May 2007 Archives

Wires are hot with news of the economy’s stunning performance in the first quarter. It’s like Arroyo got her Christmas gift early. At 6.9 percent, this is the country’s biggest year-on-year quarterly growth in the last 17 years. Only Vietnam with 7.7 percent and China with its 11.1 percent GDP had higher growth than the Philippines for the period. Here’s the technical definition of GDP from Investopedia.com: The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. For those who don’t care about the technical definition, just put a peso sign on every finished product and every service sold within the country for a certain period. Growth from quarter to quarter, year to year is the GDP growth rate. That’s about as simple as I can get. Economists use the GDP figure to measure economic growth. GNP, or gross national product, is GDP plus net factor income from abroad, or the money earned by Filipinos’ investments overseas. To be fair of course, government number crunchers have to deduct from this amount the income earned here by foreigners. Look at how the country grew this much -- consumption and expansion in back-office services. Much of this growth was reached thanks to you -- Filipinos working abroad at such a high cost to you and your family. Your money made a truckload of multiplier effects. Consumption accounted for 70 percent of GDP. The gross national accounts capture benefits from remittance money as they are transferred here, as they are placed in savings and investment instruments, as they are used by your family to buy things they need to live, as they are used by your beneficiaries here to set up businesses. Your efforts not only bring in the cash, but also keep a lot of local companies afloat. You might be curious what your money bought. Based on figures from the National Statistical Coordination Board (NSCB), your money was spent on: food, clothing and footwear, tobacco, fuel, light, and water. These are the items that showed fast increase in growth. Hmm…I wonder what ‘tobacco’ is doing in that list. The items transportation and communication, household operations, and beverage all exhibited lower growth, so money was still being spent on these items, just not as much as before. Household furnishings however, suffered cutbacks. Having said that, its also not accurate to say that the rest of the economy contributed nothing to growth. Moderate recovery in farming output and sustained export growth gave the economy a pick-me-upper. Government’s spending grew 13.3 percent. One thing about GDP: what about the underground economy? There are a lot of economic activities that do not get formally reported and recognized in the maze of government statistics. So when the NSCB says the economy grew by 6.9 percent, just imagine what the actual growth really is. Other news items of interest to personal finance enthusiasts: ING and PNB have reached an agreement to create a mutual fund for OFWs. Aboitiz Power, which recently gained approval to do an IPO at P6 per share from July 4 to 10, said it was talking with two banks to finance two new hydropower plant projects in Davao. Central bank just this afternoon decided to keep rates steady. No surprise there. That means more money will stay in the system for new businesses and stock market investments. Shares closed sharply higher today due to the high GDP growth rate. Bad news for those who are trying to dodge the taxman. The Finance department is limiting the coverage of the Tax Amnesty Law coverage to those who have not yet been charged by the Bureau of Internal Revenue. Good news for the rest of us who should be benefiting from taxes. Interesting times, eh? Interesting times make a lot of interesting people rake in a lot of money.

Here’s a public MoneySmarts confession. I have a fully paid educational plan with College Assurance Plans, and it’s the open-ended type. Yeah, silly me. Even before CAP officially admitted to its problems, I had heard of the dangers. Some reporter friends who were covering Congress at that time had obtained documents that already indicated that the country’s largest pre-need company was in trouble. And yet I still paid every centavo under the plan. I still remember the day I went to CAP’s Makati office to get the certificate that I thought would get my child into the best schools in the country. As I was waiting for my number to be called, I sat next to a family that opted to get their benefits way ahead of schedule. The father, obviously an overseas Filipino worker, said he knew he would get only around 60 percent or thereabouts of the maturity amount. He didn’t exactly say it, but I think he also heard the rumors. I guess he got a better deal. CAP and other pre-need firms that went bankrupt burned a lot of Filipinos and damaged the reputation of the industry tremendously. Does this mean all pre-need products are worthless? Personally, I worry about writing off something based on fear, just as I worry about getting into an investment based on greed. As one of those who got burned, my first instinct is to lump all pre-need companies in a miserable little ball and consider them unfit for Filipino consumers. But to be fair, Filipino savers need to take a closer look at the industry to make a better judgment on whether all pre-need products are indeed worthless. Philamlife Pres. Jesus G. Hofilena, in a presentation made for the Asian Institute of Management’s JBF Center for Banking and Finance, said only a fifth out of over five million plan holders are in trouble. (Excuse me while I nurse my broken pride, being one of those victims :p) We are in trouble because we opted for traditional education plans that promised to pay the tuition fee whatever level it would be at the time of maturity. (Wouldn’t you think this was a very good deal?) At the same time, poor management actions of these companies weakened their financial position like investing too much in real estate. The government deregulated tuition fees causing school expenses to skyrocket, adding more kindling to the fire. Investment yields were going down and cracks in the regulatory framework started to show. However, Hofilena believes that the industry is confronting serious issues facing it, like solving trust fund deficiencies and educating and professionalizing their sales force among others. He believes the tougher regulatory rules will force the industry to consolidate. You know, survival of the fittest blah blah blah. Speaking now in hindsight, I realize that because of my investor profile, I should never again buy an educational or pension plan because returns are too low for me. But such products also have a place in the life of many Filipinos, who need to be forced to save for such a big expense as education for their children. Don’t be fooled into thinking you are “investing in your future” with pre-need products. You are in effect paying these companies to collect your money from you, so that you can get the same amount by the time you need the money, plus a little bit more earned in interest. But hey, if that's how it works best for some people...better low returns than no savings at all, eh? In its article today, Citibank answered a reader’s question on preparing for the high cost of children’s education. When considering educational plans, make sure you:

Check the stability of the company. Also, compare the plan with other plans offered by other pre-need companies. See if the monthly premiums are reasonable. Generally, the more time you have until your children go to college, the cheaper the premiums will be. If you have lesser time until your children go to college, such as when they are already in middle school or high school, consider shoring up money for your own fund and doing your own investing.”

The best tip from the article is to set up a separate account for education expenses and to add to it monthly with total commitment. Never dip into this sinking fund; consider it sacred. Just the action of setting up a separate account does wonders for discipline and commitment.

Filipinos love houses. It’s no secret that the ubiquitous Filipino seaman pays for a window this month, a wall next month, the backyard the following month…all in the name of a happy house for his family. Today’s Money Myth Buster is really easy. The tip is: Buy your second house first. The common tendency is to buy the dream house on the first try. That means buying the one that has the ideal living room, the kitchen that opens up to the east, the house with a bath for every bedroom and two or more guestrooms. Budgets are stretched to the limits. A few months later, amortizations and other hidden costs and series of unexpected expenses become totally agonizing. This tip says this is not a smart way to buy a house. Go for your second house first. Buy a simpler, more affordable one that will fit your cash flow and shelter your family without putting your savings and retirement planning in the backburner. When the cash flow gets better, then upgrade to a better house and lease or sell the first one. Makes very good sense to me. Also, be very careful in analyzing projected amortization costs, especially when you are considering in-house financing. These days, developers use balloon payment methods that make monthly amortizations appear very affordable. They will show a computation sheet that will put monthly payments at below P25,000 for example, and then require you to pay P150,000 on the 20th month. That’s dangerous because majority of Filipinos don’t have the discipline to program their spending. In general, bank financing is cheaper than developers’ in-house financing. I heard that Megaworld’s financing deal with Security Bank is the most attractive deal in town. I haven’t seen the figures yet, but because the statement came from a competitor, I would say it’s worth taking a second look. :) Don’t forget to budget for one-time expenses and hidden costs like transaction fees or broker fees, new appliances and furniture which you will surely buy for your swankier home, installation costs of these appliances, real estate tax, the cost of moving to your new home, among other things. These are smaller expenses, but taken together can set you back at least P50,000. Remember the seaman? Contrast Filipinos with the traditional Chinese businessman, who puts off buying a ritzy house for his family. He will rent a P20,000 apartment, use the first floor as a warehouse or automotive supply store or whatever, then use the second floor as his family’s living area. His revenues from the store more than pays for the P20,000 rent and he doesn’t have maintenance and real estate tax payments to worry about. I know not all of us will follow the footsteps of the Chinese businessman. There is nothing wrong with wanting to get a good home for your family. But go into the deal with wide eyes, well prepared for the expense. You may think it is an investment, but it really will be first and foremost, a sinking black hole of expenses if you are not careful.

