During one’s early 20s, making smart financial decisions is not in their best interest due to the dependence on parents for household expenses. Usually, people in this age group are unsure how to spend their money wisely, constantly splurging on things they want more than need. While it’s not bad to spend some money for oneself, setting aside even a small amount for investments can save you from stressors of retirement later on. 

However, if you’re unsure about the basics of investments, you can check out tips and tricks discussed in Hotel Restaurant Institution Management Society’s (HRIMS) Money Talks: Cryptocurrency and Stocks Investments in the Digital Era as they discussed the do’s and don’ts of investing on Oct. 23.

Diving into Cryptocurrency

Cryptocurrency is a “new form of digital currency that uses cryptography to secure transactions using blockchain technology,” Francisco Raul Araneta, Coins.ph’s Crypto marketing analyst, defined. 

While there are several cryptocurrencies available in the market, all of them utilize blockchain technology, a decentralized ledger of transactions that is duplicated and distributed to thousands of computers. In other words, this system is immutable because if one ledger has been altered, this change will be rejected by the rest of the ledgers in the network due to mismatch of records. The feature resolves the double-spend problem, a risk that a digital currency can be duplicated and spent twice. 

Out of more than 10,000 cryptocurrencies available, Bitcoin (BTC) is the oldest and largest cryptocurrency by market capitalization. It is created by Satoshi Nakamoto, a person or group of people in which no one knows their identity.

Following Bitcoin, Ethereum (ETH), a programming language that allows you to build decentralized applications, is the second largest cryptocurrency by market cap. It allows developers to develop on top of ETH, which uses smart contracts that remove the third party from the agreement and writes the terms and conditions directly in lines of code. These contracts can self-execute if the conditions are met and once achieved, it becomes traceable and irreversible due to blockchain. 

Cryptocurrencies are trending due to the growth of mobile internet use, expansion of cryptocurrency adoption to digital payments onto mobile internet, integration into traditional finance, and high market value this year. 

To avoid mistakes while investing in cryptocurrencies, Araneta gave tips for people who might be interested in doing so. First, only deal with licensed cryptocurrency exchanges that have virtual currency licenses and an e-money license issued by the Banko Sentral ng Pilipinas (BSP).

Araneta also advised to “never invest more than you are willing to lose. [...] Start with a small amount, experiment with the app[lication], [and] experience crypto at a practical level.”

Lastly, do your own research. Due to the high monetary value of cryptocurrencies, there are many people who want to take advantage of one’s lack of knowledge. Misinformation can also spread quickly, highlighting the importance of research before diving into crypto. 

Investing into stocks

In order to be financially stable even after retirement, investing in stocks is one way to save money for the future. 

“Savings alone won’t be enough because as you can see, ang liit-liit ng interests. So that’s why you have to put it in an investment that can give us higher yield or return,” Fernando Eco, Assistant Financial Controller at the Diageo Asia Pacific Shared Services in Manila shared. 

Furthermore, Eco shared the two reasons why people need to invest—protection from inflation and opportunity for exponential growth. Since the inflation rate is constantly increasing, he advised that “when we look at investment opportunities, we have to beat [inflation] somehow, or at least equal. So that hindi nawawala ‘yung value ng investment natin.”

Investments also have [the] opportunity for exponential growth “because compounding money is like your earnings are also earning. So, exponential ‘yung growth. Nare-reinvest ‘yung income mo for it to earn in the future,” he shared. 

Just like cryptocurrencies, stock investments also have certain risks—market risk or risk from market changes, liquidity risk or how easily an asset or security can be bought or sold in the market, political risk or the risk that has can affect investment returns due to political changes or instability, economic risk or the “likelihood that macroeconomic conditions in the whole economy may affect the investment,” and lastly, industry risk or the “factors that can impact both positively and negatively a particular industry which can turn affect companies within the sector.”

However, if you’re already interested in investing, Eco shared a few tips you need to consider before starting. First is to identify the investment objectives. Is this investment for short or long-term? Will this be for the education of children or just saving for future funds? 

With the various investment outlets available, it’s also important to determine the appropriate one for oneself. One can invest directly in stocks through brokers or even talk to fund managers that offer little funds in case one’s capital is not that high. 

Making a regular investment program or peso cost averaging will also help in your investment career. This strategy refers to investing the same amount of money at the same time regardless of what is happening in the stock market. 

Although people in their early 20s don’t have that purchasing power yet, when one is investing early, they will reap the benefits of compound interest that result in higher returns. 

To minimize losses, Eco also suggests diversifying one’s investment portfolio and to look for other investment options such as cryptocurrency. 

He also emphasized that time, not timing, is an investor’s superpower. “The longer you invest, the more you improve your chances of positive returns,” he highlighted.

Regardless of what choice one prefers, whether investing in stocks or cryptocurrencies, it’s important to remember that making great financial decisions as early as possible can significantly impact one’s future. One should be able to identify financial strategies that will support them even at retirement age, and not rely on their children or even use them as a retirement plan.