Dangers from copycat portfolios and dollar insurance policies

INQUIRER.net receives hundreds of emails a day, many of them on whether certain financial products are any good. Our columnist, Johnny Noet Ravalo opted to write about certain generic rules in creating a portfolio people can live with, rather than just do the math.

This led to a discussion on the dangers of copycat portfolios.

You need to be comfortable with your portfolio because it is your savings that we are talking about. Copycat portfolios may be the fastest way to earn your first million … or lose everything you own. Since you will not know in advance which one it is, then live with the consequences if you take this chance.

Sometimes, we think there is an “ideal” portfolio out there for everyone that we have to know about. That if only we knew the secrets of the ingredients of this dream portfolio, we would be rich. Noet says there is no such thing. He went to the kitchen for his analogy – cooking lasagna.

Cooks take a lot of pride in the dishes they prepare. They often have a personal stamp on their dishes. This is no different from investing because the product reflects your preferences and how you like to put things together in a particular way.

The lasagna is just like your portfolio. Everyone knows that it has meat and pasta and cheese. What defines your lasagna is how you prepared the dish. Everyone also knows that there are shares of stock, bonds, insurance products, bank offerings, derivatives and pooled investments out in the market. This does not mean that given the same financial ingredients, two people will prefer to put these instruments together in the same way. That’s the personal touch that makes your lasagna different from my lasagna.

A previous article on “The anatomy of a diversified portfolio” may help those who are coming in from the cold, but for those who already know the basics, and are already mulling what investment ingredients to choose, don’t forget to focus on how specific investment instruments can complement the overall portfolio rather than just zero in on whether the instrument will give you fantastic earnings.

Portfolios have become more complex nowadays as economic boundaries thin and Filipinos move from one country to another the way we used to move only from one town to another. Insurance policies are an important part of the financial plan. Be careful with the pitfalls of a dollar insurance policy, Honesto General says.

To go around the licensing requirements, a foreign insurance company issues dollar policies and invoices outside the country, usually Hong Kong. An unlicensed agent or broker, with a nice office somewhere in the Makati business district, represents the company here. Receipts are purportedly issued in Hong Kong. The premium collection is laundered somehow.

Or, you can buy your dollar policy, and pay the dollar premium thereon, when you are traveling abroad. Nothing illegal about that. But, there are pitfalls.

If you have a minor claim, like a week’s stay in a hospital, you probably will not have a problem getting your claim paid. But, if you have a claim that runs into hundreds of thousands of dollars, you could have a serious problem. The company can throw a number of reasons at you to deny the claim. Then, you find out that, to pursue your claim, you have to file suit at some distant island in the Central Pacific, such as Samoa.

If you bought your policy from a Hong Kong firm, you can go into arbitration before filing your suit in Samoa. But, you have to hire a lawyer based in Hong Kong, or a Manila lawyer with an office or a correspondent in Hong Kong. Either way, you will be fighting your battle on foreign soil.

You avoid all these pitfalls by buying your dollar insurance policy from a firm duly licensed here. A wide variety of life, accident and medical policies is available. The Insurance Commission has approved the wordings of these policies. You can be sure that, in case you have a controversial claim, you do not have to file suit at some distant Central Pacific island. You fight your battle in home grounds. Oftentimes, you have the commission by your side.

Best of all, buy your insurance policy through a duly licensed local agent or broker. If ever you have a problem on a claim, you will need his help.

I can’t think of someone who would want to have the kind of headache General is talking about. Be careful when buying your life insurance policies.

Speaking of dollar policies and dollar earnings, the strong peso has been the subject of a lot of discussions these days. Moolah Matters says if the peso stabilizes at P47 to a dollar by the end of the year, he’s okay with that rate. But not before he had some nightmares about the dollar exchange rate. Reyna Elena wonders whether people are stocking their wealth in other currencies because the dollar is growing weaker day by day. MLQ3 agrees that they are probably going into properties, and this can be seen in the meteoric rise of property stocks in the equities markets.

All in all, a very exciting scene for foreign exchange traders. These well-dressed forex dealers make money whether the peso goes up or down because they know how to play the market and they know how to position their money. Me? I buy dollars if I need to spend in dollars and leave the speculating to those who have gazillions in their account.

I don’t mean to sound insensitive to the plight of dollar-earners. But bear with me please. For those who earn in dollars, make sure you salary in dollar terms compensates you for your skills and for your time, not for the amount of pesos you can buy with it. In short, peg your salary to the dollar, not the peso. The peso equivalent then becomes a byproduct of your salary, not your worth in the company. And don’t lose sight of the fact that you still have P45 for every dollar you earn, because you are too focused and upset over the P5 per dollar you lost. Markets go up and down, currencies fluctuate. That’s a reality in the financial world. As my OFW friend says, just be smart in spending it, that should be a better strategy than losing sleep over the exchange rate.

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