More and more Filipinos have been investing their wealth at never-before-seen rates, thanks to increased accessibility through apps and websites. It’s easy to get excited at the prospect of building a secure financial foundation but, before you dive headfirst into investing, you must get a realistic idea of how to accurately estimate your potential returns. Sure, the people encouraging you to invest will have projections of their own but it’s still better to know the numbers for yourself for a more accurate picture.
Knowing how to calculate your investment earnings on your own empowers you to evaluate different opportunities on their real merits so you can make informed decisions. Whether you’re considering time deposits, mutual funds, or stocks, accurate projections will keep you on track to building a secure base for future wealth. Let’s look at what you should be doing to calculate your earnings as a newbie.
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Start Small
As a newbie, you should probably avoid trendy investments and stick with low-risk options like time deposits or government bonds for the time being. For example, just starting with ₱50,000 in a time deposit at a digital bank can already offer you guaranteed returns without exposing you to high risks. Maya even has a time deposit that doesn’t have an initial deposit requirement. You can simply open an account and add money to it at any time to reach your set targets. They even have a time deposit calculator for a good idea of what you can expect in return.
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Study the Basics of Interest Rates
Many investment products like time deposits and bonds have fixed interest rates, which means you can easily determine your future earnings. For instance, if you put ₱100,000 in a time deposit with an interest rate of 4% per year, you’ll earn ₱4,000 in one year before taxes and other associated service fees.
As mentioned, many consumer-oriented banks in the Philippines offer online calculators to help investors estimate potential earnings. These tools are designed to be beginner-friendly and allow you to input basic variables like principal amount, interest rate, and duration. Play around with these to see how these major factors affect your potential raw earnings.
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Don’t Underestimate Compound Interest
Don’t feel pressure to put more money into an investment than you’re comfortable in. Anyway, if your chosen investment product offers compound interest, your earnings may still grow exponentially through continual reinvesting.
For example, if your ₱100,000 time deposit earns ₱6,000 in the first year after taxes, then your second year’s interest will be calculated on ₱106,000 instead of the first ₱100,000. After several years, the fund may be earning much more than you first expected.
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Factor in Taxes and Service Fees
Some investment earnings in the Philippines may be subject to withholding tax as well as service fees. These can make an impact on your real earnings and they can be quite difficult for newbies to grasp. Be sure to discuss your investment with your bank or your investment manager.
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Learn How Inflation Affects Your Earnings
Inflation will always erode the real value (i.e., purchasing power) of your money. Knowing that, you should always compare current inflation against the expected rate of return. For example, a 5% return on a bond might seem good on paper, but if inflation is at 4%, your real return is only 1%. This is a very simplistic view, of course, but regardless, accounting for inflation will give you a more realistic picture of what your money is worth.
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Diversify Your Holdings
If you’re ready to venture outside of safe investments like bonds and time deposits, diversification will give you a good balance of safety and brisk growth. This way, you can enjoy the faster growth potential of more dynamic investments while spreading the relative risk. Since most markets tend to improve over the very long term, a well-diversified portfolio will help you enjoy continuous growth even if some investments go bust—provided you can wait that long.
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Set Your Social Media Feed to Prioritize Market Trends
Even if you go with stable investments like time deposits, current market conditions can still quickly impact other investments like mutual funds or stocks. More importantly, they will also have effects on your day-to-day life. Staying informed about economic trends will eventually give you a mindset that helps you connect daily experiences with wider market movements. In turn, you’ll be better equipped to figure out how best to invest, later on.
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Consult Legitimate Financial Advisors
If you diversify or pick investments that are tied to market movements, your calculations may become overwhelming. In these cases, you’ll want to seek help from qualified professionals. Fortunately, many Philippine banks offer free financial consultations to assist clients. You can also find qualified advisors who can work with you to provide detailed projections and recommendations across your whole investment portfolio.
The Time to Invest is Now
Investing can be an exciting journey, especially if you have never earned passive income before. However, any excitement needs to be tempered with a full appreciation of the risks involved.
If you’re looking for an easy, safe way to start investing, time deposits are probably your safest bet. Unlike other investments that are often tied to dynamic market movements, time deposits offer low-risk and predictable returns. The lock-in periods also tend to be much shorter than other safe alternatives like bonds. This makes them a forgiving way to understand the basics of earnings calculations, even as you grow your money.
If you’re interested in trying out a time deposit, shop around for banks with good rates on their time deposit options. Don’t forget to consider digital banks, as these currently have some of the best rates in the market. It’s never too early or too late to learn the power of wise investments.