February 2008 Archives

If credit cards were horses, I would be crucified by animal lovers the way I’ve been repeating again and again that credit card bills should be paid in full every month. Banks don’t like me very much when I say this, and in fact a friend who is also a banker told me (very nicely but with a hint of acid hehe) that she would like to turn over my account on a silver platter to a competing bank. Don’t get me wrong. I love my credit cards. I get free tickets to Butuan and Boracay every other year. I get cash rebates too. I manage my cash flows more easily and I don’t rush to payment centers anymore when Meralco says it’s time to pay up. If I could pay parking fees at the mall with my credit card, I would. But as much as I love those shiny plastic things, I hate paying interest more. Think of this, if you have a P30,000 balance in your credit card and this has been going on for a year, you could have saved at least P12,600 just by paying interest the balance in full. And just to keep it simple, that computation is on straight interest, not even compounded interest. Imagine how many pairs of shoes you can buy with that! (Greedy laughter)

(We can't be too careful in protecting our homes from "intruders". File photo from Agence France Presse) It was funny on television. You know, the one that showed a helper blowing the scam artist's cover with her employer's IDD caller ID? But in real life, it didn't make me laugh. I never thought it would happen to me, but it did a few years ago. Then yesterday, a friend sent an email to tell me the Dugo Dugo Gang is still alive and that she had been victimized that day. I thought, they are still alive??? And how in the world do they manage to victimize so many people when their modus operandi is very well-known! We both thought it would happen to someone we knew, but never to us. In my case, it happened several years ago. Someone called the house while I was away, pretending to be my husband. He said he was in a car accident, injuring a young kid and that he lost several teeth that is why he couldn't speak well. Then he instructed the maid to get jewelry and cash from "the drawer" and bring these to a particular street corner in Caloocan or else the kid's parents would ask the police to put him in jail. (Nice little detail to add some pressure huh?) He also asked her not to let me know where she was going because I have a heart problem. Oh, and he added that because our youngest son was sick that morning, the maid should bring him along. The last detail just made me freeze all over. Yeah, he knew a lot of things about our household. To convince the maids, he called them by name, described what they were wearing, and that they normally go to certain places regularly. They described the errands the maids do regularly. I arrived in the nick of time, thank goodness. She already had several valuables ready, but thankfully she had decided not to bring my son. When I walked in the door, she asked me to sit down and not to overreact because my husband had a car accident. I looked at her and told her it was a scam and that I had warned her about it many, many times. Apparently, warnings weren't enough :-( My friend was not as lucky. Her helper broke down her dad's safe and the scam artist got away with his watches. The police told us that these are common in Metro Manila and they strike anywhere -- from gated subdivisions to communities without security guards. Before they make the call, they put your household under surveillance for several days. Sometimes, the policemen said, someone posing as a helper will talk to your helper to get information on what time you leave the house, what time you arrive and other details you will never think can be used against you. IDD may help, but it's better to warn your helpers and train them too. Test their alertness level. Call and pretend. Hopefully, they will not fall for it when it's no longer a drill.

A reader, Peter, alerted me that SM City North Edsa has a recycle drive going on. Check out how to turn your trash into cash! Ahh...errr...don't come anymore if you're from Cavite unless you have a big truck of trash hehe.

BY MALAYA LARAYA I recently conducted a half-day seminar on financial planning for some professionals and it was a rather enlightening experience on the mindsets of people when it comes to financial planning. As always there was an open forum at the end and quite a number of questions were asked – some were the usual and some were rather unusual. So for those of you who may have had some of these questions in mind but didn’t know who or what to ask; here is a small FAQ on financial planning. What is the best investment? This is definitely the most common question that has been asked and the short answer is this : There is none. More specifically, there is simply no investment tool that is the best for all people all of the time. There are instead, instruments that are best suited to each individual’s particular needs, plans and current financial condition. Simply put, what is good for your friend, spouse, relative, lover, workmate, neighbour or child may not necessarily be good for you due to the undeniable fact that you and your friend, spouse, relative, lover, workmate, neighbor or child are two different individuals. Consequently, the two of you will have different sets of wants and needs at different times and will therefore need different solutions. Therefore, be very wary of anyone who tries to sell you a panacea for all of your investment needs as it simply does not yet exist. Where can I get information about (x)? Despite the fact that we are very much in the online age, very many people still do not know where to get even the most basic information about financial products. From equities to managed funds to pre-need plans; people seem to be at a loss as to where to go. Here are some websites that you can visit as well as what you can expect to read. For Equities : 1. www.pse.com.ph : This is the Philippine Stock Exchange’s official site. Lots of content from latest market news to an online trading simulation. Best site for IPO news as well as corporate changes such as cash and stock dividends. The bad side is that the site is sometimes abysmally slow and their market ticker has been known to display faulty data. For UITF’s : 1. www.uitf.com.ph : This is a site run by the Trust Officer’s Association of the Philippines or TOAP. Site contains basic information about UITF’s as well as links and info about the participating companies’ UITF’s. Not a very nice site as quite a number of links are broken and there doesn’t seem to be a way to compare fund performance between different banks. All in all, about 17 banks are participating so this is still quite a good source of preliminary info. For Mutual Funds : 1. www.icap.com.ph : Maintained by the Investment Company’s Association of the Philippines, this site lists a pretty large number of funds dividend by their primary investment type – (Equity, Balanced, Bond, etc.). Has a pretty good primer but the heart of the site is the page detailing the returns of each fund. This site allows you to directly compare and contrast different funds so it is easy to see which funds in each class have been performing the best over the short, medium and long-term. Are investment returns guaranteed or risk-free? The short answer here is no. In the interest of public safety though, here is a breakdown of common investment products and the answers for them. EQUITIES: No broker, agent or salesman is legally allowed to guarantee the performance of any stock. MANAGED FUNDS: Regardless of whether the fund is a Mutual fund, a UITF or some other managed fund; managers are not legally allowed to make any guarantees about a fund’s performance. BANK PRODUCTS: Savings accounts, time deposits and other bank deposit products are allowed to make guarantees. To be certain, check the fine print. PRE-NEED PLANS: It depends. Certain pre-need plans promise a fixed return after a specified period and that is ok. Other plans promise a return based on the performance of a pre-determined standard and a guarantee for those products is not ok. As a rule of thumb, check to see if the words “Past performance is no guarantee of future returns” or something similar appear on the materials given to you by the salesperson or agent, then they are not allowed to guarantee any return. Where can I get (x)? Quite often, after you have decided to get a certain product, finding someone who actually sells that product is quite a chore. Here are some ideas on where to get certain products. BANK PRODUCTS: Not surprisingly, you get bank products from banks. However, aside from savings, checking and time deposit products, many banks also offer other, more sophisticated stuff. To start, go to your bank’s branch and ask if they have any retail investment products available. Most often, they will offer you their UITF though the really big banks will probably offer you a lot more options. MANAGED FUNDS: UITF’s are sold by banks so if you are interested in them, go to the nearest universal bank. Mutual funds are sold by investment companies and they are slightly harder to get hold of. You can begin by asking within your social circle as it always helps if the agent is someone you see regularly. Failing that, you can go directly to the investment company’s head office and open an account there. PRE-NEED PLANS: If you live or work in the Philippines for a significant amount of time, it is almost 100 percent sure that you will know someone who sells a pre-need plan of one kind or another. Just send an email or text to everyone in your address book and there will be someone there who either deals in these products directly or knows someone who does. STOCKS: You can either sign-up at one of the online brokerages or you can troop over to one of the two trading floors (Ortigas or Ayala). Should you choose the latter, you can ask the guards at the ground floor to point you to one of the brokerage houses in the building. To open an account, you will basically just need your tax identification number and two government identification cards. Some brokerages will also require a minimum investment account though not all do so. That’s about it for now, if anyone has any further questions, post it here and I’ll try to answer it in a future FAQ. Safe investing everyone.

