Putting money in the stock market can seem intimidating, especially for overseas Filipino workers or OFWs new in investing. After all, the market can be unstable and unpredictable, and stocks sometimes lose money.
However, stocks have many benefits compared to other investments. Once an OFW understand how it works and how it can benefit financially, you will realise that it makes a valuable part of a diverse and balanced investment portfolio. So, for OFWs having doubts about investing in stocks, here are some good reasons why you should jump on the stock market bandwagon now.
It’s way better than savings account
Here’s a fact, OFWs are slowly losing money by stashing cash in a savings account.
Yes, while checking and savings account may be the most convenient and secure way of keeping money for OFWs—obviously because they are safer than stuffing money under the mattress—the trade-off is a slow but definite chipping away of your money’s value. Thanks to the evil combo of pathetic interest rate and rising fees.
As of writing, the average return rate on savings accounts in most banks here in the Philippines is 0.25%. Compare that to the stock market’s rate, which is at 7.17% as of this December 2014 and has maintained an average of 2.36% from 1986 until this year, and to the country’s inflationary rate, which for the first time this year reached a record low of 3.7% last month (November 2014). The numbers require that for every 25 cents your P100 is earning in savings account, its value or buying capacity is losing P3.70. In stocks, on the other hand, your money’s value is blocked from the evil effects of inflation.
It let OFWs take advantage of the power of “compounding”
Albert Einstein said “The most powerful force in the universe is the power of compounding.”
OFWs can consider adopting this as their financial motto. Why? Because in simple terms, compounding or compound interest means earning an interest income on your interest income, resulting to your money’s accelerating growth.
For instance, a 30 year old OFW invests P10,000 today in stocks, earning a 5% average rate of return (note: this is a very conservative interest rate estimate) and plans to make an additional investment of P10,000 for the next 20 years, he will find himself with P373,725.50 by the time he reach 50.
|Year||Amount||Annual Addition||Future Value|
Compounded value after 20 years
The wonder of compounding turns your money into a powerful income-generating tool, which OFWs can take advantage of by investing in stocks.
Just like any business or investment, the stock market can either make or break OFWs savings. Depending on the economy, OFWs can earn big in a year or two, or lose huge amount in an instance.