(FAST GROWTH. NSCB Secretary General Dr. Romulo A. Virola tells the press that the economy expanded by 7.3% in 2007, the fastest growth in 31 years. In photo left to right: NSCB-ESO Director Raymundo J. Talento, Dr. Virola, Secretary of Socio-Economic Planning and Chair of the NSCB Board Mr. Augusto B. Santos and NEDA-NPPS OIC-Director Myrna B. Asuncion. Official photo from NSCB.)

What do you know, while we were all worrying ourselves to depression, the economy grew 7.3% in 2007 – the fastest growth in 31 years.

Read this breaking news from INQUIRER.net:

MANILA, Philippines — (UPDATE 2) The economy expanded by a forecast-beating 7.3 percent in 2007, its fastest pace in 31 years, boosted by the services sector, the government said Thursday.

[Read the rest of this entry »]

Noet Ravalo is back, and in his latest column, revealed that he and his family “dissaved” over the holidays. Check out his column on the real point of saving for the future.

Here’s an excerpt:

Over the holidays, my family and I dissaved. We took an unplanned family vacation to see relatives and friends we have not seen in over 10 years. My family thoroughly enjoyed it.

[Read the rest of this entry »]

(Photo from AFP)

INQUIRER.net’s personal finance offering for the day has a quote that needs to be given the limelight as often as possible:

Some people reason out that with their meager income, they can’t afford to save. But the reality is, no one can afford not to save.

I realize that there are different successful strokes for different folks when it comes to savings. I am not anal with tracking expenses (just like All Financial Matters and he said it so nicely hehe) so jotting down each expense in a worksheet doesn’t work for me also. For others, that’s the only way they can save regularly.

The single most important tip I have heard so far on saving wisely is automating your savings. I was interviewing a newly wed couple last weekend and their eyes just lit up when I told them about automating savings.

It’s no big surprise why people like this tip. Budgeting is such a painful experience. Shopping on the other hand is bliss! So, the best way to save is not to let that money pass through your fingers. Automate your savings, and spend what remains the way you want to spend it! Simple, quick and easy.

How do you automate your savings? Let me count the ways.

1. Set up a separate bank account (passbook only) and write yourself a check for 12 months to the tune of whatever amount of savings you target monthly. Every payday works too. Treat this check as your most important “billing” for the month, second to tithes.2. Set up a separate bank account and program your payroll account to transfer a set amount to that separate bank account regularly, monthly. My checking account with Philippine Savings Bank has this feature. Many other banks already have this service also. If your bank doesn’t, maybe it’s time to switch!

3. Some mutual funds, unit investment trust funds, and variable unit-linked products also allow payroll deductions. This is another option.

For this to work, however, credit card debt and other high interest debt should be at a minimum. No use saving when you’re paying high interest on consumer debt.

Say this with me: no one can afford NOT to save.

Saving automatically will allow you to enjoy what you have. Shop, spend, eat with gusto, because you have already taken care of saving for tomorrow. Compare that with trying to track each little expense and scraping savings from the bottom. Nope, not for me. I like my steak eaten with a smile ☺

Our article from MoneySense today talks about borrowing money from credit cooperatives. Here’s an excerpt:

You join voluntarily. There are five kinds of coops: credit promotes thriftiness and creates funds to grant productivity loans; consumer procures for and distributes commodities to member and non-members; producer undertakes agricultural or industrial joint production; service engages in medical and/or dental care, hospitalization, transportation, insurance, housing, labor, electric and light power, communication, among other services; and multipurpose, combines two or more of the business activities of different coop types.

Your share is limited. As per coop principles reformulated in 1966 in Vienna, by the 23rd Congress of the International Cooperative Alliance, a member’s share is limited to prevent domination of the coop’s affairs by affluent members.

You share in the surplus or savings. The coop is designed to distribute surplus equally, again, so no member will gain at the expense of another. Surplus, upon agreement, are used to develop the coop’s business interest and provide common services to members. This will also help a coop avoid bad debts to stabilize its operations and assure its growth.