My 2-year old son was hospitalized again last week and it got me thinking about whether it makes good sense to get a health card. When my husband and I decided to enroll the entire family into his company’s health program, we did it mostly for our peace of mind and not based on some proof from an Excel worksheet that it will eventually pay off. Unless you know how often your children are going to get sick, I don’t see any way of finding out exactly if the P1,500 per month expense for all our health cards will be worth it. Based on simple computations for 2007, it appears that getting a health card worked for us – at least for last year. Consider the figures: Our annual payment (Feb. 2007 to Feb. 2008) amounted to = P18,000 All our hospital bills for the period including doctor consultations covered by the HMO = P35,774 Dental consultations and cleaning = P2,700 Total expenses versus payments = P38,474 versus P18,000 Not bad. I’m sticking with an HMO despite some bad rap on the industry in the media. I will just have to make sure I only get one with good reputation. For those who are looking for a good HMO, most of the well-known companies are listed in this website’s directory. The Department of Health website also has this PDF file of HMOs. PDF file of HMOs

…is that there is none. At least, that’s what Johnny Noet Ravalo says in his latest column “What kind of investor are you?”

Your investment strategy will be driven by how much resources you can invest (i.e., what you have), how much you want to attain (i,e., what you need) and how much time you are willing to allot (i.e., your investment horizon). No matter how the investment gurus package their own secret method, all that has been said of investing invariably goes back to these three items. Think of going on a trip: you want to go somewhere from where you are right now and you ask yourself what travel arrangements can be made.

Aww… Noet took away what most of us media persons love to write about. “HOT” investment tips, the darlings of the market, the favorites of the season. You all know how much those headlines lure in readers! (laughing at myself) It’s so much easier to write about hot investment tips than go into the details of why it is important to have an investment objective, and figuring out different investor types and risk profiles. Most people find the first sexy and the latter just plain boring! But we gotta do what we gotta do, right? We gotta go into the boring and bland stuff if we really are to help in bridging people to their financial dreams, and thus help them enjoy life with less worries. Noet wrote about four investment types. In this article, he discusses why it is important to know in which group you belong. Haves: high net worth individuals who are typically clients of banks’ private banking unit.

HNIs already have lots of savings and have a high income to go with that. This gives them the twin luxury of having a significant stock of investable funds and a strong recurring flow of new saving to either add on to wealth or replace any depletion of it. Without a doubt, they belong to the group I call the “Haves”. For this group of investors, returns at par with Treasury Bill rates will be too low. They would be interested in more “sophisticated” instruments, derivatives, FXTNs, structured products among others. The complexities of these instruments coupled with the ability to invest long-term makes it worthwhile for HNIs to delegate the task of monitoring and managing investment information to a preferred financial specialist. For HNIs, the opportunity to garner better returns must come at the price of more risk and a larger minimum investment.

Getting There: Has enough income to live comfortably but has not accumulated wealth at the level of the “haves.”

Having more income than they can spend and consciously looking out for their future, the investments profile of this group tends to cover a wide range of instruments. This does not mean that they will splurge on every new offering in the market. The tendency is to get a feel of the instruments available with a little-of-everything approach. Access to information separates the “haves” from the “getting there group”. Those in the latter will have some access to investment information but they often have to gather these on their own. Without a Relationship Manager to help them, this may involve a lot of self-study or finding things out within their network of peers, both professionally and socially. This makes them vulnerable to investing with the herd. When things turn badly in the market, those who have better or advance information can shield themselves; those who have delayed information are the ones who bear the largest burden of a loss.

Liquidity Savers: Most Filipinos are still in this category. Deposit in the bank ranges from a few thousand pesos to more or less P250,000 and most of the salary is used for regular expenses.

For “liquidity savers”, income tends to be modest and therefore cash flow and preserving capital is the dominant concern. With a lot of perseverance, good health and kind luck, savings can quietly accumulate over time specially once the children take on regular employment. Investments – if any – will be limited or conservative.

Currency Converters: overseas Filipino workers who have to contend with exchange rate risks.

With “currency converters”, the issue remains unchanged: they earn in one currency and remit part of these earnings to dependents in the Philippines. Their concern, therefore, is not just about financial instruments but also the choice of currency if they invest and/or the timing of the currency conversion if they want to remit into the Philippines. Distance is obviously an issue and so access to reliable information and monitoring are huge constraints.

So…where does that leave us? When faced with the “It depends” answer:

“It depends” isn’t the cop out that it looks like but a healthy reminder that you would have to respect details before making any investment. Once you have done this honest assessment, you could now consider fine-tuning the investment options out there to the resources that you possess and the considerations that matter to you.

Here are some questions you might like to ask yourself if you want to know which group you belong to:

• are you generating regular saving from your work income or some other source?
• how much will you be investing?
• do you foresee a regular or periodic amount of saving that you can invest?
• what factors do you consider yourself sensitive to?
• how big a loss you can afford to accept just in case things do not work out?
• do you wish to generate periodic returns?
• for how long do you want to keep your investments?
• how do you react to uncertainties?
• how much access do you have to information?
• do you expect to actively participate in monitoring and managing your investments?

Feel free to discuss your answers here in MoneySmarts ☺. Who knows, Noet just might answer you directly. To read his column, click here.

What do you do with your broken down refrigerators, air conditioning systems, electric fans, television sets and other appliances around the house? Do people still get them fixed or is it too much of a bother? My 10-year old television set, for example, finally broke down and I asked a neighborhood electrician to come to my home to fix it. I paid P1,500 and after a few weeks, it broke down again! I asked another electrician to fix it and he billed me P300 and it worked for one more year. Last December, my beloved Samsung broke down again and I was just too lazy to go through the whole process. I sold it for P250 and bought ice cream for the entire family. Bah, good riddance, I thought. Then again, perhaps I was too lazy to be money-smart! So my frugality tip for the day: get a good electronic guy and give that old appliance another lease on life!

From other bloggers:

Joelle of Mommy Banker suggests ordering water when eating out. For those who own restaurants, you know this is sage advice ☺ That fun-looking concoction with sliced fruit on top is grossly overpriced most of the time! Ria suggests bringing only the exact amount when shopping or doing the grocery. I had to laugh at myself, Ria, when I read your tip because simple as it may sound, it’s really tough to do! But oh so good for the wallet. Cezar suggests using Quicken to make sure you keep track of your spending. Sigh. I’m baaaad at keeping track of spending, but I promised to do this last year. Let’s try again. Paetechie's post on a deceptive sales presentation from a Fern-C agent says we can be frugal by not being easily taken in by sales persons. Save me from TV shopping networks!

(Cool piggy bank. File photo from Agence France-Presse) 9 weeks: the average Filipino’s rainy-day fund Saving money, Financial Planning I have a friend who loves rainy days. She loves the sound of raindrops on her car, her windowpanes, the street – just about everything! I too find the rain very “senti”, uber-relaxing and it puts me in “emote mode” hehe. Helps me to put words on paper too. But rainy days of the financial kind, that’s another thing. I can’t imagine anyone liking them. They strike suddenly and ruthlessly – and you don’t know long they will last. Remember the recent study by Citibank that revealed Filipinos have low financial IQ? There’s another revelation in that survey that says average middle-class Filipinos have on the average nine weeks’ worthy of rainy-day funds. On the one hand, I found it quite comforting that average, middle class Filipinos have a rainy-day fund at all! On the other hand, that fund won’t see us through those dark and depressing days. As you all know, the prescribed amount is three to six months worth of living expenses. The baseline is not your salary or earnings from business, but living expenses. Here’s a thought: do you know how much you spend monthly? If all you have is a vague figure, get your pen and start jotting down monthly expenses. I have previously written that putting your money in mutual funds, bonds or equities is foolish if you don’t have an emergency fund first. You don’t want to be caught needing cash when the market’s down! Our personal finance feature for today from Citibank says:

Nine weeks. That may not be enough to get back on one’s feet. Thus, there is a need for an emergency fund that should cover anywhere from three months’ to six months’ worth of expenses. This will help you tide over the tough times until you get back on track. Besides, borrowing money to cover emergencies will cost you more. Should you save for three months’ or six months’ worth of expenses? Some financial experts advise only three months’ worth of expenses in the emergency fund if you are employed. If you are self-employed, they say you’ll need six months’ worth of expenses. But of course, the more you save, the better. You do not know when bad things may happen and for how long they will last. Save at least six months’ worth of your expenses — living expenses, bills, saving for a child’s education, and the like. As to your big challenge: How to save for an emergency fund when there doesn’t seem to be enough funds in the first place. Here are some tips: 1. Stick to your goal. If you say to yourself that you will start an emergency fund, be committed to do all it takes to fulfill that goal. 2. Review your obligations. You mentioned that you have “so many other obligations.” Study your list and find an expense you can cut down. For example, if you haven’t been going to the gym at least three times a week, then you may be better off canceling your gym membership. The savings you will get from canceling the monthly dues can be channeled to your emergency fund. You can find another exercise alternative that won’t cost you money, such as walking in the park. 3. Before spending anything for the month, save first. Once you get your paycheck, set aside some money for your emergency fund. Start with at least 10 percent, and increase it as you free up more obligations. Making saving a priority will be beneficial for your financial future. 4. Open a separate account for your emergency fund. This will help you to avoid dipping into your emergency fund for living expenses. 5. If you have a sideline income or receive a windfall (example: bonus or prize money from a contest), use this to pay off your debts, then put the rest in your emergency fund. 6. Cut down on expenses that you can do without. These may include weekly trips to an expensive coffee shop, or going for designer clothes. Just think: if your family is in need or has an emergency, you wouldn’t even think of these things. But you will rack your brains thinking of how to meet the family emergency with your meager funds. Thus, prioritize the emergency fund.

