By Karen Galarpe

(Note from Salve: I am away on maternity leave having finally delivered the baby last week! Friend and excellent writer Karen Galarpe will be posting articles while I am away. Be kind to each other guys! We’re here to learn and help each other.)

THESE days, it’s understandable to be more hesitant when it comes to investing. Those who made a nice good profit during the last bull run have seen their stock portfolio decrease in value. Same thing with people who have equity or balanced mutual fund or unit investment trust fund (UITF) placements. Values have gone down much more than one would want.

But according to Juanis G. Barredo, vice president of Citisec Online, “The right view is to look at today’s market as a potential to buy great companies at fire sale prices. Stock prices remain attractive at a discount.” Barredo spoke at last week’s first MoneySense Live! seminar organized by Money Sense magazine. The seminar, held at the AIM Conference Center in Makati, had the theme “Investing Profitably Even in Tough Times.”

Barredo quoted global investor Warren Buffet: “Crisis stems opportunity.” Indeed, blue chips are now more affordable, and if one is invested now in the stock market, you will benefit once the market goes upswing.

So when will we see positive growth in the local stock market, asked a participant. Barredo admits that is a difficult question. Rather than think of that, the question should be, says Barredo, “Has the market given a condition where you can make money?” If you are investing for the long term, the stock market is a good investment option. In the long run, it may yield good returns.

How much investment should be put in the stock market? Conrado Bate, president and CEO of Citisec Online, says, “the conservative approach is to invest up to 20 percent of savings in the stock market, or anything that you’re willing to invest for 5 years or more.”

An aggressive take would be to “subtract your age from 100. This should be the maximum percentage of savings invested in the stock market.” Doby Atilano, CEO of Howroyd & Benjamin (H&B), a pioneering independent wealth advisory firm, on the other hand, advises, “Do not put more than 10 percent of your money in something that goes up and down.”

There’s a new trend in the US of companies calling up the relatives of those who have recently passed away, and believe it or not, those who work the phones are getting more success than collecting from those living!

Perhaps it’s the approach that they use: absolutely no scare tactics. They sound more like understanding friends who grieve with the bereaved, but gently remind them that paying the debt even in small sums every month would be what the dead would want their relatives to do.

Curious whether there is legal accountability among relatives to pay the debts of their dead, I checked with a lawyer and a banker. Answer: none, except a claim on the estate, if there is one.
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Time deposits are very popular among Philippine savers, both small and big ones, because they guarantee earnings from cash you are sure to get back after a certain period (normally 30 days, 90 days, and 180 days). That’s of course assuming that you chose the right bank (hello Rural Bank of Parañaque?).

I once wrote about a Chinese businessman who lived on his P50 million placed in a time deposit account rolled over regularly. He enjoyed it so much that he believed renting a house for P85,000 a month in a posh Quezon City subdivision was better than buying his own home, because doing so would reduce his stash of cash.

In the US, investors maximize time deposits (more commonly known as certificates of deposits) by using a strategy called “laddering.” This simply means spreading your money in CDs with different maturity dates, so that you get regular income from them. By doing this, you make sure that you don’t have to withdraw from your time deposits prematurely and suffer from the steep penalties.
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The softness in the job market these days may cause some of you to consider freelancing or consultancy.

I could go into all the pros and cons of such a plan, but let me focus on a personal finance tip that many freelancers and consultants forget: set aside one month of your salary for every year of serving a particular client. This would approximate a separation pay when the engagement ends.

I was chatting with Nannette Ferreria, a registered financial consultant (RFC), one afternoon when she told me about this strategy. With all the demands of juggling time, meeting with clients and getting new ones, it’s easy to lose your savings focus.
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For so many years, professionals working in the capital markets here in the Philippines have been complaining about the high costs of financial transactions due to taxes. Isn’t it  almost funny when you look at the running balance on your savings accounts? Seeing the measly interest on your deposits deducted by a 20% tax on interest income. What more when you’re talking of taxes on dividends, sales of shares of stocks, capital gains on sale of real estate! Whew.

