Last Updated on March 25, 2023
Entering the workforce as a young adult can be challenging, especially if you are starting out with a lower-than-expected income, making it almost impossible to save money, even more, to place it on any type of investment vehicle.
However, though there are challenges when you are starting, there are still advantages of starting small with your investment portfolio and learning the technicalities of investing before placing a larger amount.
As a young adult, you have the advantage of using the single most valuable resource there is – your time.
Because of this, you have more leeway to commit investing mistakes that older adults may only hope to do.
So, as a beginner, don’t be frustrated when things may take longer than you hoped for, and trust the process. You will get your diversified portfolio eventually.
In this post, we will learn about investing for absolute beginners.
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A simple reminder for young adults wanting to invest:
Since you are reading this, I want to congratulate you because you are thinking about your future and finding ways to improve it through investing, but not so fast.
Though I already said that you have the advantage of time, you must also be careful when putting your hard-earned money into any investment account.
You must follow a proper hierarchy for a strong financial foundation. You must have life and health insurance, an emergency fund, and no consumer debt.
It is also important to know your risk tolerance or the risk you are willing to take. Remember that as the reward gets bigger, the risks also get higher.
So, refrain from entertaining the idea that there are low-risk, high-reward investments that will immediately give you your financial goals.
You must also know your goal and the reason behind your investment. It will determine which instrument will be best for your plan.
Finally, it would be best if you did your due diligence. Research the company you want to invest in. Avoid investing in anything you only learned on social media or from someone who can’t explain it in simple terms or doesn’t also understand it themselves.
So if you’re ready, here are the five options for investing beginners.
Disclaimer: What is written in this post is all based on personal experience and research. Nothing in the post constitutes professional and/or investment advice.
1. High-interest Rate Digital Banks and Neobanks
High-interest rate digital banks, like Maya, Tonik, Seabank, and other similar platforms offer a high-interest rate similar to a bond.
The first and probably the easiest investments for beginners you can use are the higher-interest digital banks that offer up to 6 or 8 percent interest rate per annum, which are galaxies away from the 0.125% that traditional banks are offering.
Gone are the days when you have nowhere to put your money but the traditional banks offering minuscule interest rates. At the same time, they use your money to lend it to someone else at a premium.
You can start saving and investing in these platforms for as little as P500 or even less. Plus, they usually don’t have a holding period that will prevent you from withdrawing your money immediately.
The good thing about these digital banks is they are accessible to the general public with only minimal requirements.
PS. Remember that traditional banks still have their purpose and should not be shunned. They can still be used on other applications.
2. Mutual Funds
The stock market and buying individual stocks can be intimidating if you’re starting your investing journey, so a mutual fund is one investment product to try.
Mutual funds are pooled funds from individual and institutional investors that are then managed by professional investment managers who will do the investing for you in exchange for a small management fee.
These mutual funds are offered by various financial institutions and are registered with SEC. So, if someone is inviting you to invest in a mutual fund, always check the company first with SEC.
There are four general types of mutual funds. The bond and money market funds are low-risk, low-volatility, and low-reward.
On the other hand, equity funds are riskier investments but offer a higher reward because they are commonly invested in the stock market. Then the last type is the balanced fund, which is the marriage of both worlds.
There are many mutual fund companies in the Philippines, like those offered by insurance companies such as Sun Life, Manulife, and more. Then there are also those from First Metro Sec, PhilEquity, and others. Other platforms also offer mutual funds, like COL Financial and Investa.
The good thing about mutual funds is you can start investing for as little as P50, so even students can begin investing. By placing your money, you buy mutual fund shares in the fund pool, represented by the Net Asset Value Per Share (NAVPS).
The more NAVPS you have, your account’s value will be higher. You can check your account value and performance on the websites or apps of your chosen mutual fund company.
You can also check this website to learn more about the registered mutual funds in the country.
You may also invest through Exchange Traded Funds (ETF), which is also a similar type of pooled funds, similar to mutual funds.
3. Unit Investment Trust Fund (UITF)
Like mutual funds, unit investment trust funds or UITFs are also pooled funds from multiple individual and institutional investors, managed by a professional fund manager.
The main difference between them is that UITFs are usually accessible through banks instead of mutual fund companies and are regulated by the Banko Sentral ng Pilipinas (BSP) instead of the SEC.
Similar to mutual funds, they have three general types of UITFs, you have bond funds and money market funds, balanced funds, and equity funds.
Since you are investing via a bank, you will also need to have an existing account which you will be used to transfer your fund to and from your investments. You can start for as little as P1,000 when investing in UITFs to buy units (Net Asset Value Per Unit or NAVPU) instead of NAVPS.
4. PAG-IBIG MP2
Another great investment vehicle for beginners is the Modified PAG-IBIG Savings II, commonly known as PAG-IBIG MP2, which is voluntary savings via PAG-IBIG Funds.
The great thing about MP2 is it is relatively safe because the Philippine government backs them, so it will take the country to go bankrupt before your investment is lost. It is also tax-free, so your dividends are as good as cash. Lastly, you can start with as little as P500.
This is particularly advantageous to existing PAG-IBIG members since they require you to have a PAG-IBIG account. You can check for the details on their website.
Note: You can also earn dividends through the stock market.
5. Variable Universal Life Insurance (VUL)
Lastly, we have another beginner-friendly investment in the form of Variable Universal Life Insurance, commonly known as VUL.
This instrument is a combination of life insurance, packed with an investment part rolled into one convenient investment vehicle.
The life insurance part is just the typical life insurance benefits but may also include types of health insurance, depending on the premium you pay.
The other side is the investment part, commonly invested similarly to a mutual fund. Some insurance companies offer a particular Mutual Fund investment.
The starting investments for VULs will vary but can be as little as P1,500. Though you have to understand that since this is a two-in-one investment, not everything you place in your VUL goes to the investment.
However, remember that when you’re investing in a VUL, your primary concern should be the insurance part, not the profit you can get.
So, be careful when choosing your financial advisor or insurance agent and company.
There are only five among the many investments you can choose from while starting your investing journey.
Since you’re still just beginning, you must avoid envy, fear of missing out, and greed because that is the hole that traps many young investors and causes them to lose their money.
You must also do your due diligence. Don’t invest blindly, and don’t speculate. Take your time studying other investment vehicles. You got this!
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