March 2009 Archives

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. Says Atty. Carlo Cariño, an expert on financial transactions: It is my opinion that credit card obligations are personal to the debtor. Others who are not privy to the contract between the bank and the cardholder can’t be prejudiced. But the bank can claim from the estate of the debtor if there’s any and before it is distributed to the children. From Citibank’s legal department: Q:  Can credit card companies run after the children of seniors who can't pay their debts? A:  Generally no, but there have been cases where the parents refer the creditor to the children for the handling of their indebtedness. It is also possible for children to sign relevant agreement/s, such as promissory note or debt restructuring agreement, as co-maker with the parents under a debt restructuring arrangement with the creditor, which will then make them accountable for the debt. Would you scrimp and save to pay for the debt of your dead relatives?

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. I made a few calls to the top three local banks and one thrift bank and here are their time deposit rates: P10,000-below P50,000 BPI –- 2.25% (30 days) -- 2.625% (90 days) BDO –- 1.875% (30 days) -– 2.75% (180 days) -– 2.875% (360 days) Metrobank –- 1.25% (30 days) –- 1.75% (90 days) –- 2% (180 to 364 days) PSBank –- 0.5% (30 days) –- 0.5% (90 days) P50,000-below P100,000 BPI –- 2.5% (30 days) –- 2.75% (90 days) BDO –- 2.25% (30 days) -– 3.25% (180 days) -– 3.375% (360 days) Metrobank – 1.5% (30 days) –- 2% (90 days) – 2.25% (180 days to 3.64%) PSBank –- 1% (30 days to 90 days) P100,000-below P500,000 PSBank –- 3.5% (30 days) –- 2.75% (90 days) BPI -– 2.625% (30 days) -– 2.875% (90 days) BDO –- 2.5% (30 days) –- 3.25% (180 days) -– 3.375% (360 days) Metrobank -- 2% (30 days) –- 2.5% (90 days) -– 2.75% (180 days to 364 days) P500,000 to below P1 million PSBank –- 3.75% (30 days) -– 3% (90 days) BPI –- 2.75% (30 days) -– 3% (90 days) BDO –- 2.5% (30 days) -– 3.25% (180 days) –- 3.375% (360 days) Metrobank –- 2.25% (30 days) –- 2.75% (90 days) –- 3% (180 days to 360 days) P1 million to below P5 million PSbank –- 4% (30 days) –- 3.25% (90 days) BDO –- 3.25% to 3.5% (30 days) -– 3.625% to 3.75% (180 days) –- 3.75% to 4% (360 days) BPI –- 2.875% (30 days) -– 3.125% (90 days) Metrobank -– 2.75% (30 days) –- 3.25% (90 days) –- 3.75% (180 days to 360 days) Some interesting revelations:

1. It pays to shop around for the best rates.
2. Some banks significantly rewards bulk deposits. Note that BPI has the best rates for deposits in the lower brackets but towards the half-a-million-peso level, its rates are taken over by PSBank and BDO.

Computing what you will get in interest Interest rates are annualized. To compute what you will get in interest, use this formula: Interest = (principal x rate x days) / 360 For example: P16,666 = (P5 million x .04 x 30) / 360 That’s the amount you will get if you put your P5 million in PSBank for 30 days at 4% interest. That’s about P200,000 for a one-year placement with simple interest. Remember, however, that earnings from time deposits are taxed with a 20% withholding tax. Are your savings safe? Time deposits are covered by the Philippine Deposit Insurance Corp. up to P250,000 and are thus more or less savings instruments for the ultra-conservative. However, there are also risks involved and these are mostly a result of how you choose your bank. How? Interest rates as of now are market-driven. That means that if I were a bank and I really want your deposits, I would try to best all my competitors and give you the highest rate in the market. To this end, competition among banks is good for depositors. However, some lesser-known banks, knowing their Waterloo, attract deposits by offering higher rates. You, the depositor, then have to make a personal decision whether you would accept the higher risk to get the higher return on your money from a bank with a not-so-stellar track record, management structure or business outlook. In fact, time and again, banks that have been known to close shop because of liquidity problems have offered abnormally high interest rates right before declaring a bank holiday. In MoneySmarts, readers have often pointed out that rural banks give much higher time deposit rates than the big commercial banks. That’s true. Some gave out as high as 18% or 20%, and now you know which banks those were. Most of these banks are now closed. So choose your bank well. Disclosure: MoneySmarts' husband works for PSBank, but has not in any way influenced this article.

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. Naturally, I will assume you are saving as much as you can and keeping your emergency fund equal to six months’ worth of no-touchie money secure. Then there’s the usual stuff about having your own health insurance in place, investing as much as you can, and making sure you don’t get into debt. But I think it’s a very good idea to—on top of all these things—to make sure you have at least 1.0 to 1.5 months worth of your salary tucked away.

