July 2007 Archives

Our personal finance article for today has been long awaited by many INQUIRER.net readers. Credit card debt is a common problem. Being mired in debt does not mean a person is evil – it only means that person has not managed money well in the past. That’s all… So, what to do when you’re already in the clutches of a debt collector? Being badgered by someone to pay credit card debt is depressing and demeaning especially when they start talking to your officemates, your relatives and even your boss! This article lists down ways to deal with it, but my favorite tip is to call them first before they call you.

Tell them of your situation and let them know how much you can pay them monthly for the next several months or years. More often than not, they will listen and allow you to stick to your debt payment plan since at the end, all they want is to get paid.

I confirmed this with someone who works as a debt collector who naturally requested for anonymity. Since debt collectors only earn income when they collect, they would rather reach an amicable settlement rather than have a screaming match with people on their call list. “This is a highly stressful job because people at both ends of the line become allergic to each other. That’s why we are so much more lenient when the credit card holder shows that he is willing to pay rather than those who slam the phone the first time they hear of us,” he said. These guys actually have the authority to give cardholders some breathing room. “They (the credit card companies) give us a sheet that shows how much their payables are, how much interest the bank is charging, how much penalty our company can add. We then can sometimes play around with the penalty part. If removing a few percentage points can ensure that he will pay, then that’s what we do,” he said. Unfortunately, he said some credit card holders are boorish and avoid responsibility for their debt. “It’s not unusual for people to go to courts and that will increase their penalties even more,” the debt collector said. So What Chocnut? This just in from HSBC – 0% interest on balance transfers. Transfer has a limit, though, only up to P12,000 and only for one year. The bank says in the advertisement that there are no handling fees and no hidden charges. Let’s deconstruct the ad. HSBC is willing to give new cardholders 0% balance transfer rate so to get more cardholders. It expects new customers to use that card to spend on many other things. It’s not clear what will happen once you charge other purchases and become a roller. So be careful. Read more blog posts here on how to tame the credit card beast and turn it into a friend. Ron Nathan writes today about how Wall Street’s woes surrounding the sub-prime market in the United States is affecting the local stock market. Pinoy Investor says the market is in a technical correction and its time to buy! Here’s the full report on what a stellar performance GMA7 turned in during its trading debut Monday. Daxim Lucas of the Philippine Daily Inquirer says banks’ bad loans to total loans ratio went up in May. Here’s why the bad loan ratio of commercial banks matter to you: how do you think banks recover the losses they have from writing off non-performing loans? That’s right, the borrowing rates they charge you. Read about the ongoing saga of well-heeled investors who got caught in the Performance Investments Products Corp. scam here. In every strata of society, there are people who commit fraud and act with malice towards other people. Be more careful with your investments. Stay clear of smokes and mirrors. If you can’t understand the investment scheme, then don’t invest. My earlier smell test on Deutchfrancs will also hold true for PIPC. Get away from anything that stinks. ForceAnalytics wrote about PIPC in his blog and got an irate comment from a reader. Somehow, I thought I had seen those comments before? Hehe. My favorite food blogger also wrote an incisive post about it and got even more irate readers to comment. Read marketman's post here. Then, another deplorable scam: Illegal recruiter victimizes Leyte teachers, deans, lawyers. Finally, I love what Digerati Life has written today about how to shrug off a market slide. 1. Think like a contrarian. 2. Act like a contrarian. 3. Be well hedged or have a well diversified portfolio. 4. Don’t fall for the media hype. (yeah, I agree) 5. Anticipate possible buying opportunities 6. Realize that market pullbacks are healthy for the long term. Are you ready to be a contrarian?

She died. Just last month... Our trusted 15-year old Samsung television, who wept with the whole family as we watched Schindler’s List, gasped with the children when they thought Experiment 626 aka Stitch will die in the second movie, cheered for R2D2 in all six movies of the Star Wars saga, finally couldn’t be resuscitated. For two weeks, we had been prowling across Abenson, SM Appliance and other stores to look for a replacement. The Duplitos had been resistant to temptation so far. The object we are trying to resist – a P199,900 Samsung plasma television set with Ultra FilterBright, deeper black and dark images and clearer vision 18 bit color processing. Charged to my credit card, that’s only P11,000 something a month at “0%” interest (yeah, yeah) and P370 per day (blech!). See how happy they are? More space means more harmony in the family... (am I really this gullible?) Must resist…must resist… What do you think guys? Are the marketing guys going to bag another victim? Help!

I’m almost always in a rush when I’m at the grocery store, so I hardly listen to hurried invitations from cashiers to get my raffle coupons. Supposedly, these raffle coupons will give me the chance to enter the rank of millionaires. “What kind of marketing gimmick is that anyway?” I asked with disdain over the weekend, during yet another foray into the consumer haven that is SM Hypermarket. I was trying to follow my own personal finance advice after all, and that is to get in, buy the stuff I need, and get out as quickly as I can :-). Apparently, however, this marketing gimmick is more popular than I thought. Have you noticed how many raffle gimmicks are out there? You’ve got Citibank’s 10 million rewards raffle, or equivalent to P10 million credited to your credit card and Mastercard’s trip to the USA raffle, and that’s only for today in the Philippine Daily Inquirer. Walk through the mall and you’ll see raffle promos left and right. Over dinner, I asked a statistician and lecturer at the University of the Philippines if it makes sense from a personal finance perspective to spend more to join a raffle. Here’s Ohmar Z. Landagan’s opinion: the chances of winning a raffle is very small. But if you are spending anyway, what have you got to lose by joining? If you’re going to spend more just to join, don’t count on winning and say goodbye to your money. If you ask me, I simply hate writing my name, address and phone numbers on 20 different raffle stubs. So What Chocnut? GMA7 had a pretty good showing at its trading debut today. If you bought GMA7 shares at P8.50 apiece, you would have gained 20.6 percent on the first day as the share price rose to a high of P10.25 as of 10:00 a.m. That’s encouraging, considering the dark clouds of worry hovering over the market in the past few days. University of Asia and the Pacific and First Metro Investment Corp. expects the government to sell more Treasury bills and bonds than initially planned because of shortfall in tax collections in the first half. Bonds and T-bills help spread the risks in every portfolio, and while the stock market is the darling of investors lately, old-time investors typically hold on to their bonds and investments in government securities for the long-term. In fact, the Bureau of Treasury has sold around P50 billion in retail treasury bonds (RTBs) – the bonds that are supposedly for small investors because the minimum investment is P5,000 – since Monday. Three year RTBs fetched 6.875 percent and 5-year RTBs settled at 7.125 percent, said this article. Here’s a tip: if you are interested in RTBs, don't dilly dally because they are still selling like hotcakes. Most banks sell only a limited portion of their RTB offerings to their preferred clients and hold on to the rest. Cielito Habito says in his column today that the three most significant economic indicators that matter to most Filipinos are prices (inflation), jobs (unemployment) and incomes. He adds that, no, not everything’s okay with the economy as some would have us believe. Lastly, read here our latest personal finance feature entitled How much insurance do you need? from our new editorial partner MoneySense magazine. Remember that insurance is critical, so buying one requires careful thought and consideration. It’s too easy to make a mistake when buying insurance and mistakes are expensive! By the way, there are some indications that insurance policies may get cheaper if the Insurance Commission has its way. This article shows that Escobillo is looking for ways to get five million Filipinos insured by yearend, and she is thinking of getting cooperatives and mutual benefit associations to sell cheap insurance policies to their members. I hope “cheap” doesn’t mean from “below-standard” insurance companies, though. Articles from MoneySense’s July-August issue: 1. Look good without blowing your budget. Save on medicine expenses, health maintenance organization plans, hospital bills, and life insurance premiums. 2. Features on select five-star hospitals, fitness centers, beauty clinics, and spas, will give you ideas on how to choose one that suits your needs and finances as well. 3. Entrepreneurial tips from Figaro's president and CEO Pacita "Chit" Juan and Binalot Fiesta Foods president Rommel Juan. 4. Yehey! president and CEO Donald Patrick Lim gives advise on how to save a little and spend a lot. MoneySense is available in over 200 outlets nationwide. To learn more about the magazine, visit www.moneysense.com.ph. For subscriptions, contact 339-3361, 728-1073 or email info@moneysense.com.ph.

This article didn’t make much of a splash in the news as it looked like a simple product PR blah, but for most people who follow personal finance developments, it’s a sign banks are (finally) admitting Filipinos are tired of plain-vanilla deposit products and are looking for better returns on their money. The article talks about AIG Philam Savings’ 5-year long-term negotiable certificates of deposit launched Wednesday. Pulitika, Kalakalan, ATBP. pointed out that UITFs are declining in volume because of LTNCDs. There must be a huge volume of cash being shifted, because as of now, only two universal banks and one thrift bank has issued LTNCDs – BDO, BPI and AIG Philam Savings Bank. AIG Philam is offering P3 billion worth of LTNCDs over a 12-month period, P1 billion in July. The bank will pay interest quarterly, unlike previous LTNCD offers. This offering will be tax-free if held until maturity or until 2012. Interest is fixed at 7.25% per annum. LTNCDs are bond-deposit hybrids, so they are less risky than stocks. They are guaranteed by the PDIC up to P250,000 per depositor. They are negotiable, meaning they can be sold before maturity but once that’s done, goodbye favorable tax treatment. At 7.25% per annum, AIG Philam’s LTNCD (only banks will name a product that way!) gives slightly higher returns compared with time deposits The 5-year Retail Treasury Bond gives 7.125%, so there’s not much difference there. By the way, the Bureau of Treasury’s public offering of RTBs close on Monday. All told, you don’t need to be a rocket scientist to know that LTNCDs may deserve a “good” rating and it could even be “very good” depending on the issuer. But “superior”? Not really.

