Technology has redefined investing. Gone are the days when Wall Street turned to chalk, blackboards, and paper when making and tracking trades. Nowadays, as with all things, transactions are done and updated in real time. That means profits and losses are also updated instantly, making the margin of error–in making big or missing out on a hot stock–smaller than ever. The information is out there after all. But to make the most out of these opportunities, you first need to understand the ins and outs of the most popular investment options: UITF, stocks, and everyone’s favorite cryptocurrency, Bitcoin.
Read more: 5 Investments You Need to Have by Your 30s
When dealing with different types of investments, keep in mind that one market behaves differently compared to another. It’s not an “apples is to apples” comparison. It’s more like comparing your local wet market to a Sari-Sari store or an online marketplace. They sell the same products but do so in vastly different means and to different audiences.
Here are the major differences:
UITF – stands for Unit Investment Trust Fund. It’s an investment fund managed by experts to maximize the chances of getting high returns. It usually entails minimum investment and trust fees per year, depending on the bank and fund type.
This kind of investment is most suitable for beginners who have little to no trading experience. With this type of pooled fund, your money will earn more than a basic bank account, can be withdrawn anytime (it’s liquid), and will be put in the hands of seasoned financial experts. You can also choose funds depending on the amount of risk you want to take in–from conservative, moderate to aggressive.
Stocks – The most popular of the bunch, the stock market is like a real market, but instead of goods, traders buy and sell shares (ownership) of companies. And like any other transaction, stock trades (buying & selling) charge taxes. To start trading, you will need the services of a credited broker to connect you to the market.
Stock trading is the perfect match for investors who have prior investing knowledge or experience. That’s not to say that you shouldn’t try stocks if you’re a greenhorn. It only means that the learning curve is much, much steeper.
Bitcoin – “The age of bitcoin is here” is a typical Reddit commentary on the dawn of cryptocurrency. And in many ways, those forum posts are on point. Bitcoin is new and fresh and that can be good or bad when it comes to investing. As the quintessential cryptocurrency, Bitcoin represents a digital, albeit volatile, market spurred by the ‘mining’ and trading of a few lines of code. While we can talk in-depth about the details of Bitcoin, we’ll save that for another day. What you need to know is that Bitcoin is a digital currency, that is, it’s not represented by coins or bills. All balances are kept on a shared public ledger called blockchain–a record book that contains all Bitcoin transactions.
To trade Bitcoin, you will need a public and private key. A public key is like your bank account number that others may view in order to transact with you. Your private key acts like your PIN to authenticate transactions.
This kind of investment is recommended for experienced traders, and being tech-savvy helps a ton too! Due to its volatile nature, knowledge and expertise in forecasting are crucial. If you only have superficial know-how on the cryptocurrency market (or if you don’t trust your gut instinct in making on-the-fly trades), then you should proceed with caution. Remember, unlike other markets that have an opening and closing time, bitcoin is traded 24/7, 365 days a year.
How can you make money?
UITF – Your profits depend on the difference of the NAVPU (stands for Net Asset Value Per Unit and represents the price of each unit of the fund at a given date) from the date of purchase and the redeeming date. In short, you can make money by selling your units of participation in the fund at a higher rate than when you purchased it.
UITFs are also the easiest to get into with a minimum investment of as low as P10,000. If you want to know which fund is best suited to your lifestyle, you can try Security Bank’s UITF Quiz. It only takes a few minutes with a few simple questions about your saving and investing habits.
Stocks – The rule of thumb: Buy low, sell high. Buy a stock at a low price and sell it at a higher one. Your profits will depend on the difference of your buying price and selling price multiplied by the number of shares you have on that stock.
Eg. You bought 1,000 shares of ABC Company at P5.00 per share. Then, you sold it at P7.00 per share. Your total profits would be P2,000 minus taxes.
The value of a stock changes everyday and traders either profit from value appreciation or dividends (Dividends are part of the company’s profit annually shared with their shareholders). Value appreciation is the increase in value of a stock compared to its purchase price. Warren Buffett, one of the richest in the world, gained his success by being a stock trader who uses the value investing method. This method concentrates on buying an undervalued stock (a stock valued below its intrinsic or true value) and selling the stock at its determined intrinsic value. It is a long-term game but the dividends make-up for it.
Bitcoin – Same with stocks, the value appreciation of Bitcoin results to profit for investors. The greater the increase in the value of Bitcoin, the greater the value of your money will be. But in the case of Bitcoin, volatility is much more extreme. In fact, the value of Bitcoin can make or break a millionaire. For example, $100 worth of bitcoins 5 years ago is worth $75 million today. That’s a 749,999,900% increase in value.
And that value fluctuates from month to month. In fact, volatility is the name of the game for bitcoin, so much so that astute traders keep track of the Bitcoin volatility index–a value that measures how much the price of Bitcoin varies over time. While the cryptocurrency keeps on breaking records with all-time high valuations, it’s also prone to very sudden dives (keep in mind that this currency is not regulated), with speculation as the currency’s main driver. To illustrate, Bitcoin’s value to open 2017 was $976.65. As of writing this article, one Bitcoin is valued at $2732.00.
|Starting Capital||P10,000||P5,000||No minimum capital (but in order to start trading you need to have funds in your account)|
|Liquidity||Liquid/no holding period||Depends on the bid-ask spread, the lower the spread the more liquid it is||Depends on the method of receiving your cash and time of placing your order|
|Risk||Options for every risk appetite (handled by fund managers)||Volatile||Highly volatile|
|Regulation||BSP||PSE||No regulating body (banned in a few countries)|
|Accessibility||Offered by most Banks||Accessible at stock brokerage firms (COL Financial, PhilStocks, FirstMetro)||Only has 3 major platforms in the Philippines (coins.ph, buybitcoin.ph, rebit.ph)|
In the end, the kind of market you should invest in depends on your investing knowledge and objectives. If you’re starting out and want to get your feet wet in the investing world, you can opt for a UITF. But if you want to earn more and take on more risk, you can venture into stocks or Bitcoin.