August 2008 Archives

What do you do with expired credit cards when the newer, shinier ones arrive in the mail? Cut them up. Into tiny pieces. I had a few of them hidden somewhere in the house, not knowing what to do with them. After several years, I finally discovered that the official advice is to make sure nobody can duplicate them and with some, err, creativity, put their shopping bill under your tab. This is probably one of the little things that credit card companies forget to advise their customers, or perhaps I just didn’t pay much attention. But these days, you can’t be too careful about protecting your identity. Remember that Filipinos are geniuses when it comes to IT crimes! Remember the “I love you” virus? I also hope credit card companies would make it harder for these guys, you know? It came to my attention that some credit card companies mail cards to customers that are ready for use –- no confirmation or activation required. That’s a red flag! If for some reason that card reached the wrong person with the wrong intentions, goodbye peace of mind! It was surprising to discover that a lot of very intelligent people make extremely (pardon the word) stupid mistakes when it comes to protecting the security of their credit cards, debit cards, or ATM cards. Here are the 5 craziest mistakes I have seen people make:

1. Writing down their PIN on a post-it note attached to their ATM. Yes, folks! Believe it or not, some people still do this. And you know what I don’t understand is that these people are intelligent and smart and brilliant!
2. Announcing PIN numbers to officemates and using the same PIN for computer logins. You know what happened? The ATM got stolen and the thief was able to withdraw everything. Duh moment?
3. Asking someone to withdraw money for you. Spouses are probably a logical exception to the rule, but the friend, driver, messenger, or helper? You’re setting yourself up for something that will only hurt.
4. Using birthdays, anniversaries etc. as PIN or password. Come on, it won’t take a serious hacker to crack that code.
5. Tossing credit cards or ATMs somewhere convenient when in a hurry. Hey, if it gets lost and you discover it a week later, it would be hard to convince the credit card company to reverse any fraudulent charges.

Someday, I will get the courage to create a tin medal to put around the neck of some people I know who do these things. Really.

How would you like to be part of a publishing project on financial planning? Alijeffty Gonzalez, president of ACG Advisors and Management Ltd. Co., is coming up with a free e-book that would help investors in their quest for financial freedom. All you have to do is to answer the questions below. I found the questions stimulating. They forced me to reconsider my investment goals and think about whether I am doing enough to achieve them. So fire away, guys. The person who will really benefit is you ☺. Here are the questions: Wealth to me is... My top 3 investment goals My top 3 concerns with regards to investing My top 3 reasons why I think I will accomplish my goals

Last Sunday, I asked my friend who was a businessman if he was still renting an apartment or if he had already bought a home for his family. He asked me if it was really a good idea to buy one, assuming he had the money to pay for the house in cash. “You see, my Chinese friend pays P85,000 to rent a house in Greenmeadows and says it would be stupid for him to take out his P50 million in the bank to buy a house. He buys a house; his P50 million is gone,” says my friend. “After all, he tells me, would anybody know that house is not mine?” he adds. What the Chinese businessman does instead is to live on the earnings of P50 million, making sure that the cash remains intact. Cash is king for this guy. Does the philosophy sound good to you? If you had P50 million, what would you do with it? PS. What a nice problem to have, eh?

