no sense in earning 20 percent with your investment if you carry high interest credit card debt that imposes as much as 42 percent interest annually. You might think that you are actually saving but the truth is you are losing a lot more in keeping your credit card debt and delaying its full payment. – Putting all your eggs in a single basket. A more prudent approach in investing is diversification. It simply means spreading and managing your risk by dividing your funds among securities of different industries or different asset classes. In this way even one company or industry where you are invested in falls apart, your entire portfolio will not suffer heavily. Sometimes the best offense is defense. Proper diversification offers you a solid defense in varying market conditions. – Chasing profits. Every investor's goal is to earn money yet sometimes with the desire to turn an investment into profit, people try to buy and chase investments that are past their momentum stages. When more and more people are talking about how hot a particular stock is up to a point where even your trusty barber talks about it, chances are this stock will be overbought and overvalued. – Ignoring investment risks. Every investment out there carries a degree of risk with them. There's no such thing as risk-free when it comes to investment. Sometimes, people try to ignore the need in understanding the risk because they always think of the brighter side of things and fear that once they get to know the risk associated with their investment, it will prevent them from carrying out their investment decision. Unfortunately, ignoring the risk involved to conceal your fear will ultimately lead to financial disasters. – Putting your money in the wrong investment instruments. If you are aiming for capital appreciation and still stuck with your time deposits or special deposit accounts, clearly your investment strategy is bound for failure. While these products offer safety, they cannot provide you with the capital growth you are aiming for because of their tax consequences and interest gains lower than our country's inflation rate. On the other hand, if your investment goal is for the short run and wanting to protect your capital, then investment in the equity or stock market might not be a good idea for you because of price fluctuations and market volatility. The reason why financial planners insist on starting your investment journey with the end in mind is to make sure that the investment products that you choose are aligned with your investment goals. People are unique so as their investment goals, a good investment instrument for one might not be as good for the other. Go back to your investment goal and analyze your risk appetite before plunging in your money to a specific investment. Jesi Jon Bondoc is a registered financial planner of RFP Philippines. Learn more about personal financial planning at the 109th RFP program in September 2024. To inquire, email info@rfp.ph.
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