1. Do you have experience in providing advice on the topics below? If yes, indicate the number of years. • Retirement planning • Investment planning • Tax planning • Estate planning • Insurance planning • Integrated planning • Other 2. What are your areas of specialization? What qualifies you in this field? 3. How long have you been offering financial planning advice to clients? • Less than one year • One to four years • Five to 10 years • More than 10 years b. How many clients do you currently have? • Less than 10 clients • 10 to39 • 40 to79 • 80 + 4. Briefly describe your work history. 5. What are your educational qualifications? Give area of study. • Certificate • Undergraduate degree • Advanced degree • Other 6. What financial planning designation(s) or certification(s) do you hold? • Certified Financial Planner (CFP) • Certified Public Accountant-Personal Financial Specialist (CPA-PFS) • Chartered Financial Consultant (ChFC) • Registered Financial Planner (RFP) • Others 7. What financial planning continuing education requirements do you fulfill? 8. What licenses do you hold? • Insurance • Securities • Mutual Funds • Others 9. What services do you offer? 10. Describe your approach to financial planning. 11. Who will work with me? • Planner • Associate(s) b. Will the same individual(s) review my financial situation? • Yes • If no, who will? 12. How are you paid for your services? • Fee • Commission • Fee and commission • Salary • Other 13. What do you typically charge? a. Fee: • Hourly rate Php _________ • Flat fee (range) Php _________ to Php_________ • Percentage of assets under management _________ percent b. Commission: What is the approximate percentage of the investment or premium you receive on: • stocks and bonds _________ • mutual funds _________ • annuities _________ • insurance products ________ • other _________ 14. Do you have a business affiliation with any company whose products or services you are recommending? • Yes • No Is any of your compensation based on selling products? • Yes • No Do professionals and sales agents to whom you may refer me send business, fees or any other benefits to you? • Yes • No Do you have an affiliation with a broker/dealer? • Yes • No Are you an owner of, or connected with, any other company whose services or products i will use? • Yes • No 15. Do you provide a written client engagement agreement? • Yes • If no, why not? Guest Post by: Alijeffty C. Gonzales, CIS, RFP ACG Advisors and Management Limited Co.

All the doomsayers of recent years who have warned about the energy crisis probably feel so vindicated today. What now? I’m pretty sure the finger pointing and the “if-only” arguments will appear in newspaper columns and editorials shortly. People can talk about whose fault the energy crisis is; I would rather discuss what the people could do now to prepare. After super-typhoon Milenyo in 2006, I wrote about how to prepare from for disaster. Blackouts and power shortages are not as scary as a super typhoon, but they can disrupt businesses, put homes in danger, and can be very inconvenient for journalists trying to make a living, hehe. In that article, I recommended investing in emergency power supplies like rechargeable electric fans and lighting equipment. Here is the usual list of items that you need to prepare:

1. Flashlight with extra batteries (preferably fully-charged rechargeable batteries)
2. Candles and matches
3. Battery-powered radio
4. Battery-powered electric fans (should always be on a mommy’s list!)

These items are always in short supply AND expensive AFTER a power outage. People, get these things in your home while there’s still power. Remember the droves of people that trooped to malls after Milenyo? There’s a human weakness to double lock the doors after the thief has taken what he wanted. That’s costly and totally un-moneysmart. Generators are expensive, but expect that with more outages coming soon, they will sell like pancakes. Law of supply and demand again – expect prices to go up. If you want to be creative and avoid running up the gerbil wheel of consumerism, try creating your own! I’m no engineer but these tips from the Emergency Preparedness Information Center look so simple to do. Click here for tips on how to buy a generator and how to analyze whether you need one. The salesman at the store will always pitch the one with the higher horsepower (and of course more expensive). This article tells you why you should think twice. Once you lose power, especially in the middle of the night or while tucking Junior in, things will go haywire with kids screaming in your ear. Whatever you do, cut the main circuit breaker first. When power comes back, power spikes can fry your expensive flat-screen television sets and refrigerators. That’s an ouchie you don’t have to live with. Just turn off the main circuit breaker, please. Ya know where it is? Water shortages I always store water at home good for two to three days of consumption, disaster or not. Get a food-grade container for water and not just a typical plastic container. Water is best stored in cool, dark places (light causes bacteria to multiply more quickly). It’s amusing how Metro Manila is struggling with water shortage problems AND thinking of polluting its existing water supply at the same time. Philippine Daily Inquirer’s editorial points out that polluted water coming from the proposed housing project of the MWSS will, due to gravity, pollute the water from La Mesa and will find its way into our faucets. Eew. Who would want to stay in a community that will pollute the rest of Manila’s water supply? Do you think Filipinos’ collective conscience is strong enough to refuse living in such a housing project? What has conscience got to do with economics? Will the economists in the house please speak up… After being questioned about how the government can finance the SONA’s P1.7 trillion spending plan, fiscal managers say BIR, BoC and other revenue-generating agencies have been tasked to collect P1.236 trillion in taxes in 2008 to plug the deficit. Either that figure will come from an expanding economy or the BIR would have get its act together and collect taxes more efficiently. I know, I know, sounds like an old rerun of X-files. Big property developers continue to get a big slice of the OFW pie as much as they can, Ayala Land just launching its P5-billion Celadon Manila located in the San Lazaro racetrack of Manila Jockey Club. Did you see the huge ads from real estate companies in the papers today? Makes me wonder whether size and name of company matters to Filipino property buyers, whether for their own consumption or for investment. We also have Meralco reporting a huge jump in profit in the second quarter, indicating that a lot of our money was spent on electricity last summer. You tell me, my Meralco bill spiked in the second quarter. Petron, however, reported a slow growth in profit. GMA Network’s initial public offering seems to be a smashing hit. I hope there are less flippers in the market than long-term investors. Bloggers have some pretty interesting offers today, too. AllFinancialMatters lists down a comprehensive list of retirement planning tools and calculators online, using a review by the Wall Street Journal as a springboard. Oprah earns P1 million per day, check out this article from MSNBC. Now that’s the kind of spectacular “return” I can’t argue with. She’s earning, because she is creating economic value – attracting ads, page views, selling airtime, etc. Her shows are consumerized, if you ask me, but that doesn’t take away from the fact that it’s a legitimate way to make money. Let’s all be television talk show hosts! Hehe. Entrepinoy’s business tip today is how to start a business making pandesal, Follow the Process will hold a stock investing and net marketing seminar on Saturday (is it free, jomar?) My Money Blog observes how tip jars are everywhere. I see that here, too, but more often than not restaurants nowadays already have a “service charge” of 10% tucked into the bill. That’s on top of the VAT charge of 12%, that’s why eating out should be considered a luxury. I do use dining out as a way of giving myself a pat on the back after a job well done as long as it does not take away money from my savings kitty :-). My Money Blog feels no shame in not giving tips, except when he feels like it or I guess when the service is extra good. He also talks about how one parent and teacher used this idea of tipping:

As a teacher it had never occurred to me to put one of these jars on my desk. And so I decided to conduct an experiment. The next day, when I entered the classroom, I casually pulled a small jelly jar from my bag and placed it on my desk. On the front was a neat label, “Tips.” I didn’t do anything else to draw my students’ attention to it and ignored the low mumble that the act incited. At the end of the lecture, as the students filed out, I’ll be darned if a few of them didn’t throw their loose change into the jar. I gave it all back, of course, but their quiet gestures did lend me a small thrill, a sense that my teaching efforts were worth more than my salary alone. Well, I still don’t put money in tip jars, but I have put one of these jars in my son’s room. Sometimes, when he does something positive or helpful without being told, I throw a couple of quarters in. He appreciates this and looks for opportunities to lend a hand wherever he can. I think that as long as we can keep this under control, I will not have created unreasonable expectations. But mum’s the word.

Very intriguing, but be careful exactly of what he said: creating unreasonable expectations.

Pinoy Investor asked a very incisive question:

We used to have funds for education, retirement and cost of living. But I used them up for our businesses. They became fixed assets, inventories and working capital. Our personal and business assets got mixed. Good or bad?

In one of my interviews with a financial planner, I learned that a common problem among Filipino entrepreneurs is a tendency to mix business and personal finances. Meaning, once a business takes off, the owner dips into the business moneybag to spend for personal stuff. By this time, his lifestyle has of course changed and he needs more grease to fuel his spending and for a time, he will feel like everything is going okay. It’s like putting a parasite inside the business, and pretty soon the business will suffer but the parasite grows. In extreme situations, when he needs to scale down or close shop, his lifestyle no longer adjusts. Pinoy Investor, on the other hand, cites a totally different situation. He has plowed personal money into the business, not the other way around. Funds for education, retirement and cost of living have become fixed assets (perhaps used to pay for more equipment?), inventories and working capital. If I’m reading the situation right, instead of investing elsewhere where the returns may not be that good, why not plow the money into the business? Hitting two birds with one stone. There are two things wrong with the picture. We are always told to avoid putting our eggs in one basket. The different risks from different kinds of instruments and the different returns, all told, will help us gain a better portfolio than just putting the money in one investment with an expected above-average return. And it helps us manage risks, too. There’s also the issue of money and emotions. By keeping separate funds for education, retirement and cost of living, we can insulate our personal lives from anything that may happen in our business. We have to admit that by going into business, we can make it big. But we can also lose big. Keeping business and personal separate is being prudent and very wise. :-) Thanks for sharing, Pinoy Investor.

For me, it’s the law of supply and demand – the fraternal twins that move markets all over the world, the yin and yang of economics, the muggles and wizards of Potterian fantasies, the Optimus Prime and Megatron of financial markets (ok, ok…I stretched that a little bit too far. Let’s not turn one of them into the evil one). I would even go as far as to say you have no business investing your money if you haven’t conquered this idea. Yeah, ‘conquer’ as in know it like the back of your hand. As in navigate through the concept with your eyes closed. Investors who have intimate knowledge of the tugs and pulls of consumer and producer surpluses can harness that knowledge so they don’t get whipped silly by bear markets and irrational exuberance in financial markets. Harvard economics professor Greg Mankiw explains here how this concept is at the heart of the workings of market economies. If you crave for more readings (because you are blessedly nerd-ic), read the lecture notes from the Massachusetts Institute of Technology’s Sloan School of Management on this concept. As you read, you will see why supply and demand affects prices, market dynamics, and why its related to the Invisible Hand of Adam Smith, that long-dead white man who is, until now, still called the Father of Economics. Here, RFP Speaks’ Joseph James Lago offers a simple explanation how supply and demand affects stock prices:

The demand side is represented by the buyers, the supply side is represented by the sellers. If the buyers believe that the company is not worth its current stock price, they will demand a lesser price. This will be manifested by decreased demand. If the sellers realize that buyers are not willing to buy at the existing price, they will rush to sell to any available buyer at their price. This increases the supply, effectively pushing the price down. The reverse will happen if buyers believe that the stock price is cheap, and the sellers realizing the increased demand, effectively pushing prices up.