Picture this. Assigned bank officers from 38 universal and commercial banks enter names of erring borrowers into their negative lists, send these files to the Bankers Association of the Philippines on a regular basis via file transfer protocol, and the BAP sends the file back to the banks so they can use the database for deciding whose credit application to approve or to junk. Frightening? What really goes on after these files are modified? Too many points for human errors and no way yet for individual borrowers to conveniently check whether they have hits on their names and whether the hits are justified. That’s why everybody’s waiting for the credit bureau, where transparency will make it possible for people to check their credit score. I got this email from a reader who is concerned about a hit on his name and interviewed Topper Coronel, executive director of the BAP, to clear things up. The email sender's name has been changed upon his request. Ms. Salve, I would like to pose some questions regarding your article posted on the Inquirer dated July 14, 2008 about the negative list of BAP. The questions I have are as follows: 1. What is the control mechanism of BAP to ensure that the appropriate individuals are in the negative list? What is stopping anyone who works in a bank to have your name placed on that list? Topper Coronel: The BAP Credit Bureau is just the repository of information. That means garbage in, garbage out. The banks themselves make the list. However, there are only several bank officers within a bank who are specifically authorized to modify that list and they are responsible for its reliability. They can get sued for mistakes. We are not worried about the accuracy of these lists. We are not dealing with kids here. 2. I assume there are triggers for people to be listed. What are the triggers/limits? Does it start when you fail to pay the credit card bill on time? TC: Yes, there are triggers for people to be listed and these are agreed upon by participants of the system. These include canceled credit cards due to improper usage, not voluntary cancellation. Even when the credit card falls past due, it is not immediately placed on the list. We make allowances for curable periods where a borrower might have merely forgotten to pay. 3. You mentioned that once you are on the list, you would be there forever. What if somebody made a mistake and placed you there? What if it was not you but another person with the same name? TC: Banks as a rule look at the total credit history of a person. If you have a cancelled credit card or a bounced check but have paid the amount already, it is the obligation of the bank to make a notation that you have rectified the situation. Personally, my advice is to deal with banks that know their business. If I were a bank, I would rather deal with someone who has had bad experiences with credit but got burned and has reformed, rather than someone who is spotless. Those who process credit applications and reject someone right away because of some bad decisions are lazy and are not doing justice to the bank. We are not dealing in heaven where there are only spotless angels. Also, good banks invest in good systems. There are algorithms that check not just the name but also the address, birthday and other personal details. The BAP’s system can check details like middle names. We have enough safeguards to make sure we don’t make mistakes and ruin people’s lives. Our system can only be accessed by two or three very senior people and it is fully audited and fully secure. As background, I applied last year for a credit card in another bank since I wanted to try their services and got denied. So I started to ask myself why I got denied and the only explanation was this bank was using the negative list. I already have new credit cards with two other banks but I feel pretty offended that I am on that list. My annual salary was 15x their minimum limit. All of my credit cards including my wife's were always paid in full. Obviously, like most busy couples we would miss payment once or twice but made sure we paid full and then some once we remembered it was the cut-off. Our home and cars are also not mortgaged. We also asked all the banks that we had credit cards from to give us a certification that we do not have any arrears. So what gives? I think somebody made a foolish mistake and placed us on that list. TC: The best way to check would be to write a letter of request to the BAP and we can check the system for you. Then we can tell the bank to review their records. Please feel free to post this message in anonymity but I am willing to be identified if this message will be forwarded to BAP. I appreciate your article and I hope this message will fix those who were placed inadvertently or avoid any future errors. kind regards, Juan Cruz

By CFA Institute* Investing is fun and very rewarding, especially, if you know the “rules of the game.” There are some simple rules to follow. Ignoring them, or making mistakes in applying them, can be very risky. Making mistakes repeatedly could drain your assets very quickly. “Creating a program to confidently boost investment success is not easy,” said Mark Yu, CFA, president of CFA Philippines, the local affiliate of CFA Institute, which administers the CFA® (Chartered Financial Analyst®) Program worldwide. “Investors are sometimes their own worst enemy by making common mistakes.” CFA Institute asked selected members to come up with 11 frequent and costly pitfalls that individual investors should avoid.

1. Having no investment strategy. Every investor must develop an investment strategy that will serve as a guide. A well-planned strategy considers time horizon, risk tolerance, amount of investable assets and planned future contributions.
2. Investing in individual stocks instead of in a diversified portfolio of securities. Investors should keep a broadly diversified portfolio incorporating different asset classes and investment styles. Failure to do so leaves individuals subject to fluctuations in a particular security or sector.
3. Investing in “stocks” instead of in “companies.” Invest in finance enterprises that are likely to have a positive long-term growth potential. Analyze the fundamentals of the company and industry, not day-to-day shifts in stock price. To avoid difficulties, examine a company’s corporate governance profile to ensure that it has basic corporate governance protections.
4. Buying high. Many people commit the mistake of investing in stocks that did well in previous years or in “popular” stocks of the day assuming that these will also do well in the future. Remember that the fundamental principle of investing is to buy low and sell high, not the other way around.
5. Selling low. Not every investment will increase in value. Even professional investors have difficulty beating the S&P 500 index in a year. Always have a stop-loss order on a stock that might fall in price. It’s better to take a small loss and redeploy the assets toward a more promising investment.
6. Churning your investments. Too much trading cuts into investment returns, because of transaction costs. The solution is to adopt a long-term buy-and–hold strategy, rather than active trading.
7. Acting on “tips” and “soundbites.” Veteran investors gather information from several independent sources and conduct their own proprietary research and analysis before making an investment decision.
8. Paying too much in fees and commissions. Investors should be well-informed with the associated expenses that accompany every potential investment decision.
9. Unrealistic expectations. Take a long-term view when making investments. Don’t allow external factors to cloud your actions or to cause a sudden shift in strategy.
10. Neglect. Individuals often fail at investing, because they don’t know where to start, or because they neglect their holdings.
11. Not knowing your real tolerance for risk. Investments always come with risks. Don’t wait for a sudden drop of value of assets to determine your level of risk tolerance.

