Why Peso Cost Averaging?

PHStocks 14/08/202115/08/2021 0 Comments Investing, Peso Cost Averaging

One of the misconceptions Pinoys have over investing in stocks is that only the rich can do it. Decades ago, investing in stocks requires placing an amount of money (depending on the minimum required) to your stock brokerage of choice, and then calling your broker every now and then to instruct him where to put your money in—what to buy, what to sell. Every transaction has a fee, which includes the commission as well as taxes.

Such an arrangement provided the said misconception that investing in the stock market is only for the rich.

Thank you to technology, ordinary Pinoys can now invest in shares of public companies and join in their successes (and also potential failures—but let’s stay positive). Because of online stock brokerages, ordinary Filipinos now have the ability to buy and sell stocks, even with a limited budget.

In stock market, the idea is to buy low and sell high. However, we do not have a crystal ball as to predict whether the stock of a company will rise or not. Sometimes, we will wait for the ‘right time to buy’—that is, when the prices of stocks are low. But how do you know if it is really low or will continue to fall? Having these considerations will definitely distract us from taking action, leaving us undecided to the point of not doing anything at all.

The following video shows one strategy that can help you block out such noises and set yourself on your way to investing: Peso Cost Averaging.

Peso cost averaging is a proven way to invest money at regular intervals to reach long term investment profits in the stock market. The example in the video is a regular investment of PhP4,000 per month.

Now, most Pinoys—especially those in the Low Income and the low end of the Low Middle Income group—won’t have PhP4,000 in investable cash monthly. What with the many expenses that they have to grapple with on a monthly basis, such as daily commute to and from work, food expenses, utilities, etc.

So, my point is, it doesn’t matter whether you have huge sums to invest or not. What is important is that you keep at it religiously, no matter the amount.

The below table shows that for a minimum budget, you may take advantage of Peso Cost Averaging, and earn a good amount on your investment over a period of time.

This is just a simple example to illustrate the fact that for a budget of PhP1,000 monthly, you can afford to buy a stock regularly and, at the end of your investment period, have a good-enough gain for the total amount of money you invested.

TAKE NOTE: In the Philippine Stock Exchange, there is this thing called BOARD LOT, which shows the MINIMUM number of stocks you can buy at different price ranges. See the board lot table below:

Given the above table, the number of stocks that you can buy for a stock priced between PhP5.00 to PhP49.95 is 100.

RECOMPUTING my example above, below is the table showing the total amount you will invest and the total number of shares you will acquire, taking into account the board lot requirements (minimum number of shares you can buy).