Let’s get one thing out of the way. Saving and investing are not the same, although they are both important and part of the same spectrum. Sometimes, we feel like we are investing, when actually we are still in the saving stage. Getting mixed-up over the two raises expectations that are not unrealistic.
This list of options in the Philippine setting is not by any means exhaustive. It includes the major savings and investment instruments. Where would you draw the line to separate the savings from investment products?
1. Cash. Yep, I just learned last weekend that some Filipinos still prefer to keep their money in cash at home, fearful even of the possibility that they will lose money deposited in banks.
2. Deposit products. These range from savings and ATM accounts, to checking accounts and time-deposit accounts. These are the most popular financial products in the Philippines, but they typically give returns ranging from 0 to 6% as of today. Cooperatives also have some deposit products sold only to their members.
3. Deposit products in different currencies. Although multi-currency accounts have been around for ages, not a lot of Filipinos take advantage of them.
4. UITFs and Mutual Funds. These are pooled, managed funds that have slowly been gaining popularity especially among the emerging middle class which includes overseas Filipino workers. Money invested in these funds are not guaranteed by the Philippine Deposit Insurance Corp. (PDIC) and the principal is not guaranteed unlike deposit instruments. UITFs are sold in banks, while mutual funds are sold by mutual fund companies.
5. Treasury bills and bonds. These are government debt securities that give regular income, and present the investor with possible earnings from price and interest rate fluctuations. Treasury bills are those with a life of less than a year. Bonds are those with maturities of 2 years, 5 years, 7 years, 10 years and 20 years. They are sold through banks.
6. Corporate bonds. When you buy corporate bonds, you are basically lending your money to companies. Interest rates are the most important indicators to watch when investing in Treasury bills, government bonds and corporate bonds.
7. Stocks. Buying stocks allow the common investor to become a part owner in any public company. The attractiveness of stocks lie in possible share price increases and cash dividends. This instrument is riskier than bonds, and therefore carries a higher probability for earnings.
8. Properties. The real estate sector has a cyclical nature, so many of those who invest in properties expect to benefit from selling properties when the industry is on an uptrend. Those who belong to the older Filipino generation are more comfortable with investments in real estate.
9. Some believe jewelry, paintings, coins and other collectible items are also investment instruments. True or false?
10. Own business. This is a different kind of animal and carry a different amount of risk compared with items one to ten.
How you choose to divide your money among these instruments is a highly personal choice. Some get rich just by focusing on properties and their own businesses. They don’t invest in stocks because they don’t feel comfortable with the stock market. Some try to reach financial independence by buying stocks because they like the feeling of being a “player” in the stock market.
For me, dividing the pie into three main chunks works. One chunk is for pure saving which is what I use for any unplanned expenses, from spaghetti meals to those branded stuff that we end up getting at a moment’s notice. The other is for pure investment, which is for the kids’ future and our retirement as best we can provide it. And the third slice is for those rare episodes of wanting to be a Soros-wannabe. This third slice is a spare for me and is the smallest both in relative and absolute terms.
What’s the best strategy for you?
September 28th, 2007 at 10:54 am
[...] Dingman wrote an interesting post today on Comment on Where should I put my money? by RaffyHere’s a quick [...]
September 27th, 2007 at 11:17 pm
Where should I put my money? I guess Salve gives a very good and comprehensive options for filipinos these days. However, a few more things that you guys might want to know when it comes to money matters.
1. You must be aware that you basically have three sets of money:
Short term: these are money you used to pay for day to day expenses which includes bills, food, transpo, utilities, etc.
Medium term: these are money that you will be needing in 3-5 years time, which includes car loans, housing loans, installments, start up business, investments
Long Term: these are money which you will need to secure your retirement, your children’s education, housing loans (bigger), etc.
But the first thing you need to have is “SAVINGS”, which means that your income (where from your employment or whatever sources) must be more than your expenses. Otherwise, what you will have is only enought, or may not even be enought, for your day to day expenses.
Now, for you to have savings, there are two basic ways:
1. Minimize your expenses
2. Increase your source of income
One way or another, you’d have to choose between the two. Or better yet, if you can do both, that will work wonders for you.
Now, we spend our lifetime working out butt off, just to earn a living. That is what we call “Working for Money”, which is the first step that everyone has to go through. But there are some who doesn’t get out of that stage. The remain to work to money their entire life until the time that they are not capable of working anymore. In which case, the burden then falls to their children, then to their children’s children.
