Growing Your Money: A Beginner’s Guide to Investing

Investing isn’t just for the rich, or for older generations. It’s an important step everyone should take to secure financial success in the future—and the younger you start, the more beneficial it will be. If you’re wondering how to invest in your 20s, you’re already on the right track. It’s an especially important topic these days because ‘tis the season when people have a bit more money to spend—from your 13th month pay, performance bonuses, raffle winnings, and cash gifts.

Why invest?

Imagine you’re saving up for the latest gadget or a big trip with your friends. If you simply stash PHP 50,000 in a traditional savings account with a 0.5% annual interest rate, after two years you’d have about PHP 50,501. Not so bad, right? Except the new gadget (or that trip) now costs PHP 55,000 due to inflation!

This is where investing becomes crucial to your plans. If you invested that money in a fund or a diversified portfolio earning an average of 7% annually (which is a reasonable long-term expectation), you could have around PHP 57,122 after two years. That’s enough for the new gadget, with some cash left over for accessories!

Investing is a hedge that gives your money the potential to outpace inflation and gives you more value, whether you’re saving for a gadget, a dream vacation, or your future financial freedom. Understanding where to invest your money in your 20s can set you up for long-term financial success.

The best part is that you can start growing your money today, whether you have PHP 1,000 or PHP 100,000 to spare. There are many options for investments for young adults in the Philippines that can help you start building wealth early.

Investment options for every time frame

When it comes to investing, timing is everything. Your investment time horizon—the length of time you plan to hold an investment before you need the money—plays a crucial role in determining your investment strategy. Different time horizons call for different approaches to balance potential returns with the risks you can afford to take. Let’s explore some sample investment options suited for various time frames, from short-term goals to long-term wealth building.

Short-term: Building on savings

These are the goals you aim to achieve in one to three years like building an emergency fund, saving for a new laptop, or that big trip with your friends.

Sample investment options:

1. Time deposit: This offers better interest rates than regular savings accounts. Metrobank online time deposit, for example, offers up to 4.5%* interest per annum. The minimum placement is just PHP 10,000 and you can choose a term between 1 to 12 months.
2. Money market funds: These invest in short-term, low-risk securities. They’re like leveled-up savings accounts with potentially higher returns. Maximize your earning potential while maintaining liquidity with the Metro Money Market Fund. The fund does not have a minimum holding period. You can redeem as early as the next banking day, without any additional cost.

Sample scenarios:

• Online time deposit: Juan puts PHP 10,000 from his 13th month pay in an online time deposit offering 4.125% interest per annum. After a year, he’ll have about PHP 10,334.58—that’s PHP 334.58 extra for doing nothing!
• One-time investment: Lisa invests a one-time amount of PHP 20,000 in a money market fund. Assuming the fund performs favorably and increases by 4.5% after one year, she could redeem her investments and realize her gains from the fund—that is an additional PHP 900 to spend on her Boracay trip.

(Note that interest rate of 4.5% per annum may vary based on the selected term and investment amount. Subject to 20% withholding tax.)

Medium-term: Saving for life milestones

These are bigger goals that you aim to achieve in say the next three to seven years. Some good examples are putting enough aside for a down payment for a car, starting a small business, or funding your dream destination wedding. As you think about how to invest in your 20s for your medium-term goals, these options can be beneficial.

Sample investment options:

1. Bonds: Think of these as IOUs from companies or the government where, instead of going to the bank for a loan, they borrow funds from investors which are then paid back with interest. These generally offer higher returns than savings accounts and have moderate risk.
2. Balanced funds: These mix stocks and bonds, offering a middle ground between growth and stability. Boost your potential earnings with the Metro Balanced Fund, which invests in both direct bonds and blue chip stocks listed in the Philippine Stock Exchange (PSE).

Sample scenarios:

• Regular investment: Maria invests PHP 5,000 monthly in a balanced fund averaging 7% annual returns. After 5 years, if the fund performs well depending on economic and market conditions, she could have around PHP 369,000—enough for a nice wedding or a business startup!
• One-time investment: Mark invests PHP 40,000 in a 4-year government bond with a coupon rate of 6.25% and yield of 5%. Assuming simple interest and no reinvestment of periodic interest payments, his investment could grow to approximately PHP 48,000 by maturity—that’s adding a potential PHP 8,000 in interest to Mark’s future business capital.

Long-term: Building wealth for the future

These are your ultimate goals, the ones that sit farther into the future or at least for more than seven years ahead. This includes achieving financial independence—which you’ll likely achieve sooner if you start investing in your 20s, preparing for retirement, and growing wealth you can pass on to the next generation.

Sample investment options:

1. Stocks: Buying a share of a company can lead to high returns over time, but usually comes with higher risk and volatility.
2. Equity funds: A type of pooled fund that invests in a diverse range of stocks, spreading out the risk. The Metro Equity Fund is a long-term investment that achieves growth by diversifying into select blue chip equities listed in the Philippine Stock Exchange (PSE). Investors are recommended to stay for at least five years in this equity fund in order to see its full benefits.
3. Real estate investment trusts (REITs): Invest in properties without the hassle of being a landlord.

Sample scenarios:

• Regular investment: Carlo starts investing PHP 3,000 monthly in an equity fund at age 25. Assuming an average annual return of 8%, by the time he’s 60, he could have over PHP 8 million! That’s the power of compound interest and time.
• One-time investment: Anna invests PHP 60,000 in a diversified stock portfolio at age 25. Assuming an average annual return of 8% and reinvesting all dividends, by the time she’s 60, this single investment could grow to about PHP 1 million. This showcases how a single smart investment decision early on can significantly impact your financial future.

(Note that the 8% average annual return is a hypothetical example for illustrative purposes only. Actual returns may vary significantly and are not guaranteed.)

Getting started

It’s normal to feel overwhelmed. It’s a lot of new words and concepts, but fear not, you can learn as you go. Many successful investors started exactly where you are now. What’s important is that you begin, even if you’re starting small. Here are some key investing tips for young adults:

1. Set clear goals: What are you saving for? How much do you need? When do you need it?
2. Assess your risk tolerance: Are you okay with some ups and downs for potentially higher returns (aggressive), or do you prefer steadier, slower growth (conservative)? Maybe you want something somewhere in between (moderate)?
3. Research: Consult with investment professionals to execute a strategy that aligns with your goals and risk tolerance. They will help you diversify your investments to mitigate risk. Check out Metrobank’s wide array of investment options with professionally managed funds and access to global markets. You can also go to FirstMetroSec to access investment options including stocks, bonds, REITs, and pooled funds.

Keep learning, and take time to review your progress. It helps to always remember that you are investing in achieving your dreams and living the life you deserve. Explore more guides about investing, credit management, and insurance at lifebanking.ph.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research and consider consulting with an investment professional before making investment decisions.