The idea is, all these selfish interests put together in a witch’s brew cannot prevent the price of whatever commodity – stock, oil, gold, water, electricity, dollar, peso – from reaching its rightful level. There are things, however, that could spoil the brew and these include inefficiencies creating fake demand like monopolies, poor taxation and, yes qwerty, improper government intervention like central banks defending currencies. Knowledge of the law of supply and demand will also help make more sense of business news (if only so you can appear like a deep thinker in front of your boss at mancom meetings :-)). Look at the business papers today and you’ll see the dynamics of supply and demand at work. Headlines in the Philippine Daily Inquirer and other newspapers point to imminent water and power shortages. If water and electricity were publicly traded commodities and not regulated by the government, you could expect the increase in demand matched with inability to increase supply to result in price increases. With holiday economics now a law, I bet you’re already thinking of places where you can go to unwind, right? I know, I am! So there will be increased demand in tourism-related services. The competition in that sector is increasing, though, so if supply is higher than demand, you can even expect Philippine Airlines and Cebu Pacific to keep giving out P1 seats on their airplanes (provided there are only two of you in the family that’s traveling hehe). BIR is rushing to recover its revenue shortfall and has thus given its regional examiners marching orders to target 30% of its taxpayers for auditing by yearend. I can hear the doctors, lawyers, consultants and businessmen scrambling to call their accountants to prepare the documents. Here, you will see increased demand for accounting services because of the not-so-invisible hand of government. Jollibee’s Tio Pepe’s Karinderia is a classic example of a company’s efforts to fulfill a perceived demand for a certain need. I don’t know about you, but I think that’s the best way to find your niche in a business. I’m positive that Tio Pepe will escalate the price war in the fast food industry. Matira matibay. One caveat, however. The principle of supply and demand is a principle. It’s a concept. It’s an idea from economists long gone. It can be used to forecast certain things like price movements. It can be used in policy making because it reveals inefficiencies, improper government interventions, and better ways of doing things. Economists like to believe they know a lot of things and can foresee what will happen using their models and computations. But put all of them in one room and you will be hard-pressed to find two who will completely agree with one another. What I’m saying is, let the principle guide you. Just don’t be too confident because of it. This just in from a friend: “Mahirap labanan ang katamaran. Nakakatamad kasi eh.” So, if you didn’t make it to the end of this blog. I totally understand. :-p

More tips from the Live Green Movement. Keep your car tuned up. Keeping your air filter clean saves 800 pounds of carbon dioxide, and P1,500 a year. Make sure your tires are adequately inflated, and save 250 pounds of carbon dioxide, and up to P40,000 in fuel costs each year. Avoid idling: turn off your car engine in heavy traffic. If your car will idle for more than 45 seconds, it's more fuel-efficient to turn off the engine and restart the car when you're ready to go. Avoid disposables. Don't get the plastic cutlery that goes with takeout food, get a proper razor, invest in a pen that uses ink refills, or use a sponge instead of kitchen paper towels. If you can't swear off disposable baby diapers, limit its use for travel or nighttime until baby is toilet trained. Avoid ordering takeout. Instant processed foods always involve less packaging, disposable plastic cutlery, paper tissues, plastic tumblers and Styrofoam clamshell packs. Bring packed lunches, or step out of the office and eat out! Keep your own mug at the office, as well as a reusable small plate (for the birthday-cake slice), cutlery or chopsticks. Set your clothing quota. Nobody needs six pairs of black dress shoes, or two dozen pairs of socks, or three handbags in exact the same shade of blue or brown that matches your wardrobe staples. (Ouch!) For Mommies: the best money-saving tip I know. Decide to breastfeed your baby! The money you save from buying formula milk and spending on infant illnesses can be used for downpayment on a house! Bonding with baby, emotional security, more intelligence -- is priceless.

Finally, I found the most laymanized definition of this financial market term called “mark-to-market”. From Noet Ravalo’s article today, mark-to-market or M2M means:

If the market price of a traded security goes up today, a gain is duly recognized today. If today’s market price is lower than yesterday, the investor takes a loss today.

Why is it important to understand M2M? Because it can tip the scales in the way you look at your investments. Wiki’s simple example illustrates this point:

As an example, what if an investor owns 100 shares of a particular stock purchased originally for $40 per share, and that stock is currently trading at $60 per share, then the "mark to market" value of the investor's shares is equal to (100 shares × $60), or $6000, whereas the Book value might (depending on the accounting principles used) only equal $4000. Similarly, if the stock falls to $30 dollars, the mark-to-market value is $3000, and the investor has lost $1000 of the original investment.

Here is Investopedia.com’s definition:

The act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value. In terms of mutual funds, a MTM is when the net asset value (NAV) of the fund is valued upon the most current market values.

Shifting to M2M proved to be a necessary pain for Philippine financial markets. If you remember what happened to the unit investment trust fund industry last year, it was required to shift to M2M from an accrual method of accounting where the returns they were presenting to investors were annualized and therefore much higher than they actually were. The timing could not have been more awful. By May, interest rates fell and investors, who were not educated about the risks that come with the investment and were only chasing after returns, panicked. Massive withdrawals fed into the uncertainty and caused values to fall even more. Those who bailed out at that time lost huge chunks of their savings. Had they kept their cool and focused on why they were investing in the first place, they would have recovered their losses a few months after the UITF scare. Lesson learned: mark-to-market helps investors know where they are at any given day. It’s a big help because in the past, a lot of investments have been marked-to-models using various kinds of financial models, and, as Wiki says so eloquently, marked-to-fantasies resulting in investments that seemed to be more attractive than they actually were. But Noet says the uses of M2M may sometimes be misunderstood. An investor may get a 2-year bond and be contented with the bond’s promised coupons. In the absence of any intent to trade before maturity, there is no need to apply M2M valuation. Then there are assets that are declared to be available-for-sale (AFS). These can be held to maturity but can also be traded as opportunities arise. As such, M2M is applied but the daily gains or losses go to the balance sheet rather than the income statement. To me, the greatest learning is to understand that “the best bet for choosing investments is still to match the risks of the products with your own risk tolerance.” Read: stop chasing only after returns. As you well know, this is the kind of mentality that makes our kababayans vulnerable to the Multitels, the Francswiss and the Deutchfrancs of this world. Using the strategy of matching your risk preference with an investment instruments risk profile let’s your relax instead of always tracking how much you’re making. Other wealth bloggers have their own take on the best way to get rich. OGC Wealth Trigonomics says people need a wealth accumulation program that really works and lists a very intriguing set of truths that a person must understand before he can actually make the leap. Investing and the Filipino talks about how happy he is with his mutual fund investment (congratulations!), The Simple Pinoy Investor warns against getting stuck in a state of paralysis by analysis. Meaning you read and read and read about financial planning and never get to start investing! Good point, Pinoy Investor! Speaking of analysis, here is something that I hope will not push you all to paralysis :). The Digerati Life has a really compelling entry on Why You Spend And Save The Way You Do: The Science Behind Money Behaviors. Are you a spendthrift, a frugalist or a tightwad? Carnegie Mellon and Stanford University apparently believes they are not all the same. Follow the Process observes that the PSE has approved short-selling for big companies. Be careful there, dude. Short-selling is not for the faint-hearted! Good luck to you as well :). AllFinancialMatters asks whether it is silly to buy more stuff to get free shipping. All guilty persons, raise your hand… I thought about breaking down Gloria’s promises on the economic front, but Manolo’s Post-SONA hangover 2007 edition will tell you all you need to know.

As you well know, I don’t like budgets. Just thinking about them makes me wince. I have tried, but really, I cannot pretend that I already have the hang of it. Just can’t. Before you think that I spend irresponsibly because I have junked the traditional concept of budgeting, let me tell you what works for me. I simply figure out how much I should save and invest, then spend the rest. That’s it. I enjoy the moolah. Let the money chips fall where they may. I can smile while forking over money at the restaurant because I know the purse strings keeping the savings fund are tightly shut. That’s just me, though. I understand and absolutely admire who religiously jot down their expenses and add the figures up in nice little columns. As I always said, financial planning requires a customized approach. If that is the approach that works, then it’s the best one. Today, however, I found a great little tip that will enhance anybody’s approach. This is like the Post-it, the Velcro, and the Zip-lock of budgeting. The clever and simple tip that would give our financial plans the punch that they need. Our Budget 101 article today over at the Personal Finance section of INQUIRER.net says:

List down must-save-for expenses that do not occur monthly. Examples of this are annual income taxes, Christmas gifts, tuition fees. Break these down to a cost per month and factor this into the budget you will make.

Do this with me now. Get your pen and paper and put your thinking caps on. What are the expenses, especially huge ones (say, more than P5,000 or whatever), that occur regularly every year. Make this a sweeping exercise. Take stock of your life and imagine yourself in situations in the past where you have struggled with payments. Hmm.. Tuition fees are probably the first on the list for parents. If you’re still paying for insurance, then add that. Mortgage payments, annual income taxes and property taxes, car tune-ups and maintenance, and vacations. Make sure you add everything. Oh, and don’t forget Christmas and birthday gifts and celebrations. Those little trinkets we give away add up to a big budget. Done? Take your time. You don’t have to rush (so don’t do this in the office by the way hehe). Give yourself time to think. Better yet, do this with your partner and your kids! If the list is complete, divide it by 12. Then add the amount to your savings plan. See what this is making us do? It’s allowing us to plan ahead. It’s helping us to stop living from paycheck to paycheck. This will keep us a step ahead of our money, and not a slimy, slippery step behind. Let me know how it goes J. Let’s share what works and doesn’t work. Good luck!

A quick run through on what Gloria promised during her recently-concluded State of the Nation Address.

• Marginalize poverty by 2010
• Increase the middle-class
• Continue to create one million jobs every year
• Stronger and wider social safety net
• Cheaper medicines
• More houses
• More good schools
• More well-paid teachers
• Good quality books
• More scholarships
• More language instruction to sustain the Philippines’ edge in the BPO industry
• Investing P150 billion in education this year, P29 billion more than last year
• Sending 600,000 scholars to school this year
• Create a P4 billion fund for college loans to increase beneficiaries from 40,000 to 200,000
• Set aside P1 billion for TESDA this year, up from P600 million last year
• Provide P1 billion for DoLE for trainings
• Set aside P3 billion for science and engineering research
• Set aside P50 billion for Pag-IBIG Fund’s home lending program until 2010
• No new taxes until the end of the year

Priority bills: Cheaper Medicines Bill Electric Power Industry Reform Act (EPIRA) *Amendment Quotable quotes:

“We have spent more on human capital formation than any time in the past. Why? If the government is not for the people, it is a mockery of democracy.”

“I would rather be right than popular”

As my seatmate here at the office said, Arroyo started her SONA sounding like a benefactor, a female Santa Claus in July giving everyone a gift, but her “strong personality” shone through towards the end. I totally agree, Mr. Nonoy Espina. This quote is quite interesting:

“I will not stand in the way of anyone’s ambitions; let no on stand in the way of national interests,” she said.

The media is abuzz about the implied meaning of this statement. Is this a clear sign she will step down in 2010? Abangan…Me? I just watch for comic relief. That circus is for those who still naively believe that the SONA is really about promises. I think a sincere government only needs to do its work quietly and effectively, SONA or not. But that's just me. In case you want to read about her previous SONA, click here. Our running account of the SONA here. My article here: Arroyo to pour money in developing human capital.

