How to Get a Better PC by Investing Early

Image from Steadyrich

While its a difficult subject to comprehend for us in this country, its actually a viable option right now to start investing even if you're just a student. In this article we'll go through some of the fundamentals in getting you up to speed with financials and how it should benefit your hobby as well as give you an insight in a mature way of viewing investments which includes your beloved gaming PC.

Suppose your parents decided to buy you a gaming PC as reward for being a valedictorian. You are given PHP 40,000 and you'll be the one to choose the components. Here are 2 samples of what you can build.

Brand and Model Price (PhP) Brand and Model Price (PhP)
CPU Intel Core i5 6500 3.2 GHz 9,370 Intel Core i3 6100 3.7 GHz 5,400
Motherboard ASRock B150M Pro4 4,250 ASRock H110M-HDV 2,950
Memory G. Skill Ripjaws V 8GBx1 DDR4 2400 2,510 G. Skill Ripjaws V 8GBx1 DDR4 2400 2,510
Graphics Card Sapphire Nitro+ RX 480 4GB 11,710 Sapphire Nitro OC RX 460 4GB 7,000
Power Supply Seasonic S12II 520 watts 2,570 Corsair VS 450 watts 1,650
Case Tecware F3 1,100 Tecware F3 1,100
Boot Drive Western Digital Blue 1TB 2,270 Western Digital Blue 1TB 2,270
Monitor BenQ VZ2250H 5,750 BenQ GL2023A 3,690
TOTAL 39,530 26,570

Why would you want OPTION 2 when you can have OPTION 1? The money was just given to you so why not spend it all for a faster gaming PC? The reason is saving money and multiplying it. I am not referring to saving the money then putting it in a bank savings account. Your money can grow much larger and quicker by investing it in the stock market. Before I explain what are stocks and how to make money out of it, I would like first to show how much money you can gain in stocks and how does it compare to just keeping your money in the bank.

Investment Value (PhP)
Bank Savings Stock Market
Annual Gain 0.25% 10%
Initial Value 13,430 13,430
1st year 13,765 14,773
2nd year 14,109 16,250
3rd year 14,462 17,875
4th year 14,823 19,663
5th year 15,194 21,629

Going back to the gaming PC build comparison above, let's say you chose OPTION 2 and kept the excess of PhP 13,430 (PhP 40,000 - PhP 26,570) then invested it in stocks. Assuming an annual gain of 10%, your investment will be PhP 21,629 (1.1^5 x 13,430) after you finish a 5-year program in college. A gain of PhP 8,199 (PhP 21,629 - PhP 13,430) after 5 years may seem small but you have to consider that you almost did nothing to make that gain and a bank savings account cannot give you that gain in 5 years.

As for the topic the suggested builds, performance will ultimately fall on a need basis and if you don't need the faster build then we always recommend to save the money and invest in something else, whether it be the build itself or just keep it. Keeping it ultimately leads to extra funds which in turn leads to the core concept of this article.

Imagine if you invest more money in stocks and for a longer period of time. Also take note that the 10% annual gain in stocks that we used in the computations is just a conservative estimate. It can sometimes go as high as 15% or more. In my experience, I gained about 19% after a year of investing in stocks.

How a Bank Earns Money

When you deposit money in your bank savings account, you are basically lending money to the bank. The money you deposit is used by the bank in granting loans to their other clients. For example, Person A deposits PhP 50,000 in their savings account. The bank lends that PhP 50,000 to Person B who is starting a small business. The bank pays Person A an annual interest of 0.25% then charges Person B an annual interest of 10% (this could be higher or lower depending on the economy). The bank earns 9.75% (10% - 0.25%) on the PhP 50,000 of Person A. I just simplified the idea for academic purposes. 

Money Loses Purchasing Power

Let's assume that nobody told you about investing in stocks. So, you just kept the PhP 13,430 in the bank since this is what the school and parents usually advise. Assuming an annual gain of 0.25%, your money will increase to PhP 15,194 (1.025^5 x 13,430) after you finish a 5-year program in college. How bad could it be? Your money still gained interest, right? You should know that your money loses purchasing power because of inflation. Assuming an inflation rate of 3%, the Starbucks Cappuccino you now buy at PhP 125 will be priced at PhP 129 (rounded off 1.03 x 125) next year. That means your PhP 125 now cannot buy anymore a Starbucks Cappuccino next year. The bank savings interest cannot beat the inflation rate. In our example earlier, stocks can give you an annual gain of 10%. Once you factor in the inflation, your money actually gains 7% (10% - 3%) if you invest it in stocks.

