Are Stocks and Equity Funds Really Your Long-Term Buddies?

In my previous post about depending solely on SSS/GSIS/HDMF to cover for one’s retirement expenses and needs, we mentioned that the pension that you will be receiving from these institutions will never be enough.

These employer-sponsored retirement plans can be a good start for a young employee while learning about other investment options that can generate higher returns.

Two of the most commonly-recommended financial instruments to invest in for long-term are stocks or equity funds through mutual funds or UITF’s. But are these really your reliable friends to entrust your money from Investing Day 1 up until your retirement age?

Are Stocks and Equity Funds Reliable Investment Vehicles?

Many new investors have been amazed by the awesome performance of the Philippine stock market in the past 2 to 3 years which touched the 7,000+ level earlier this year. Most have gained more than they’ve lost.

Some even got more excited and decided to put in more money, albeit one time, in stocks or funds that perform best in terms of returns.  Others took loans from the bank and invested the borrowed money directly in stocks.

But then the shocking moment of truth came.

The stock market isn’t always dancing in the park. The PSE index went down from 7,000+ to less than the 6,000 level in the middle of the 2013.

Many of those who borrowed and invested their savings without even looking into their other personal needs and responsibilities have started to doubt. I’ve even heard that some have started cursing and blaming their respective gurus and “mentors”.

Worst, they have not even started to build up their emergency funds and have no other recourse but to borrow again to pay for their urgent needs and expenses.

In these situations, they ask, can stocks and equity funds still be considered as an investor’s long-term bestfriend?

Plan and Scatter Your Money in Other Buckets

Equities (stocks or mutual funds) can really give an investor higher growth potential than other types of financial instruments if used as vehicles for a retirement plan. But it is never a guarantee to give you back the money that you need in the middle of your investing journey.

That is why it is important to know the things you need to do first before putting your money in high risk instruments such as stocks and equity funds.

Proper needs budgeting, preparing for emergencies, eliminating bad debts, insuring yourself, and learning more about money’s behavior and improving your behavior towards money as well are things you need to establish before investing.

Remember that even big, “reliable” stocks that we fondly call blue chips can surprisingly change from green to red in no time at all. You just can’t blame anyone else but yourself if you don’t do the right things the first time.

Putting some of your savings in diversified funds either through mutual funds or UITF’s that are heavily invested in fixed income instruments such as bonds and money market can minimize the risk of losing more of your money.

Do not “over-rely” your investment in one asset class only especially if you are nearing your retirement.

Stocks and equity funds can always be your retirement plan bestfriends but it’s your attitude towards money that can be your financial independence enemy in the making.

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