About CFA Institute CFA Institute is the global association for investment professionals. It administers the CFA® (Chartered Financial Analyst®) and CIPM (Certificate in Investment Performance Measurement) curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 95,600 members, who include the world’s 82,400 CFA charterholders, in 134 countries and territories, as well as 135 affiliated professional societies in 56 countries and territories. More information may be found at www.cfainstitute.org About CFA Society of the Philippines In 1995, the CFA® (Chartered Financial Analyst®) exam was first introduced in the Philippines, with the support of the Capital Markets Development Council, Inc. (CMDCI). On July 1997, a group of CFA candidates, practitioners from the investment community and members of the academe gathered to form a society in response to the growing need to set higher standards in the investment community - in terms of knowledge, competence, professionalism and, above all, ethics. Thus, CFA Philippines, formerly known as the Association of Investment Professionals – Manila, was established. CFA Philippines is the local affiliate of US-based CFA Institute. Its mission and vision is to be the premier association in the Philippines’ investment and finance profession by promoting competence, professionalism and the highest ethical standards.

Interesting quote from Antonio L. Tiu, president of AgriNurture, Inc., a P3-billion agriculture company that’s braving the stock market blahness and pushing through with an initial public offering in the coming months.

“In Buddhism, there’s an interesting logic. If you are destined to earn a billion pesos, and I’m your father and I let you inherit P999 million, I am reducing your power. You are supposed to work hard and create value for everyone, and then suddenly I give you everything. But suppose I give your inheritance to the public, I am passing on a legacy rather than inheritance. If I give too much money to the next generation, I am actually destroying their future.”

In Filipino parlance, pamana is a measure of how well we love our children. More love means bigger inheritance. We even equate that to parenting prowess. (As if money can measure love, huh?) But that’s the way things are. There is a cocktail of emotions linked with leaving an inheritance: parental love, pride, fear of the future, fear of economic collapse, etc. Now, Tiu is saying completely the opposite. Giving “too much” money, he says, can destroy our children’s future. Giving too much may mean they’ll go lazy, or worse, squander away money they haven’t worked for. This principle goes into buying life insurance, properties, and other stuff we want to leave to our children. In the United States, retirees are deciding to blow their dough well into old age, figuring that they need to enjoy the fruits of their hard work, leaving less for the future generations. In the Philippines, there are heirs and heiresses and we hear about them in the news. But with less than 50 percent even thinking about retirement, the situation closest to reality may be no the prospect of no inheritance at all. So the question is, what’s “too much,” what’s “just enough” and what’s “not enough?”

