Most entrepreneurs are rightfully thinking long and hard before parting with their hard earned money. Some people choose to be conservative investors by putting their money in low yielding but relatively stable instruments like treasury bills or time deposits.
But according to Rex Mendoza, head of the international sales department for Ayala Land, now is also a good time for investors to look for bargains in the market. He argues that the up and down swing of the market follows a pattern, saying that “the story is the same only the characters change.” According to him, investors should scoop up bargains that will enable them to ride the upswing when the economy starts recovering.
But before you start loading up, Mendoza has a few pointers to help you make the most out of the recession.
1) Always know your objectives and goals.
Knowing your goals allows you to know where you will put your money, and also allows you to gauge the amount of risk you will are willing to take. He says that for most investors today the most important thing is asset preservation rather than growth. But ultimately, he says the goal of any investment must to beat inflation and achieving your goals. “You will go astray if you only want to earn more because you tend to forget about the risks,”he said.
2) Have discipline and arm yourself with the right tools.
Mendoza says that one of the reasons investors fail to achieve their goals is because of lack of discipline. An example he cited was that of money in the bank. “If the money is in the bank then it is accessible so what you tend to do is you get it,” he points out. Also, he said that people tend to use the wrong instruments to achieve their financial goals. He cited the case of parents who plan their children’s education using time deposits rolling over the amount after every maturation period. Doing this effectively limits the earning potential of your money. “You should not invest long term in short term instruments.” Much of the current financial mess he says was caused because people neither had the discipline nor the right instruments. “This problem is not new, we could have managed it if we controlled ourselves,”he said.
3) Achieve proper diversification.
A common problem with Filipino investors is that they tend to equate diversification with “investing in four time deposits in four different banks.” He also cites people buying jewelry and label them as investments is a wrong notion. According to Mendoza, the proper way is to spread your assets over several instruments to minimize risk. “Portfolio management requires you to identify investments as investments and luxuries as luxuries.” But he cautions against just investing on any instrument, saying the particular investment should help achieve your goals and must be one that you understand. “You have to know what you put your money on and how they work as well as your responsibilities and risk.”
4) Continue investing for the long term
He says that with crash of the stock markets, many investors got burned and most likely will avoid them.Shying away from the stock market is a wrong move, he says, because one should invest regular amounts in the stock market as much as possible. That way, Mendoza adds, you might buy less on an upturn and buy more on a downturn. He says that eventually you will beat the market and earn more in the long term. He further adds that people must invest in the long term as “there is no future in short term.”
5) Volatility can be your friend
Most investors dread volatility but Mendoza says that “volatility can be our friend if you know what to do.” He cites the highly volatile stock market as an example. While currently he says stock prices are low, the historical precedent for the market has been that it will always rise. So by understanding the market situation and understanding the risks involved you can take advantage of volatility to earn more.