Weekly “So What, Chocnut” entries didn’t work. First, those news articles are already history by the time Friday rolls along and second, it’s hard to consolidate one week of business stories you shouldn’t miss in one post. So starting today, “So What, Chocnut” will be posted daily, in small snippets that busy MoneySmarts readers can easily digest. (I’ll try, I really will.) Here are the business headlines relevant to Personal Finance watchers: In the Philippine Daily Inquirer today, Socioeconomic Planning Secretary Romulo Neri said the peso is now “uncomfortably strong” and urged the government to support the export sector. Did I miss something? Neri is urging the government? But he IS the government. He is the planning chief, for goodness’ sake! I have covered quite a few planning chiefs in my time. Neri is the only one with a multiple personality. Some things in this country are really strange, even for me. A few notes on reading business stories on the peso. The words “strong” peso, “appreciation” of the peso all mean one dollar can be exchanged for lesser pesos. “Weaker” and “depreciation” is the opposite and this is what dollar earners (like exporters, OFWs) out there want to happen. As we speak, Filipinos across the world are starting to have dialogues with their employers on their compensation packages. Some companies may adjust, some will not. The weakness of the dollar is a global phenomenon. It’s a zero-sum game. There will be losers in this trend, and there will be winners. I sure hope no one will call on the Bangko Sentral ng Pilipinas to intervene in the market to stop the peso from appreciating further. Puhleese! That is so 1996. The story “15 insurance firms up for suspension” made my eyes pop out. Scary for personal finance watchers, who know very well that it is imperative for insurance companies to stay strong and healthy, because expensive policies can turn into useless slips of paper by the time benefits are claimed. The list of insurance companies that may lose their licenses due to inability to reach the capitalization requirements of the Insurance Commission includes Generali Pilipinas Assurance, a life insurance company, and 14 nonlife insurance firms namely Asia United Insurance Inc., Covenant Assurance Co. Inc., Easterns Assurance & Surety Corp., Finman General Assurance Corp., First Integrated Bonding & Insurance Insurance Co. Inc., Generali Pilipinas Insurance Co. Inc., Investors Assurance Corp., Manila Insurance Co. Inc., Meridian Assurance Corp., Monarch Insurance Co. Inc., Oriental Assurance Corp., Solid Guaranty Inc., Summit Guaranty & Insurance Co. Inc. and Travellers Insurance & Surety Corp. IC chief Evangeline Escobillo is out of the country, but Generali Pilipinas Assurance emailed an official statement that says the required capital infusion is already in an escrow account in Banco De Oro. Figures from that statement said it is actually over-capitalized at P1.9 billion, including the account in escrow. However, Bangko Sentral requires Banco de Oro, one of the majority stakeholders of Generali, to be given additional preferred shares in the company in exchange for the capital infusion. Generali will have to change its charter to do that, something that will likely take the SEC one year to approve. (If you want to read the full statement, click Generali Official Statement.) By the way, Generali Assurance Pilipinas, as well as non-life arm Generali Pilipinas Insurance Co. Inc., is 40-percent owned by Henry Sy’s BDO. Its foreign partner is Generali Asia, a joint venture between the Kuok Group and Generali Italy. For interest rate watchers, you need to read “BSP rules out monetary tightening anytime soon”. For stock market punters, I mean investors, news that combined profit of listed firms in 2006 went up 27.5% to P261B should be another reason to rejoice, although things might not be too hot in the next couple of days because the market seen to take a break. That’s all for now, folks.

A grocery receipt is a thing of beauty. It shows all our angst and anguish, our hidden aspirations and frustrations :-). I certainly felt that way as I was thumbing through my two-feet-long grocery receipt and decided, then and there, to cross out items that I could live without. A month later, sandwiched between tall shelves of SM Hypermarket, I was smiling smugly, feeling like a new person. Ha! I shaved off around P3,000 from my monthly food and toiletries budget. (Bow with a flourish). If you or somebody you know is really hurting for cash NOW, why not consider trimming the fat off your budget. This is certainly not limited to grocery isles and will go a long way towards curbing that spending habit. Here’s my list. Add some more!

1. Baby furniture and baby gear. Parents are predictably in love with ‘Toys R Us.’ When we see our boy thumping plastic tumblers with a short stick, we want to go to the store and buy him a complete toy drum set. We watch our little girl draw her own paper dolls, and visions of Barbie immediately dance through our heads. Filipino parents can easily sink thousands of money into baby furniture and baby gear if given free rein. Spending P15,000 on a stroller is a slippery slope to P5,000 per Avent starter bottle set, to P6,000 for a “My First Wheels” motorbike that looks good enough to use on a real road. He doesn’t turn five and yet has P50,000 worth of spending in his name. That amount can be worth half a million by the time he enters college, if placed in an investment instrument that will yield at least six percent at current inflation rates.
2. Second car. Like buying a home, buying a car is mostly an emotional exercise. I get it, I really do. The city is too crowded, time is too precious, and the children need protection from the smog. If the down payment is affordable, and monthly amortization is not that high, why not? What about maintenance costs that can run up to P75,000 per year for two family cars? That cost includes regular tune-ups, wheel replacements, registration costs, and all the other maintenance costs that few people actually anticipate in their spending plans. Think about that before you get behind those second set of wheels, baby.
3. Home makeover. Whatever happened to do-it-yourself bead curtains, or family artwork for living room walls? America is in love with home makeovers and Filipinos, as usual, are following suit. Just doing one room can set you back at least P30,000 up to sky’s the limit. We all want to think of ourselves as people “with taste for the good life”, but acquiring the trappings of luxury and wealth do not really make us wealthy. In fact, this “taste for luxury” can actually keep us from enjoying real wealth in the future.
4. Eating out regularly. In the Makati financial district, eating out for lunch can easily cost P250 per meal. That means P1,250 on a five-day work-week, P5,000 per month and P60,000 per annum. Invested every year for 30 years at a conservative six percent return, that’s a cool P5.3 million by retirement time. You can save that much just by taking lunch to work!
5. Alcohol, gourmet coffee, cigarettes. Same argument. Annualize the cost of each drink, each pack of cigarettes and it can pay for a huge chunk of your child’s college education given around 10 years for compounding magic to work. Plus, this could save you from the huge cost of getting sick.

The trick is to take a good look at your life, a second look if need be, and identify the luxuries you can live without. Sure, this may feel like it can cramp your style, so balance enjoyment and frugality well. But whatever you do, never fail to squeeze as much out of every peso because you just didn’t know any better. If you must spend, spend because you deserve it and you have budgeted for it. Too many of us complain and worry about our financial position in life – and then turn around to buy a chocolate bar almost without thinking.

Ahh… Divisoria. Where brave men dare not tread. But get a couple of mommies together, throw in some single ladies looking for a good bargain, and you are good to go. A lot of people think going to flea markets saves quite a bundle of money. In December 2006, when the economy was scraping the bottom, Agence France-Presse reported that Filipinos flocked to places like Divisoria, Baclaran, Quiapo and other bargain shopping areas instead of glitzy shopping malls. For many, it was the worst Christmas in years. And these are not just the masa you are talking about. There are a lot of Divisoria divas in the rich mommy club. Take Melanie Marquez-Lawyer and Tessa Prieto-Valdes, for example. I make it a point to go to Divisoria at least once a year. Believe it or not, to me it’s more of a therapy, hehe. But to get the most benefit from flea markets, you need a strategy. You need a plan. Saving buckets of cash will not happen just because you find yourself sweaty on Ilaya street. In fact, if you are not careful, you’ll end up losing a lot of money! First, compute the value of time and gas you spend going to these flea markets. It will take you at least three to four hours to navigate through the streets. What is the cost of three hours to many of us? That doesn’t count gas. Second, five mommies I interviewed said they ended up buying bargain items they did not need. One said up to 50% of the things she bought were not immediate needs – they were just good bargains she couldn’t pass up. Until now, bolts of good quality cloth bought at 70% discount are still taking up space in her closet. Bargain or no bargain, they are unnecessary expenses if they are of no use. This doesn’t mean nobody can make or save money going to flea markets. Just be aware of the pitfalls. At the least bring a list of things to buy – and stick to it! There was a time I balked at making a shopping list. It sounded too OC for me. Many overspending months after, I decided that taking the time to write a shopping list is worth the effort. (Email me at lightdream@gmail.com if you want to submit your own tip.)

