The secret of all investment secrets…

…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.

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