DIY capital-protected investment for OFWs

Investment professional Alijeffty Gonzales has a simple idea for Filipinos working overseas who want, at the very least, to protect their capital and still get their feet wet in the equities market at the same time.

In his blog post here, he says any OFW can do this by putting at least P13,699 in Landbank’s long-term negotiable certificate of deposit and investing P6,301 for any equities fund of his choice and voila – you have an equity-linked note or ELN. Sounds highfaluting, eh?

An ELN basically combines a zero-coupon note with an instrument that invests in more volatile (exciting) securities like stocks. As the zero-coupon returns 100% of the face value at maturity, any residual value of the stock portfolio becomes “gravy” at the concurrent reckoning date.

Here’s Jeff’s math:

Scenario 1: On the fifth year, stock market drops to ZERO

Scenario 2 : the stock market is flat (zero growth)

Scenario 3 : The stock market grows by an average of 8.00%

Jeff says:

Looking at the extremes, this portfolio will return 100% of your capital at the worst case scenario and enhance your return to 8.42% at a modest stock market growth, this could be a great opportunity for OFWs who are contemplating to invest in the stock market for the first time.

Here’s MoneySmart’s take: Good for investment beginners, which means most Filipinos, not just OFWs. If you are saving for something that will be happening 5.5 years from now, say you are sending your son or daughter to a university overseas or you will be needing a downpayment for a car or a small house — and you are positive that if you don’t set aside money NOW, there’s a chance you won’t be able to shell it out in the future, then lock in your money Jeff’s way. A 7% return is low but still much better than those offered by some pre-need companies and current time deposit rates.

Plus, I would rather put my money in a government bank that is less likely to fold up than some little-known investment company offering the moon and the stars. Hello PIPC, heh.

(In case you’re wondering, no I don’t have a deposit account in Landbank that will mysteriously grow sinfully big in the near future. Nope, this is not a paid advertisement.)

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