My blog post last April on the janitor who made P7,000 a month in the early 90s and was able to save P24,000 a year struck a raw nerve with MoneySmarts readers. Many decided they needed to pick themselves up and do more of that thing we call frugality so they can save more. Others sent a flurry of comments agreeing to the principle. Some were piqued, believing it was some spin a rich person let loose on blogosphere. I enjoyed the discussion on that entry. This story from the Agence France-Presse I read today made me think about that post. Read it and tell me what you think about the Bondi caveman:

Australia's 'Bondi caveman' to keep his millionaire view

SYDNEY -- A homeless hermit who enjoys a million-dollar view from his camp perched on the cliffs overlooking Sydney's Bondi Beach was granted a reprieve Tuesday when the local council dropped plans to evict him. Jhiymy Mhiyles, dubbed the "Bondi caveman" by local media, has been living on the cliffs near Australia's most famous strip of sand for seven years, feeding seagulls, reciting poetry but mostly keeping himself to himself. However, Waverley Council began eviction proceedings earlier this year after complaints from residents in the exclusive suburb, where houses can sell for more than 10 million US dollars. The move sparked a campaign to let Mhiyles stay in his oceanfront hideaway, including an online petition that attracted hundreds of signatures. The council said Tuesday that it had decided Mhiyles could stay, provided he abide by a set of "house rules" including no open fires, keeping his area tidy and managing waste in a hygienic manner. "Waverley Council has decided not to evict Jhiymy Mhiyles at this stage from the cliffs at Marks Park, Bondi," the council said in a statement. The online petition was full of messages of support for Mhiyles, who calls himself Jimmy "two hats". "Good on you Jimmy, too many bloody rules and rule makers," wrote a petitioner called Brendan Brady, while another named Scott said "I have to support you, mystical caveman! You're living my dream-life in my dream-house."

I was going to write about tip number three for curbing spending habits and decided to write this first. I'm in musing mode :-). In our race for a bigger retirement kitty, swanky home, cool cars, a designer living room, I wonder if we are, as a people, confusing money with wealth? Unconsciously believing that money by itself is god? How many of us feel we are a “better” person if we are wearing designer clothes, smell of a P40,000 per 20ml bottle perfume, sleep between sheets with a 1,000 thread count? Ok, the examples may be too much. What about eating in a fine dining restaurant from time to time, monsieur? The gini coefficient in the Philippines indicates that wealth distribution in this country tilts income horrifyingly in favor of a very select few. We have an almost non-existent middle class and most (well, according to government number-crunchers) are “poor” or living below poverty levels. Pardon me for being eternally optimistic but when -- not if -- when the big mass of Filipino humanity we now call the poor start moving on to a better life, tasting the trappings of success and feeling that sweet exhilaration of finally having money to spend on frivolous stuff, what happens next? I hope when that happens, they have someone beside them to bring them back to sanity to tell them: you are not what you wear, you are not what you drive. These are things to enjoy, sure, but these are not who you are. Thoughts?

When our emotions run wild during shopping, our wallets take the hit. I have heard people I interview say time and time again that the most foolish purchases they made were done at the spur of the moment. Most, if not all of them, turned out to be very emotional decisions. While I was attending a time-share or vacation-share marketing presentation for the first time, my jaw dropped when everyone stopped what they were saying to clap furiously at some couple’s decision to “invest” in the product. At that time, it was very disconcerting and irritating to me, as I was furiously trying to figure out what the product was all about and what it would cost. Turned out it was a common strategy to heighten emotions and pressure others to do the same thing. Here’s number two tip on curbing your spending habit:

When buying an expensive item, NEVER buy on your first visit. Give yourself a time-out, say one or two days. Think about it first, read product reviews, look at other merchant’s prices. Not even if the sales clerk says with much concern, “The promo ends today, sir.”

But you’ll say you could have saved a huge amount of money if you get the promo. (And why does the promo always has to end on the day you’re buying the item!) Here’s my answer to that. If you really need the item, yeah you could save say 10%-15%, which is the normal promo discount in Manila stores. But if you don't need the item and it will turn out to be an emotional purchase, you can save the whole chunk of moolah and came away without scarring your savings plan. Think about that. Personally, I put the barrier at P5,000, that’s how stingy I have become since I started writing MoneySmarts. :) For every visit to the mall, you will stay for at least three hours and that’s not by accident. Malls and shops are designed to keep you browsing and jumping from one shop to the next before you lose interest. They bombard you with exciting “experiences” and pleasing displays. If you are shopping with a child, you are especially vulnerable. Marketing guys believe that you actually buy something on your third hour. If you don’t want to be the next victim, give yourself a time-out before you buy that big-ticket item.

Accidents happen without warning. They may cripple physically, emotionally and financially. The best protection against them is defensive driving, but there’s one very big factor even the most conscientious driver cannot control -- drivers of other cars on the road. Most of us don’t think we will ever be in an accident; others are paranoid about them the way I am. We all know Philippine roads and drivers are notorious across the globe. My husband drives me around town but because of our decision not to buy another car to minimize maintenance expenses, there may be a need for me to give up my pampered status :-p and become the family driver in the coming months. Now, he’s the one worried about road accidents. Fresh statistics from the National Statistical Coordination Board (NSCB), shows that last year there were an average of 41 road accidents per day, second highest in the last five years. Main causes of accidents were drivers’ errors (27.8%), mechanical defects (15.7%), and over-speeding (13%). How serious were these accidents? There were 674 fatalities, 3,767 injuries and 10,623 reported cases of damage to properties, the agency said. Are you well protected against road accidents? More importantly, have you checked whether your insurance is legitimate? Probably one of the biggest scams in the country is the number of companies reselling third-party liability (TPL) insurance. These guys are everywhere, flagging down every car that goes through registration procedures at Land Transportation Offices. They prey on those that are in a hurry (mostly everyone!). Unfortunately, that convenience can cost a lot at the most inopportune time. Most victims find out they have been scammed only when they file a claim.

America is spending its way to disaster. You can see the signs everywhere: Americans burning a hole in their pockets through their credit cards, big houses, big cars, small savings. I can’t help asking whether Filipinos, always enamored with what Uncle Sam is doing, are going in the same direction. In Metro Manila, at least, I would say this is true. As one of MoneySmarts’ readers commented (I think it was tee), we are in a wanna, wanna, wanna mode. Let’s break the mold by curbing our spending habits. This week, MoneySmarts is all about tips on how to do this in our Money Myth Buster feature. Tip number one: Learn how to multiply by 12. What’s the monthly payment on the new X-trail? Or the plasma tv? The monthly payment on a G3 phone is only so-and-so… That’s not so bad… Thinking of spending in terms of monthly payments is a sure way of falling right into the marketing trap. Some marketing guys are so smooth, they even divide the cost into days (It will only cost you P150 per day! Surely that’s not expensive?). Bust out of that mentality by learning how to multiply by 12 – all the time. That simply means to annualize the cost of an item. And then ask yourself what that kind of money will mean to you. I tried this tip with a couple I met over the weekend at a friend’s son’s pre-birthday swimming party. With three children in school, they are starting to worry about tuition fees. “It’s an annual headache,” they told me. The main breadwinner, the husband, has a stable income and commissions on top of that, sometimes amounting to P50,000 in one check. But they had credit card debts and they are always worried about money, they say. The couple said their main problem was they love to dine out as a family. New Italian restaurant across the street has to be tried. Little burger joint should be tested. They spend more or less P2,000 per payday minimum. They didn’t say how much was the biggest bill they every paid on food. I looked at them in admiration. Both husband and wife are loving parents. They are totally family-oriented. They are good people who are trying to do their best but are floundering. Two grand every two weeks didn’t seem like much in the face of a P50,000 single check for commissions. I let them do the math. P2,000 per payday meant P4,000 per month meant P48,000 per year. Their eyes grow large. “That can be a huge chunk of their tuition fee!” wife says. Marketing staff pepper malls these days selling all sorts of imaginable stuff on installment – from Black and Decker power tools to Magic Sing Karaoke to condominium units. They make it look affordable by using the monthly payment trick. Flip the technique back at them by always multiplying by 12. Fair-goers check out Samsung's 102 inch plasma TV. Photo: AFP

