Stocks can be a tricky investment option to learn. As a beginner, you’d probably hear that the stock market is only for experts.
While it’s true that stocks can be relatively complex, the reality is that any skill takes a combination of constant learning and practical effort to master. Getting to know the basics is an important first step in your journey.
Find out how to invest in the stock market by learning essential terms, the different ways to put money in stocks, and what you need to get started.
How does the stock market work?
Stocks represent ownership in a publicly-listed corporation. When you buy shares of a company’s stock, you become a part-owner of that company.
The stock market is the place where people, companies, and institutions trade stocks. The Philippine Stock Exchange (PSE) is the only stock market in the country.
To be listed on the PSE, a company must offer shares of its ownership for sale to the public through an Initial Public Offering (IPO).
Companies can only hold an IPO after meeting the requirements of the PSE and the Securities and Exchange Commission (SEC). By “going public,” companies generally aim to raise money to improve or expand their operations.
In return, investors can benefit from the company’s growth and potentially get a share of the profits.
How can you make money from stocks?
As an investor, there are two possible ways for you to earn through stocks: capital appreciation and dividends.
- Capital appreciation is when you buy shares low and sell them at a higher price.
- Dividends are portions of a company’s earnings given to investors in cash or more stocks. It’s usually the companies’ choice whether they’ll issue dividends and when they’ll distribute them to investors.
Take note that you can’t buy or sell stocks by yourself. Transactions in the stock market would have to go through brokers or brokerage firms.
Who can invest in the stock market?
You’d need at least the minimum investment amount to open a trading account. But before you invest, you should understand the risks involved to know if it’s the right move.
Are you the type of investor who can manage stocks? The answer might be yes if:
- You can weather the ups and downs
Stocks are known to be highly volatile since prices can quickly go up and down. You should only invest if you can ride out the rapid changes.
For this reason, stocks are generally recommended for investors with an Aggressive risk profile. These are investors who are willing to take more risks for higher potential returns.
- You have the time to research
If you plan on buying individual stocks, you’ll need to read up on the companies you’d like to invest in. You must know your way around financial reports and understand market trends so you can adjust your choices as needed.
If you’re not yet ready to make the decisions yourself, there are other ways to put money in stocks. Keep reading to learn your options.
What are the ways to invest in the stock market?
There are different ways to invest in stocks and you might find an option that suits you even if you’re a beginner. Here are 3 methods:
- Through managed funds
Some managed or pooled funds include stocks in their portfolios. They are ideal for beginners since each one has a dedicated fund manager who does the research and makes the decisions.
This way, you won’t need to do things on your own. Plus, you’ll get the chance to invest in stocks at a relatively lower price.
- Through exchange-traded funds
Exchange Traded Funds (ETFs) are a lot like managed funds. The difference is that ETFs are listed on the stock exchange.
By buying shares of an ETF that focuses on stocks, you have the chance to invest in different companies’ stocks at once. This could be a more affordable option than buying multiple stocks individually.
- Through direct investments
With enough research and experience, you can grow more confident in your investing skills. You might want full control over which stocks to buy and how much money to put in.
To invest directly, you’d likely have to shell out more money to meet minimum requirements. There are also some things to know before investing in a company, like its past performance and growth potential.
Learn more about the different ways to invest in stocks through our guide.
What are the steps to invest in the stock market?
If you’d like to invest through pooled funds, look for mutual funds or Unit Investment Trust Funds (UITFs) that include stocks. To know if a fund puts money in stocks, read the Key Information and Investment Disclosure Statement (KIIDS).
If you’d like to invest in stocks directly or through ETFs, here are the steps to get started:
1. Find a stockbroker
You need a broker to place buy and sell orders on your behalf. Look for ones that are licensed by the PSE and SEC. Here are two types to consider:
- Traditional stockbrokers - These are professionals who will take your orders via emails or calls.
- Online stockbrokers - These are online platforms that will allow you to put in orders through web or app-based services.
You’ll find a list of authorized stockbrokers on the PSE’s website. Choose one that you trust and can offer the help you need to make informed decisions.
2. Open an account
You can open a trading account with your chosen broker. The general requirements include a filled-out customer account information form, valid IDs, and a Tax Identification Number (TIN).
Some brokers may require additional documents and an initial deposit to invest with.
3. Put in your first order
Once your account is active, you’re ready to buy your first stock. Remember to add enough money in your account to meet the minimum amount required.
With the same trading account, you can also buy shares of ETFs listed on the PSE.
Now that you have an idea of how to invest in the stock market, it’s best to keep building on your knowledge by learning about different strategies.
As a beginner, it helps to know how peso-cost averaging works as a way to manage possible risks.
What’s next:
