equities, investment, Personal Finance, stockmarket

Peso Cost Averaging Strategy

pesocost3

I learned about investing in stock market around 2013 when I first read about Warren Buffet that he made his wealth through owning shares of companies through Stock Market. It made me think that it is good that aside from earning from my salary(active income), it is also good to earn money from other sources of income through passive income. It is wiser to create a passive income because it makes your money work for you. Your money will never get sick, file a vacation leave, or complain about anything, that is why it is good that you should make them work for you.It is possible that you will surpass your active income through passive income thus you can now choose not to work anymore and enjoy the fruit of your labor through Stock Market.

The question is how can you win in investing in stock market knowing that it is risky. PSEi index goes up and down, what if i lose the big portion of my money? Should I get out already? Or  should I add more funds because the market is down?

For me, I recommend that you do peso cost averaging strategy in pooled funds.  First of all,it should be clear to you why do want to invest. You have to know your goals, time line, expected returns, and the risks you can bear. Investing in stock market requires patience and discipline for you to win.  With a proper mindset, you can complement it also with the strategy of Peso Cost Averaging.

Let’s define Peso Cost Averaging. Peso cost averaging is regularly investing a fixed amount of money done either weekly, monthly, bi-monthly, or quarterly. You will buy even the prices are low and high. Peso Cost Averaging is suitable for investors who cannot invest a big amount of money right away in Stock Market. If you have Ph1,000,000, what you can do is wait for the time that the market is bearish and wait for it to be bullish and you can earn more money.  I suggest that you don’t put your Ph1,000,000 right away in single transaction, you can wait and put money on the lowest possible average price by studying the historical charts for your reference and maximise the returns of your money.

Now, going back to Peso Cost Averaging, I would like to share a past performance that happened to a pooled fund that I know.

Here it is:

pesocost1

pesocost2

The investor invested Ph25,000 per quarter starting January 2007 until October 2012. You will notice that the Net Asset Value per Unit (NAVPU) changes over time because volatility in Stock Market is normal. It goes up and down but the investor bought units consistently. You can see that from January 2007 until October 2012 he invested a total of Ph600,000 and the total units he owned was 327,586 units.

Let’s see how the investor earned from doing Peso Cost Averaging Strategy:

pesocost5

We can see that the investor earned Ph557, 289 for six years which he had a fund value of Ph1,157,289 or 92.88% returns out of his Ph600,000 investment on the 6th year. Isn’t that good? If you just save your money in the bank with same amount, your money will not grow like that. While investing consistently, earning from Peso Cost Averaging Strategy can help you to achieve your Financial goals in the future. Your money just compounded over time.These returns are not guaranteed but this already happened, you can always have opportunities to earn in stock market if you start soon and hold it for long time.

The stock market index is very volatile and it is not easy to time the market, thus, if you want to start to invest in Stock Market with an amount that you are comfortable to start with, you can choose to use Peso Cost Averaging Strategy in pooled funds. Using this strategy is not a perfect investment, there are investors who like to trade or they want to timing the market for them to maximise the returns of their money but if you are busy with your job or business that you don’t have time to study what companies you should put your money and monitor it, I recommend that you use Peso Cost Averaging strategy in pooled funds. The key in this strategy is: It’s not a matter of timing but the consistency in investing regardless of the market conditions. You will win in peso cost averaging.

Thank you very much for reading my blog. If you want to learn more about how peso cost averaging can help you to achieve your financial goals in life, you may reach me.

Archie M. Yuki
Financial Planner,Investment Consultant and Insurance Specialist
4th floor Karina Bldg., No. 33 Shaw Blvd. Pasig City
Tel No. 571-3274
Mobile Number. 0917-5769607, 0923-4941362
Email Address: archieyuki30@gmail.com
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s