This post kicks off a MoneySmarts series on mutual funds. As I promised in a previous post, I will help investors pound on the doors of mutual fund companies and get answers on issues we all need to understand to make informed decisions about our investments. So I interviewed PhilEquity Management Inc. president Edmundo Marco P. Bunyi. I asked some of you to be a part of the interview by soliciting your questions. Take a look at how the interview went, and, as usual, you are welcome to share your views and comments. Bunyi: I read your blog and the comments about PhilEquity and I am pleased that more people are interested in investing and investing wisely. Let me just share with you candidly what PhilEquity is all about. The story of PhilEquity is all about its fund manager, Wilson Sy. You know Wilson Sy – he was former chairman of the Philippine Stock Exchange, a totally low-profile guy, a very good listener, and exceptionally talented. Are you familiar with the mosaic theory? He has a way of putting things together -- information that are public, non-public and non-material -- in a way that can make money in the market. He was a phenomenal market player and soon colleagues, friends and associates asked him to invest for them too. Eventually, he decided to set up a fund and personally managed it – that was in 1994. That was how PhilEquity began. Wilson is a great trader but not an organization person. (MoneySmarts’ sources confirmed this.) Michael Jordan knew how to shoot the ball but to ask him to handle organizational matters will take time away from what he does best. So for the last years, PhilEquity had no sales force, no marketing people – it only grew via word of mouth. Wilson did it for the joy of trading, with three or four people under him. Sometime last year, some of his close associates prodded him to do sales. The investment market was growing. I joined PhilEquity officially in December last year to set up an organization that will handle the business side of PhilEquity without diminishing the trading prowess of Wilson Sy. The plans are to start doing sales and marketing. We are going to provide better services, train more staff to handle walk-in clients, set up a mini call center to talk to customers and investors. We will improve our website. When I saw it, I was ashamed to own it! We know that our market is Internet savvy so we will use the Internet not just as a channel but also a medium for information that will fortify and cement our relationship with our clients. We are like a 13-year-old start-up. All the changes we are planning will happen. The impact will most likely be felt late this year or next year. With our past performance being what it is, I can say that it will only get better. We want our investors to go through a comprehensive risk profiling. We uphold the standards set by the AIMR. We want our investors to fully consider their investment constraints, return objectives, investment horizon, appetite for risk, and liquidity. We want them to be clear about other considerations like are they okay with investing in tobacco companies? But to go through this they either have to get professional investment advisor or get this kind of service from a private banker. We cannot do that for our clients one on one or else we will have to charge more. Studies show that over the long run, wealth is created due to asset allocation more than anything else. This means how you divide the investment pie will determine your success. We also know that returns are correlated with the risks that you take. Once you have decided how to allocate your assets, you will then decide whether to invest on your own or get a professional manager to do it for you. Here is where PhilEquity can help. There are two kinds of risk: idiosyncratic and systemic risk. When you watch out for systemic risk, you consider inflation, deficit, GNP, and all that – things that affect the entire market. Idiosyncratic or non-systemic risk has to do with your exposure to particular companies. As a fund manager, we help you with the non-systemic risks that you face. The skill of a fund manager is to generate alpha. There is a formula that says r=α+ß+χ, where χ is the return of the stock, ß is the correlation of the stock with the market and α is the excess return. Alpha is that little extra that is determined by how you time the market, how you allocate your assets over several industries, what stocks you choose. Wilson Sy is very good about generating that alpha. MoneySmarts: If you want to make sure that your investors get into this knowing all the risks he is taking, then why does your prospectus reveal very little information about your fund? Bunyi: We are in the process of improving our prospectus. We have performed well over an extended period of time. Our success is driven by our methods so it’s all there – it’s just a matter of enunciating it. We will include a proper description of the risks we take in managing the fund. (Editor’s note: The prospectus in PhilEquity’s website is not a complete version). I was able to compute in December that the volatility of our fund is in fact lower than that of the Philippine stock exchange index. We will make that information available very soon in our website. Another good measurement of risk is sharpe ratio, and we might include that as well. MoneySmarts: Perhaps you might want to include that as the criteria of the awards in ICAP next year? Bunyi: Yes, we can suggest that to the board of ICAP. It will be a good idea to measure performance through both returns and volatility. And the figures show that PhilEquity beat the market on both counts. MoneySmarts: What is the size of PhilEquity now? Bunyi: We have around P3 billion assets under management right now. MoneySmarts: And what investment strategy does Mr. Wilson Sy use? Is he using a top-down approach or is he value-oriented, for example? Bunyi: Let us not be deceived by that “top-down, bottoms-up approach”. What does that really mean? Top down means you look at how the economy is doing, then from there choose the industries that are doing well, and then the companies that you think will make money in that kind of economy. A bottoms-up approach means you look for specific companies that offer you a fair value. You look at their net asset value, maybe use a discounted cash flow method. If you read macro, does that mean you ignore valuations in the market that are compellingly cheap? If you look at particular companies, does that mean you disregard how the economy is doing? Definitely, both these investment strategies are present in our decision making, they are inputs to Wilson Sy and parts of the mosaic that he studies. MoneySmarts: Does he make all the decisions by himself? Bunyi: He is aided by two researchers, but yes, he is the portfolio manager for our equity fund. He also looks at the technicals as well as the fundamentals. He looks at companies that are undervalued, he looks at the sentiment of the market. He times the market well. He has access to information about flows, supplies and demands for particular securities. MoneySmarts: There is no investment committee that serves as an oversight? Bunyi: That is the direction that we are going. We are going to make the process more formal, document the process more diligently, put in place risk management controls. We are not allowed to invest more than 10 percent of our portfolio in a particular stock, and that’s a built-in risk management tool. There are more sophisticated ways, but the overall sense is that we don’t want risk that will affect our entire portfolio. MoneySmarts: Will this include formal guidelines on when to invest in a certain company and when to exit a certain position? Bunyi: Yes, that will be part of that. There are two levels to that and it should include a management action trigger where you have to explain why you hold on to a certain position. MoneySmarts: How will this benefit the company in terms of sustainability? I mean, it will be hard to clone Wilson Sy. Bunyi: Wilson is still young at 54. He has many trading years to go. But we will have a transition to a more formal process. Wilson will still be in the investment committee and he will have several fund managers under him. He will be there for a long period of time. MoneySmarts: So why should I invest in PhilEquity? Sell to me. Bunyi: Two things: performance and better risk management. I told you that I have seen the standard deviation computation for our equity fund. We were less volatile than the market and provided more returns. It’s not an empty boast. You are in the market to make money. We can make you happy because we have the track record of great performance and lower volatility than the overall market. We generate the alpha for you and outperform the market. MoneySmarts: How concentrated is your portfolio? How many positions are there in all? Bunyi: We have around 60 stocks in our portfolio as of May 8. Our top positions are: PLDT (9.4 percent), BPI (7.8 percent), Ayala Land (7.1 percent), Ayala Corp., (5.3 percent), Megaworld (4.6 percent), Meralco B (4.4 percent), SM (3.8 percent), Metrobank (3.2 percent), SMPH (3.1 percent) and Globe (2.8 percent). MoneySmarts: The Philippine stock market is very small compared with other markets. I suspect most of the other funds have the same top picks. Is this true for your fund? Then how do you provide more value? Bunyi: Yes, you are right. We also follow industry limits and liquidity requirements. Then we have the risk controls we talked about and the investment strategies we mentioned. Aside from that, we have confidence in Wilson Sy’s stock picking abilities. He is not a rookie; he doesn’t panic when there is volatility in the market. To me the greatest traders are those that have lost money in the past and have lived to tell the tale, who have experience in managing a fund during a bear market and has seen the best and worst of it. MoneySmarts: What is the total cost to the investor? Why do you charge both front-end and back-end fees. Isn’t this a case of double dipping? Bunyi:We charge a 3.5 percent sales load (this is the part that goes to the agent as commission) depending on the amount of the investment. We charge a 1.5 percent management fee and an exit fee of 2.0 percent if the investment is withdrawn in less than one year, 1.5 percent if withdrawn in less than two years but more than one year, and one percent if withdrawn in less than one two years. (Sorry for the error. If the investment is kept within the fund for more than two years, there is no exit fee. Doubled checked this with their prospectus to be sure.) As long as we disclose our fees, I don’t think there should be any problem. The operative word here should be transparency. Nobody is forcing you to invest if you think the fees are steep. MoneySmarts: Other funds charge a performance fee. Do you have that too? Bunyi:No, we don’t but I think that would be nice incentive to fund managers to do well. MoneySmarts: But isn’t it true that an investor chooses you because you have promised to outperform the market? Why should he pay a fee for something that you have promised to deliver from the very beginning? Bunyi:Let’s put it this way. If I was your employer, I wouldn’t mind paying you a fat bonus if you beat the high-water mark. This is exactly the same thing. What is important is that the fee has to be transparent. MoneySmarts: What is the principal driver of PhilEquity’s decade-long performance? It seems like you were insulated from what has happened in the global equity markets for the last 10 years. The returns look too good to be true. We were affected by the ups and downs in the global equities markets. There were two or three years of negative returns. (Please see historical returns). **Bunyi joined PEMI in October 2006. Prior to PEMI, he was senior vice-president and corporate treasurer of International Exchange Bank, chairman of iCurrencies, Inc., and head of FCDU and FX Distribution in United Coconut Planters Bank. The bank credited him for the profitable operations of iBank’s treasury department. Bunyi will be in charge of Philequity’s Money Market Fund and Dollar Income Fund due to his expertise in fixed income trading. Concurrently, Ed has been appointed as President and COO of listed firm iVantage Corporation, an affiliate of Philequity Management, Inc. PhilEquity Fact Box