Now, here’s the PERA Bill and it seems to be the solution everybody has been waiting for. Or is it?

Based on the March 4 version of the PERA Bill rules, your tax breaks under this new law are three-fold. There’s the 5% tax credit on your annual contribution, maximum of P100,000 for local residents and P200,000 if you’re working or living abroad. If you invest more than the maximum amount per year, then you get the tax break for the first P100,000 or P200,000 you invested, or you have to choose and inform your administrator which of your investments should enjoy the tax credit.
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The Philippine investing universe is not that big. The Philippine Stock Exchange has just started to talk about REITS and ETFs. Within the country, the options are not that many. So far, the investment instruments allowed for the PERA are the following:

1.    UITFs (unit investment trust funds)
2.    Share of stock of mutual funds
3.    Annuity contracts (contracts with insurance companies that guarantee retirement income)
4.    Insurance pension products
5.    Pre-need pension products
6.    Equities and other instruments traded in a local exchange
7.    Exchange-traded bonds
8.    Other products approved by the regulators for PERA, as long as they must be non-speculative, readily marketable, and with a track record of regular income payments to investors.

The PERA rules require the Administrator to make sure you understand the risks associated with each product and that you know whether these are classified as conservative, moderate and aggressive. I just find the word “non-speculative” in the rules questionable since equities, bonds and even funds that are mostly invested in these things are in certain ways “speculative.”
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Would you rant and rave? Have sleepless nights? Jump off a cliff?

I can imagine some of you saying, if I had $40 billion more and still ended up as the world’s richest man despite having lost that $18 billion in my bank balance because of the market downturn just as Bill Gates did, it wouldn’t hurt as much.

Warren Buffett came in second with $37 billion, after having lost $25 billion this year. Carlos Slim also managed to get third spot after having lost $25 billion too. Yeah, yeah, poor guys, right? Heh.
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Noet Ravalo sent me an email last night about PERA and gave his thoughts on what an administrator should be:

I think it would be good to re-think the common misnomer that administrators simply manage the investor’s records. Far from being simply a record-keeper, the administrator is essentially:
a) a teacher
b) a conscience
c) a manager
d) and yes, a bookkeeper

The investment manager (the advisor) is optional so the central figure for the investor IS the administrator.”

As always, Noet makes a very valid point. My take-away from what he is saying is that choosing an administrator that will look after your interest—really—and not just the business that you bring into the company is the first crucial step in setting up a winning PERA account.
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Here is SunLife’s reply to reader Chris’ questions about his VUL product;

Dear Chris,

As mentioned, VULs are products that have an insurance and an investment component. It’s a flexible product wherein your money works harder because you are covered with life insurance and at the same time, a portion of your money is invested in potentially high-yielding instruments that is accessible to you. In your case, an allocation of your insurance premium is invested in the Sun FlexiLink Equity Fund.

The Sun FlexiLink Equity Fund is a basket of blue-chip securities (top equity holdings as of Jan ‘09 include: PLDT, BPI, Globe Telecom, Ayala Corp, Ayala Land to name a few) that are prone to market fluctuations and by itself more risky than the other funds available under Sun Flexilink such as Sun Flexilink Bond Fund or Sun Flexilink Money Market Fund. We must remember that the valuation of these funds is done on a daily basis.

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The original schedule for the implementation of the PERA Bill signed into law last year was January 2009. It’s already March, and the implementing rules and regulations (IRR) is still going through revisions.

If this is the first time you have heard of the PERA and you want a simple FAQ about it, read my previous blog post, “The PERA Bill at its core.”

The sticky point that has caused most of the delay is the qualification of administrators for the PERA account. Based on the latest version of the draft rules, these administrators will oversee and maintain the records of your PERA account. They could be:
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