From Norma:

We are ofws and we attended a seminar given by one bank 2 years ago and their forecast then is that the dollar will go up to 70-75 range. What will happen if I change our savings now in to peso and then dollars will go up to 50 again.. We are so confuse so better not to look at the exchange rate. Our govt. kept on telling we re heroes but kpt on bleeding us to death.

From surebull:

Well, with the way things are going now I don’t think we have a choice. We have to stick to our peso investments because it seems that Glorieta is determined to hold the Peso below 50. SONA is coming and she will certainly boast it there the peso appreciation. I am not sure however if she realizes that what she’s doing is actually hurting some sectors of our economy particularly exporters of goods and services. I just pray that the “positive impact” of strengthening peso will be felt by the masses in their daily lives, but everyone knows the reality.

Allow me to address your questions directly in a blog post. I read a lot of emails to me that air out concerns similar to yours and my heart bleeds with sadness at the things that misunderstandings can create. Let’s get angry with the right persons for the right reasons. The flip side is to give credit where credit is due. We can use human energy much more effectively that way. One of the most common misconceptions among OFWs is that the government controls the peso. It does not. The foreign exchange market is ruled by the rules of the market, not by any country. It is a result of how the economy is doing and how other markets like the US, European, Japanese countries are doing. The peso, for example, is not the only currency that is gaining strength against the dollar. The dollar is the one that is weakening, and that is affecting most currencies across the globe. The most that the government can do is to smoothen out the peaks and lows of the currency that may or may not result from speculative attacks. But even then, it cannot successfully affect where the peso will go. I have long ago realized that obsessing about what the government has failed to do is not going to make any of us any wealthier. I guess there are journalists who can do that much better than I can -- the PCIJ for example, and other media groups. The Philippine Daily Inquirer has published articles that have taken crack shots at the government and have obtained results. Me? I'd rather focus on financial literacy, writing about things that can make someone more informed about investing NOW, get someone out of the clutches of a scam artist NOW, teach people how to pay themselves first, and so on. This way, somehow, I can bridge, in my own little way, the savers with the financial advisers of the rich. Was that a mouthful? Sorry, I got carried away. :) Also, remember also that banks can only "forecast" what the peso-dollar rate will be. Not one of them has a crystal ball that can predict the future. Forecasts are helpful, but listen to them with a grain of salt. Keep your ears on the ground and your eyes on the ball. (Never mind if you become a contortionist that way. :) ) Read newspapers often, especially the business section. Remember, however, after all is said and done, its better to save money whether in pesos, dollars, or euros and other currencies, even with the prospect of losing some of the value due to the friskiness of the markets, than saving nothing at all. As we are all fond of saying here in MoneySmarts: money is just money. It is merely a tool so that we can enjoy life!

You don’t have to save the cheerleader to save the world :-). You can even save money while doing it, so says the Live Green Movement. So here are some more tips on reducing energy and water consumption that’s also easy on the checkbook, in addition to the very informative links from qwerty. Living green at home. A sizeable 46 percent of energy use is energy loss. That’s electricity being consumed for no productive use, such as when you keep your cellphone charger permanently plugged into a wall outlet. By keeping unused electronic appliances truly switched off, you save more than 1,000 pounds of carbon dioxide and around P12,500 a year. Ortigas skyline last July 14. Photo from PDI. Put a brick in the toilet. A brick wrapped in a plastic bag or a water-filled bleach bottle kept inside the toilet reservoir displaces and saves a half or full gallon of water with each flush. You can also reduce your potable-water use by flushing with “gray water” such as shampoo-rinse water saved in a bucket. Don’t tolerate a leaky faucet. Even a slow drip can waste about two gallons of clean water daily. (With the Angat dam water level at critical lows, this made my eyes grow wide as saucers.) Invest in water-saving devices such as aerators for your faucets, shower heads and drip-irrigation watering systems. Even something as low-tech as a rain barrel is helpful. Switch from incandescent lighting and go LED and CFL A compact fluorescent bulb lasts ten times longer than an incandescent bulb and uses only 25 percent the energy. A single CFL bulb can save you about P1,900 in electricity over its lifespan! Light emitting diodes are an efficient option for mood and task lighting and use even less energy than CFLs. Rethink your garden. Plant trees, grasses and shrubs that require less water. Practice deep watering in the early evening to avoid daily watering. Halve your consumption. Use half the toothpaste, shampoo, conditioner, lotion, detergent, bleach, fabric softener that the TV ads urge you to squeeze or pour out, and see how it still does the job. By consuming less, fewer chemicals go into the air and water supply, and fewer product packaging end up in landfills. I tested this during the weekend. My teeth still feel clean and my bath cream will last a lot longer! This tip is so proven hehe. Now, how to get the maids to use less detergent…

Yep, most of us will groan and others will probably cuss at our Meralco bill for July. Meralco is charging us P1 more per kilowatt-hour as omski pointed out. Here’s the Philippine Daily Inquirer article on that, omski ;-) I’m posting on a weekend, so mommies and daddies and whoever is reading this blog, let’s inspect our homes to see which nook and cranny is consuming more power than it should. These tips come from the Live Green Movement. Sorry, I can't find their website. Use rechargeable batteries. The sticker price is higher but rechargeable batteries will save you 10 to 20 times the cost of buying disposable batteries over and over again and cuts down on toxic trash. Use a power strip whenever possible. Live Green Movement means the kind of extension cord with a power switch. Nearly all electronic appliances use standby power even when switched off. A power strip with individual switches for the plugs is even better for multiple appliances not in use at the same time. One that is rated at 3,300 watts, with switches for six plugs and a resettable circuit breaker, is about P900 and is suited for use with multiple appliances. Use power strips for three main areas in the modern home:

• In the kitchen for the microwave oven, toaster oven, coffee maker and toaster, etc.
• In the entertainment center, for the TV, DFD player and stereo system,
• At the computer workstation, for the PC or laptop, printer, scanner and broadband device can be plugged into one power setting.
• Peripheral devices that are used less often, like printers or scanners, can be plugged into a separate powerstrip, or simply left unplugged until needed. As an added power-saving tip: switch off the PC monitor when performing long tasks that don’t require constant attention (downloading, copying files, defragmenting hard drives, etc.)

Reconsider your screen saver. It takes more energy for your monitor to display a brighter color, so go with darker images, such as sepia portraits, outer-space photos or nightscapes. If you’ll be away for awhile, simply switch off the monitor! Be picky with your appliances Cooking a dish for an hour in the electric oven generates 2.7 pounds of CO2, that same dish creates only 1.3 pounds of CO2, for 50 minutes with a toaster oven, 0.9 pounds for seven hours with a crackpot or slow cooker, and 0.5 pounds for 15 minutes in a microwave oven. Check your refrigerator regularly. Refrigerators are the most power-hungry appliance in the home, responsible for thousands of pounds of CO2 annually. Keep the freezer defrosted. Check for cold air leaks by closing the door on a sheet of paper and pulling the sheet along the gasket to find any breach. Choose an air conditioner with an Energy Efficiency Ratio (EER) of 10 or higher. Clean or replace the filter diligently to save 350 pounds of CO2 and about P7,500 per year in electric bills. Don’t set the temperature too low; keeping it just 2 degrees higher all year can save about 2,000 pounds a year on CO2 and much more on your energy bill. I have always wanted to be an environmentalist. When I was still studying at UP Diliman, I used to pass by this great natural park four times every year whenever I go home to Bicol. I remember weeping when I saw the landscape suddenly so barren, wincing as I gazed at the wounded sides of the mountains. But life passed by, and I have taken on a different advocacy: financial literacy. I realize, however, that we can be environmentalists in our ways – and save money in the process! This NASA handout image recieved 17 July, 2007 shows Grey Glacier as seen from the International Space Station (ISS).

I was so intrigued by implied forward rates that I asked Noet Ravalo for more explanations. Here is his first guest post on MoneySmarts: Let me put my teacher cap on. Example na lang. Mas madaling intindihin. What if investor has P1 million to invest. Choices are a peso one-year Treasury at 6% versus a one-year US Treasury at 4%. What will investor do? Answer = he needs to read Salve's blog to find out what implied forward rates will do. Let the peso-dollar rate be P50 to one so that the P1 million is $20,000. For as long as peso returns are higher, the investment decision is obvious (go with peso treasury). But what comprises the return are (a) the outright interest and (b) the value of the currency upon maturity. So, "return" is interest rate LESS depreciation. Implied forward rates will calculate the "break-even" exchange rate to make the investor neutral between peso or USD investment. Since the peso has higher interest, we know that the peso can afford to weaken versus the dollar before the advantage of the interest rate (6% - 4%) is totally eliminated. The investor then makes a decision what he thinks the actual peso-dollar rate will be in one year. If the forecast is that the peso will be stronger than the implied forward rate then stay with peso investment. If the forecasted peso rate is weaker then go dollar investment. The effect is for people to make investment choices today by "looking ahead" using current interest rate information. In the future, the actual peso-dollar rate is evaluated versus what you calculated in the past rather than for its "spot bulaga factor". The spot FX rate then is a reflection of interest rate information IN THE PAST (which is what SHOULD HAPPEN) rather than the daily dynamics of big players moving markets or churning the trades (sell in the morning but buy back the same volume in the afternoon ... volume neutral but the rate has moved). Oh if you're wondering what that threshold rate will be, it is at R where: 1,000,000 + 6%(1,000,000) = R x {20,000 + 4%(20,000)} R = P50.96 per dollar The shortcut way is to say that the increment is 2% (i.e., 6-4) of the spot rate P50 which is P1. The P51 rate found via the shortcut is not too far from the actual calculation above.

Do you often feel that itch to check how the peso is doing? Are you dismayed every time the peso strengthens (thanks for the correction, Gretch!) further against the dollar, worried that your earnings in dollars are losing value?

Are you exclusively focused on the dollar? Are you still depending exclusively on one type of investment like real estate investments, or time deposit placements etc? Do you want the government to intervene in the market in the event of another financial crisis? If you answered yes to any of these questions, columnist Noet Ravalo says in his article due to come today that you have not learned your lessons from the 1997 Asian financial crisis. Financial journalists would like to the think that the market hangs on their every word and that every hiccup in the foreign exchange market would end up as a conversation piece as people go out to have lunch. Noet says we should stop obsessing about the foreign exchange rate (ouch, less readers!). If you prepared yourself by getting into forward transactions with banks, you can protect yourself from the dips and gyrations of the foreign exchange markets. I will have to check with banks if they offer these instruments to individual clients, though. But it is an option that’s worth considering. Correction: Clarified this forward rate thing with Noet further, and he says he did not mean the forward transactions that banks brag about among themselves. What he was referring to was the implied forward rate which gives some indication of future trends based on existing parameters like interest rates and foreign exchange rates. Did some more digging and I found this website that explains it further. Warning. Technical jargon alert. No avoiding it.