If you or anyone you know is struggling to set up an emergency fund, how’s this for motivation. Forget the three to six months rule of thumb for the moment. Just start saving any amount upwards of P1,000 this payday and move on from there. Start with small steps and give yourself a pat in the back afterwards. Consistency is what matters most. You’ll find it easier as you go along. Good luck!

For the past three years, I’ve been paying P126 per week for each kind of newspaper delivered to my doorstep. That’s P6,552 per year, P13,104 yearly on two newspaper subscriptions. Aside from that, I buy Forbes, Fortune and The Economist from the newsstand when I like the cover. Lately, I realized that I can save more than 40 percent by subscribing directly from these companies instead of buying from the neighborhood delivery boy (in my case delivery lola) or getting my copy while waiting for my turn at the cashier in the grocery or the bookstore. Even better, I can save 100 percent by reading articles online via their websites or subscribing to their RSS. I work for an online media publication so that was, of course, a duh moment! My rationalization was that the adverts are news for me too, so I did need the hardcopy of the newspaper. Plus, I wanted my 13-year old daughter to talk intelligently about GDP, inflation and what’s going on with San Miguel Corp. as well as the newest stuff from Pugad Baboy without having to spend too much unmonitored time on the Internet. Breaking the news to my newspaper delivery lola, though, was very tough. I almost decided not to go through with my plan just to avoid disappointing her! I don’t even want to remember the look on her grandson’s face. But I did it. I cut my subscription for one newspaper and thanked the IT lords for this thing we call Rich Site Summary Really Simple Syndication (you can tell I'm not a techie, huh) or RSS. Then I subscribed directly to the other one and found out, to my consternation, that for three years I had been paying P13,104 and was not getting what I was paying for! For that price, I should have read Sunday magazines and other inserts that I was not getting from the newsstand. I also discovered that many online publications offer more features than their print counterparts, like the Wall Street Journal, International Herald Tribune, and the Daily Tribune. Free stuff with more value! Fifteen years ago, that would have been unthinkable, but that’s technology for you. Managing subscriptions and limiting media is an almost painless way to free up quite a substantial amount of cash. I saved enough to buy some more shares in a mutual fund company.

 

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Every fourth week of the month, I will share tips on being frugal and give you all a chance to share yours. If you are a blogger, simply write your tip in your blog on the same week, and send me a link by emailing lightdream (at) gmail (dot) com. For blogs on personal finance that I constantly read, no need to send me the links. As our personal finance article from MoneySense today says:

Money is a struggle many people face, and the struggle becomes more difficult when you don’t really have any idea where your paycheck goes. But saving is not only good for your wallet – it’s also good for your mind.

More frugal living tips from the article here. The best frugal tips from MoneySmart readers shared at the end of my previous post on Misers and Money: Edzmaya: Commute, use common plastic bags instead of buying garbage bags, recycle post-its, recycle gift-wrappers, ribbons and gift embellishments. Nina: Don’t withdraw from other banks’ ATM. Omski: Turn off lights and electric fans after using, fix leaking faucets, use fluorescent lights, walk more, do garage sales every two years and don’t spend the earnings, bring a list to the grocery and stick to it. Eicon Aviva: recycle Christmas gifts. AJ: Put water on ketchup bottle to empty it, make fried rice from leftovers and recycle plastic and glass bottles, styro, trays, old school bilaos and other stuff from take-out food. You know those termites that eat perfectly good looking blocks of wood? Sometimes, our personal finances can be like that. We don’t realize that we are losing money from little stuff that we have overlooked. So share your tip so we can all keep the financial termites away!

When it comes to investing, or even financial planning in general, people want to be told exactly what to do. We ask where to invest our money and how much, which bank to approach for advice, which stock to buy and which book to read. At INQUIRER.net, I get an average of 50 questions every week from Filipinos in Hawaii to Ireland, Qatar to Singapore asking for advice regarding their personal finances. I consider it a great privilege to be trusted with the information they give. At the end of the day, however, I am hoping that our panel of experts are teaching the broad strokes and sound principles that would help readers make their own decisions in the future, not just the specific tips and strategies our readers crave. As Generali executive vice-president Augustus J.V. Ferreria keeps on telling me: a real financial professional would teach his client the principles so the client can continue practicing good financial planning even if their working relationship is over. In his column this week, Ask Dr. Noet’s Johnny Noet Ravalo tells Erick he can get his feet wet in investing through time deposits and Treasury bills, and other conservative investment instruments to give him a feel of what investing is like. He even went as far back as addressing the need for advice on how to save in the first place: save with an end goal in mind. However, as Noet says the heart of it all is financial literacy. The article says:

At the heart of the issue is financial literacy and what drives that is information. The great majority of our investors --- existing and would-be ones like Erick --- do not have access to information on all the options available. Since money is comparatively tight and the complexities of the financial market can be intimidating, liquidity will be a primary concern. But in this situation, keeping tabs on market changes is important. Unfortunately, access to these information remain very uneven.

I would like to think forums and blogs on personal finance, wealth management, investing, help in making information more accessible to the public. There are new ones coming up everyday. They should not be the only source, of course. But there’s nothing wrong with grabbing every opportunity to inspire someone to be more responsible with his finances. Just recently, Income-Tacts made its debut. I also recently discovered Absolute Traders, which aims to help people on personal finance and investing. Those who have websites and would like to be reviewed, drop me a line at lightdream (at) gmail (dot) com. I like the way Noet ended his column.

The fact that you are asking is a very good sign. But for the question to have any real value, you will have to act on it. Let me end by tempting your imagination. Can you imagine what the cumulative value would be if you invest P10,000 a month regularly for 1-month placements and continuously rolling over at a modest 3.0 percent per year for 30 years? It is P5,841,937.27. Not bad, don't you think?

Some of the steps we may be able to make at certain points in our lives may seem small and insignificant. But every little achievement can go a long way!

(Can you handle the wild ride in equities? Photo from AFP) Good investment advisors will never forget to tell you that potential gains in the stock market are interminably intertwined with potential losses. That is what TraderPinoy was saying in his comment here. Before considering the stock market, ask your delicate stomach if it can handle the wild ride so common in equities. You will notice this warning is NOT in fine print, so don’t allow your eyes to zoom out. Take your time… there’s no hurry. If it can stomach the risks, here’s an excerpt from an article from INQUIRER.net that seeks to help beginners get their feet wet in the market. You can read the entire article here.