Life is good for thirty-something couple Diego and Bianca: she just passed the bar, he has promising business plans, they both have stable jobs, good health, and a few modest properties in their names. They are what you call “upwardly mobile young professionals.” The couple, who have one child and are planning to have another soon, didn’t really feel like they were on shaky ground financially. Diego, 35, a graphic designer and professor in one of the top universities in the country, is nurturing a small business that has allowed him to earn an additional P15,000 a month. Bianca, 33, is expecting a raise in her income after she is promoted on passing the bar. Together, they made P78,000 gross in March. Diego and Bianca lived in the US for four years to be closer to Bianca’s family who has migrated for good. When they came home in 2004, they had P1 million in savings, which they used to buy their own home with the help of another P1.4 million they received from their parents. They also bought two cars and now send their daughter to a school very near their home. But Bianca had a nagging feeling that there were hidden dangers they needed to know about. When she read that MoneySmarts was looking for volunteers for a Money Makeover, she jumped at the chance and the couple met financial planners Efren Ll. Cruz, Augustus J.V. Ferreria and Marvin Fausto. Their first Money Makeover session brought the couple down to earth. Bianca and Diego learned that they were overspending and that some “investments” they made in previous years caused them to spend even more. “I knew that we were overspending, but I didn’t realize we were spending that much!” Diego said. Cruz and Fausto helped the couple nail down a sobering list of their monthly expenses, not sparing items that normally get forgotten – car maintenance, unplanned fine dining and entertainment expense, gifts, the real cost of traveling and long vacations abroad, real estate tax and depreciation. Total monthly expenses: P86,783 in March, meaning they were spending more than they earned. At the Money Makeover meetings, the hidden dangers they were afraid of took shape before their eyes – the couple was sunk in debt to the tune of P800,000 which they owe to both of their parents, their credit card balances total P38,000, and they didn’t have an emergency fund. Being “upwardly mobile professionals” may be snazzy but the description comes with a twist -- it means they are the target of most consumer companies and then some. Like most of their peers, Diego and Bianca have to fight the siren song of living it up. Their Money Makeover session with Ferreria was a stunning revelation of why they felt the urge to spend, spend, spend. Ferreria then coached them how to counteract those things that came second nature to them, something that could help change their financial future without the need for earth-shaking belt tightening. “You are still redeemable people,” Ferreria joked, to the delight of Diego and Bianca. (Watch out for the next issues of Money Makeover, where volunteers are matched with financial planners who will coach them for one year so they can reach their financial goals. Through this series, MoneySmarts hopes to show how a good financial plan can change the course of people’s lives. People don’t need another Sermon on the Mount on financial planning. They need to see how financial planning can be done well. By the way, Diego and Bianca are aliases to protect the couple’s identities.)

Being a mommy is tough and there are times I thought I would lose my sanity because of it. But call me idealistic because from personal experience, motherhood has allowed me to soar and grow beyond my crusty shell. Just the other week, I was watching a businessman mentally dismiss me because I had stepped back from the exhilarating world of journalism for a while to become a stay-at-home mom. The image of my favorite author Lu Hanessian came to mind, when, caught in the same situation she muttered to herself, “Hey, I know the stock market is up and your fly is down!” I just barely caught myself telling the guy the same thing. Mothers have specific needs and specific strengths. Let’s dissect some of those with the help of the NSCB’s Statistically Speaking column written this time by Jessamyn O. Encarnacion.

There are more males than females in the Philippines. Most households are headed by men and there are more widows than widowers: 3 widowed women for every widowed man.

I always thought there were more women in the Philippines! I was in a UNICEF meeting a few months ago and we all assumed that there were more females than males. Apparently this is not true.

The number of hours spent by women for housework was, on the average, twice as much as by men…The NSCB has received renewed calls to value women’s household work. If unpaid housework and family care were counted as productive output in our national accounts, measures of gross national outputs would of course, increase.

Consider that when trying to compute insurance needs for the family. Don’t just compute the loss of income, but also the cost of childcare if something happens to the mother.

The 2000 census data show that there are proportionately more females than males who attained higher levels of education: 23 percent of women compared to 21 percent of men have post secondary or higher education…With education and training, women could step beyond the confines of marriage and motherhood.”

I totally agree with this statement except the part that labeled motherhood and marriage as confines or shackles.

In 2003, female-headed households had average per capita income higher than male-headed households - P45,020 compared to only P29,372... women-headed households spent an average of P1,729 on education and P963 on medical services for each member of the household. Male-headed households...spent only P958 and P524 on education and health, respectively.

In short, women do better financially than men? A year ago, I sked 50 couples who handles money in their household. Twenty-nine men out of 50 said they live on allowance given to them by wifey because they hand over every single centavo from their paycheck. Yep, some of those surveyed were CEOs! Cool, eh? Financial experts believe that women’s unique characteristics make them better investors than men. But these also make them vulnerable at times to fear, insecurities, and difficulty in starting to put their financial life in order. Ruth Hayden, author of "How to Turn Your Life Around: The Money Book For Women" says this financial paralysis is more common than people think. "Men jump in fast. Women often just don't jump," Hayden says. However, once women do get started, their characteristics like patience, tenacity, and pragmatism make women better investors than men. "Women have an intuitive sense. They are practical and understand that things work in stages and are therefore comfortable with volatility. And once they're in the market, they'll stay put," Hayden says. Women are also more collaborative and sharing by nature. In the United States, the average women’s investment club outperforms the average men’s investment club. Professor Hersh Shefrin, Professor of Finance at Santa Clara University in California and author of Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, believes that a good way for women to make the most of the market is to study and play it together. “The golden key to women's financial success may rest in treating investing like a guy treats baseball: an excuse to get together, peer into the game, and hoot and holler when the right flick of a wrist, trajectory of a ball--or rise of the market--is realized,” he says. Women need to get their own bank account for their own savings, first and foremost. They need a reasonable allowance that they can spend when and how they want (no questions asked), whether or not they work outside the home or a full-time stay at home mom. They need to be prepared with skills they can use in case something happens to their husbands (whether its an accident, sickness or infidelity) because women generally live longer than men. They need to have a good medical insurance since there are far too many women-specific diseases due to their special kind of plumbing. They need to get a good life insurance policy that should consider the cost of child-care in case something happens to them. That’s not to say they don’t have responsibilities. Because they are the ones paying the bills, they need to be transparent where and when the money goes. Always discuss investments and other financial issues first, with recommendations, before plunking hard-earned money into anything. The general rule is transparency and fairness, which, when followed, will allow women to handle all their roles without feeling empty, fearful and insecure. (Source of photo below: AFP)

