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  • The Clueless Mom's Guide to Investing Money

    Want to grow your money but don't know where to start? We explain it to you minus the techspeak
    by Tina Santiago-Rodriguez .
  • woman using computer

    Photo from imgkids.com

    So, you’ve been able to save a bit of money and now want to find ways to make it “work for you,” as Robert Kiyosaki says. Thing is, you have no idea where to begin.

    Don’t fret though — we’re here to help you with this easy-to-understand guide to investments. Let’s get started!

    1. Determine your investment goals.  
    Ramon F. Santiago, a Personal Financial Management Strategies Coach affiliated with Global Wealth Builders and the IMG-Wealth Academy, always gives this first bit of advice to people who want to start making financial investments:

    “First and foremost, find out why you are investing, such as: You want to fight inflation, you have personal and family goals (such as your own retirement, your children’s education, owning a home, etc), you want to create additional income, you want to pay off your credit card, or you want to be “liquid,” where one "has sufficient cash on hand to accommodate any and all necessary financial obligations,” according to InvestingAnswers.com.

    2. Find out how much money you’ll need.
    Santiago advises parents and other individuals to quantify how much money they will need for each investment goal. “Be specific with the amount you need,” he adds.

    3. Come up with a time frame for each investment.
    When you’ve identified your investment goals and target amounts, come up with your “investment time frame.” Ask yourself, “When do I need the money for each goal?”

    Santiago shares the guide below to help you:
    Short term investments - You’ll need the money in 1 to 2 years’ time.
    Medium term investments - You’ll need the money in 3 to 8 years’ time.
    Long term investments - You’ll need the money after more than 8 years.  

    4. Determine your “investment vehicles.”
    “Investment vehicles” are financial products that can help your money “grow,” i.e. help you earn more money.

    Tristan Haber, a Certified Associate Financial Planner (AFP), licensed financial advisor with Philam Life, life coach, and a dad of two young kids, gives a detailed explanation of the different investment vehicles or options that are available to Filipinos, specifically those from middle to high income families:

    Investment Option 1: Stocks
    Stocks investments work like this: You can “own” portions of very successful businesses such as SM, Ayala or Jollibee just by buying a share of that specific corporation. When that company's stocks do well, you also do well. The reverse also applies. That is the very simplified version of the stocks. Of course, it is not that simple and easy. To understand it better, you need to study it thoroughly, or get a fund manager to do it for you.

    Investment Options 2 & 3: Mutual Funds and Unit Investment Trust Fund (UITF)
    Haber combines these two options because they are “almost the same.” He explains, “They both have fund managers who can do the hard stuff for you and they put your money in a pooled fund.”

    “Let's face it, most of us are too busy to start learning about stocks, how it works and which ones to invest in,” Haber continues. That’s what fund managers are for.

    “They study the market and pick stocks that are doing well,” Haber says. “They then put your money and other investors' money in a fund according to your taste.”

    When we talk about investments and one’s “taste,” we pertain to one’s risk tolerance, which will be discussed in detail later.

    Below are three managed or pooled funds your fund manager can invest your money in, depending on your risk tolerance:

    i. Bond Fund
    With bond funds, your fund manager will invest your money in fixed income securities. These are basically “low risk investments.”

    “Having the words ‘fixed’ and ‘securities’ in one line should keep you at ease,” Haber says. “However, low risk equals low returns. Do not expect a high return from this fund.”

    ii. Equity Fund
    This type of fund yields higher returns but calls for a greater understanding of what it actually is. Once you’ve gained that, you help minimize your risk.

    “With equity funds, your fund manager will invest your money in the stock market. Reputable fund managers will take care of your money and invest in blue chip companies like SM, Ayala, PLDT and Jollibee,” Haber explains. “The best equity funds usually invest in all of these companies.”

    iii. Balanced Fund
    This is a combination of the bond fund and the equity fund. It is a moderate risk investment, which means it will yield moderate returns.

    “Mutual funds and UITFs are great investment options because they cater to all kinds of investors,” Haber says.


    Investment Option 4: Variable Universal Life or VUL
    VUL is investment and insurance combined together. It protects your income and grows your money at the same time.

    “This is great if you don't mind paying insurance with your investment,” Haber explains. “With VUL, the money you pay for insurance is actually invested in mutual funds.”

    “If at 60 years old you want to retire, you can withdraw the money you need for retirement from your VUL and still get covered by insurance,” he continues, “Because it is insurance, in the event of your untimely death, your family will receive the funds they need to continue living.”

    5. Determine your risk tolerance.
    “All investments come with a risk,” Haber explains. “As a rule of thumb, ‘the higher the risk, the higher the return.’ And, of course ‘the lower the risk, the lower the return.’”

    If you’re into numbers, Santiago briefly describes the diverse investment options below, based on one’s risk tolerance:

    If you're looking for a no-risk investment...
    Put your money into a savings account or a fixed deposit account in exchange for very low returns — usually less than 1%, due to inflation

    If you're looking for a low-risk investment...
    Invest in a bond fund for low returns, i.e. an average of 6-7% interest per year.

    If you're looking for a moderate-risk investment...
    Go for a balance fund with moderate returns of 12% per year on average.

    If you are willing to put your money on a high-risk investment...
    Equity funds give you high returns of an average of 18% per year. You may also consider direct stock investing, with returns of an average of 15% per year.

    If you’re not sure what your risk tolerance is, Haber and Santiago both advise that you consult a financial planner or coach to help you out.

    6. Invest in your financial knowledge.
    Haber emphasizes that there is one investment that will truly help you with the others he has previously mentioned — “Invest in yourself. Study, learn and grow.”

    “You can increase your income by increasing your awareness, knowledge and your skills,” Haber continues. “By doing this, other opportunities may come along and you will be properly equipped to respond.”

    In addition, he says, "attend trainings and seminars. Learn more about these investment options. Seek the advice of financial planners and coaches.” Santiago seconds the motion: “Become your own financial expert.”

    7. Diversify.
    Haber advises parents like him who belong to the middle- to upper-income class to choose more than one investment option.

    “I invest in all four of the options I mentioned, and especially invest in my financial knowledge. That is called diversification. Risk is minimized by good diversification,” he shares. “If you fall in this income bracket I recommend you do the same.”

    Having said that, though, Haber reiterates the importance of learning about the different options available. “Do not invest in something you do not understand,” he says.

    8. Monitor your investments
    “Once you’ve made your investments, it is important to monitor them,” Santiago says. Make sure that you have a record of each investment you make, and its gains (or losses) as you go along.

    This way, you’ll know which investments you may have to rethink, or continue adding to.

    Ultimately, investing — like parenting — is something that is worth learning about. You may not realize it in the beginning, but the time and effort that you’ll take in discovering more about it will definitely pay off in the end.

    “If you do not make the time to learn to be a better investor now, you will be saying the same things tomorrow as you are today. You’ll still be saying ‘I didn’t have time to learn more and do more research.’ Because of your impatience, your laziness, and your lame excuses about not having enough time, you will do the same thing you just did, which is to hand your money over to total strangers and have no ideas what they are doing with your money.” — Robert Kiyosaki

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