Question: I have been working for the past five years and have been saving money in the bank. I now want to move some of my savings to other investments. They say investing in the stock market is good, and that this is a good time to buy. But I don’t know how this works. However, the thought of owning company stocks excites me. Please explain how the stock market works and how one should invest in it.—BernadetteAnswer: Many people find it exciting to invest in the stock market. Think about it — the concept of owning a portion of the fast-food outlet you go to, the airline you patronize, and the bank you have an account with and so forth makes you feel that you’re on the right track when it comes to finances. You “own” something big and that feels good. And that’s exactly what owning shares of stock is — owning a portion of a company. You can be a stockholder by joining a corporation that’s being put up, in that case, you will also be an incorporator, or by buying shares of stock of existing corporations either privately, through a pooled fund, or via the stock market. A stockholder is also called a shareholder. If you buy shares of stock yourself (via the stock market or by directly buying from other shareholders or by being one of the incorporators), you will be given a stock certificate saying how many shares of stock you hold in your name. Depending on the kind of stock you hold, you may be given voting rights whereby you may vote for the company officers during stockholders’ meetings, or preferred rights, where you will be given preference in decisions affecting stockholders’ holdings. The nature of stocks Because stocks are traded every day, their prices change a lot. The price of one share of stock at 9 a.m. when the trading day opens at the stock market may be different from its price at 12 noon. Think of the stock market as a bazaar where sellers offer goods at a certain price and buyers offer to buy them at a different price. The stock market is very volatile. It reacts to market forces and to the political and economic climate. Thus when there is perceived political instability, the prices of stock more often than not goes down. This is because nervous stockholders dump or sell their stocks in the market so they can take their money somewhere they perceive to be safer. In the same vein, when investors get wind of bad news about a certain corporation whose shares of stock are traded in the stock market, some of them may sell off their holdings driving the price of stock down. On the other hand, when investors hear of something good happening in the economy or the government or in the company itself, they will buy more stocks, driving the price of stocks up. This is the law of demand and supply at work. Since the stock prices fluctuate widely, stock market investing is recommended only for: 1. Brave hearts who are aggressive and won’t mind taking high risks for the chance to earn high returns 2. People who would like to invest in the long term, as doing so would let them ride out the market fluctuations and realize a gain in the long run Getting into stock market investing If you decide to invest in the stock market, there are two ways to do it: 1. Choose a licensed stockbroker. This broker will handle your “orders” and buy and sell stocks for you. You may also ask your broker for advice as brokerages employ stock market analysts who study the markets. You may choose to deal with a licensed broker who does the transactions by phone with you, or with an online broker you contact. 2. Join a mutual fund or unit investment trust fund (UITF) investing in stocks or equities. These pooled funds gather the small investments of several people then invest the money in a mix of stocks that fund managers think will do well. Take note that investing in the stock market comes with additional fees: broker’s commission, fund fee, and documentary stamps tax. As to how much money to put in, you may want to start with the minimum investment required first since you are still a beginning investor. Some mutual funds and UITFs accept investments for as low as P5,000 or P10,000. If you will directly invest with a broker, you may be able to put in an amount as low as P3,000 depending on the minimum board lot or the minimum number of stocks one can hold. Although you may realize high gains by investing in a specific stock, your investment may be safer if you invest in a pooled fund. This is because your holdings will be diversified—the fund will invest in a number of stocks, not just that of one company. By doing so, investors may be better shielded from greater loss should one company stock go down; the other stocks may compensate with gains. About IPOs When companies want to offer their stocks in the stock market for the first time, they do an “initial public offering” (IPO). The public is given the chance to buy shares of stock at a predetermined price before the stocks are put on the stock market. A lot of investors look out for IPOs expecting to make a quick profit. In the past, prices of IPOs go up on the day the stocks were listed in the stock market. Read the business page to see what companies will be having IPOs soon. Other tips You may potentially gain a lot in the stock market, but you may also lose a lot. Go into it only after determining if you are comfortable with taking high risks in your investment. Hold your investment in the long term to maximize the possibility of having gains. If you trade often to go after short-term gains, there’s a risk you may lose out on bigger gains offered later, such as when the company gives out high dividends or stock options, or its stock price rockets up. Returns from short-term gains should be enough to compensate for the higher fees associated with such trading. Don’t put all your savings in stocks. Diversify and have a good mix of safe and risky investments to have an overall better yield.

(Even ants have a method to their madness.) Just the thought will make you think: snotty, snobbish, arrogant. Financial planning only for the rich?? Get outta here. After all, you are reading MoneySmarts, where people from all walks of life – with or without cash – converge to help each other reach financial independence. Truth be told, however, a lot of people still think financial planning as it should be practiced is only for the rich. Really. First of all, don’t forget that 50 percent of Filipinos live below the poverty line. That is quite a reality bite that chumps tremendously on the influence of financial planning on the lives of Filipinos. But what of the emerging middle class? A recent study from Citibank showed that even middle class Filipinos have a financial IQ of 47.8 percent, not even a passing grade. This highlights the crucial need for financial planning especially among the middle class who worry about a bleak retirement. (Read my previous blog post on this here). Having said that, there is rising popularity for financial planning among the middle class. Only…people are in a do-it-yourself mode. A recent interview with Money Makeover client Sheldon (not his real name) revealed that while the strategies he has learned from financial planner Efren Cruz in the last nine months proved to be very useful to him, Sheldon is not that crazy over formally engaging a wealth management expert into creating a financial plan for his retirement. First of all, having a professionally made plan created for him is expensive, Sheldon reasons. He would rather invest money than pay for a professional financial planner, Sheldon says. This mentality has given rise to do-it-yourselfers -- people who scour the Internet for advice and wing it by themselves. Hey, I’m not about to complain. Personal finance content has driven traffic consistently to the business pages of INQUIRER.net for the last seven years. Readers who regularly visit MoneySmarts has allowed it to stay in the top three blogs in the entire INQUIRER.net blog network (thank you, readers!) Hopefully, MoneySmarts and INQUIRER.net can provide the bridge between readers and a variety of experts with their varying opinions on financial planning. Knowledge is key, after all. But at some point, a customized approach will be needed. When that time comes, we hope readers will eventually seek a face-to-face encounter with their financial adviser – and know which ones to keep and which ones to turn away from. In the meantime, this article written by Rex Ma. Mendoza, one of the oldest practitioners of financial planning in the Philippines in terms of experience, not age, will help you ask the right questions that can set up your own financial plan. Or at least give you a clue how a good financial planner would interview you! Here’s an excerpt, but you can read the entire story here.

The first step is to know what you want. A philosopher once said, “Take care to get what you like or you will be forced to like what you get.” Your goals have to be laid out and specified. Maintaining your current lifestyle, your children’s education, a comfortable retirement, a completely furnished house, a wonderful vacation, involvement in charitable causes, and a second honeymoon can all be important to you. But how do you rank these? What are your priorities? Setting your objectives right is the most crucial first step in creating your plan. Second, you have to study your financial position. How much income do you receive and what proportion of this do you spend? How much have you saved? In what instruments are these invested? Do you have loans? It will be worthwhile to know how your current situation is and check if it matches the prioritized goals you have established. The answer to this question is critical: Are you on track with what you want to achieve? If your answer is yes, or if you are quite close, then you will not require any radical changes. But if the answer is no, or if you are “way off,” then you will have to either change your lifestyle, reposition your investments, check on your inflows and outflows, thereby effecting a change in your financial position to direct your track towards your goals. Another alternative is to alter your objectives altogether because they may be too unrealistic. When you have completely analyzed “where you are” and “where you want to go,” you can now evaluate your investment options. This particular step will define the vehicles that you will choose to reach your desired investment targets. In more technical terms, this is commonly referred to as the creation of a “portfolio.” At this stage, you have to differentiate instruments as to their capability to earn (yield), the probability of losses (risk), the time horizon that you will be committed (liquidity), and the taxes that you may be exposed to. These factors are very important in the selection process because there has to be a match between specific goals and the choice of vehicle. There is no such thing as an ideal investment for everyone at all times. Much depends on your financial situation, risk appetite, investment acumen, and the time frame you have in mind. Another reason why this evaluation is important is the fact that these factors are manifested in varying degrees within a given instrument. For example, a high yield may naturally mean that you will be taking greater risks. It may also mean that you are committing yourself to a longer time horizon. It is ironic that many people focus on earnings alone without thinking of what they are sacrificing in return for that higher yield. On the other hand, too much focus on safety and liquidity may limit what you will earn. This can result to the under performance of your “portfolio” thereby making it difficult for you to meet your targets at your desired timeline. You also have to keep in mind that you have many choices. Savings and time deposits, life insurance, real estate, mutual funds and unit investment trusts, money market placements, and many other instruments are there to build up any investment basket. In the end, matching and balance is the key to portfolio creation.