The Implied Forward rate is very important for anyone wishing to take a position in the markets. By definition, all speculative views on the market are only profitable when the rates that occur are different than those implied. Therefore when looking to establish a position, it is important to compare your view with the Implied Forward. If it is the same, there is no opportunity to profit from your view. The difference between the current Spot rate and the Implied Forward is known as the amount "built in" to the market.

Noet also says you should widen your horizon to beyond the US dollar. A lot of MoneySmarts readers are getting interested in the euro and I have seen the mutual fund industry react to that by offering euro funds. One of the things I learned from Noet’s article is to take advantage of the various financial instruments out there to preserve the value of your portfolio. Dependence on one or two types will not protect us from more financial crises – and you have to accept the fact that the world is not immune from them. The China bubble for example is already putting people at the edge of their seats. This article brought back memories for me. At the time of the crisis, it felt like the end of the world as we knew it. And yet, look at us, 10 years from now. We are wiser and more cautious, but more hopeful. Good virtues that would help us deal with the next crisis.

As a starry-eyed bride back in 19-something, I told my husband: “When we make our first million, what do you think about putting up a school for street children?” The world was unraveling before us. I felt like I could conquer the world. You know the feeling :-). I admit there are still fleeting moments now when I still feel that I could. Unfortunately, no one quite explained to me then exactly how I could make my first million. An article to be posted today (already posted. Click here to read the article) in INQUIRER.net’s Personal Finance section puts the strategy down pat. It details how much you need to save, with a few return-on-investment scenarios in mind. It talks about the science and art that is needed in making your first million. Consider this: Note: For lump sum contribution, the ROI is compounded annually. For periodic contributions, the number of compounding periods varies. For example, a monthly contribution at 5% per annum effectively earns 5.1162% per annum because of monthly compounding. And this: Note: For example, should you decide to contribute monthly over 7 years expecting to earn 5% per annum, a P9,967.24 monthly contribution for 7 years amounts to P837,248.36. Millionaire habit tip: Begin with the end in mind. When we do that, we can clearly see where to put our foot next so that we can step closer to our goals. This strategy also allows us to map out our journey and helps keep us out of potential investment mistakes. Of course, many of you could use this strategy to make your second, third, fourth or gazillionth million. You may not use an off-the-shelf investment instrument. You could go for setting up your own business. Risky, true, but the returns would probably be high, too. Whatever you do, building wealth also needs to be accompanied with the right attitude and the right financial habits. These include living a simple lifestyle, paying yourself first, among others. And don’t forget: sharing your wealth with others in a worthwhile cause.

The Bangko Sentral ng Pilipinas on Thursday decided to cut its key interest rate and, at the same time, scrap what it calls its “tiering scheme.” This scheme pays lower yields on large short-term deposits, and was used as a tool earlier this year to cool down the red-hot growth of money circulating in the economy. Why should personal finance enthusiasts closely follow what the central bank does with its interest rates? At first blush, articles on monetary policy and interest rates seem to be fit only for bankers’ ears. However, since money supply is one of the most important indicators in the Philippine economy, it has a big impact on financial markets and, eventually, on all our savings and investments. The impact is not direct, but it is huge. Think of the economy as a big swimming pool, and the water is the amount of money moving around. I’m sure you’ll all agree that there is an ideal level of “liquidity” in the swimming pool. Very low water level is not much fun. Try sloshing around with water only up to your ankles. Earlier this year, money supply growth reached unprecedented two-digit levels. April’s 26.6 percent money supply growth sent a collective shiver down monetary board members’ spines, I’m sure. That’s the equivalent of the water going over the sides of the pool and drenching the garden. While Bangko Sentral Governor Amando Tetangco Jr. can hardly complain – the much needed cash was coming from foreign direct investments, foreign buying in the stock market and remittances from overseas Filipino workers – that kind of volume of “liquidity” also posed quite a challenge. First, too much money chasing the same level of goods could cause prices to go up. This is quite a sticky point for some, but just imagine what a “normal” Filipino will do if he receives an unexpected windfall. He will go shopping, right? That’s a predictable consumer mentality all over the world and not just in the Philippines. If that sudden windfall makes everyone lust for a new refrigerator and there is only one person selling, what you’ve got is a ripe opportunity for him to raise his price. Refrigerator goes to the highest bidder, that’s the way the free market works. That’s inflationary pressure. That’s what the central bank wants to avoid. So, what can Mr. Central Bank do? Going back to the swimming pool, he’ll go to the pumps to turn down the volume of water going into the pool. In monetary policy, that’s the equivalent of raising interest rates. When BSP raises its key rates, it makes it more attractive for banks to lend their money to the central bank and more painful to borrow money from the central bank. When that happens, the central bank effectively sucks in the liquidity in our economic swimming pool. Keep in mind however that raising rates affects financial markets. How? Loan markets. Banks normally respond to an increase in central banks rates by charging more from their customers who are borrowing money. We’re talking of San Miguel’s to Binalot’s loans, and of your home or car loan. Remember the 1997 financial crisis? When the central bank suddenly jacked up its rates in an effort to siphon cash that might be used to speculate on the peso, banks responded by raising their interest rates to a point where companies and individuals could no longer afford to pay their loans. We were just counting each day how many firms were going belly up. It was terrible. That’s an extreme scenario, but you get the idea. Investments. Second, with interest rates going up, bonds and bank instruments become more attractive than stocks. People also tend to take out their investments in the foreign exchange markets, which can even be riskier than stocks. I know quite a lot of people who made a killing in 1997 by pre-terminating their time deposits so they could take advantage of the higher returns banks were willing to pay for their money. Economic growth. End result is that consumers and corporations need to pay more to banks in terms of interest. Add to that the bills you need to pay, tuition expenses to prepare for, so you have less money to buy Jack ‘n Jill products, latte, FHM (I can’t believe how many Filipinos buy that magazine), etc. In this context, companies get hit, too. People buy less of their products. To sum it all up, a rise in interest rates can also cause economic activity to slow down. A drop in interest rates will of course have the opposite effect, and a “neutral policy stance” will keep the status quo. Now, do you think a slow down in the economy is anywhere near the government’s priorities this year? Nuh-uh. That’s why you’ve been seeing the central bank cooking up creative ways to hammer down money supply. That’s where the tiering scheme and the arrangements for special deposit accounts (SDA) come in. These schemes simply allowed the central bank to siphon money supply without having to raise interest rates. Pure and simple. oing back to Daxim Lucas’ article in Philippine Daily Inquirer I linked to above, the central bank’s twin complementary moves of cutting the overnight borrowing rate to 6.00 percent from 7.50 percent and the overnight lending rate to 8.00 percent from 9.75 percent and removal of the tiering scheme will have a zero net effect. I love hearing from young people what they understand from business news. Here’s a reaction from Wainwright Yu, a new graduate from DLSU. This makes equity investors (dummy transliteration: people who buy stocks) quite the merrier! When the BSP cuts its interest rates, equity begins to look much more attractive. The PHISIX hit a whole new high, at one point hitting 3,820.55 before closing at 3.786.02, following the BSP’s announcement Thursday. Aside from that, like the good governor, other experts are saying pretty much the same thing: the effect is neutral, nada, nothing, nil. It’s a pretty quiet monetary policy day out there (economists like calling it *benign*). Not bad.. Last word Interest rates affect financial markets, but they are not the only reasons for these markets’ ups and downs. What I have discussed above describe broad interactions that can have many different results. By all means, pay close attention to interest rates movements with an understanding of what that will mean for your stock investments et. al. but remember that a lot of other factors also need to be considered.

So, you made money in a Ponzi scheme. It was a gamble you took and you went into it with eyes wide open. No big deal, it was your money anyway. However, chances are you convinced your kumare, your cousin, your officemate, and your driver. It was their chance to get rich, you said. Hey, they made some money too -- for some time. Unfortunately, bad people like the media and the government tried to get their cut and the entire thing went up in smoke. You shrug and say, I only invested what I could afford to lose. Sorry to say, the happy story does not end there. The Securities and Exchange Commission and the Anti-Money Laundering Council confirmed Thursday that recruiters in Ponzi schemes, even if they had no takers, could be jailed and their assets frozen. The technical term is civil forfeiture. That means assets can be frozen even while recruiters' lawyers are still trying to defend them in court.

“If you recruited, you may be unduly linked to activities defined under the Anti-Money Laundering Act as a predicate crime,” AMLC executive director Vicente Aquino said. Jail term is from 7 to 21 years; fine from P50,000 to P5 million.

If you are merely an investor, however, the government cannot go after you. You are a victim and you are encouraged to approach the SEC and file a complaint in written form. This is exactly what is happening right now. Victims are coming forward and filing complaints against Francswiss, Deutchfrancs and SMFund.com and other Ponzi schemes. SMFund.com offers the same arrangement as Francswiss and Deutchfrancs except that the minimum investment required has been “McDonaldized” to $10 from Francswiss’ $1,000 and Deutchfrancs’ $10,000. It guarantees a return of up to 3% in a day.

“There is no legitimate venture on this earth that can offer a 4.5% or 6% return per day, even if it’s a foreign currency-denominated investment. Even pawnshops earn 3% per month,” Guevara said.

Names of six persons have been forwarded to the National Bureau of Investigation earlier this afternoon because they paid for advertisements soliciting investments for SMFund.com in publications based in Baguio City. I can just imagine how many investors have been taken in by similar advertisements, especially with the “SM” name, in other cities like Cebu, Davao, etc. Good thing, two investors have already filed complaints against SMFund.com. One borrowed money to invest and the other used his own money. After the heat generated from the Francswiss arrests spooked the operators, they said they could no longer contact their uplines. “Now they are left with an empty bag, so they have come to us and asked for assistance,” said Guevara. The SEC is checking out around 100 entities as possible Ponzi schemes. AMLC’s Aquino said the government is working on banning these websites from the Philippine cyberspace.

Reports that Francswiss is trying to work out an arrangement with SEC to be legalized is pure bull, SEC said. I am paraphrasing here, but they definitely used a forceful tone of voice. “There is no way for this type of company to be legalized,” Guevara said.

