Ask Your Advisor: What’s a great way to invest in stocks as a passive investor? 

It is one of the most common questions we get. Mark (not his real name), a young client, wanted to know how he should invest in stocks if he is a passive investor.

We probed why he wanted stocks specifically, instead of fixed-income securities such as government bonds. He simply said he wanted to capitalize on the exponential movements in the stock market.

However, his busy schedule leaves little time for active monitoring or researching the best stocks and timing for investments. He is also concerned about investing in one go, especially after witnessing the Philippine Stock Exchange Index (PSEi) soar to 7,500 and then plummet to 6,500 within weeks.

So now, what can he do to profit from stock market movements without constantly monitoring his investments?

Peso-cost averaging strategy

Since our client doesn’t have the time to actively research the market, we recommended a passive investment approach.

By purchasing a PSEi tracker Unit Investment Trust Fund (UITF) and employing a peso-cost averaging strategy, he can steadily build his investment over time. This strategy requires investing a fixed amount of money at regular intervals, regardless of the current fund price.

This way, he can benefit from market fluctuations over time without the need for constant monitoring.

Pros and cons of peso-cost averaging

Let’s explore the benefits and possible disadvantages.

This strategy allows for average market return over time while providing partial protection from significant downward market fluctuations. This is attributable to the strategy’s compounding effect.

The peso-cost averaging strategy is also more advantageous in volatile markets because of the uncertainty on where prices would be. It is hard to determine if the stock price is a bargain or not without doing thorough research on the company’s financials and economic conditions.

However, since the strategy averages gains and losses over time, it also means one can’t fully capitalize on substantial upward market swings. As the saying goes “high risk, high return”. This strategy does not take on big risks, which means missing out on possible huge returns.

Considering all these pros and cons, peso-cost averaging is still ideal for our client who is a passive investor. It helps our client minimize the risk of buying stocks at high prices while enjoying the benefits of compounding returns. It will also help our client build a habit of investing regularly.

Let’s test it out!

To better show how peso-cost averaging strategy works, we computed the regular gains or losses of our client if he consistently invested PHP 5,000 of his salary every 15th and 30th of the month in a UITF.

We chose Metrobank’s PSEi Tracker UITF — Metro Philippine Equity Index Tracker Fund, and made a sample computation from January to October 2024.

Metro Philippine Equity Index Tracker Fund

As shown in the table above, if our client invested PHP 5,000 twice a month on a regular schedule, he would have minimized his losses during fluctuations. Additionally, he would have made some profit, even without monitoring the market.

But what if he invested in a bond fund instead?

We showed him another table. This time we featured a bond fund, the Metro Max-5 Bond Fund, which focuses on medium-term bonds.

Metro Max-5 Bond Fund

The results are similar. This shows how effective peso-cost averaging strategy is for a client with limited time to actively manage his investments and monitor the markets.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)

JOSHUA TATLONGHARI is a Financial Markets Analyst at Metrobank’s Institutional Investor Coverage Division. He holds an undergraduate degree in finance from the University of Santo Tomas and is currently taking a Master’s degree in Applied Economics at De La Salle University-Manila. He spends his free time working out and watching documentary videos relating to finance and the economy.

MARIA CHRISTINA VIRTUDAZO is an Investment Counselor at Metrobank’s Institutional Investor Coverage Division. She graduated with a Bachelor’s degree in Business Administration from the University of the Philippines – Diliman. She spends her free time reading novels, listening to K-Pop, writing fanfiction, and watching Netflix series and K-dramas.