It’s not easy to buy insurance. In fact, it can be so confusing that people tend to just go with the flow and trust everything to their agent. That would be okay if your agent is always on the lookout for your interests. But sad to say not all agents were created equal. Some just want to meet their quota. Even those who are in the insurance business will not deny that. Having said that, I have met many insurance agents who are truly concerned with their clients and sell them what they need, not the products that they need to sell. Most of them have training in overall financial planning. Today’s personal finance article from MoneySense talks about “How to buy life insurance.” Here’s an excerpt:

1. Identify your needs If you are single and earning but have no financial dependents, then you may not really need life insurance because nobody will be “financially hurt” when you are gone. If you are married and family members are dependent on you, and if you also happen to be the sole earning member in the family, then you need life insurance. Your entire family is dependent on you for financial support and, in your absence, their lifestyle would be severely impaired. 2. Determine how much insurance you need The next step is to ascertain the amount of coverage. The concept of human life value (HLV) can help in deciding how much coverage you should opt for. The HLV takes factors like your annual income and expenses along with the inflation rate into consideration while calculating the value. 3. Identify which product to buy After having quantified the need for insurance, the next step is to finalize a plan that will accomplish your need. There are two kinds of insurance plans – term plans and savings-based plans. A term plan insures a high sum at a low cost. A term plan makes for a good fit in all individuals' portfolios, irrespective of their profile. Some people also look at life insurance as a savings instrument. Here, apart from insuring a person’s life for a certain amount, savings-based life insurance plans also give returns on maturity. This is unlike term plans, which act as a pure risk cover and do not give any returns on maturity. 4. Compare policies across companies Before zeroing in on an insurance plan from any company, you should compare policies across insurance companies. This will help you in evaluating which insurance plan is best suited to your needs. One way of doing this is by contacting the insurance agent and asking him for a comparative analysis of insurance plans. Another way is by visiting the websites of different companies and scouting for relevant information. 5. Select an insurance provider Having understood how much insurance you need, you then need to approach a life insurance provider. Individuals wanting to buy insurance should preferably opt for full-time life insurance agents. The agent should have a good track record in offering objective advice in the client's favor and not his own. This will stand you in good stead over the long run since life insurance needs call for evaluation every few years and the insurance agent will help you with the same over a period of time.

(My dream house has this morning view. Can you guess where it is?) I thought I would blog about this separately as I’ve been getting a lot of emails asking for tips on buying real estate. I found these list of questions very helpful for those who are house or condo hunting. I’m sharing this from Noet Ravalo’s column “Alternatives to low interest-bearing deposits”.

1. Is your expected income sufficient to cover the amortization?
2. How much of an increase in the amortization can your income tolerate?
3. At what loan rate can your income stream handle at the maximum?
4. If rates do go down, can you advance payments?
5. Will there be a penalty?
6. How about pre-termination of the outstanding loan amount?
7. If currency conversions are involved, by how much will the cost-benefit analysis be sensitive to exchange rate movements?
8. What does this mean for the timing of the conversion of the funding as against the timing of the revenue stream?

I understand the temptation of making the decision to buy a house because “interest rates are low.” Thank heavens I have realized that the more important question is cash flow. Most homebuyers zero in on the attractive payment modes now compared with five or ten years ago. In the Duplito family, the house hunting and the computations are still on going. As Francis Kong once told me: Salve, there’s no hurry. The best time to buy a house is when you don’t need it. Salve chants: I don’t need it, I don’t need it as I continue to pore through catalogues and websites. Heh.

(JAPAN, Tokyo : Japanese women buy boxes of chocolates as gifts a day before St. Valentine's Day in Tokyo on February 13, 2008. Women in Japan feel the need to give chocolate to their boyfriends, work colleagues and teachers on February 14 as a social obligation more than a sign of love. AFP PHOTO / Yoshikazu TSUNO) I would be the first to say that an expensive dinner and something wrapped in a small package speaks and drips of love (pronounced luuuv). Sure, it does! But since we are trying to be money-smart, how about exchanging ideas on how to strive for the same effect at less cost? **after two hours** Whew. Seems there are no ideas in this unromantic body. Went around the blogosphere and here are some thoughtful ideas I handpicked: From Get Rich Slowly:

Love coupons Use a word processor and clip art to create 8-12 “coupons” the size of a business card. Each coupon can be redeemed for something the recipient will appreciate. You might create love coupons that your partner can use for a night on the town, a candle-light dinner, a movie of their choice, a weekend getaway, guilt-free time with friends, or — if you’re feeling particularly romantic — fantasy fulfillment. A second “first date” The easy familiarity of a long-term relationship is a wonderful thing. But that familiarity can easily become a “rut”. Shake things up by pretending you’re going on your first date again. Give yourself a college student’s budget, and do the sorts of things you might have done when you were younger. Eat at the local burger joint or pizza parlor. Go bowling or roller-skating. Attend a free concert. Make out in the back row of the movie theater.

Private rituals

Every couple has a collection of private rituals and symbols. These silly phrases and routines are like glue for a relationship. When Kris and I were first dating in college, for example, I picked up a horse-chestnut from the quad. It was smooth and strong and beautiful. I liked it. On a whim, I gave it to Kris. “This is a love nugget,” I told her. “It’s a reminder of how much you mean to me.” For almost twenty years now, horse-chestnuts have been a sort of secret code between us. I know it’s silly, but I’d rather have Kris give me a “love nugget” than have her buy me something new.

From Rather Be Shopping:

Music mix of songs that remind me of him. (From Salve, knowing me, I would rather give him a music mix that would remind him of me! Heh) Flirt all day long. Re-enact your first date together. (From Salve, that would be a night at the UP Oval, under a full moon.) Wash his car. (From Salve, naaah. Hehe)

From FrugalPinoy:

Watch DVDs. (From Salve, malls will be packed anyway. Why not watch all-time favorite movies in your room, with no hassle at the parking lot and lining up for tickets?)

Whatever you do, make sure you spend time together. Really spending time talking long into the night. With yummy dessert maybe. And lots of laughter. Love does not have to be expensive. But if you want to add a diamond ring, that’s fine by me too. Just don’t get it from the retirement fund. :-)

Yesterday, Warren Buffett found his name again in almost every publication across the globe. In a stunning move, Buffett on Tuesday offered to take over the liabilities of troubled bond insurers, saying it would eliminate one major cloud from the troubled global market and at the same time, he would stand to collect a steep 150 percent of unearned premium reserves of these companies. This article from Fortune says:

NEW YORK (FORTUNE) -- Billionaire investor Warren Buffett said Tuesday he is offering to take over the liabilities of the troubled bond insurers, whose shaky finances have regulators and Wall Street greatly alarmed. The billionaire's Berkshire Hathaway (BRKA, Fortune 500) approached the three largest bond insurers last week - Ambac (ABK), MBIA (MBI) and FGIC Corp. - offering to reinsure about $800 billion in tax-exempt or municipal bonds in order to maintain their 'AAA' rating, Buffett told CNBC in a televised interview. "This would just eliminate one major cloud from the market," said Buffett. Under the deal, Berkshire Hathaway would add $5 billion in capital to his recently formed bond insurance company - Berkshire Hathaway Assurance Corp. - that would strengthen the new company's ability to take on the liabilities of the other bond insurers. Buffett, however, admitted that the offer was not solely a gesture of goodwill to help rescue the struggling industry. Berkshire would stand to collect a steep 150% of the companies unearned premium reserves. Ambac and MBIA's combined reserves stand at $6 billion, so in their cases Berkshire would receive $9 billion for taking over their liabilities.

Yesterday morning, markets immediately reacted including the Philippine market. And you might want to read about market reactions here. Nothing like having loads of cash and a shrewd business sense to turn difficulties into opportunities.

(Sleeping lizards don't go anywhere, but they don't grow too. So like putting all of one's savings in low interest-bearing savings deposits. File photo from Agence France Presse) I picked up several things from Noet Ravalo’s column today:

For those that still offer some interest, the lowest that I have seen is a rate of about one-tenth of one percent and this is still taxable at 20 percent withholding tax. At this rate, your monthly return for an outstanding balance of P50,000 comes out roughly to about P3.33 --- an amount small enough to miss out among your transactions but big enough to be a nuisance if you try to balance your books before you get your printed statements. The other way of looking at this interest rate is that you have to set aside and keep untouched a balance of P400,000 in your account so that your net interest affords you a small-sized serving of French fries from a popular burger franchise every month.

