Beyond Cash Savings: A Family Investment Guide

We aspire to provide well for our family’s needs and wants: our motivation for working hard. We do our best to manage our earnings so we can pay for everyday expenditures and maybe have something to spend for occasional treats.

Having long-term goals such as retirement plans, your kids’ education, buying a house and lot, or pursuing a dream vacation abroad also require wise money decisions. Moreover, emergency situations can happen anytime. When a family member gets sick or loses a job, we cannot be caught empty-handed.

But is it enough to place your hard-earned income in a savings account? Marvin Fausto, senior vice-president for Equitable-PCI Trust Banking, says, “For those who do not have any kind of savings, opening a savings or time deposit account is a good way to start. Once you start saving, that’s the time you start investing.” The downside is, your money can hardly earn from it. If you’re saving up a huge amount, it would be missing on the high potential investment. Take your savings a notch higher and put your money in a wise investment.

Taking The First Step
Fausto says it is best to make a self-assessment before setting your foot down on any investment: What are your financial objectives? How much money are you willing to set aside? How long do you want to keep your money there? How much risk are you willing to take? Your answers to these questions will be your starting point in choosing the kind of investment you would venture in.
Do your homework.

Research what the investment is all about and what possible returns you stand to gain. Ask financial experts and investment agents about the risks involved, and conduct a background check of the bank or institution offering the investment.

What Makes A Good Investment?

Fausto defines a good investment as “safe and high-yielding.” He emphasizes though that the definitions of “safe” and “high-yielding” depend on the investor. Some can afford a lot of risks but still consider it safe, while others deem a 10% return a high enough mark.

Fausto also stresses the principle in investing: “If you want to make your money earn, then you should be ready to take risks. Every investment comes with risks. If you do not want any risk, then you should not invest.”

Rene Cruz, 32, a barangay official who has been married for 10 years now and has one child, confesses he was apprehensive to invest because he was afraid to take risks to begin with. He was eventually encouraged to put his money in an investing firm, only to learn in the end that the investing firm was not legitimate. The risk Cruz took cost him half a million pesos.  

Cruz realized he was bound to lose when he decided to go into something he didn’t fully understand. “But I learned a lot from it. Because of that experience, I worked harder to learn the ropes of trading and investing. It gave me the guts to invest again, too,” Cruz reckons.

To avoid costly mistakes such as Cruz’s, Fausto advises first-time investors to take it one step at a time. Study all the options first before taking the plunge. Bad investments stem from not knowing what you are getting your hard-earned money into.

 

Click here to read more about stocks and bonds.

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Read more about stocks and bonds.

 

When choosing the nature of your investment, you have the following classic options:

STOCKS

Stocks or equity investments refer to the buying of units of ownership in corporations that are legitimately listed in the Philippine Stock Exchange. Thus, when you invest in stocks, you automatically become a part owner of the company. This type of investment is considered high risk as prices of stocks fluctuate as a result of market conditions, current and projected corporate profitability, and other related factors. The law of supply and demand greatly affects stock returns.

One way of earning profit is through dividends declared by companies from time to time. When the company you invested in made significant profits from its sales, they sometimes share this with their stockholders through dividends.  

Getting into the stock market requires careful research and ample knowledge of its ins and outs. Fausto says, “It takes skill, experience, and patience to understand how the stock market works. You will have to meticulously analyze and constantly monitor the prices to gain from it.” Ask questions and research the company. The key is in picking the company with the most potential to gain.

Seek the help of an experienced stockbroker. The stockbroker opens an account and buys shares for you, and assists in dealing with stock exchange. You can start investing in stocks for as low as P10,000. Remember that the value of your investment may go up or down—this is part of the risk. A good stockbroker will help you choose a good and potentially profitable company to invest your money in, or advise you when it’s best to sell your stock for greater profit.  

Cruz, who now invests in stocks, says anyone who decides to go into stocks should be a regular newspaper reader.

