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 20th, 2008 at 4:36 am
ACN and Chris, read the quote again carefully. It says nothing about an annual investment. And sure you can grow P20k one-time investment to 1M in 40 years, but good luck on having a good retirement.
Let me inject what Hachiko correctly pointed out. We need to disabuse ourselves of the notion that a one-time small investment is all we need plus the luck that comes from heaven. It takes years of commitment — even habit — to grow a nest egg. But this doesn’t mean that we shouldn’t try. It only means that we should try consistently and go for capital formation as a worthwhile goal if we want to make significant steps towards being financially independent.
Having said that, life is also not just about money. Balancing life goals and money goals is most important, because wealth is truly not just measured by what we have in our investment accounts. Family, friends, health, spiritual beliefs, community, work — they are the real things that make up a good life Money just makes work a lot better.
But of course, diversity of opinion makes life interesting, so yes, ACN, we don’t have to convince each other
May 17th, 2008 at 5:35 pm
@ chris
read the whole thread.. you’ll see that posters have different assumptions.. you assumed 20K annual investment.. some of them, a one time 20K investment.
May 16th, 2008 at 1:30 pm
@ACN…..
hhmmm …. is it not saving annually? i assumed it’s saving annually….. else very difficult to reach target goal……
and beside, since one already start saving… why not continue?….. cheers
May 15th, 2008 at 11:35 am
@ chris
this is why it is important to state all factors. this is especially true for those people who are in a position to easily convince others.
In your reply, you assumed there is an additional investment.. but is this aligned with Augustus’ position? We don’t know, he didn’t said annually nor single investment.
@ salve
Saying “We all know what he meant” is not prudent. Accepting what he said without these factors, imho, is not money smart.
I don’t need to convince you, nor you need to convinve me… my 2 cents worth lang.
May 14th, 2008 at 1:08 am
just some facts…… if some people put their savings into stocks of chinabank 3-4years ago….. it would have doubled in 3 years time…
if put into pldt on 2003….. would have grown by 10x by now