I would tell the bank to shove the French fries up his nose (no funny words here please), but that’s just me. The owners of more than P3 trillion of deposits out there are still parking all of their money in bank deposits. Don’t get me wrong. Bank deposits do have their places in our financial lives – for emergency funds and other savings that need to be kept in an easily accessible but secure place. But there’s something wrong when almost all our money – even those for long-term saving – are parked in an account that earns no more than the cost of French fries monthly. This low level of return is causing people to think of other ways to grow their savings. Noet reports that people are beginning to consider jewelry, timepieces, and real estate. They come with their own quirks. Some characteristics of these alternative investments that investors should think about are: 1. They are not that easy to sell or to liquidate (see my previous post: How to sell jewelry) 2. Valuation is subjective 3. Get ready to do a lot of studying and comparing, and don’t just browse through contracts. You really have to read the fine print and then afterwards, read some more. So you have plain vanilla deposit products on one end, and alternative investments on the other hand that have the potential to grow AND shrink your money. Rushing from one end of the spectrum to the other can be disastrous, as many of you who have been “forced” into aggressiveness by friends, family or (I hope not) financial planners have discovered. Loss of sleep and nervousness or worrying no end about money are just some signs you have not transitioned properly. A friend was complaining to me one day how her son seemed to grow into a man overnight. His voice changed perceptibly and he acts differently now, she says. Those of you with teenagers probably recognize that instant when almost like magic, boys morph into these beings with deep voices and forays into coolness and hip-ness. What’s the connection? That moment when an investor begins opening his mind to risk is a milestone. It happens to many and I hope it happens to more risk-averse Filipinos or else a lot of us will retire poor. Of course, I am not saying you go and get yourself in an investment plan that will pay 4.5% per day! But you can say when “protecting the principal at all costs” turn into “let’s see what this can do”, that’s a magical moment -- a rite of passage if you must into a more mature investment attitude. What can facilitate a smooth rite of passage? More information? Deeper understanding of finances? Role models? Encouragement? Simply getting your feet wet? What has it been like for you or someone you know?

(Photo credit: Agence France Presse) Bear markets set off the most interesting behavior in many investors. Some get infected with the snakebite effect, a term I got from Chartered Financial Analyst Society president Mark Yu. He explained that some people who are bit by the snake (in the world of investing) decide never to invest again. Then you have those that follow the herd. When foreigners are spooked and they start dumping stocks, they sell their shares too and stay on the sidelines waiting for better times. Then you have investors who go against the herd, and buy when everyone’s selling. You know, those who worship Warren Buffet. A private investor I interviewed who requested for anonymity said it's easy to say 'stay calm' when you’re not the one watching your hard earned million lose one half of its value in one morning. Way before the bears rampaged the market, this investor thought he was prepared with a steady hand. “There’s nothing like the actual experience of watching your money disappear – even just on paper,” she said in Filipino. INQUIRER.net’s personal finance feature today entitled “Is it time to play safe in investing?” recommends keeping in mind why you are investing in the first place. The words “long-term and short-term” do matter in figuring out whether to play bull in a bear market, it said.

It all depends on your needs and goals. If your needs are for the long term, you may want to consider holding on to your investments in mutual funds and UITFs which may both invest in bonds alone, stocks alone, or a combination of both. This is because equities have been identified as the best performing asset for the long term. The market will improve in the future—we just don’t know when. Now if you have needs such as your child’s college tuition and if you put your fund for this in the pooled funds, you may or may not move your investments to a safer alternative. It depends on how much time you have left until you need the cash. If your child is going to college in a year or two, then it may be best to go for the safer investments, after taking into account if you’ll have enough by then given the lower interest rate given by time deposits.

Diversification is also a much-touted strategy that never loses luster. Putting your money in different baskets will protect the overall amount if one or two baskets get steamrollered by whatever hiccups are shaking markets up. Marvin Fausto, BDO treasurer and senior vice-president, in an earlier interview recommended buying when there’s uncertainty, while at the same time continuously rebalancing one’s portfolio. “Blue chips are cheap now. When the market is down, you buy blue chips. Buy second and third liners when the market turns bullish. The first thing foreigners will buy are blue chips,” he said. Newbie Trader thinks bargain hunting is a good idea when you are well informed and ready to wait.

The creation of bargains: As long as you're sure about the stock's value, then I think its a good time to buy when foreign buying is low. Foreign buying adds to the competition among buyers and pushes prices up.

So, can you play bull in a bear market?

The INQUIRER.net special feature today for personal finance is How to buy jewelry. It has the usual tips on karat for gold, the three Cs for diamond – color, clarity, cut and carat -- and what makes good silver and pearl jewelry. Whether or not jewelry is a good investment, however, is still a debatable point. For Efren Cruz, author of Pwede Na: The Pinoy Guide to Personal Finance (full public disclosure: I co-edited this book), buying jewelry for “showing off” should not be confused with investing in jewelry for future profit. Consumption and investments are not peas in a pod. “The moment you part with money or time in the hope of enjoying more of it in the future, then you are investing. Investments will differ in potential returns, amount required and time to harvest. With jewelry, it takes longer. It is still, nonetheless, investing, unless you buy jewelry just to show off,” he said. Investment adviser Malaya Laraya says a lot of people earn big money from alternative investments like jewelry, paintings and collectibles, but these forms of investment have to be carefully weighed against the time needed to recover the investment and the “carrying cost” (as in safe deposit boxes, good store area for paintings to keep it free from moisture and mildew.) There’s another very important setback: finding the right price both for buying and selling can be a big challenge. “You go to a pawnshop or the alahera (jeweler), they will always buy from you at the lowest price. If you sell to high net worth people, the same thing. How do you know if you are already getting good value for it?” says Laraya. Johnny Noet Ravalo, a macrofinancial economist, calls this a very “private” market that runs on word-of-mouth via jewelers. “There is a need, virtual or otherwise, to discover prices,” says Ravalo. Alijeffty Gonzales, an independent financial planner and educator, went poetic and said the beauty and value of jewelry is in the eye of the beholder. “There is no uniform standard or method of valuation. Sales is normally at a loss and it is often sold in distress,” he said. There are 6,215 pawnshops regulated by the Bangko Sentral ng Pilipinas in the Philippines, but don’t forget we do have more than 7,000 islands! Heh. Kidding aside, the number of pawnshops says something about how Filipinos try to liquidate assets. Anyone who has experienced going to a pawnshop will know that the words “in distress and at a loss” are very appropriate. Typically, jewelry is bought at double its value and pawned for one half or one third of its assessed value. There is also the chance that attachment to the “investment” means it will be very hard to sell on emotional reasons. “This belongs to my grandmother, how can I sell it?” is a common phrase. “It’s an emotional investment. If you are buying to enjoy it, don’t think of it as an investment. Enjoy it, there’s nothing wrong with that. If you are buying for investment, then be prepared to go beyond whether you like it or not,” Laraya said. Having discussed all these, what of those people who are already at the point where jewelry needs to be disposed? Here are your options: 1. Pawn it and get it back. You pay interest of 5% to 6% monthly, or 60% to 72% annually. Big ouch. 2. Pawn it, don’t pay interest and forget about it. You will lose around half to one third of the value of your jewelry. 3. Sell it to friends, colleagues and family who like jewelry. Be prepared to wait one a long time for the actual sales and for the payment. And be prepared to resist settling for a really low price for half that time. 4. Sell to friends, colleagues and family in 6 to 12 payments, with interest, at affordable monthly payments. Getting post-dated checks as payment is better than collecting cash every month. Add high interest to cover the expense of collecting. Be prepared for non-payment. 5. Sell to your jeweler or alahera. Be prepared for the most challenging “negotiation” moments of your life. 6. Auction vie Christie’s or Sotheby’s. Yeah right. Good luck.

The Bangko Sentral ng Pilipinas, the Philippine central bank, has padlocked a Makati-based bank named Bankwise Inc. and put it under receivership of the Philippine Deposit Insurance Corp. This article from the Philippine Daily Inquirer explains why. Many times, I have received emails from people who read INQUIRER.net, who say that it is all right to put money in a high-earning savings instrument from a small bank because deposits are insured up to P250,000. That’s foolish reasoning. I have seen ordinary people get hurt by bank closures, and no amount of deposit insurance helped them deal with their problems. Claiming insurance does not happen overnight. It takes quite some time, although the PDIC has already shortened the process significantly. The first line of defense against losing your deposits should be to know your bank well. If it’s a commercial bank, you should have an idea about its deposit base and its owners. If its a small rural bank in your area, you should know more than where it stands and which teller handles which area at noontime. Find out who are its owners and what are their track records. It also happens that banks with reputable owners and board of directors may still close shop. But there are other signs of banks that are in trouble. A red-hot warning sign are abnormally high interest paid out on deposits. When a bank is willing to pay interest that are suspiciously high, that means it is in grave need of cash to address whatever financial bleeding it is suffering from. I know it can be tempting, but greed can cause trouble! A conversation with Money Makeover financial planner Joe Ferreria the other day went like this:

My friend said he knew that it is not good to put all your eggs in different baskets, so he deposited his money in different banks -- the BPI branch in Binondo, the branch in Makati, and another branch in Quezon City.