Finance people rarely agree on a single point, but this topic causes them to scamper to all points of the spectrum. Some believe that cash-value plans are better, others believe buying term and investing the difference is a superior strategy, others think the best way is somewhere in between. You will have to help me prove or bust this theory based on your experiences, but let me first define this issue further. Insurance may seem like a maze to most people and the way it’s sold here in the Philippines does not help at all. I know quite a number of insurance agents who take the time to listen first to their clients’ needs and only then draw up a recommendation that would be best for their clients. But in my experience, it is still the norm for agents to recommend the product they like best. Certainly, I have never met a single agent that recommends term insurance. Never mind that her cash flow may not be sufficient to buy the coverage she needs (or at least the coverage nearest to her required amount) and that she is still young. Term insurance is just like renting, they scoff. You end up paying and paying, with nothing to show for it in the end. That is the common argument against term insurance. There are two principal types of insurance – term and cash-value and they are very, very different. Term insurance is the simplest. It provides a payment upon death. It is pure protection. The insurance company pays you if you die within the time your policy is in force. It is very, very cheap – more or less costing P5,000 per annum for 20 to 30ish people for every P1 million coverage. The problem with term insurance is it gets very expensive as you age and most term policies sold in the Philippines will not insure those who are 60 years old or older. Cash-value policies not only provide a death benefit but also include a savings component. The idea is to allow you to enjoy your money before you die. The premiums are higher because of the guaranteed returns the insurance company promises to pay when you reach a certain age and so that the premiums will remain level for life. And also because this type of policy pays a higher commission to the agent. What is MoneySmarts’ take on this? Beware of any agent that pushes either type of policy on an exclusive basis. This is not an either-or decision. Insurance is not a one-size-fits-all product. But it is absolutely necessary, especially for young couples starting a family. I agree with The Asian Wall Street Journal’s “Lifetime Guide to Money” that says there is no absolute right and wrong for all buyers. What is important is finding out how much coverage you need, how much you can afford to spend and for how long you need the coverage. Let me give you a personal example. When I was a young mother, my research taught me that I needed at least P2 million in coverage. There was no way I could afford that kind of coverage from a cash-value policy. To buy the cash-value policy, I would have to lower the coverage and I decided not to do that. The critical need at that time was protection. I opted for term insurance and saved quite a sum of money on insurance premiums for the next five years. But on the fifth year, when the cash flow was getting much better, I converted the term insurance to a combination of variable life insurance and a whole life policy. Looking back now, I wouldn’t have done it any other way. The title of this blog post is “Buy term, invest the difference.” Some suggest that buying the cheap term insurance and investing the difference yourself will help you boost your savings more. This can work so long as you don’t “buy term and spend the difference.” Let’s hear your thoughts.

Power plays and empty promises leave my stomach churning, that’s why I never attend political gatherings. Last week, however, I joined the signing of the manifesto of support for embattled Mayor Jesse Robredo of Naga City. The guy’s one of the best mayors in the country – and I have seen and watched quite a few in action. His predicament was a testament of how power can be used unjustly and brazenly in this country against the dwindling number of good men. But this blog post is not about him and no, I’m not going to ask anyone here to vote for him. :-) As I surveyed the crowd, I wondered what it took to gather them. Cory Aquino was there, still speaking with some of the magic that is her trademark. (Her simple remark to Noynoy who was in attendance: “If you don’t serve the country well as a senator, lagot ka sa nanay mo,” brought warm chuckles to the audience.) Most of the Hyatt 10 was there, also cabinet members of the Ramos administration, noted journalists like Vergel de Dios – the guest list was a virtual who’s who in business and political beats. Former Social Welfare Secretary Dinky Soliman was concerned about how to move forward, noting that the enemy was well funded, well organized, and they controlled the media (I raised my eyebrows at that). It was a little speech designed to stir up emotions of perceived underdogs. I’m sure you know the type if you have been a political activist at some point in your life. And then Former Finance Secretary Milwida ‘Nene’ Guevara stood up. Her white T-shirt probably still smelled of chemicals used in printing on fabric. There was a big sign in front that read: “Mayor Robredo, ang laban mo, laban ng Filipino.” Her voice was calm and her words deliberate.

Ako ay isang simpleng tao lamang. Hindi ako sanay na magbuo ng isang political campaign. Wala akong makinarya, wala akong pera, wala akong kapabilidad. Pero sa tingin ko ay hindi tayo dapat matakot. If many people will do the right thing for the right reason, there is hope.”

Well, not exactly in those words, but that was the gist. What does it take to do something right? What is the cost of personal advocacies? Nene, as friends call her, is a very simple person who lives a simple life changing the face of education all over the country as founder of Synergeia Foundation. I do not know if she is rich. I certainly believe she would not have amassed millions when she worked at the Department of Finance. She is not experienced in waging political wars, but when she learned about Jesse Robredo’s plight, she simply started texting friends what they think could be done. The idea was formed and she plodded on. People suggested a signature campaign, a friend said he would take care of the venue, another said he would invite the media – other people volunteered to do their part. The event turned out as a confluence of events as natural as a sunrise. In MoneySmarts, we often talk of reaching our financial goals. There’s something to be said about being determined to be and to stay rich. But there is also something amazing about people who sacrifice some part of that to do what is right and make a difference in society. What is even more remarkable is when the cost of a personal advocacy is willingly borne by many. When this happens, wealth does not become an end in itself but a means to do something meaningful. To me, this takes away the cold, metallic sheen of money and replaces it with warmth and a reason to welcome wealth. Incidentally, Nene is not a mother. But she is one of the most generous mothers of this sometimes forlorn country, changing the lives of impoverished children who lack education and (I’m smiling here) mothering chief executives of local governments who sometimes only need a gentle prod (and some funding) to go in the right direction. She mothers teachers, local school boards, NGOs, concerned businessmen. She may not have children, but she truly deserves the greeting: Happy mother’s day!

The small group of people huddled together at the huge lobby of the 5th floor of the Bangko Sentral ng Pilipinas stuck out like a sore thumb. Some were retirees, others were businessmen, homemakers, young couples – there really was no single word to describe most of them except they were all desperate…desperate to get their deposits back. A big part of a financial journalist’s life is interviewing all sorts of people. Normally that gives me such a high because I’m endlessly curious about everything, anything and anyone. But somehow, talking to victims of banking closures always left me depressed. I still remember that day very well. The 1997 financial crisis caused quite a few banks to go belly up and this bank was one of them. Desperate depositors came together to plead to the central bank to do something. What could you say to someone who told you his family’s life savings went pffft, just like that. He went to the bank one day only to find that it was on a “bank holiday”, meaning it would not be opening its doors to business. They all told the same story. The bank offered interest rates that were simply fantastic, beating other banks in the area. Blinded by the high deposit rates, they rolled over their time deposit again and again, not knowing that that was the last time the would see their money. Another bank holiday, another group of desperate depositors, the same story. It happened again and again. No one would say it out loud, but the writing was on the wall: banks that are desperate to float try to attract cash by raising their interest rates. But that stop gap measure only leaves them floundering. Noet Ravalo explained this at length in his column. He explained how banks operate to two readers who said they were being offered high interest rates by rural banks. The economy is so much different now than in 1997 – the macro outlook is looking good, the stock market is booming, interest rates are low and inflation is low. However, I have been hearing a lot about small banks offering very high interest rates. That kind of talk always gets my alarm bells clanging loudly. I sincerely hope I am wrong and that these banks have some investment secret that other banks don’t have. But if I’m right, we are looking at some depositors again becoming desperate to get their money back. Remember those people I mentioned earlier? At the end of the day, the PDIC guarantee was not really a comfort to them. Like I said earlier, don’t chase returns. Always do due diligence. Noet says:

Make a judgment if the deposit rates these rural banks are offering seem reasonable to you given its environment and business because, no matter how you spin the calculations, these are the hurdle rates the bank must face to continue doing what it is doing. The insurance provided by PDIC is a safety net. It should not be counted on as a first way out. The insurance should not give you a false sense of security. The point here is a commonly cited tenet in risk management: 100 year wars do not happen often but they do happen. And when they happen, the chances of you outlasting the war aren't too bright either. When all have been said and done, the ultimate issue goes back to something Chester asked. It would still be part of your due diligence to judge the stability of your potential bank. It is your money so take the pain to make an informed choice of which bank you can trust with your money.

What was that again? “When it’s too good to be true…it probably is.