Ponzi schemes are inherently and morally wrong because you rob Peter to pay Paul. “Persons earn interest not from a service or product, but from someone else’s investment,” Guevara said. Recent investment scams have become transnational in nature and Ponzi operators move from one country to the next once the government of that country is hot on its trail. Swiss Cash, for example, has already been banned in Malaysia. It made my head ache to realize that poor Filipinos were being used to pay investors from other countries. An unofficial count placed the money sucked in by these scams at P1.25 billion from up to 25,000 Filipino investors. Who said the Philippines is poor? We have this much cash just lying around, waiting…waiting for the next scammer. Don’t you fall for it, OK? Jails are never pleasant, especially in the Philippines.

Hot off a press conference at the Securities and Exchange Commission: The SEC, the Anti-Money Laundering Council and the SM Investments Corp. are warning the public against investing in SMFund.com, another online Ponzi scam similar to Deutchfrancs and Francswiss.

“Nobody can be blamed for wanting to earn high returns. Unfortunately, scam operators are trying to get rich quickly at your expense. Investors in these operations are the ones getting poorer. We are warning the public not to fall prey to this scam,” AMLC executive director Atty. Vicente Aquino told reporters.

Lawyers from SM Investments Corp. owned by mall king Henry Sy also told the media that the company was considering filing a case against felt SMFund.com for using its trade name committed infringement of its trademark, and that they were coordinating with the SEC on possible courses of action (my bad. its very hard to pin down lawyers, whew, and this is the only wording they like). “We are not in any way connected with this company,” Atty. Corazon I. Morando, senior vice-president for legal and corporate affairs of SM Investments Corp. said. In fact, Morando’s team also discovered another website called SMInvestment.com “under construction” and this website was also disowned at the press conference as well. Here is a screen shot of SMFund.com, log-in password courtesy of an INQUIRER.net reader: I don’t blame the SM people for being very concerned. Their company’s original name was SM Fund, back in the mid-90s and I wouldn’t be surprised if operators and networkers of SMFund.com are namedropping Henry Sy all over the archipelago. Whew. What is it with the rainy season? Scam artists seem to have sprouted overnight like gremlins. From Francswiss, Deutchfrancs, Swiss Cash, Universal Forex System, Global America and Private Forex Trade Inc., they seem to be invading the financial sector and trapping Filipinos out looking for a quick buck. Elizabeth Sanchez-Lacson, a business reporter of Philippine Daily Inquirer, our parent company, asked several questions that packed some very hard punches. “How did you discover these scams? Do you just wait for complaints from victims? Or do you go out there to stop them?” SEC director Hubert Guevara was visibly taken aback. “No, we don’t just wait for victims. Sometimes, it can just be a mere chismis (gossip) or a tip. We monitor blog sites. We act proactively so we can nip these things in the bud,” SEC director Hubert Guevara said. I would agree that the government caught on early in the game, compared with the black saga that was Multitel. Rose Baladjay had more than a year to grow her empire before her whole operation broke down. Francswiss and Detuchfrancs had about two to three months of unimpeded operations before media latched on to the issue and exposed them for what they were. The government may have some limitations in terms of running after scam operators, but once these scams are plastered in the news, the public would be warned and withdrawal of investments brought about by these exposure, more than anything else, bring down the scam. Oh and let me just categorically say that nobody needs to pay me to write about these scams. I am paid a very good salary just to do my job well, thank you very much. Media don’t have to be bought. We hate scams. That is why we go after these stories like we do. (Part 2 of this post regarding other points during the press conference coming up in a while)

Did I just say the “D” word? *looks over my shoulder like a paranoid scam artist (haha, sorry I couldn’t resist!)* During the Registered Financial Planning course that I took last year, the lawyer who lectured about estate planning kept on using euphemisms like kicked the bucket, passed on, met his maker, gone under, crossed over. He just couldn’t say the word “death” and it was amusing to see his face contortions whenever he had to talk about it. I’m not a linguist, but it’s obvious that language is a mirror image of culture and human behavior. Filipinos don’t like to talk of death – especially when someone’s on his deathbed. A financial planner that I know had to be hired by a family just to tell the old man that he was going to die soon and he had to figure out how to divide his estate for everyone’s sake. I asked him how he was able to do it and he looked at me with professional detachment in his eyes and shrugged. “I just told him. Someone had to do it,” he said. Don’t you just love letting professionals handle the difficult stuff? Many of us, however, will not be able to afford a professional. We need to do the planning and handle the difficult stuff ourselves. I’m pleased to say some people are actually doing that. Last week I received several emails that showed people are planning for the future. Tricia asked:

I have numerous five-year time deposits at various banks. Will these accounts be automatically transferred to my spouse and kids if I die before the accounts reach maturity? Can they withdraw without problems? What are the documents to be prepared? – Tricia de Guzman

Once a bank knows its depositor is dead, the deposits will be as inaccessible to the person’s family as Cristina Aguilera’s hotel room number to the public. You know its there, somewhere, but you will have no way to get to it. The only withdrawals allowed are bank charges. So, what do we do? Pay first the estate tax. Prepare the documents you need to show the bank. Click here for the list of documents that you need. Sounds like a maze of rules? Some couples opt for a joint account instead…or delaying publication of the obituary and withdrawing the money as soon as possible. Let it not be said, however, that MoneySmarts recommends such an act. Ehem. The key here is that your family knows what to do when the unexpected happens. Keep a record of your bank accounts, and keep them updated and hidden in a safe place. Can we say the word “death” now? After all, it’s just another step to another kind of existence...and if you didn’t scam anyone in this lifetime, you should be at peace. *Bad typing fingers! That wasn't me! :-) * Peace!

Quiz. Tell me what is wrong with this logic.

What’s wrong with Ponzi and HYIP schemes? They can make Filipinos richer and give us better returns than the paltry interest the banks are giving. Earnings from them can send our children to school and build our houses. If we know that they are risky and still want to plunk in our money, then we have the right to invest. After all, it’s our money.

One answer. After this, I will not respond to any comments why Ponzi schemes are a scam, why they should all be closed and why they will all close shop whether or not the government succeeds in bringing them down. Blog entries in MoneySmarts and comments from people like Jon Mariano, Photon and Pinoy Investor have been crystal clear. Those who choose to invest do so only with greed as their motivation. This is a direct quote from a speech given by Debra A. Valentine, general counsel for The US Federal Trade Commission.

Both Ponzi schemes and pyramids are quite seductive because they may be able to deliver a high rate of return to a few early investors for a short period of time. Yet, both pyramid and Ponzi schemes are illegal because they inevitably must fall apart. No program can recruit new members forever. Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth's population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.

Ponzi schemes have, in fact brought down an entire country – Albania. That was back in 1997, not too long ago, really. Here’s an excerpt from a CNN article:

Violence has escalated in Albania since the arrest of two operators of pyramid or "Ponzi" schemes, which pay off initial investors with the funds of later investors, but often go bankrupt when the scheme loses momentum and no new investors can be found. Thousands of Albanians invested millions of dollars into the privately run schemes, many losing their life savings. They're demanding the release of the operators from jail, fearing more investments in the schemes will be lost entirely.

Can you honestly support an investment scheme that can bring down a whole nation? That stands for nothing but greed? These schemes always cheat majority of the participants. Arrests and new developments You’ve made your money from Francswiss or Deutchfrancs and other HYIPs and you think that’s the end of it? Not quite so fast. People (especially your downlines) can sue you and go after your house, your car and whatever you’ve got. I have seen this happen in the Multitel case. That’s what happens when you choose to invest in something that is inherently wrong and illegal. Arrests have already been made last week and media has helped in bringing these Internet Ponzi schemes down. Anti-Money Laundering Council executive director Vicente Aquino told MoneySmarts more high-profile arrests will be happening this week. It’s not all about the money This post from Seth Godin’s blog resonates so well with how I feel. I have seen a lot of friends enjoy some money making scheme from time to time. I cringe as I watch them feverishly trying to get all their acquaintances to try out their new health food, vitamins, shoes, toothpaste, home building program, websites – real products, true, but somehow products that hide a pyramid structure. Being a financial journalist, I have seen markets operate first hand – the stock market, foreign exchange trading, loan markets, pawnshops, retail markets, real estate markets. When I hear of anyone in my family tree talk about some “hot” investment over the Internet giving some unheard-of return, it leaves a cold feeling at the pit of my stomach.

At some level, at a very major level in fact, the way we feel about a transaction is more important than the transaction itself. Some people like a sporting event more if they got the ticket from a scalper, other if they got the ticket for free from their boss. Some people need to feel like they've taken the system (whatever the system is) for everything it's worth. Others need to pay retail (especially on a wedding dress, cemetery plot or flu shot). Marketers are working hard to corrupt the way we feel about our friends and the people we respect. I think, in the end, it's not going to work. We're hardwired to respect real authenticity, and at some level, that means trusting the motives of the person we're listening to. Bottom line: just because the net makes it much easier to measure things, share things, create downlines and hierarchies and yes, scams, doesn't mean its the best way to make something that lasts.

I really hope he’s right that it’s not going to work. As I said in a previous post, I have given up convincing those who are motivated solely by greed. Show me, people, that a larger portion of us still want to retire with our conscience intact.

Reader mike posted a stinging reaction to my post on putting a price tag on friendships and family:

“So why do we have to believe what Powdthavee wrote? I think the question about people leaving their families to work abroad is a bit judgmental. You will never understand their predicament because you are not in their position.”

I apologize. It was not my intention to sound like I was sitting in judgment over decisions that clearly were not easy and took many things in consideration…things that I absolutely knew nothing about.

From anecdotal evidence too many to count, it is obvious that many Filipinos’ decision to work in a different country is a decision of survival.

What I was trying to point out is the policy implication for the government. The current administration is promoting the deployment of Filipinos abroad for the dollars they will bring in. That has been all over the news this year. But if its goal is to increase the happiness of its people, there’s a big hole in its logic based on this study of Powdthavee.

In the end, the government has to face the fact that a large pay rise may not be able to compensate for the loss of quality time spent with close friends and relatives.

It’s an extraordinarily difficult question but one that a government with its heart in the right place should face: how can the government maximize the sum of happiness of the people living in that country?

Then again, what is this government all about? Money or happiness?

Hey, there are still a few hours to go before the week starts again. Maximize this quality time with your family and we will all be richer! :) I loved the way reader Martin said it:

Friends are treasures, with or without money. Especially if your best friend is your spouse.

Enjoy the remaining hours of your weekend!

Many mansions house sad people, and yet there are shanties that often ring with real laughter. One of my happiest memories happened at a time when my husband and I were just about to have our first baby, when we were living in cramped quarters, did not have a car, and when our paychecks were very small. Thinking about it now, truly the future looked bleak at that time! But I still remember how simple it was back then to laugh heartily at a simple joke. On the other hand, lack of money can also cause unhappiness, discontent, failed marriages and frustration. Thus the question in my mind is: how do you measure happiness? What is the value to us of friends, relatives, neighbors and other relationships? Nattavudh Powdthavee, a social economist at the University of London, released an intriguing study early last month that used shadow pricing method to measure happiness when people talk more often to friends, relatives and neighbors.