Daily broadsheets are the best source of information when it comes to the economic status of the country. Now a learned investor, Cruz has come to learn that when investing in stocks, “Kailangan malakas ang pantunog mo.”  

 

BONDS
Bonds are fixed-income investments, usually documented in a formal certificate of indebtedness issued in writing by government institutions or business corporations in return for loans collected from private investors.

When you invest in bonds, you lend your money to these institutions who, in turn promises to pay you (the investor) a fixed amount of interest after a definite period. Investors can gain around 5% to over 10%
in bonds.

Security is usually pledged against a bond. Bonds without security are regarded as a long-term obligation on the capital of the issuing body. Some bonds may be converted into a stock of the issuing company upon its maturity.

Government securities come in treasury bills or treasury bonds made available through accredited banks from time to time. Treasury bills are generally for short-term investments varying from 90 days to a year, while Treasury bonds are for long-term investment returns. Government bonds are backed by the full faith and credit of the government issuing them, including its taxing power.

Investors should make sure they are not lending their money in companies without an established earnings history or with a questionable credit history.

 

Click here to read more about funds, real estate, jewelry and art pieces.

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Read more about funds, real estate, jewelry and art pieces.

 
FUNDS

If getting directly into equities or bonds seems to be a lot of work for you, you can opt for mutual funds or Unit Investment Trust Fund (UITF). Investors collectively bank their money in money market, bonds, or equities, through a fund manager. These three basic funds, according to Fausto, differ in investment objectives, time horizon, investment outlets, and risk levels.

A Money Market Fund is the simplest and most conservative type of fund. It is a short-term investment that has the lowest risk and the lowest expected returns.

A Bond Fund is invested in fixed-income instruments ideal for medium-term investors.

The Equity fund is the most risky of the 3 funds, but it has the highest return expectation in the long run.    
“You will earn depending on how much the fund earns,” says Fausto. “Mutual Funds and UITF work the same way. Mutual funds are managed by mutual fund companies and governed by the SEC rules while UITF are managed by banks and governed by Central Bank rules.” Investment in mutual fund and UITF are P5,000 and P10,000, respectively.
For first-time investors, Fausto suggests it is most advisable to start with funds as they stand to benefit from the expertise of seasoned fund managers.

REAL ESTATE, JEWELRY, ART PIECES
Another investment option is purchasing real estate, art pieces, or jewelry. Fausto says before deciding to buy, you need to assess if these items’ value will likely appreciate in about five to 10 years or more. The idea is to “buy and sell.” In the Philippines, the value of real estate, art pieces, and jewelry are known to go higher in time.
“The value of these investments is dictated by the law of supply and demand,” explains Fausto. “If the supply is low and the demand is great, the price will go up. Will the demand be higher than the supply later on?”

Licensed Real Estate broker Steve Ong elucidates, “It is good to invest in real estate presently here in the Philippines because we are currently experiencing an upswing in the property sector not felt since the Asian financial crisis of 1997. This means that prices of real properties are likely to appreciate with the current economic indicators (e.g. low interest rates) in place.”

Ong further cites the booming construction activities of several giant projects these past two years, particularly malls and highrise condominiums. “Even the leisure estates are experiencing brisk sales lately,” adds Ong.

Looking at these current property inventories, it can be safely assumed that we now have a “buyer’s market,” says Ong. Balikbayans and overseas workers have been the biggest market so far,  with several marketing teams stationed in key areas abroad targeting the Filipino communities there.

There are still other investment options available in the Philippines. Banks offer investment products, which are combinations of the basics. Others are more sophisticated and will require a huge amount of money and experience to understand. Once you get comfortable with simple investments like funds, you can start exploring other more sophisticated possibilities.

“If you want to make your money earn, then you should be ready to take risks. Every investment comes with risks.” — Marvin Fausto, senior vice-president, Equitable-PCI Trust Banking

SOURCES:
•    Marvin Fausto, senior vice-president, Equitable-PCI Trust Banking
•    Steve Ong, licensed real estate broker

Photography by Jun Pinzon