Seriously... :-) Accounts under one name, even in different branches and different kinds of deposit accounts will be treated as one account and insured only up to P250,000. The PDIC website gives illustrative cases for joint accounts, in trust for accounts, and/or accounts. Very easy to understand and very clearly illustrated. Click here. Remember, banking is all about trust, more than convenience. Stay away from all those red flags and don’t diversify across branches! :-D

For months, this has been a constant topic in newspapers, television, radio, blogs and countless shop talks all over town. Can the Philippines weather a US and even a global slowdown? Most of the points raised are confusing, and some arguments merely skim over the surface. You have the government PR machinery churning out every possible angle to make things look totally rosy. On the other side, you have certain business groups who use the media as their virtual “shout out” mechanisms for alarmist statements designed to push the government to protect them from the effects of a recession in the US and in the rest of the world as a whole. Oh puhleease. I listen most to economists and selected businessmen to get a balanced view. Let me qualify that – I listen most to economists who let the figures tell the story. It’s easy to dish out opinion and gut feel. But I can still hear Raul Locsin, one of the best business journalists in this country, saying “Let the figures tell the story. Let the figures tell the story!” Economists may have a handle over figures, but businessmen are the ones who have razor sharp eyes from slugging it out every day in the world of business. There are times businessmen see trends that economists don’t. Sometimes, the opposite happens. But first, some statements that I totally ignore. Malacañang spokesperson Ignacio Bunye has the most unenviable job of always having to tow the government line. Because he seems to ignore the need to talk about negatives at all costs, he sounds like...uhh...like he's always lying. In this article, he had some spiffy figures to prove the Philippines could weather a recession in the US.

"It is important to note that from a high of 28 percent seven years ago, the share of US demand to total export income of the Philippines has shrunk to less than 20 percent as our exporters have diversified their markets," Bunye said in a statement.

Who can argue with figures? But he unfortunately ignored the need to discuss how many overseas Filipino workers in the US and North America would be affected by a recession and what that figure means for the local economy. Finance Secretary Margarito Teves, I hate to say it, almost sings the same tune.

While a possible slowdown or recession in the US economy could dampen the growth of emerging markets, the Philippines will likely withstand the adverse effects of such a development largely because of its improving economic fundamentals,” Teves said.

On the opposite end of the spectrum is real estate consultant CB Richard Ellis with its aggressive and bullish statements. This story also came out in CNN.com.

A looming recession in the United States is expected to boost the Philippines' booming property market and its outsourcing industries, real estate consultants CB Richard Ellis (NYSE:CBG) said Thursday. 'We see no end for the demand for commercial real estate,' CB Richard Ellis Philippines chairman Rick Santos told a news conference. 'We haven't seen this much interest since pre-1997 (before the Asian crisis),' he said.

The statement made for catchy news, but if you look closer it sounded self-serving for a company that has purchased quite a lot of properties in the Philippines, especially commercial real estate. IBON research also came out with a bold statement that call centers will suffer most from a recession in the US. But even economists, with all their analyses and numbers, don’t agree with each other. The Philippine Daily Inquirer the other day quoted Citibank’s Philippine-based economist Jun Trinidad saying the Philippines will in fact grow 6.5 percent in 2008, not bad even after a 7.4 percent gross domestic product expansion last year. HSBC’s Fred Neumann also believed the Philippines is not in any danger of being dragged under by a slowdown in the US economy. The last time he spoke with members of the media a few weeks ago, he was not even using the “R” word. Yet the Asian Development Bank said just now that Asia is not immune from the crisis.

"A significant slowdown in the US economy will most certainly affect the region's growth performance through trade, investment and financial linkages," said ADB chief Haruhiko Kuroda.

In the blogosphere, some interesting thoughts came from David Llorito, who wrote in A World Without Borders that globalization and continued growth in the Asia Pacific region will insulate the Philippines from the effects of a US recession Tony Lopez of Business News Asia however agrees with experts who say the US will go into a deep and long recession, and the whole world, not just the Philippines, will get hurt.

The United States accounts for a fifth of global production. It is the world’s single largest consumer market which spends more than what the consumers of China and India combined spend. Morgan Stanley Asia Chairman Stephen Roach estimates US yearly consumer spending at $9.5 trillion, China $1 trillion, and India $650 million.

The US also buys 30 percent of total world exports. Since China is now one of the world’s biggest exporters, then it will certainly be hurt by a US slowdown. Since much on Asia now depends on China, then the rest of Asia, including the Philippines, will certainly suffer. How bad we will suffer is not clear. Should the US stumble, Roach warns, the world would face “the mother of all recessions”.

As a result of the US subprime mortgage crisis, banks have become more strict with their lending, even to blue chip companies. If large corporations have difficulty borrowing money they will have difficulty expanding or even sustaining existing operations. If they cut back, there will be layoffs. If there are layoffs, consumers will spend less. If consumers spend less, industries will sell less. It’s a chain.

I found Econologue’s post interesting because it quoted another interesting economist. Solita Monsod (y’all know her as Mareng Winnie) says there’s too much irrational anxiety about the “impending US recession.” I heard Winnie last Friday over the radio saying the same thing. Benson Te over at prudent investor newsletters tried to answer the question asked by an analyst on whether emerging markets and the Philippines would be the last shoe to drop? I found his analysis interesting:

Today’s turbulent markets reflect the same improving dynamics. As earlier stated, the S & P 500 has lost 15% as of Friday’s close while the Phisix is down 16% from its peak and so with emerging markets (EEM) at 19%. If the same volatility had been applied relative to its 2004 and 2006 scale, then emerging market benchmarks and the Phisix would have caved in by about 45%!

The Newbie Trader also doesn't think a Philippine recession is imminent, The Geeky Guide To Everything is not impressed with stimulus packages, Richard Gordon says the Philippines has newfound strengthens that will insulate it from the recession. As you can see, this is one of those times when getting from one end of the spectrum of ideas to the other feels like walking from the west to east of SM Megamall. That's a clear indication to me that nobody knows the answer for sure. Think about it. Is it really possible to know with 100 percent certainty? That meanst the average investor will have to know better than to believe everything they read and see. Some of these arguments feed uncertainty and fear, some stoke greed – all of which are guaranteed to make an investor stumble in the markets. In the face of all the hollow arguments and alarmist statements, here are several things that investors can hold on to with certainty which market tamers have said again and again. Markets gyrate and sometimes they do it wildly. This has happened for many, many decades and will most likely happen many times in the future. Invest or make financial decisions with an acceptance of the nature of the beast (Noet’s latest article teaches how to do this.) Invest based on your risk appetite, not based on hope the market will be your friend. Whatever return you get may not be fantastically like Soros’ or Buffet’s, but if they meet your own targets, that’s already reason to eat a cone of ice cream and celebrate! ☺

Hi guys! Thank you for your lively comments about my post Migrate vs stay. I will reply to those comments in a bit. Meanwhile, let me cross-post an announcement for Open For Business. Those who want free help to bring your business to the next level may still send in their applications until Thursday. Let your friends and family know about it. Next week, I am going to begin planning an initial plenary session for the lucky entrepreneurs, so don't miss the deadline. Good luck!

Business mentor to give free advice to business startups MANILA, Philippines -- MARKETING professional Willy E. Arcilla has agreed to help eight readers of INQUIRER.net who need guidance to grow their start-up businesses in a business-mentoring activity for the publication’s entrepreneurship blog called Open For Business. Arcilla will meet with ten selected readers once a month for 12 months, and help them with their strategies in positioning and marketing their products. The progress of these businesses for the duration of the exercise will be published in Open For Business so that other entrepreneurs can benefit from them. A panel of judges that include Arcilla, INQUIRER.net editor-in-chief Javier Vicente Rufino, multimedia editor Joey Alarilla and business editor Ma. Salve Duplito will choose which readers will be introduced to Arcilla. Readers who are interested in joining the mentoring activity should have a business that is at least one year old, need help in marketing and selling strategies, and who are not in the high-technology or engineering sectors. Readers may send the following information to lightdream (at) gmail (dot) com: name, company name, location, year/s of operation, product or service description and description of business difficulties. Arcilla is the president of Business Mentors, Inc., a newly formed management consultancy firm, and concurrently regional director of ZMG Ward Howell, a provider of human capital solutions. He is also a professional lecturer in business schools. He has worked as an expatriate for 18 years across the Asia-Pacific region for leading multi-national corporations and Philippine conglomerates.