Young, upwardly mobile Filipinos who spend much of their time on the Internet, are scouring the web for personal finance advice relevant to the Philippine setting, and are flocking to websites like Income-tacts.com, a forum populated by Filipino financial planning practitioners. “Objective advice” is the operative word, says Efren Ll. Cruz, chairman and chief executive officer of Personal Finance Advisers, the company that owns the website. Cruz says Filipinos are very wary about tainted advice and the one thing that separates Income-tacts from other personal finance websites is that it does not market specific financial instruments. “There are many products out there to manage finances. More often than not, however, you don’t get an objective view because they are explained from the point of view of the salesman. That’s what we provide: the objective view,” says Cruz. Some of the most popular topics in the forum, for example, are ways to save money in the Philippines, the real deal about companies offering 20 percent per annum in interest, how people made their first million, what are the best performing unit investment trust funds and mutual funds and how to legally flip properties. J. Randell Tiongson, president of Personal Finance Advisors, a director of the Registered Financial Planning Institute and a training specialist at Generali Pilipinas, says most of the site’s readers are single, young, interested in savings, investments and managing debt, and are looking for good investment products. Some complain about pushy sales people. Posts average at 200 a month within 150 topics. The most number of forum members recorded online in a single day was 29 on April 1 this year. One of the success factors of Income-tacts is its list of writers. A number of writers in the Experts’ Forum are independent financial planners, Cruz says, while others are employed with financial services companies but strive to write only independent advice. The roster of writers include bestselling author and motivational speaker Francis Kong, lifestyle coach Chinkee Tan, Jim Sarmiento, certified financial planner, Atty. Carlo Carino, legal consultant for financial advisory and Atty. Caloy Ocampo, co-author of Cruz for his second book Pwede Na: The Pinoy Guide to Retirement and Estate Planning. “The site is open to both experts, savers and investors. Even if the experts who write are connected with certain companies, they try their best to be objective, like Randell and me,” says Cruz. Cruz observed that there are many Filipino personal finance websites and blogs that are sprouting on the Internet and said it’s crucial that readers determine for themselves which are authentic and which ones are just out there to make a quick buck on them. “I have seen a couple of sites, not blogs, and with some the commissions are so huge. Their charges are larger than what it would cost you to trade with a broker or have your money managed by the trust department of any bank. Fees of the usual capital market intermediaries are transparent. They should compare such fees with the fees that these sites are charging,” Cruz says, without naming names. He says that while there is growing interest in money management, the greater majority of Filipinos still fail to balance their finances. “Some don’t listen to reason and just follow their instincts. Some are duped by scams. Some are simply led on by very attractive advertising and gimmicks,” Cruz says. Cruz and Tiongson are targeting 4,000 forum members by year-end, a growth of 200 percent from the current membership of 1,300. Not bad from a marriage of two Yahoo groups, two visionaries’ desire to educate Filipinos on financial literacy and the simplest of all marketing tools –- a website. One that MoneySmarts believes is totally recommended reading for the serious saver and investor.

I’m intrigued by the phrase “scrimp and save.” It sounds so crunchy and delicious when it actually connotes discipline and sacrifice. :-p It made me think of how far people will go to save money. The genetic footprint, as well as cultural background, can impact this tendency greatly. For example, some people can skip lunch to save for something. Some can’t. While interviewing Jocelyn Sta. Ana, Bank of the Philippine Island’s vice-president for retail mortgage division, for my article “Goodbye easy home loan terms?” published in the Philippine Daily Inquirer today, she shared this amazing story about a friend and gave me permission to share it with you. Celyn says that her friend, who works for a well-known multilateral agency, decided with her musician husband to buy their own home. They were eligible for a loan, but their money-smarts told them to pay off everything in two years rather than opting for what most Filipinos go for –- the 10 to 15-year term. Some people might describe their strategy as “extreme personal finance.” For two years, Jollibee meals were luxuries. They consciously kept their Meralco bill at P800 per month. I’m guessing that means no airconditioning and lots of 10-watt-bulbs. “Our joke was that they used Christmas lights in their bathrooms,” Celyn said. The husband who did the grocery always had a plan before entering any store and he spends plenty of time comparison shopping. The wife didn’t buy make-up until the loan was fully paid. They were the brunt of all jokes, Celyn said. And yet the last laugh belonged to them. In two years, they paid off the loan and since then, they’ve been to at least one vacation overseas to celebrate. Do you think that’s too extreme? Or just a millionaire mindset? My eyes have been glued to my blog post on “How did you make your first million” since I uploaded it last week and the comments that it sparked from readers! Sixty comments so far and counting! Thank you so much for sharing your stories. You inspire and make people believe that crossing that one-million mark is possible even for ordinary people. And the great thing is it doesn’t have to be the final mark. Go, go millionaires!

One million is not so much these days. As many of those who commented on my previous article “Are you a millionaire in the making” said, P1 million can hardly buy you an SUV. But that P1 million figure remains a psychological milestone, one that gives status and encourages a person to do more. Certainly, someone who has hit a net worth of P1 million will not stop there. I found myself going through online groups reading how people have made their first million –- and it’s pretty addictive! Heh. So, those who have hit that first million, why don’t you share your story? Who knows, it can be a source of inspiration to those who are still on that journey. You can begin by considering the following questions:

1. Did you inherit your money?
2. Did you inherit properties?
3. Did you marry someone rich?
4. Did you start a business and became successful?
5. Did you do it by saving regularly?
6. Did you do it by investing aggressively?
7. Did you make your first million by working as a professional overseas?

