Where should I put my money?

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.

Noet Ravalo says:

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?

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