What are Stocks and How to Gain?

A stock is a share in the ownership of a company. If the company earns, you earn. The more stocks you have, the greater your ownership in the company. Greater ownership means larger share in the earnings of the company. However, being a shareholder in a company does not entitle you to free products or services of that company. For example, even if you are a shareholder in Jollibee, you cannot go into a Jollibee store and ask for a free Sundae or a free Chicken Joy.

There are 2 ways to earn money in stocks -  stock price appreciation and cash dividends. The company will give cash dividends on a regular basis to all stockholders and it is proportional to the number of stocks / shares you have. For example, Company ABC gives a cash dividend of PhP 2 per share and you have 3,000 shares. You will receive PhP 6,000 minus 12% tax. Sometimes, a company can choose not to give cash dividends when the company is in a stage of aggressive expansion. The biggest gains on stocks can be had through stock price appreciation. For example, you bought 3,000 shares of Company ABC at PhP 4 per share. Then, after about 5 years, the price per share increased to PhP 20 per share. Your initial investment of PhP 12,000 (3,000 x 4) becomes PhP 60,000 (3,000 x 20) after about 5 years. Take note, however, that gain is only in paper. That gain would only materialize if you will sell the shares you have.

Of course, there no such thing as a risk-free investment. If you can gain money in stocks, you can also lose money in it. If the company is not performing well, the stock price might go down. For example, you have 3,000 shares of Company ABC priced at PhP 20 per share. Let's say the price went down to PhP 15 per share due to poor management or due to an imminent war in the Middle East, your investment of PhP 60,000 will decrease to PhP 45,000. Again, that loss is only in paper and would only materialize if you sell the shares. When stock prices start to go down, it is very important to not panic. If you bought a good company, the stock price will eventually go up again.
You can mitigate the risk of losing money by choosing companies which have a good track record.

Choose the companies which are profitable and have potential for growth. Examples are Ayala Land, Jollibee, and Energy Development Corporation. You can check the performance of a company by looking into its financial statements which can be found in the company's annual report. Don't be intimidated and think that stock investing is not for you because you do not have a degree in financial management or in accountancy. You just have to know the basic concepts in finance to be able to read the financial statements. Here are some easy-to-understand tutorials to help you get started.

Before you can buy a stock or share of a company, it must be listed at the Philippine Stock Exchange. Once you have chosen the companies you will buy, you don't go to the Philippine Stock Exchange. It would be chaotic if everyone will buy directly at the Philippine Stock Exchange. You need to find a stock broker which is basically a company who does the buying and the selling of stocks for you. The minimum amount of money for the starting investment will depend on the stock broker you choose but it can go as low as PhP 5,000. I am in now way connected to COL Financial but I recommend to check them out if you are looking for a stock broker that accepts a starting investment of PhP 5,000. They also offer free seminars about the basics of investing in stocks.

Final Words

This article doesn't go into detail in selecting and choosing your investments but it serves to give you an initial primer on how to approach investments should you particularly be interested in going down that route, and in most cases we recommend it. Starting in investing while still a student is a good way for young people to learn to how to manage their expenses. I am not saying students should not buy a gaming PC like the OPTION 1 (Core i5 6500 paired with Radeon RX 480) showed in the beginning of this article, the point is to not spend everything on gaming so you'll have something much better in the future. "Something much better" can be in the form of a down payment for your own house or a starting capital for your business. We're not here to tell you what to do, we're here to help you in things you already choose to do so or help you in making a decision.

*Originally posted in Back2Gaming. Copied and shared with permission. 

P.S To those doing the 52 Week Money Challenge, did you deposit the next amount yet?

P.P.S Want to know more about investing, savings, stock market and more, check out my reference here. You can download free ebooks and resources too. 

P.P.P.S I am also sharing my stock market secrets and information via these resources.