Question: Hi! I’m a newbie investor in the stock market. I started this year with my online account investing 100 percent of my 13th month pay. I’m happy that my stocks are earning better than my time deposits. Lately, I’ve been reading a lot of stuff online saying that the market will go down and the index will fall to 6,500, even 6,000 after the election. Is this accurate? Should I pull out my investment before the [day of the]election? And lastly, whom do you think should we vote for who will help the stock market grow? Thank you and God bless.
— E. Omil via email
Answer: Thank you for the letter, E. Omil. First, I think what we need to establish here is that no one can really accurately tell where the market is headed after the May 9 elections. My guess is just as good as yours. We can examine financial information and trends as our guidance but accurately pinpointing market movement is just wishful thinking. Second, I do not endorse specific candidates. I think each one of them has his/her own strengths that can help lead our nation to further heights. I believe that we need to exercise our voting rights fully and independently from other people’s opinions. Ultimately, vote for whomever you believe will take good care of our nation, our people, your family and yourself.
Now, should you take out your investment from the market given all the fears that you have about the upcoming elections? Here are some things that might help you decide:
1. Invest with a specific goal in mind. Fear and greed are two powerful emotions that are common in the stock market. Fear of losing money brings out a tendency in people to sell stocks abruptly, while greed for more profit normally makes them want to hold on to their shares and bet on a rising market, which is not a fundamentally sound strategy. Those two scenarios are dangerous—especially for new investors who are still trying to get a feel of the market—and cause some investors to get burned and never want again to dip their fingers in the stock market. One way that you can temper your emotions while investing is having a specific investment goal. Be specific on why and for what you are investing your money. Is it to build your retirement nest egg? Is it to help fund your down payment for your house a couple of years from now? Then quantify your goal: how much fund and investment returns do you need to turn these goals into reality? In this way you can properly monitor your progress and identify when to take out your investments.
2. Investigate before investing. More often than not, people losing badly in the stock market are those who take short cuts by copying their neighbor’s portfolios without doing their own homework. Due diligence is critical in investing. Do the legwork, study the company/stock before buying it. Choosing your stock should be based on your own convictions about the company, not just by what you’ve read in the papers or what your friend has suggested.
3. Markets move up and down, always. The stock market doesn’t move in a straight line. Prices change every minute, hour and every day. Risk is inherent and volatility is part of the market’s DNA. These are the things that you need to accept and embrace. Incurring paper losses are normal so you have to examine yourself if you are able to handle the upswings and downswings of the market. While risks are high, rewards could be fulfilling as well. You just need to make sure that your risk appetite is aligned with this investment instrument. If your fear of losing money in the market keeps you awake at night, re-think your investment strategy, the stock market may not be for you.
Lastly, here are historical figures related to election periods:
• For the past decade, every election year recorded an average annual GDP (gross domestic product) of 6 percent to 7 percent.
• Since 1992, the PSEi has been posting a gain of an average 9 percent six months coming from an election and almost 8 percent a year after an election.
It’s important to note, though, that past performances are not a guarantee of future values.
Cheers and good luck!
Jesi Bondoc is a Registered Financial Planner of RFP Philippines. He is the Director of My Wealth MD and Partners, Inc. specializing in investment advisory and oversight. You can send your money questions at firstname.lastname@example.org or email@example.com and they’ll be answered on his next article. For more info about Registered Financial Planner program, e-mail to firstname.lastname@example.org or text <name><e-mail> <RFP> at 0917-9689774.