A wiser method would be “Letting your Money Work for you.” How? Different books have been written to show you how to let your money work for you, this is where investing comes in. But in investing, you will need knowledge, expertise and time to be able to maximize your investments. And sad to say, not everyone of us have all three components. Maybe some may have the expertise and knowledge, but doesn’t have the time to do it. While most, have the time, but doesn’t have the knowledge to do so. This is where financial advisors, financial consultants and financial planners come in.
I guess some of you guys are getting bored already. So I’ll end here in the meantime. But for those who are interested to know more, feel free to drop me a comment or so?
Raffy
September 24th, 2007 at 4:06 am
The reason it is necessary to have a model is to give the effort of accumulation a backbone to stand on. Part of the preliminaries, for example, is to identify the specific purpose of the accumulation. The purpose must be strong enough to last till it is achieved. Otherwise, it becomes subjected to the psychology of present enjoyment and the accumulation for the future will not happen.
September 23rd, 2007 at 8:56 pm
If the aim of saving and investing is accumulation for the future, it is extremely important to have a well-thought-out wealth accumulation program that is based on a structurally-sound model. One such model is the trigon ()where the future financial requirements are identified and arranged from base to apex according to immediacy, criticalness and importance. One may divide his trigon model into five parts and allocate funds for each part. Funds for the “needs” are placed in guaranteed or near-guaranteed forms such as insurance contracts, savings accounts, highlyliquid time deposits and those for the “wants” are placed in higher-earning though somewhat risky vehicles such as uitfs, mutual funds, variable contracts, currency deposits, business, etc.
The logical first approach to serious wealth accumulation is to seek the advice of a reliable financial planner.
September 22nd, 2007 at 6:22 am
[...] unknown wrote an interesting post today onHere’s a quick excerptAt first, she was also not in favor of the other mutual fund companies’ policy of deducting front-end fees from our invested funds because our first mutual fund company never collected a fee. To my desperation, when my explanations … [...]
September 21st, 2007 at 8:18 pm
[...] Mike wanted to know: Where and how do I get corporate bonds? Are they available in small amounts e.g. [...]
September 21st, 2007 at 3:19 pm
[...] Daniel Jalkut wrote an interesting post today onHere’s a quick excerptHi Salve, I’m really thankful for this blog and the Personal Finance column. They really help me a lot in convincing my wife to agree with my investment decisions. And for a couple who started from almost nothing, I consider her … [...]
September 21st, 2007 at 12:54 pm
I don’t have any stocks or mutual funds. I sold all of it long before the subprime mess. Heaviest in real estate. Also have deposit and business. I think it’s a good mix. Depends really on your risk appetite.
September 21st, 2007 at 9:08 am
[...] Money Smarts : Where should I put my money? [...]
September 21st, 2007 at 4:38 am
Hi Salve, I’m really thankful for this blog and the Personal Finance column. They really help me a lot in convincing my wife to agree with my investment decisions. And for a couple who started from almost nothing, I consider her skepticism a very valid one.
Since I started working, I made it a point to set financial goals for myself of how much to achieve by the time I reach a certain age. It was very difficult from the beginning but once you put your mind into it, everything seems to fall into place. That’s the reason me and my wife were able to accumulate some funds set aside for investments. Although the amount is not that big, at least we are able to hit the goals we set for ourselves.
There was a time when she hasn’t gone past the “savings” mode yet and I started to diversify our investible funds into different investments including mutual funds, trying to fit it with the risk ratio relative to our age (early 30’s) to maximize ROI. I have to defend very hard my investment decisions to the point where we almost had a fight (but never really got there) as she was not comfortable with the associated risks on the investments. At first, she was also not in favor of the other mutual fund companies’ policy of deducting front-end fees from our invested funds because our first mutual fund company never collected a fee. To my desperation, when my explanations seemed not to pass her critical or let me say uninformed judgment, I tried digging up all investment articles I can find from the Personal Finance column and this blog and use it as my back up information for her.
Thankfully, I think it worked ‘coz after that she started investing some smaller funds by herself albeit she told me after she’d made them. I usually don’t agree of her timing of getting in but I let her do it so she would understand how the market works and so far, she didn’t get bothered when her investments looses a bit for the first few months as she knew that they will recover in time. I also let her invest in real estate and so far she made good at this one.
I’m still midway into my investment plan and have fully explained the purpose of it to her. I hope she wouldn’t be that hard to convince anymore, especially now that she started seeing the returns of the previous ones we made.
In the meantime, I’m burying myself at work so I can achieve my plan.
More power to you…
September 20th, 2007 at 7:25 pm
where and how do i get corporate bonds? are they available in small amounts e.g. 5000 pesos like RTB?
September 20th, 2007 at 6:38 pm
Great tip! thanks!