You can get training. It trains members to avoid lack of understanding of the principles, aims, and purposes of the coop; improper credit use (borrowers in rural areas are known to spend borrowed money for fiestas or luxuries). It also educates those who are interested in the principles and techniques of a coop.

You can get loans – and help an organization grow. A coop is touted to be founded for a noble purpose – even Jose Rizal, while exiled in Dapitan, established a community school and a coop store. Proponents of cooperatives hope to attract members with loans, as well as the mental and emotional rewards of supporting a helping organization’s existence or preventing its failure.

Let me add two points:

Know the management. The Philippines is a cemetery of many failed cooperatives. Most of the failures were caused by fraud. People running away with other people’s money. But that’s true also of banks and other financial companies, right? And even for banks and investment companies, knowing the management is still recommended.

Participate. If possible, participate in management. If not, be active in decision-making. Stay updated. Joining a cooperative means you want to be part of that community. That’s the only way these things can work.

Good luck guys! Have a great day ahead.

(Photo courtesy of Movietome.com)

This week has been quite crazy on the financial front. We saw another global stock market rout last Tuesday after an intra-meeting Fed rate cut that sparked renewed fears of a US recession. At least 24 hours after, we saw global markets recover, and at weeks end yesterday, several, almost unbelievable news.

On Wednesday, we had HSBC’s visiting economist Fred Neumann saying he was not even changing his economic forecast for the Philippines despite all the talk about an impending US recession. Early on Friday, Moodys Investor Service upgraded the outlook for the Philippines to positive from stable. A few hours after, the Government Service Insurance System signed an investment agreement with two global investment banks to invest $1 billion of its funds overseas–initially. All these while markets were still cautiously recovering from the sell-offs on Tuesday.

Here’s something that can help non-financial people understand sovereign credit ratings.

When Moodys, Standard and Poors and Fitch Ratings announce something, the market is all ears. In the late 1990s, they were severely criticized for failing to spot the debt excesses of Asia’s economies. When that criticism fizzled out, markets went right back at tracking what credit rating agencies had to say.

What these firms do in a nutshell is analyze the financials of countries and corporations that issue bonds. They give out ratings that are widely assumed to be independent and objective. These debt ratings influence returns on bond investments directly, and equities investments indirectly. I saw analysts from these firms descend on government officials like Men In Black, and we financial beat reporters shadowed them like little mice. One government official told me then that credit rating agencies charge quite a hefty sum of money to analyze and give out ratings.

Here are the ratings and what they mean, in English:

Aaa/AAA – debt that belong in this category are the crème of the crop. They are considered to have the highest credit quality, meaning there is almost no chance they won’t be able to pay their debt. For investors holding instruments with this rating, that means your money is very safe.

Aa/AA – “Double A” debt is still considered to be very safe investments, but with modest risk that may change from time to time because of economic conditions.

A/A – At this level, there’s already some risk associated with ability to pay but at very low levels.

Baa/BBB – Already a little bit risky and speculative, but considered still suitable for institutional investors. Risk of not being paid is higher when the economy goes under stress.

Ba/BBB – Risky and speculative. Overall quality may move up and down frequently.

B/B – there is real risk that obligations will not be paid. Investors have to watch debt in this category closely, because the quality fluctuates widely.

Caa/CCC – bonds are in poor standing. Some are in default. Others are in danger of default.

Ca/CC – highly speculative, often in default. That means, you as bondholder, wouldn’t get paid if the borrower defaults on its obligations.

C/C – with almost no chance of ever getting a better rating.

Sometimes, you see ratings like Ba1 or Ba2. Ratings agencies use numerical “modifiers” to further refine its ratings. Also remember not to confuse credit upgrade with an upgrade in outlook. Moody’s decision yesterday, for example, was to upgrade the outlook from stable to positive, which means there is a possibility Moody’s would upgrade the country’s credit rating within 12 months if the economy shows further improvement.