"Can money buy the greatest amount of happiness for us? Or do the sources of true and lasting satisfaction come from having deep interpersonal relationships with close friends and other people in the community?” Powdthavee asks.

Based on his survey of 10,000 Britons, Powdthavee discovered that talking and seeing friends more often is like earning an additional £85,000 a year. Marriage is worth £70,000 and separation or divorce is like losing £170,000. Making an extra effort to talk to neighbors from “less than a month” to “most days” is like gaining £35,000 to £40,000 a year. Losing a partner through death is equivalent to a drop in income of around £200,000 a year. Some blogs have already written about this, and I found it amazing to see their reactions. Fractured Friendships is struck with how an actual increase in income actually buys very little added happiness. Most of us would say relationships are priceless. I totally agree with David O. McKay who said “No other success can compensate for failure in the home.” This study may have put a price tag on relationships. But if effective proved that people connections are more important than income. Admit it, the price tags made the study more interesting. What does this mean for the eight million Filipinos who leave family and friends to earn more in an alien nation? Ok, let’s not even go abroad. What about husbands leaving wives and children in the provinces to work in Metro Manila in the search for higher income? If we believe in Powdthavee, the higher income would certainly not have bought more happiness in the end.

When it comes to saving and investing money, people are drawn towards figures that measure returns in cold, hard figures. Returns become some sort of Holy Grail that indicates whether an investment is any good, regardless of volatility and default risk. In this exclusive interview with Karen Liza M. Roa, president and chief executive officer of Philam Asset Management, Inc. (PAMI), Roa says stability of the company and a well-defined investment process should also be topmost consideration for serious investors. PAMI is one of the top three players in the mutual fund industry in terms of size. Learn about several sticky issues about mutual fund investing in this interview, like costs of investing, clues on upcoming new funds, the difference between mutual funds and UITFs, and what is the best strategy if you decide to invest in this instrument. MoneySmarts asks the hard questions so that you will be an informed investor. Happy reading! MoneySmarts: Mutual fund practitioners are fond of saying that one of the benefits of going into a mutual fund is that you have professionals working for you. It’s like having your own investment manager, even if you’re actually only part of a pool. How professional are the professionals in this industry? Roa: There are about 14 to 15 fund houses that manage mutual funds. The market, however, is dominated by three players. You have BPI through ALFM managed by the BPI Asset Management group. The fund house manages both the mutual fund and the UITF. And then you have Sunlife, and then you’ve got PAMI. The biggest is still ALFM, they are about P30 billion plus for the mutual fund, we have about P22 billion. These three dominate the industry. That’s already two-thirds of the entire market. So if we are talking about reputation, you can immediately see the dominant players. They are reliable. MoneySmarts: Is there a requirement from the SEC on length of investing experience for fund managers? Roa: You have to have the license to be a fund manager. As a corporation, there’s a capitalization that is required. I am not aware that there is a number of years experience required, but that should be the lookout of the issuer. It will show in the fund’s performance. For PAMI, there’s a defined investment process. And that investment process is not only Philippine-based or localized, its an international investment process that’s applicable in New York, in Hong Kong and in other countries where AIG operates. Our models are the same. The ratios that we look at, the criteria, and all that. It gives you a sense of comfort that it’s a global practice. Even if, let’s say, our regulations are not as stringent here as it would be in other countries, the investment processes that we use have been tested already in those markets. We have one investment team for the entire Philam group. And I think Sunlife is like that as well. We have fund managers in each entity because the objectives of the funds are different. For the life insurance company, you are probably looking at more than 10 years, for mutual funds probably 3 to 5 years, for pre-need depending on the education liabilities. But they all come together often to have the same economic outlook. So you have the same view, you have the same strategy, and you apply it to the different funds that you manage. MoneySmarts: So AIG-wide, the top-down approach comes from the big group and the bottom-up approach will come from each company? Roa: Yes, because the bottom-up will come from the issuer that will be good for our investment objective but may not be good for the others. MoneySmarts: Within each fund, do you also make sure that the people you hire to pick stocks have the qualifications? Roa: Oh yeah, like Wilfred D. Son Ken Po is the managing director for AIG Global Investment Corp. specifically for Philippine stocks. He must have 20 years experience in equities. He started in BPI, World Sec…he is highly regarded. Track record counts. When you are an institution as big as AIG, you are not going to risk with people who are not good in what they are doing. You get highly professional investment people. And yet we also do not subscribe to a star performer. It’s always a team. There are committees that take a look at various criteria depending on the sectoral issues, issue-specific concerns. We have people like Wilfred who is so focused on the Bloomberg screen with all of his broker reports because he is also trying to read up on what all the others are saying. So you have fundamentals, you have valuations, technicals, and then what other people are talking about, and then he does company visits, on a weekly basis he gets together with his counterparts around the world. MoneySmarts: He reports directly to you? Roa: No, he reports to the Equity group of AIG. Cris, our fixed income for PAMI, reports to me. In multinationals, its really matrix reporting. So, she also sits in the asset liability committee and they talk about interest rates, economic outlook and all of that, together with the fixed-income team of Philam life. I have always worked for multinationals, so I’m very much used to talking about our company profile and the strength behind it. There is always a tested process and you are not only pushing process, there is a countercheck of compliance. You know, sometimes business can be very aggressive. It becomes a marketing thing. You need the balance of compliance. MoneySmarts: Another reason for people to go to mutual funds is instant diversification. For a P5,000 investment, you are instantly diversified. But the options in the Philippine market are really very few. We don’t have a lot of options here the way they do in North America. How diversified can the funds here really get? Roa: Admittedly, the market here is not deep enough. We still have to develop the stock market. If you do big cap, that’s only a few companies. I don’t think we would like to dabble into small caps. Our philosophy is, you have to look at value over the long-term. You have to justify it in terms of that and not just a trading speculative thing to get a quick buck. We are managing a portfolio and we are saying our investors are in this for the long-term. Besides, the justification for our stock picks go all the way to New York. MoneySmarts: Is it possible for the stock pickers down below to get away with speculative play without letting the board know about it? Roa: No. There’s a reporting. MoneySmarts: Let’s talk about transaction costs in the mutual fund industry as a whole. Would it be possible for me to save up on costs if I go directly to the stock market or is it cheaper to do it the mutual fund way? Roa: It’s cheaper via the mutual funds because the cost of the trades is allocated to all of the shareholders on a pro-rata basis. What you are really getting into when investing in mutual funds is the professional fund management, the diversification, and the liquidity. You don’t even have to do P50,000. P5,000 in an equity fund will get you into 30 to 40 stock selections already without having to go into who are these companies. You rely on the fund manager. MoneySmarts: I understand you can demand a lower fee from the traders because you are a big player. Roa: Yes, you save up on cost that way. Our equity portfolio is P5 billion to P6 billion, PAMI alone lang yan. MoneySmarts: The brokers are probably fighting over your account pa. Roa: Yes, because we are an institutional client. MoneySmarts: Fund managers charge management fees whether the fund makes money or not. Doesn’t this mean that even when investors lose money, you still get a cut? Roa: Lets say I have a P1 billion portfolio. Hypothetically, I get one percent, that’s P1 billion divided by 12. That should be about P333 million. If next month that P1 billion becomes P800 million, I only get P800,000 divided by 12, which is less than P333 million. So, my management fee goes down. MoneySmarts: It’s smaller, but you still get a cut. Roa: Yes, that fee pays for our custodians, our salaries, etc. But we share in the loss because it’s a reduced income. It’s not a fixed fee. And mind you, all of our funds have PAMI money in it. We have retained earnings in each of those funds. At least P50 million.

That’s the beauty of a mutual fund. It’s a corporation. So it has authorized capital. At least 75% of that must be paid up. That’s the difference between the UITFs and the mutual funds. UITFs are merely contractual obligations. They are not obligated to the people who invest in them. We are obligated. I cannot just say lets put up this kind of fund, this kind of fund. Because I have to think, “Wait a minute, how much is PAMI’s money?” It has to be thought out carefully because I’m locked in.

MoneySmarts: What is the tax treatment? Roa: According to the CTRP, the capital gains from the mutual funds are tax-free for the investor itself. So when you redeem, you are not expected to pay any tax. MoneySmarts: Since three years ago, the types of mutual funds have increased. Would you say that the new types of funds could already meet the needs of Philippine investors? Roa: No, it still can’t. What we have right now are plain vanilla type of funds. You don’t even have derivatives, and they are all Philippine names. It’s only now that regulators are slowly becoming open to funds investing outside the country. MoneySmarts: Are you going to do that soon?

Roa: Soon (smiles). We don’t even have capital-protect type of funds. Investing in capital-protect type of funds means you are assured that your principal stays intact. That’s possible because there are certain structures that you can do. In other countries, there are socially responsible investments, sectoral funds, there real estate investment trusts (REITS). There is still so much out there that can be brought in. But the thing is the awareness. It’s still a niche market. What I really want to do is to open up the mass base.

