Quote for the day:
People think they can invest P20,000 and grow that to a million if they are smart enough. That’s an urban legend. Truth is, you need money to attract money. Capital formation is very important.
– Augustus J.V. Ferreria, senior executive vide-president of Generali Pilipinas, in a MoneyMakeover session May 5, 2008.
The idea of investing is sexy. We are all in a hurry to do it. The more technical and highfaluting, the better. Stocks, bonds, forex, real estate – bring them on!
The wisdom of the wise tells us to make sure we have the “pisi” (rope) to invest and make money even during market fluctuations. Yes, even for supposedly–dummy-proof instruments like mutual funds. We must consider worst-case scenarios before we let excitement push us to jump without a chute.
Dr. Noet’s column today explains for example that even for assets we are planning to hold to maturity, we cannot just be fixated on the specific date in the future when we will get our principal plus the discount or minus the premium. We must also think about what will happen if worse comes to worst, we need to liquidate before that time.
A high income or extensive wealth will allow a select few the option of holding onto assets irrespective of market swings. Indifference is a clear clue that they have judged themselves to be liquid enough to either withstand the market spikes or remain focused only on the maturity date. This is the privilege of having a “mahabang pisi”.
For most retail investors though, our pisi is much shorter. We are much more prone to a liquidity squeeze and more likely to react when the day-to-day value of our long-term assets are fluctuating. The irony is that when investors sell when prices are already falling, values drop even further. Panic begets large losses and large losses beget further losses.
“But this opportunity comes only once!” the thought reverberates in my head.
“Nah,” reason sets in. That’s greed talking.
Conserve financial strength, build up capital, choose tradeable investments and only then invest. Breathe in, breathe out. 
May 13th, 2008 at 9:20 am
@ Robert
Yup, I agree with you. This is exactly why it is not wise to have a fixed target amount for retirement.
Our aim should be variable not fixed. The value should (at least) be equal to monthly expenses. Ideal scenario would be to have a passive income twice your monthly expenses.
Going back to Augustus’ statement, he left out the time component. Hence, on this basis (or a lack thereof), growing 20K to 1M is NOT an urban legend.
May 11th, 2008 at 1:27 am
ACN,
that’s not an easy question.. afterall 20K is almost nothing nowadays… if you go to supermarket, you will probably go home with less than 10 shopping bags to be consumed in a week or 2. So assuming, you put that 20K in a fixed interest investment, it might take you 50 yrs (or more)to come up with a 1M. By then, that amount will probably be enough to support you to buy your medicine to help you during your old age…. for maybe a year or less. Lol. BUT that 20K can also become 1M in less than 5 years… for a very few of us who knows the intricacies of investing.
May 10th, 2008 at 1:18 pm
One point I have against buying this urban legend. It lulls you into saving just P 20k ($500) and splurging the rest of your income till you’re 65, hoping that P 1M gold at the end of the rainbow will be there. Just like taking a slimming pill while continuing to overeat.
Financial security and wealth formation is a serious lifetime commitment, you need to think moneysmart in every aspect of your life: earning, eating, housing, schooling… Everyone who earned their own wealth focused big-time on getting where they are now and put in much, much more than just $500 worth of capital and labor/effort to make it.
Best to dismiss such urban legends, learn from the winners, emulate their values, and avoid the pitfalls to achieving financial security. That’s what this blog is precisely for.
May 9th, 2008 at 7:46 am
if you have 1000 friends and relatives each giving you P1000 gift cash, that’s P1M.
May 8th, 2008 at 6:34 pm
anybody can grow 20K to 1M.. the question is how long.