A dose of financial market irony: The Philippines is considered three notches below investment grade or a very speculative investment in global markets. In Philippine markets, government bonds are considered the safest.

Why would institutional investors buy Philippine government bonds, then? Debt instruments below investment grade offer higher returns compared with bonds with A-class credit ratings. When you hear bankers saying “investors ask for a higher premium because of the higher risk,” that merely means “you have to pay me more interest because I’m not even sure if you can pay me back!”

Here’s a summary of credit ratings from different ratings issuers, courtesy of The Bond Market Association (now the Securities Industry and Financial Markets Association and Blaha.com.

(It’s going to take smart planning, skillful balancing, focus and a steady temperament to weather the global financial crisis now worrying investors all over the globe. Photo from AFP.)

Back in grade school, “recess” was something you wait for and it involved chocolates, crunchy snacks and your favorite drink. These days, you grind your teeth and develop a crease on your forehead when you think about it. Recession, I mean.

How do we go about recession-proofing our finances? Here are a few tips I have gleaned from business chatter today in media:

Diversify. Now, more than ever, is the time to consider diversifying investment instruments (and even business opportunities) in both asset classes (bonds, currencies, stocks, funds, properties, commodities) and markets (Philippines, Asian markets, Europe, Middle East etc.) Agustin Davalos, Citibank Philippines’ retail bank director, told me in a recent interview that allowing investors to put their money in other markets is a major development that would tremendously improve opportunities for individual investors.

[Read the rest of this entry »]

(Investing can feel like going through a maze. Photo: AFP)

There was a “stock market bloodbath” earlier today at the Philippine Stock Exchange as Philippine equities tracked heavy losses across financial markets all over the world on fears – again – of a US recession. For sure, business newspapers tomorrow morning will be rife with discussion on how investors are facing their worst losses in recent months and how US President George Bush’s $140 billion economic stimulus package was ignored by the world.

As I sat quietly in my home-office to digest the news after a rather busy day, and watched a leaf from my Narra tree waft lazily to the ground, the thought hit me that it hardly feels “bloodbath-ic” in here. The world looks the same as it did yesterday and the day before. It certainly still feels like 2008 hasn’t arrived yet.

Then I got a harried text message from a friend who last year invested in an equity-laced investment instrument. “I’ve lost so much money! Should I withdraw my investment?”

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Within the industry of pooled investment funds, there’s competition between mutual funds and unit investment trust funds (UITFs) for investors’ money.

UITFs have one very big advantage. Banks have access to deposit accounts. Depositors often get calls from a bank branch officer and offers to invest in a UITF. Problem is, back in 2005 when UITFs were first offered, very few of those bank officers knew what they were offering.

“Hello ma’am. I notice that you have such and such amount in your deposit account with us. Would you like to put this in an investment instrument that gives such and such return?” was a common opening line among bank officers.

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Check out my article on the Philippine results of an 11-country Citibank survey on financial intelligence. The results were very revealing, and quantified in figures what we all suspected.

Here’s the link: 8 out of 10 Filipinos worry about bleak retirement–survey

And here’s an excerpt:

MANILA, Philippines – Eight out of ten working, middle class Filipinos believe they face a bleak retirement and more than half expect to be supported by their children in their old age, results of a Citibank survey showed.

[Read the rest of this entry »]

For many Filipinos, stocks, bonds and mutual funds sound too complicated. Bank deposits are still the darlings of saving and “investing” and lately, they have been getting a facelift. Yesterday, they were marketed directly to Filipinos working overseas.

Long-term negotiable certificates of deposit, bankers call this product. Trust bankers and investment managers to come up with a mouthful of a name! MoneySense says if you want an easy way to remember, break it down per term.

LT is for long-term, N is for negotiable and CD is for certificate of deposit. In other words, it’s a hybrid product. See that wasn’t so hard, says MoneySense. Right on!

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