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/

 

 

 

 

 

 

EMERGENCY FUND

As the cliché goes… “the more money you earn, the more money you spend”

 

And for some people, they even spend more money than they earn – just to show everyone that they afford to buy the newest gadgets, the hippest clothes, and the most recent car.

 

Sad, but true, most people don’t think of the future, and would rather spend everything now as if life will shower them with endless supply of money.

 

In this very materialistic world, it is very difficult to save. Many would argue that they don’t earn much every month – so how can they even start saving, a typical life of living paycheck to paycheck.

 

I don’t necessarily agree. If you can afford to buy those gadgets and clothes, then you must be earning enough to save some of it. It just takes discipline and will power.

 

Then, trick your mind – tell yourself, “ I earn less, therefore I have to spend less”

 

If you earn 20K (after tax) per month – automatically save a portion, let’s say 5K, and set it aside where you can’t spend it unless it’s an emergency. In effect, it brings down your salary to 15K – then you have to psych yourself that you only have 15K to spend.  Do it every month, then you’ll find yourself with a substantial EMERGENCY FUND for the rainy days.

 

Emergency Fund is a 6-month to 1-year worth of your living expenses to tide you in cases of emergency, like loss of job, sickness, etc.  This should allow you to get up, and find a new job to get things back to normal. In the event that you lose your job, how can you concentrate in looking for another one, if you’ll be busy thinking where to get your family’s next meal, or how to pay for your monthly bills.

 

Set aside this emergency fund, where it can grow in time (though such money is readily available, no one would really want to be in a position where you would be forced to use your emergency fund – nobody wants to lose his job, right?). Then, you have not only saved for an emergency fund, but such amount can grow, and you can use the interest to finance your wants like to buy new gadgets, clothes, etc. or even to increase your investment portfolio. Most people keep their Emergency Fund in a separate Savings Account, which probably earns less than 1% per annum. I suggest, you find other tools, which can give better growth, but as accessible and liquid as a Savings Account. You can choose to put it in Time Deposit (most Rural Banks give higher returns than Commercial Banks), Mutual Funds, Treasury Bills, etc.

 

Only after you have achieved in saving your Emergency Fund, then you’ll be ready for the next phase – Investing.

 

If you continue your healthy habit of saving every month, you will continue to accumulate more money even after you have completed saving for your Emergency Fund. Those excess funds can now be channeled to other investment tools that can give you even higher rates of return. As they say, “the higher the risk, the higher the return”. Since these are excess funds, you can be as wild as you can in satisfying your investment appetite, anyways you still have your regular job to pay for your usual expenses, and your emergency fund just I case the worst happens.

 

 

 

 

 

 

SAVE & INVEST

 

Create a separate bank account where you can keep 20% of your monthly take home pay for savings and investment. Come up with a 6-month emergency fund (let’s say 100K), any amount after that should be transferred to another investment vehicle, which can yield higher than bank’s interest rate. Depending on your appetite, you can invest in time deposits, mutual funds, t-bills, treasury bills, or stocks.

 

My simple formula

-          save 6-month emergency fund; any amount in excess..

-          invest in mutual funds

-          invest in stocks

-          invest in employee stock options

since my appetite is still aggressive. With my limited funds, I’d like maximum growth with the least possible time

 

as you grow your investment portfolio, you become more conservative, since you’ll now shift from wealth accumulation to wealth protection. That’s why most people still prefer bonds from banks than gambling in the stock market, especially if you have so much at stake.

 

*Emergency Fund – amount you keep if in case you lose your job… this amount should temporarily provide for your obligations and needs while you’re in the process of looking for another job… there is no standard amount pegged as an emergency fund—it depends on your lifestyle and existing obligations (i.e. car or house amortization).

This will fund your needs should something happen, such as a job loss or illness. This should be at least six months’ worth of your regular expenses. Put this money in an easily accessible account, such as a time deposit or mutual fund or unit investment trust fund. Don’t touch this fund to meet other needs, such as down payment for a car. That should be financed by separate savings.