A finance professional last week told me he had a great tip for MoneySmarts. He said the 0% interest rate promotions are a sham. Yep -- a clever cover up, a daring deception, a trap for the millions of unsuspecting shoppers in this great big mall of a country. Unfortunately, he declined to be identified, but he was willing to explain all the details. So MoneySmarts went money myth busting to find out if his claims were for real. Hot glue gun stuck to the end of my nose! I was surprised how easy it is to make money in this country. Here is what I found. If you are like me, you go shopping at least once a week. Or at least go window shopping. You find that as you browse the shop windows, your eyes constantly stray to digital cameras (the hot craze right now), laptops (I especially like the razor-thin ones because I'm hardly 5 feet tall and lugging around more than two kilos of computer equipment is not my idea of a good day), plasma television and aircondition units because of this terrible summer heat. These are by no means cheap items. But hey! There's a 0% interest installment promo and all my three credit cards are accepted! Now, here's the deal. Swiping a credit card removes the pain of having to fork over a huge amount of money and it is very convenient. But we have been told hundreds of times not to use the credit card just to look good because the interest will kill us. Well this time, there's no interest to pay. So why not jump at the chance, right? Sounds like a great deal. Wrong. The Canon 400D camera cost P48,500. Its interest free if you pay for 12 months. The monthly payment is P4,042. Cut down to monthly bite-sized pieces, it doesn't look too painful. Then I asked the clerk, "What if I don't want to pay by credit card? I want to pay in cash." "Mam, its P44,950 if you want to pay in cash,” she says. Technically, there’s no violation of Administrative Order 10 issued by the Department of Trade and Industry, which put a stop to the practice of putting a card price and cash price in one price tag. But if you pester the clerk in a nice manner, he will tell you that he can give you a discount if you will pay in cash. So, is the 0% interest for real? MoneySmarts concludes the nice round “oh” is just a figure, often in red, to catch people’s attention. The interest has been included in the price already. If I pay P4,042 a month for that Canon 400D, I will be paying 12% interest on this installment promo and not 0%. If I pay in cash, I would save P3,550 – that’s almost 2 gigabytes of additional memory for the camera. If your aircondition unit at home is up for replacement, then go for the deal because the 12% interest is much less than the regular 42%. But don’t let the deciding factor be the attractive “0%” deal, because it ain’t what most people think it is.

Sibling squabbles are a reality of life in the Philippines – and not just in rich families. The property in question could be a small residential lot in a province somewhere, some farmland or a business even. The size and value often doesn’t matter. Ariel Martinez, a taxation and estate lawyer of more than 15 years, calls money a “blood thinner.” He said it could cause siblings to forget they grew up together. Martinez has the admirable trait of going straight for the jugular and it’s not difficult to imagine that he does as he claims: devote some time scolding clients during their first few meetings. “I couldn’t help it,” he said. “I would tell them ‘Di ba kayo nahihiya, di matatahimik sa puntod ang nanay ninyo. Even if you go to the judge now to plead your case, sasabunin din kayo nun!” But for all his no-nonsense way with words, Martinez has helped quite a lot of families come to an agreement on how to divvy up estates. Instead of waiting for the courts to have all the time in the world to decide on the legitimacy of a will, he recommends donating properties while alive. “A will is just one of the tools in advance personal planning, there are many others. Less than one percent of Filipinos write wills, even the ultra rich don’t,” he said. One of the greatest considerations in estate planning is the huge estate tax levied by the government. For estates P10 million and above, the government will require a tax payment of P1.215 million plus 20 percent of the excess. Look at the estate tax table here. By contrast, the donor’s tax is only two percent to 15 percent. Look at the tax table here. There are many cases where the estate languishes for many, many years with not a single heir benefiting from it because the tax cannot be paid – the money is tied up in the property. It’s a tough situation for families to find themselves in. A good way to get out of the situation would be to avail of the voluntary assessment of the Bureau of Internal Revenue. Applying for voluntary assessment can cancel the penalties. There’s nothing wrong with wanting to write a will too, especially if you want your assets to be distributed in a distinctive kind of way (like giving some to charity). Philippine courts accept holographic wills, meaning it’s handwritten and written in any language or dialect, or notarial where you need to sign it in the presence of three witnesses and a lawyer. An article in the Personal Finance section of Inquirer.net posted today also discusses the benefits and pitfalls of helping your children why you are still alive. The article was written in response to this question from one of our readers:

“Sorry if I sound morbid, but I’ve been thinking of what will happen to my family when I die. I just turned 60 and have four grown children, three of whom are married. Should I start distributing my assets to them? My friends have warned me against this, saying that I may end up living longer and short on resources if I give away my money so soon. -- Name withheld upon request”

The story about Texas Instruments’ $1-billion investment in the Philippines wins hands down as the biggest business news this week, putting no less than Ms. Gloria Macapagal-Arroyo in paroxysms of delight and the business community twittering with joy. It was as if everyone could hold the dollars in their hands last Wednesday when the announcement was made. The big deal is the name as well as the amount. Texas Instruments is the world’s biggest maker of mobile phone chips, and China was competing hard for this contract. The benefits are clear as day -- more jobs created, image as investment destination is hoped to spur more investments, technology transfer and all that. However, what usually makes my eyebrows go up in this matter is how the government will trip all over itself to give all kinds of tax incentives. I hope that what we gain in terms of the actual investment itself we don’t lose from foregone revenues. Going with macro stories first, not a lot of people would read the story “Gov't plans agriculture economic zones” very closely, but if the government enforces this plan properly, this should be a very significant development for the country. You see, while the glamorous services, telcos, BPO sectors are always in the limelight, a closer study of the Philippine economy would show that the farm sector, which has languished so much, is still the most significant mainly because of its size. That is why watchers of the Philippine economy consider farm output as one of the most important economic indicators. The Inquirer also reported that “Annual inflation in April at 2.3%.” So you see, interest rates have no way to go but up because the government will not allow the bellwether rate to slide lower than inflation. For those who invest in the stock market, you should know that GMA Network is finally going public in July, business process outsourcing firm Intelligent Wave Inc. is also bristling with anticipation to do just the same. I wrote in a previous post that there is an IPO fever going on after more than a decade of hiatus, and what is the best way to benefit from it. By the way, auditing and consulting firm of Punongbayan and Araullo (P&A) believes that the Philippine Stock Exchange Index may reach or even go beyond 4,000 points this year. Those who follow the real estate market, one of the current drivers of the economy, should know that retirees from other countries are snapping up Philippine condotels like hotcake, says a web-based marketing company. This, as Megaworld sets a July launch for its P3.5-billion project in Araneta, Cubao. Other stories that should be interesting to you is the one that discusses the Bureau of Internal Revenue's decision to give erring accountants more than just a slap on the wrist, the Social Security System’s decision to woo overseas workers into joining its contributors and the fact that Asian companies are now in a very competitive hunt for talent as the region grows wealthier. Accountants, engineers, information technology people will be in demand and are now demanding for high salaries and good perks. Oh and Cheryl, I saw the article on Asian Capital Equities, Inc., and thought of you, as well as those of you who are investors in the stock market or thinking of being one. Read the story here: Have a good weekend, everyone!

Warren Buffett, the world’s second-richest person (just a tad shy of Bill Gates’ net worth), is probably at this moment preparing for Berkshire Hathaway’s 3-day annual stockholders meeting which he calls the Woodstock for Capitalists. I have collected information that Filipino personal finance enthusiasts should know about America’s most well revered billionaire. (Source: Reuters, BusinessWeek, Wikipedia). Warren Buffett at a glance

• Buffett, 76, bought Berkshire, a textile maker, in 1965. As of Wednesday, Berkshire's market value was about $167 billion. Berkshire owns more than 50 companies, including auto insurer Geico, reinsurer General Re, ice cream maker Dairy Queen, and utility MidAmerican Energy. It also owns more than $60 billion of stock in many large companies, such as American Express Co., Coca-Cola Co. and Procter & Gamble Co.