What’s your story?

By Alexander Villafania* How do you make money, reduce debt and still smile about it? This was the main question raised during the held "Take Charge of Your Money" seminar at the AIM Conference Center in Makati City last August 2. Professionals, employees, businessmen and people in debt were invited to attend the seminar organized by Citibank and Inquirer.net. The seminar intended to provide people with tips on saving amid economic problems, how to deal with debt and why Filipinos need financial planning. Chinkee Tan, a lifestyle trainer and entrepreneur in his speech said that it is typical for most Filipinos to be in debt. Personal debt becomes worse as people find it harder to make ends meet and are forced to ask for financial assistance. He said the most important aspect of paying debt is to have the willingness to actually doing so. "Almost all of us are in debt but it doesn't mean it can't be solved. We should be firm in the belief that we can pay our debts, little by little," he said. Noted mathematician and psychologist Queena Lee-Chua focused on setting financial goals and why it is important to save even in times of financial crisis. Chua said that people could opt to reduce their expenses or avoid unnecessary purchases to save up. "It's not just about saving but how to save wisely." Meanwhile, Citicorp Financial Services head for research and portfolio strategy Ramon Tejero III said that financial planning is better started during times of ease. "People can weather down tough times when they have financial planning in advance." Lastly, renowned motivational speaker Francis Kong explained that people should not be slaves to money, despite its importance in people's lives. Kong explained that while people find happiness in having money, it is not an end-goal. Happiness is a state of mind, he said. "Problems make you challenge yourself. If things are always good and easy you wouldn't be challenged to try new things," Kong said. *Alex is a reporter for INQUIRER.net. Thank you Alex for covering the event!

A few hours after it was uploaded, the article “Hidden, self-made millionaires around us” has reached the top slot in the business section’s Most Read list and 9th for the entire INQUIRER.net site. People are either in a hurry to know if people are catching up with them, or leaving them behind. While writing the article, I was particularly happy to find that there are many millionaires around us who did not inherit their money. I lived in the province during my growing up years, and it seemed that the only way you could get rich is by being born in a wealthy family or marrying into one. That’s not true anymore. So, how do you know if you are a millionaire in the making? Do you have the same qualities these hidden, self-made millionaires have? I would love to work on a full-blown systematic study on this topic, but for the purposes of the article, I found that these questions that will help you begin to find out if you are a millionaire in the making: 1) Do you live way below your means? 2) Are you a tightwad? 3) Do you own your home or actively planning to own one? 4) Are you smart in managing your credit card debt? 5) Are you an aggressive but informed investor? 6) If you are a professional, do you love your work? 7) If you are an entrepreneur, do you love your business? 8) Can you forego buying something that will give you status for something that will enhance your investment or business portfolio? 9) Do you spend heavily on education? 10) Are you bothered if your friends or relatives look like they have a better lifestyle than you do? A “yes” answer to the first nine questions is a good key to being a millionaire – or billionaire – in the making.

We have been so pleasantly surprised about the interest in the Take Charge Of Your Money seminar. Three days after I blogged about it, we were almost fully booked! We hope to bring the seminar to those in the provinces in the future, but cannot make any commitments at this time. Those who cannot come due to time and distance constraints, watch out for the podcasts and videocasts of portions of the event right here on INQUIRER.net. See you all later!

From finding ways to achieve riches after years of working in a foreign land, to various options for remittance and related financial services, and among relevant features, MoneySense’s July-August 2008 issue is for you –- our Overseas Filipino Workers (OFWs). Gracing this issue’s cover is popular TV host and Optical Media Board chairperson Edu Manzano, who also shares he was once an OFW. With building and owning a home a big dream among OFWs and their family, the magazine also include features on the economics of building your own home, 10 ways to lower your home insurance costs, and best value condos to watch out for. Pag-Ibig fund president and CEO Atty. Romero F.S. Quimbo also shares valuable tips on buying your dream home. Other features catering to OFWs include property payoffs, saving on food bills, getting out of debt, choosing an AUV, 10 boo-boos when buying a budget laptop, and flying with low air fares. Currently available in over 200 outlets nationwide, MoneySense is founded by veteran business and finance journalists with a combined 50 years of publishing experience. To learn more about the MoneySense, visit www.moneysense.com.ph. For subscriptions, contact 339-3361, 728-1073 or email info@moneysense.com.ph.