MoneySmarts: Let’s go back to fees. On the average, the industry charges around 1.5 percent to 3.0 percent management fees (MER)? Roa: Yes. That’s a fixed amount. Maximum of 3%. For the equity fund, its 2%, for the bond fund its 1%. The trading, the expense, the custody is higher for equities. MoneySmarts: For some people, these fees are very high, especially for those who are used to investing outside the country. They eat into the investor’s returns. Roa: Yes they do, but these are to shoulder the cost of the provider. Our custodian is Citibank. If we downgrade our partner (to save on costs), we will get what we pay for. We don’t want to do that. We also try very much to have segregated duties. So, BPI is our transfer agent who keeps our stock records. Citibank is our custodian. We have to pay them fees, too. MoneySmarts: When a fund is still a start-up, its natural for management fees to be on the high side. Do you foresee the fees going down as the industry matures? Roa: Yes, because it will be driven by competition and economies of scale. MoneySmarts: What about the loads? You have back-end and front-end fees and these are a bit high. Roa: The back-end should really not be material to the investor. We disclose that from the very beginning and it is just a means to discourage short-term investing. And a protection that the other investors in the fund are not unduly disadvantaged because we need to provide a higher liquidity for those that come in only for the short-term. So, that’s just really just a control mechanism. The front end is really just something that we provide our distributors. MoneySmarts: Is that negotiable? Roa: Our agents are commission-based. Some of them are insurance agents also. If you reduce the sales load, that comes from the commission of the agent. MoneySmarts: How much is the back-end fee? Roa: The back-end fee for the equities is 2% if its less than 2 years, and 1% if its more than one year but less than 2 years. The front-end is 2% for equities, 1% for fixed-income but if it’s more than P1 million, it goes down to half a percent. MoneySmarts: Isn’t this double dipping? Roa: The back end will not apply unless you redeem. MoneySmarts: You also have performance fees, right? Why? Roa: Some funds have incentive fees if they reach a certain threshold. Ours is one-tenth of 1%. Why? Because we’re not just riding the market. Like in the bond funds, if there’s a threshold, it gives them more incentive and us as well as a fund house to be able to reach that. It’s just an incentive, to do better than the agreed threshold. MoneySmarts: Isn’t that what you are supposed to be doing anyway, to beat the odds, to be better and better? Why do you have to charge the investor if you do better? Roa: It’s just an incentive. MoneySmarts: But you know that it is going to be a turn-off to some investors? Roa: You can turn it around and say, you can just do index. But a performance fee determines how you are going to do it, what you are picking so that you can go over and above a certain benchmark. If the market is doing good, any monkey can earn and just ride the market. MoneySmarts: Like last year? Roa: (Laughs). Yeah. MoneySmarts: What are the investment strategies of PAMI. Is it top-down, bottoms-up, value oriented? Roa: It’s a combination. You have fundamentals, value, technicals. There’s less reliance on technical and more on fundamental. But there is qualitative and quantitative. MoneySmarts: Why did you choose these strategies? Roa: That’s an AIG thing. Technicals is an analysis tool but if you really want to look at the value of a company, you have to look at the fundamentals. Technicals is all historical. You want to be able to look at expansion plans, borrowing, management and all that. These are things that are not covered by technicals. MoneySmarts: Why would an investor buy Philam funds? It’s your time to market (smiles). Roa: First of all, we have a long track record. The stability provided by an institution as big as Philam, affiliated with AIG. I’m convinced that as a mutual fund affiliated with an insurance company, we have more experience in managing long-term funds. The skill in managing long-term funds is more inculcated with us. Right from the beginning, we said medium to long-term, because that’s the insurance mentality. In Philam, you have a big name, stability, 60 years in the country, P150 billion in life business alone. In AIG global network, you have compliance, 650 billion in assets for our segment alone. So its really strength, stability, track record, that’s something you look for in any type of issuer. MoneySmarts: How correlated is your equity fund with the PSE? Roa: The Phisix has a large exposure to PLDT. Our equity fund is limited to a 10% exposure to each issue. It’s a challenge for us because we cannot just mirror and do as the Phisix has done. But we beat the index last year and that was through active trading and portfolio management. MoneySmarts: Investors can expect that some years it can be higher and some years lower? Roa: Yes, that’s why we also advertise cumulative returns because I wanted to stress that this is for the long-term. If you put your money in three years ago, and didn’t touch it, this would be how much you earned. It might be better than averaging, because this includes the dip of that particular year. MoneySmarts: How concentrated is your portfolio? Roa: We can’t exceed 10% per position. We have 80% is in government securities, 10% in money market and near cash. Around 15% is in corporates. MoneySmarts: Maturities? Roa: Average is 3 to 10 years? MoneySmarts: (Laughs) that’s almost everything. You have FXTNs? Roa: In our strategic fund. We have 78% in equities, 10% in near cash, a very small portion in FXTNs. MoneySmarts: What about your balanced funds? Roa: 60-40, more on equities. MoneySmarts: In your equities investments, how many positions do you have? Roa: 20-30 stocks all in all. MoneySmarts: What’s the buy and sell criteria. What does it take for a stock to be included in your portfolio? What does it take for you to exit a position? Roa: The investment process will determine if a stock is a good stock. Basically, we look for long-term value. MoneySmarts: How would you describe the risk profile of your funds? Roa: Our bond fund is conservative, balanced is moderate and equities are aggressive. That’s normal in the industry. We say it’s the most conservative because it’s invested in fixed-income. What people don’t realize is that it’s marked-to-market. But the way to counter that is to say, yes there is marked-to-market done on a daily basis but if you hold on to the bond for a 5-year period, at the end of the five year period you get the principal, plus all the earnings previous to that. So what we are saying is, even if it is the most conservative, it is highly recommended that we stick to the objective, the tenor, the time horizon so that you can actually benefit from the cash flow. Lets say Apex Mining is a bond, for example. It’s price dips but it has coupons naman. So in the long run, you’ll reap from the coupon plus you get the maturity value. It’s conservative because of that. I like the balanced. Everybody else likes equities. But I am conservative. I like the balanced because it’s a one-time decision, the fund manager determines whether they should be more into equities, or depending on the time that they revert to the fixed income. I don’t even look at the NAV on a daily basis. But it’s moderate in the type of risk because you’re exposed to both equities and bonds. But because its moderate, your returns are not as high as it would have been if you invested in equity. The equity fund is a high-risk, high-return investment. MoneySmarts: What about investing in purely equities. How risky is that? Roa: If you think about it, it will be more risky if your time frame is shorter. But if you really have a long-term horizon, it still is risky because of the asset class that it gets into. But that risk is diluted over time, and you have time for it to bounce back. There’s always a run every ten years. If your time horizon is 10 years, for sure you’ll reap from the run in the market in that time period. MoneySmarts: What is the principal driver of PAMI’s good performance over the last 10 years? Are your funds immune to what is happening outside the country? Roa: We are not immune to what is happening outside. We are looking at the impact of the US economy, whether there is going to be a slowdown, we are looking at the fall of mortgage interest rates. Definitely there is an impact. Feb. 28 the China sell-off, we all got affected. We are not immune to it. MoneySmarts: What drives the performance of the funds then? Roa: I think it’s the investment process that we have. Looking for value in the equities that we select. Our primary consideration is really to provide consistency rather than ride the volatility. MoneySmarts: What are the ways that investors can earn from mutual funds? Roa: You realize your gains when you sell. Dividends are plowed back into the fund. The same with the coupons of bonds. Whether through interest or dividends, earnings are all plowed back into the fund, reinvested by the fund manager into the fund. That’s why we don’t get anything. MoneySmarts: In the US, mutual fund investors receive earnings. Roa: That’s a feature of the fund. We are looking into it if that is something that would be attractive. This PMIF is a fixed-income fund that has that feature. If the fund has income, we give 90%. MoneySmarts: That’s very interesting. People are looking for alternatives, and there is very little in the market, especially for small investors. The development of the mutual fund industry would be beneficial for the small investors.

For someone who helps others build wealth for a living, Efren Ll. Cruz has developed a curious detachment from the glitter of money. The author of the best-selling book “Pwede Na: Pinoy Guide to Personal Finance” believes money is only a tool -- although a powerful one -- that handled well, should help more Filipinos inch closer to their dreams of financial independence. Easier said than done. Cruz, however, has mastered the “done” part very well. He shares advice freely to members of his huge yahoogroup on personal finance, he designed a personal finance calculator that helps people manage their finances and made this available as a companion software for his book. He writes regularly for INQUIRER.net without remuneration. That’s not to say that Cruz is “easy”. People consult with Cruz professionally for investment advice, trains the growing group of Registered Financial Planners in the country, being one of the pioneers in the financial planning industry in the Philippines. He set up Personal Finance Advisers Phils. Corp. in February 2006 to develop tailor-made personal finance solutions for Filipinos. “There has to be a balance between making money and enjoying your life. I have seen a lot of Filipinos in the opposite sides of the spectrum – either living without a thought for the future or earning so much money but turning on the airconditioning based on a certain thermostat level,” Cruz said. Cruz said becoming a miser is not the way to go. Nevertheless, the right knowledge about financial planning applied diligently in life is exactly what Filipinos need to build a life that does not revolve on living from paycheck to paycheck, he said. This desire to educate people about financial literacy is what led MoneySmarts to approach Cruz about coaching a young volunteer, alias “Sheldon”, who sent an email of desperation when he got a wake-up call after reading this blog, and decided he needed to be sober amid the sudden rise in his income. True to his word, Cruz agreed to work with Sheldon for one year, crunching the figures as well as carefully tutoring Sheldon in spending, saving, and investing, as part of his advocacy. “This is along the lines of what I do and I jumped at the chance of helping other people learn from the financial planning process,” Cruz said. Cruz also puts an emphasis on the need to promote ethical practice and professional advice in an industry that is still in its infancy – an important footnote in a country where Ponzi schemes and relationship selling is very common. Cruz himself holds a designation as a Registered Financial Planner and a member of the Financial Planning Association in the United States. He graduated fourth in the University of the Philippines MBA Class 1986 and has over 20 years experience in the financial services industry. He also holds regular seminars on personal finance to a wide variety of audience. His book, Pwede Na: The Pinoy Guide to Personal Finance became a bestseller two months after its launch and has sold 8,000 copies. Cruz said his advocacy on financial literacy began when he was in the business of selling mutual funds and experienced a difficulty because people did not understand the need for saving and investing. “I started writing then for BusinessWorld, and then gave a seminar on personal finance for DFNN and began writing the book. After that things just fell into place. It has become a very rewarding experience,” Cruz said.

I just got off the phone with Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. He is warning the public about Suise Financials (http://deutchfrancs.com), FrancSwiss Financial (http://www.francswiss.biz/) and other high-yield investment programs (HYIPs) in the Internet. “It’s an online Ponzi scheme. The Bangko Sentral, in coordination with the Securities and Exchange Commission, the Philippine Stock Exchange and the National Bureau of Investigation, is looking into this,” he told MoneySmarts. Ponzi schemes promise abnormally high returns that are paid, not through income generated from any real business, but from money coming in from new investors. Like the Multitel fiasco, this kind of business requires an ever-increasing stream of cash to survive. It’s doomed to fail because Ponzi operators usually disappear when they think the government is after them and because they find it hard to pay the promised astronomical returns when the incoming stream of investments slow down. Suise Financial’s website has in fact already been pulled out by the owners, only several days after MoneySmarts broke the story about it. I wonder if they will resurface. If they do, they will probably use another company name and another web hosting service. When I invest in the stock market, I go with companies I can grow with. I even avoid companies that have poor after-sales service. I understand that investing is a game, even in the stock market. But even games have rules. And even gamblers have a code of conduct. The best rule for me that speaks of real wealth that can be truly enjoyed, is the one that protects small investors -- even those that come in late in the game. Companies like Suise Financial or FrancSwiss Financial may have paid your commissions already. You may already be laughing your way to the bank with money that has been doubled in 22 days. I just hope you don’t find your cousin, your in-laws or hopefully not your retired parents, investing in this scheme referred by someone from your downline several times removed, after six months when it's about to go bust. Because go bust, it will. I have no doubt about that.