• Buffett has nearly all his net worth, estimated at $52 billion by Forbes magazine, invested in Berkshire. He has said every Berkshire share he owns will go to philanthropies after his death. Last June, he pledged 85 percent of his net worth to the Bill & Melinda Gates Foundation and four family charities.
• Despite being the world's second-richest person, Buffett draws an annual salary of just $100,000 to run Berkshire.
• Buffett drinks five cans of Cherry Coke a day. The outdoor shareholder "barbecue" on May 5, Cinco de Mayo, will feature beef and chicken tacos, but Buffett said he’d go for the hamburgers.
• Last August, Buffett remarried on his 76th birthday, wedding longtime companion Astrid Menks.
• Buffett plays ukulele, and is a bridge partner of Bill Gates, the Microsoft Corp. chairman. Gates is also a Berkshire director.
• What, in Buffett's view, makes a business wonderful? It starts with ''a sustainable competitive advantage.'' Buffett will not invest in a business unless he feels reasonably certain how much it will earn over the next 20 to 25 years. But for all of Buffett's cerebration, he does not feel truly comfortable unless a business ties into his own everyday experience. His favorite companies tend to traffic in elementally appealing brand-name products that Buffett not only uses himself but also invests with almost totemic meaning: a bottle of Coca-Cola, a Gillette razor blade, a box of See's candy, and, yes, even a Gulfstream jet.
• Despite his immense wealth, Buffett is famous for his unpretentious and frugal lifestyle. He continues to live in the same house in the central Dundee neighborhood of Omaha, Nebraska that he bought in 1958 (although he also owned a more expensive home in Laguna Beach, California which he sold in 2004).
• Buffett's philosophy on business investing is a modification of the value investing approach of his mentor Benjamin Graham. Graham bought companies because they were cheap compared to their intrinsic value. He was of the belief that as long as the market undervalued them relative to their intrinsic value he was making a solid investment.
• Buffett has repeatedly criticized the financial industry for what he considers to be a proliferation of advisors who add no value but are compensated based on the volume of business transactions that they facilitate. He has pointed to the growing volume of stock trades as evidence that an ever-greater proportion of investors' gains are going to brokers and other middlemen.
• Buffett himself writes Berkshire’s annual reports, and journalists cannot get over the fact that these reports are always funny and painless to read. In the 2006 annual report, Buffett said: "There is far more to successful long-term investing than brains and performance that has recently been good. (We) need someone genetically programmed to recognize and avoid serious risks, including those never before encountered ... Temperament is also important.”

Just one of his numerous quotable quotes:

'If I don't know, I don't invest.''

In five different occasions last week, I had been asked where to find an independent financial planner, someone who “can give good advise on making my money grow.” People are enamored with the idea of a professional who can be their “financial driver” so to speak. He will take care of avoiding the potholes, plotting the route well in accordance with the client’s preferences, making sure the route is legal, finding out if there are alternative highways that can be taken in case of emergencies or surprising turns of event and quick enough to act… This way they can do what they do best and let someone handle the money stuff...You get the drift. This person has to be extremely knowledgeable, professional, and trustworthy. It is imperative that his advice is untainted by ulterior motives. Doctors, accountants, professionals are just too busy to take care of the financial stuff but know that if they don’t, all the years of hard work will be for nothing. Do they exist here in the Philippines? In the US, personal wealth management is a huge field and a lot of people have made a good career out of it. In fact, financial planners have been ranked third among the highest paying jobs in the US. It’s a different story here. Regulation is non-existent because the industry is not yet well defined. Fees and commissions vary widely. The term itself is loosely used and can mean a lot of things, so keep that in mind as you read this enumeration of so-called “financial advisors or agents or planners” :

1. Insurance and pre-need agents. Companies like Philamlife (global giant AIG’s local affiliate), Sonylife, Prudential Life, Sunlife have tried to brand their insurance agents as financial planners. These agents have to go through additional training to be given that designation. If you are meeting with a financial planner in this set-up, expect him to ask a lot of personal questions like income, expenses, short-term and long-term goals, and risk preference, among other things, rather than just tell you about the insurance or pre-need products the company sells. He should be able to show you where you are financially, at least help you find out what your net worth is. He should, however, disclose that you wouldn’t be paying for his advise but he will be earning from the commissions of the products he would recommend to you. If he doesn’t tell you that, I will be very worried. My personal issue with this set-up is that you will be worried that he will push the product that will give him the highest commission. If you find someone who is honest enough to tell you that some of your needs can be met by some products that his company cannot provide, hold on to him.
2. Accounting firms like SGV have departments that help high net worth individuals manage their wealth. I expect their expertise to be in estate planning and things that have to do with taxes. However, they say that their approach is also holistic, and can help with things like pre-nuptial agreements, investments, setting up or maximizing businesses.
3. Universal banks also offer wealth management services. This is a growing demand in countries like China and India where a substantial number of people have crossed over to “ultra-richness”. Well-heeled clients demand much more than the usual service, a lot of pampering, more investment options, and access to good analyses. Here, top local universal banks, foreign banks like Citibank, HSBC, and Standard Chartered offer this type of service, and if you deal with them, you can expect the same approach – investor profiling and customized financial plan. The fees, however, should also be disclosed. If you haven’t noticed, banks thrive on fees and charges. You would need at least P3 million to be considered a private banking client.

I know quite a few finance professionals who are trying to fill this need for “independent” financial planners by going for a fee-based structure, rather than commission based. Some have designations like RFC (Registered Financial Consultant), RFP (Registered Financial Planner), CFA (Certified Chartered Financial Analyst (my bad, sorry. Thanks Oda). These groups have different certification requirements. Efren Cruz, author of Pwede Na: The Pinoy Guide to Personal Finance, is one of them (public disclosure: I co-edited that book a few years ago but have nothing to gain if you buy it from the bookstore J, and he is not paying me to mention him.) The other day, I met with Noet Ravalo, writer of the Ask Dr. Noet column, and he also believes that it's tough to find someone who can provide the level of expertise that individuals deserve, and finding someone who is a professional AND trustworthy or unbiased is imperative. His column last Wednesday discussed some of the issues that he thinks everyone should consider when finding a financial planner. Read his column here. Having written all these, the question still remains: is it possible to get “independent” advise or is that too much to ask at this stage in the development of this industry? I think the financial industry will have to move in that direction, but in the meantime, we have to work with what is available in the system. And always, ALWAYS, be prepared to do your own homework so you can validate if they are at least, leading you in the right direction. Be a tough client, but know when to trust and let the professionals do their jobs too.

The Labor Day bug has bit me. I have been reminiscing since this morning about my 15 years in the workforce (I was a working student in the fires of doom inside Mt. Peyups) and I just realized that what employee retirement benefits I must have enjoyed the entire time were not significant enough because I can hardly remember one. Really! The only one I can remember is the free coffin (you read it right, c-o-f-f-i-n, not coffee) that BusinessWorld promised to provide if I died while covering a media event. That has stuck in my memory because its funny and not because it’s significant in any way. Nuh-uh. Perhaps I picked the wrong employers. Perhaps employees of Ayala Corp., San Miguel Corp., other big companies and multinationals will at least be comfortable when they retire. I chose to go freelance around 2002 and that means I have to be responsible for my own retirement so I really can’t complain. But my sense is that most employed Filipinos will be working almost all their lives to retire with -- you guessed it -- nothing. The Social Security System's retirement pension is almost nil, Government Service Insurance System retirees are all the time complaining about poor service and their botched e-cards -- what dignity is there for workers who come to work each day of their lives only to depend on their children when they grow old? Clearly, Filipinos will have to be more aggressive to do most of the legwork on their own. About 6.2 million Filipinos or 20% of the country's total labor force are not covered by any type of retirement plan. As of December 2000, only about 23.22 private or self- employed employees are members of the SSS and another 1.7 million government workers are covered by the Government Service Insurance Funds administered by the GSIS. Some financial experts are counting on the PERA (Personal Equity Retirement Account) bill to lighten up some of the load. The bill has been signed into law. We are now just waiting for the implementing rules and regulations to be written, that’s just about…oh, a year or so to go. I have heard a lot of discussions about the PERA bill. From what I hear, its most interesting feature is this: it will allow employees to funnel pre-tax income in chosen investment instruments (most likely including mutual funds) for their retirement. Another nice thing is that Filipinos can bring this fund with them even if they transfer to another company. The PERA bill’s closest cousin is the Americans’ 401k. Imagine the growth in the financial industry this bill could spark. Francisco Liboro, president of the Association of Stock Analysts in the Philippines, expects 300 to 400 percent rise in liquidity in the stock market when the bill’s implementation goes into full swing. I’m waiting with bated breath what will happen next.