INVESTING

After saving for your Emergency Fund, any other excess funds should be invested. Most Filipinos, being conservative in nature, keep their excess funds in the Bank (normally in a savings or time deposit accounts). But by doing so, you lose the value of your money and gets gobbled up by Inflation, which is currently at 9%.

 

To ensure you keep the value of your money, and potentially increase its future value, one needs to explore all investing options.

 

As discussed in my previous post, you can either be an ACTIVE Investor or PASSIVE Investor. The former requires you to devote much of your time managing it – such as engaging in business or active trading. On the other hand, the latter requires you very minimal time to monitor your investment, and allows other people (experts) to manage your money. This is very typical for people with a regular job, and has excess funds to invest.

 

PASSIVE INVESTMENTS

 

1.                    Mutual Funds  – this is a managed pool of fund invested mostly in equities/stocks, treasury bills, bonds, commercial securities, etc. Depending on the type of fund, you would expect variations in terms of potential returns.

a.  Stocks Funds – high risk, high returns

b.  Balanced Funds – mid risk, mid returns

c.  Bond or Money Market Funds – low risk, low returns

 

To know more about Mutual Funds, I suggest you check these websites:

                http://www.icap.com.ph/index.asp

                http://www.philequity.net/

 

You will find many funds available in the market, but my personal preference is Philequity.

 

2.                    Stocks – you buy stocks of publicly traded companies (http://www.pse.org.ph). Either you seek the assistance of a personal broker, or open an online account. The former may require you to maintain a portfolio with high amount, and at the same time pay very expensive commission to your broker. The latter on the other hand allows you to manage your own portfolio, pay cheaper commission, and open an account with just Php25K.

 

You can check this website for more details,

 

Citiseconline

I personally trade using citiseconline’s platform.

 

I suggest, to gain more confidence, as you will be managing your own account, start playing with virtual trading accounts first –

 

Virtual Tycoon (by Citiseconline)

 

My personal view, pick companies which will stay in the market for a long time and realize big profits. For a passive investor, the attitude should be BUY cheap and HOLD for a long time (at least 3 to 4 years).  Don’t be affected with market’s daily volatility.

 

3.                    ETFs – or Exchange Traded Funds are like index funds of a certain Group (i.e. Financial, Agriculture, Technology, etc.) or Country (Emerging Markets, Europe, US, etc.).  You buy these funds just like stoks, hoping it will realize profits in the future. This type of fund is currently not available in the Philippines, but the PSE might soon introduce some (just waiting for SEC’s approval). If you’re interested with ETFs, you may want to open an offshore account – or open premier accounts with reputable banks like HSBC (HSBC Premier) and Citibank (Citigold).

 

4.                    Rural Bank Time Deposit – rural banks offer higher interest rates than commercial banks. Others can even offer as high as 20%p.a. for a 5-year placement. Though I admit, there are inherent risks involved, as rural banks are perceived as less stable than commercial banks. As these rural banks are also insured by PDIC (max of Php250K), then to completely protect your money, open TD accounts with Php250K as ceiling – or if you have more funds, then break up the deposits to multiple accounts (others put it under the names of their family members, or you can talk to the bank on how you can chop your funds to ensure every centavo is protected within the PDIC limit. So what happens to the interest earned? Other rural banks offer PDC payment or automatic deposit to your commercial bank account.  You can check my previous post for more details about investing in Rural Banks.

 

5.                    Open Offshore Account – opening an offshore account allows you to invest in foreign funds and stock markets. But, if you reside in the Philippines, your best shot to invest in foreign markets is to open a premier account such as HSBC Premier or CITIGOLD Wealth Management. This type of investment requires you to maintain a total relationship amount with the bank of at least Php4M (inclusive of all deposits, checking, and investments), but to invest in funds will only require you at least $10,000. To know more about it, visit these websites:

 

http://www.offshore.hsbc.com/1/2/home

http://www.hsbc.com.ph/ph/

http://www.citibank.com.ph/

 

 

 

 

 

 

LONG or SHORT

 

Whether you trade stocks directly (online) or invest in mutual funds, you pay commission, taxes, etc.. (every time you buy or sell stocks), and you pay sales load and exit fees (every time you invest in mutual funds) — As a small time investor, it becomes very costly if your  strategy is to go IN and OUT of the market very often (defined as hyperactive trading).

 

As a passive investor (meaning you have a regular job and you trade or make other people manage your funds), it is always advisable to go LONG. Always look at your investment in the long tern, this way you don’t have to pay high sales load, commissions, exits fees, taxes, etc. very often.

 

Those people who trade everyday are professional stock brokers. They are hyperactive, since they have to make a living (every time they execute a sale, they get paid, regardless if the investor earns or not)

 

After I read the book of Daniel Solin “the Smartest Investment Advice you’ll ever get”, it changed my perspective in trading. If you’ll be a hyperactive trader — the only person who’ll get rich is your broker (or online broker), since every single trade you perform, you pay them commissions, etc. (whether your stock picks earn or not) — and as a small investor (you buy only small lots due to capital constraints), it’s very expensive to be hyperactive.  Don’t get me wrong. I have nothing against brokers, and I have my deepest respect to such profession, but I guess at the end of the day, you’re best financial advisor is still that person you see every morning in the mirror.

 

Though, at times it’s inevitable to trade short (not just for the fun and excitement you derived from it), especially after picking the wrong stocks. If ever I’ll go short, I normally follow these guidelines..- set your buy price (after thoroughly studying the data)
- set your sell price (in my case, i feel comfortable with 10%-25% gain) — never be too greedy!
- as soon as you hit your desired sell price — then SELL and reap your reward, never think twice..

 

 

- if your paper loss amounts to -10%, then SELL and accept the fact that you made some lousy choices — don’t  ever look back.

 

After reading Warren Buffett’s biography, it gave me valuable insights about investing. When buying stocks, look at it just like buying a portion of the company.  A company which you believe will deliver and bring in valuable earnings in the long run. Look at the company’s fundamentals and see if the product they offer can withstand macroeconomic factors. Don’t invest because you predict that a stock price will rise in the future, but buy a company which will sell more of its goods year on year to ensure high revenue and profits. Never time the market. Never predict the market. Always buy at a discount. And when everyone is selling, it’s the best time to bargain hunt. Diversify only to at most 6 stocks (6 best companies you believe will give the best returns). If you will pick 20 or more stocks – then better invest in Index Funds, as it will mostly like yield the same results.

TYPES OF INVESTOR

There are 3 types of Investor:

1. People Working for Money (Active Investor)
2. People and Money Working for Money (Active + Passive Investor)
3. Money Working for Money (Passive Investor)

 

People Working for Money (Active Investor)

-          you’re an employee; you’re investing your time, energy, effort, and knowledge to grow someone else’s business and earn money

-          you’re an active businessman; you’re investing your time, energy, effort, and knowledge to grow your business and earn money

 

People and Money Working for Money (Active + Passive Investor)

-          you’re an employee; you’re investing your time, energy, effort, and knowledge to grow someone else’s business and earn money +  you invest in mutual funds or stock market, and earn you additional income with very minimal or no effort at all (let other people work and manage your money)

-          you’re an active businessman; you’re investing your time, energy, effort, and knowledge to grow your business and earn money + you invest in mutual funds or stock market, and earn you additional income with very minimal or no effort at all (let other people work and manage your money)

 

Money Working for Money (Passive Investor)

-          you’re a traveler exploring the world; your investment in mutual funds, stock market, or other businesses provide you all the income you need to live a comfortable life without lifting a finger

-          let your money work hard for you – this way, you can enjoy life to the fullest