(Grass always seems to be greener on the other side.) For years, I have been fairly immune to the most zealous “invitations” to relocate overseas. It started with my mom back in college when I was still single. Now, people are talking about not just living in the US for good, but also in Canada, Australia, New Zealand and in other Asian countries. They tell me I can always go back to the Philippines if it doesn’t work out. But I have to make sure I am not letting the opportunities pass by, they say. If I don’t want it for myself, I should consider it for the kids. I’m sure you know what I mean when I say the “invitations” can get really insistent. So much so that my sister has already made the jump. She is working on bringing her entire family to Canada to live there for good. Then another sister will leave for the UK this year. Another one is raring to restart her life in New Zealand. They are looking for better jobs, better benefits, more pay. They are professionals who have good education in good universities. Their careers here are promising. But some say that with the endless jockeying in politics, corruption and pollution here, why not go for the “greener” pastures in other countries. Yet, on the other side of the fence, I see foreigners who have decided to stay. Howard Belton’s personal musings published in the Philippine Daily Inquirer yesterday shows a British guy, national chairman of Unilever Philippines, opting to stay in the Philippines because he and his wife felt they were treated here like family. They are not the only ones. You will see all sorts of Caucasians and other Asians who have chosen to live here. I still don’t have the answer. I am not packing my bags just yet. It would be nice to get the complete picture IF I ever do. When the Victoria Secret lotions, Dior, Chanel and expensive toys come out of balikbayan boxes and heavy luggage when relatives come home, you kinda feel left behind even if you can buy those stuff here already. It’s as if the fairy godmother has come from a land far away that’s always more fun, more exciting, always greener and where life is always easier. But, as the excited talk dwindles to more relaxed chats late through the night, you begin to see chinks in the fairy tale story. Of difficulties. Changes in lifestyle. Homesickness. Having to swallow discrimination. It’s a constant puzzle to me. Stay or leave. Is the money really so much better? Is it worth leaving everything behind? I know, it’s a very personal decision. No one can truly say one decision is better than the other. Each person’s circumstance is different from the other. Hopefully, however, we can make informed choices. That way, we are ready for whatever difficulties may come. For many of you who have already left, what are the advantages and disadvantages? Knowing the complete picture will help Filipinos make the right choice -- of whether life out there is worth leaving the smog of Manila, the corruption, the endless political bickering, the warm love of family and friends who are 30 minutes away, the Bisaya accent and Eat Bulaga sightings...are the green pastures really worth leaving the crazy fun of being in the Philippines. Is it worth it? Honestly?

Here are my estimates rounded off to the nearest thousands for the costs of having my youngest child:

1. It starts with pre-natal expenses, ultrasound and other laboratory costs and vitamins (P15,000)
2. Maternal wear for a working mommy, already with Divisoria shopping (P10,000)
3. Normal delivery (P70,000)
4. Baby furniture - foldable playpen-crib, stroller and car seat, high chair (P20,000)
5. Baby clothes, excluding gifts from titos and titas *thank you po!* (P8,000)
6. Avent bottles, pacifiers, breastpump, baby bags, etc. (P25,000)

Total (P148,000) This list doesn’t include gasoline expenses going to hospital, shopping for needs etc, nor does it cover expenses like additional caregiver, cost of sterilizing bottles etc., Thankfully, I successfully shifted from bottle-feeding to pure breastfeeding on the second month. Eventually, the cost of having children will involve bigger expenses like food, clothes, a bigger house, education and recreation. Having children is not something to take lightly. Notwithstanding the huge responsibility and never-ending financial needs, here is another list that I think is more important:

1. Having someone greet you with hugs at the end of the day and treat you like a queen even if you weren’t that great on that day at the office (I think we all have days like that) -- priceless
2. The sound of little feet that pitter-patter on the floor -- priceless
3. The feel of little arms trustingly placed around your neck -- priceless
4. Huggabug times and silly antics around the table -- priceless

I could go on and on. You can tell I’m biased towards having a baby and deciding to have a family :-). Our personal finance feature offering today from MoneySense, the only personal finance magazine in the country, gives tips on how to shop smarter for baby. I checked out the tips in the article, and after a few minutes of surfing the Internet, have already been converted into using cute Tushy Wushy cloth diapers and wearing baby on a sling, so I contacted the owner of Next9 to order. It makes good financial sense, not to mention being a lot better for the environment than using disposables. (Photo courtesy of Next9.org.) Click here for the computation on why cloth diapers are cheaper in the long run compared with disposables. Having babies and being a mommy is my most cherished role, and while expenses skyrocket when the little ones come along, the experience itself is priceless!

I know you working girls and boys will laugh at me, but whenever I have the time and the energy, I *relish* my market days. Here’s proof: there’s one that’s around 10 minutes’ drive from my place and there’s another one that’s just walking distance. But it’s very small and I don’t get my usual fix of shouting tinderas so I go to the other one :-) This morning was particularly interesting. The first fruit stall at the Muñoz market was selling nice, shiny tomatoes at P60 per kilo. Then a guy at the next stall started shouting. “Pinapamigay na rito, ang kamatis namin beinte-sinco na lang! Ang kalamansi singkwenta na lang! Dito na kayo walang daya! Kakalawangin lahat ng timbangan niyo! Pinapamigay na lang dito!” (Everything here is at giveaway prices, tomatoes at P25 and kalamansi at P50 only. Buy from us, we don’t cheat with our weighing scales. To the other stalls, your weighing scales will rust away, we are almost giving away our goods!) I walked closer to his stall (as big as the other one, looks like something for wholesalers with big mounds of vegetables) and true enough, he was selling tomatoes for P25, and they didn’t look bad at all. A few minutes after that, the price for kalamansi went down to P40, one fourth of squash sold for P5 instead of P10 and a big bunch of spinach sold for P15 from P20. Guess where I bought my vegetables? :-) I love competition! I then went to the grocery to compare prices, and here is what I got. A tiny bundle of spinach for P12.50, that’s not even one fourth of my P15-find from the wet market. But the plot gets thicker when you go to the chicken section. Contrary to what I first thought, some items in the grocery were cheaper than those in the wet market, although with different qualities. Chicken sold for P120 in the wet market because they were newly slaughtered. Magnolia Chicken sold for P110 in SM Hypermarket. I chose Magnolia Chicken (two whole chicken came with a dozen free eggs), my husband wanted the freshly slaughtered chicken from the market, except when he realized that it was maybe more nutritious, but dirtier. When my suki was cutting up her chicken, cockroach went walking around her big, round, wooden cutting board! Eeew. Here’s another discovery. I used to be totally loyal to Tender Juicy Hotdog, which I serve to my children once a week. I know, I know, it’s junk food, but what can I do, I love it too! :-) Then this girl with free-taste-Mekeni-hotdog on her plate walked by and it tasted even better! Total price for one kilogram: P137. Tender Juicy Hotdog sold for P165. Bibbo sold for P150. So, wet market versus grocery? For vegetables and fruits, wet market. For chicken, grocery. Come on, share your finds!

If you knew that a company does business in an ethical way, would you buy more of its shares? Would you do more business with that company? Does good corporate governance translate into shareholder or customer loyalty? Jesus P. Estanislao, chairman of the Institute for Corporate Directors, thinks so. He says corporate governance is closely linked with performance. He doesn’t have the figures yet. He is still in talks with the University of Asia and the Pacific to do a thorough study on the topic. During the ICD roundtable last Wednesday, Jess revealed the top 20 listed companies in the 2007 Corporate Governance Scorecard. Here is the list: Alaska Milk Corp. Alsons Consolidated Res., Inc. Asian Terminals, Inc. Ayala Corp. Ayala Land Inc. Bank of the Philippine Island, First Gen. Corp. First Philippine Holdings Corp. Globe Telecom Inc. Manila Electric Co. Manila Water Co. MIC Holdings Corp., Panasonic Manufacturing Phils. Corp. Petron Corp. Philex Mining Corp. Philippine Long Distance Telephone Co. San Miguel Corp. Semirara Mining Corp. Sun Life Financial Inc. Read my article here. It’s going to be a tough thing to prove. But in the post-Enron world, and most recently the Societe Generale, wanting more good governance should be a no-brainer. The problem is, investing and chasing after returns can get the most of the market and put ethics in the backburner – until the next scandal comes along. Meanwhile, here’s a video of Jess saying that Philippine listed companies’ governance practices are now at par with Asian countries, with the top five already at par with the US. Enjoy.
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