(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?
February 19th, 2008 at 4:41 pm
@jeff, thank you for your comment and for being very supportive of moneysmarts! truth is, i pored over that line for many hours before i uploaded it. the context in my mind was to make sure that you have a variety of investments in your portfolio, and not put all your savings in a bank deposit. something like that
February 19th, 2008 at 4:33 pm
@henry nills, there are several mutual funds here in the Philippines that have been providing decent returns in recent years. there are limitations though, and financial planners do recommend putting some funds in overseas markets. bankers have been telling me there is growing interest in that. hope we will see more of it in the coming years. good luck on your investments!
February 19th, 2008 at 4:31 pm
@traderpinoy, it was amusing to read your comment. that really is a common situation. perhaps you might want to share with us how you plan your personal exit strategies? that would be really interesting to read
February 19th, 2008 at 4:29 pm
@paetechie, i have seen many people get rich without investing in stocks. they don’t always have to be in one’s portfolio. but if you have the stomach and the inclination, i guess there’s nothing wrong with trying! good luck!
February 19th, 2008 at 4:27 pm
@ria, lately i have been pleasantly surprised with quite a few efforts to teach financial literacy in grade schools, and even high schools. You have PDIC, BSP and DepEd signing memoranda for these. I was able to get a peek at what the curriculum looked like. good efforts, I think, except that i hope teachers will mostly talk about general stuff like the value of saving etc. i can’t imagine them talking about stocks. if they say the wrong things, then it will take years and years to correct them! but on the whole, i think this is a good idea for improving Filipinos’ attitude towards money. Start while young!