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. This is peanuts. Nothing to get excited about. The more significant tax break can be found in PERA Rule 9 which states “all income earned from the investments and reinvestments of the maximum amount allowed herein is tax exempt.” Yes, goodbye 20% tax on interest income, capital gains taxes, documentary stamp taxes, etc. etc. Do the math: less drag on your investments plus the power of compounding especially if you begin investing while still young. Sweet. Then the last tax break is the exemption from distribution tax or estate taxes when you kick the bucket OR when you retire at age 55. Remember, however, that the penalties on early withdrawal could be quite steep, so as one of you pointed out, make sure you invest only the money that you can forget until you turn 55. You will have to return to the government all the tax incentives you enjoyed for the entire period of the PERA. The only exemptions are if you withdraw and transfer the money to another administrator within three days, you are hospitalized for more than 30 days and use the money for your hospitalization or you have been permanently and totally disabled. A finance professional I talked to, however, said the tax breaks may not be that big a deal, especially since under the Comprehensive Tax Reform Program, you are already protected from taxes if you put your money in instruments that mature in five years and a day. If I understand him correctly, he is saying that saving and investing the usual way already gives you tax breaks similar to PERA, without having to be slapped early withdrawal penalties and paying administrator and custodian fees. We might have to wait until the rules are finalized, see whether the fees and charges of administrators and custodians are significant before we can simulate. In the meantime, I hope the powers that be who are designing the rules would take these in consideration. Your thoughts? Related blog posts:

1. The PERA Bill at its core
2. Decoding the PERA Bill rules
3. Who can open a PERA and how?
4. Where to invest your PERA

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.” Because investing decisions are extremely personal in nature, the exact allocation will depend precisely on your risk profile and the amount of money you will invest. Just remember the investing pyramid, a loose investing rule that says the most prudent way would be to fill the base of the pyramid with safer products and move to the riskiest as the allocation gets smaller. Also one of the basic rules would be to revisit your allocation regularly, maybe once or twice a year, to keep it in step with your changing goals. Last: What are the tax incentives in the PERA? Related blog posts:

1. The PERA Bill at its core
2. Decoding the PERA Bill rules
3. Who can open a PERA and how?

Some interesting investing seminars: MoneySense Live, March 26, 2009 at the AIM Conference Center 1:30-5:30. Topics include investing profitably even during tough times, minimizing risks while still achieving returns, what to do when your investment portfolio is badly hit, how to take advantage of the downturn to buy investments at bargain prices, how to pick the right stocks and funds to invest in and how to reach your financial goals using stocks, mutual funds, UITFs and VULs. (P1,000 regular rate, discounts for MoneySense subscribers). Visit www.iluvlearning.com  or call 996-4610. PSE seminar on the basics of investing in the stock market, mutual funds, bonds, certificates of deposit, and Treasury bills. This will be held on March 27, 2009, 1-5 p.m. at the Ballroom of El Cielito Inn in Sta. Rosa Laguna. This one’s free. Call the PSE Market Education Department at (632) 688-7536 to 39 to pre-register and confirm your attendance. Or you may sign up by sending your name and company/organization via fax at (02) 6346695 or email to either cgpenaflor (at) pse (dot) com (dot) ph or kbbuenaobra (at) pse (dot) com (dot) ph.

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. "The biggest news today is that we are here and there still are billionaires," Forbes spokeswoman Monie Begley joked at a press conference, the article says. Asia’s richest mall magnate Henry Sy and tobacco tycoon Lucio Tan also made it to Forbes billionaire list. Sy’s net income actually grew over the year. But it was very telling that even the world’s billionaires didn’t escape the global crisis. This turmoil was in fact more painful for them, in some respects. Sort of changes the way we look at our smaller losses, huh? This got me thinking about how we look at money. Have you ever asked yourself that question? Since I write about personal finance for a living, some may think that’s probably all I ever think about. Or all that’s important to me. Some of you who may be following personal finance issues probably feel the same way when people make comments about your interest in the topic. I hope for all of us, nothing could be further from the truth. The whole point about keeping finances in order is this: keeping the lid on money problems allows us the luxury of time with our families because we don’t have to be corporate slaves 24x7. Or the ability to help others when our inner metronome of goodness tells us they need help. Or have an inner peace about the future that constant and slow steps towards financial prosperity can provide. Come on, add some more.

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. I suspect there will be no shortage of financial service companies out there that will try to get your business when the PERA Bill finally hits the road. Choose well. Now, what does the rules say about who can open a PERA? We already know this is open to Filipinos living and working overseas, as well as those working and living here. Also, this is open to both employed and self-employed. While it is a long-term voluntary retirement account with tax benefits, those of you who are already 55 years or older can still open an account, but the tax benefits kick in only if you contribute to the account for five years. It doesn’t have to be five consecutive years, though. The rule has special requirements for expat Filipinos (that’s my favorite term for OFWs). Since you are allowed to claim tax credits for a maximum of P200,000 of your annual contributions, as opposed to the P100,000 for those who are working here, you will be asked to: 1)    submit the certificate of registration issued by the Philippine Overseas Employment Administration, 2)    submit the identification certificate issued by the Bureau of Immigration if you have retained or reacquired your Philippine citizenship and your income tax return filed in the country where you live, 3)    marriage certificate of your legitimate spouse, since he can also open his own PERA, 4)    birth certificates of any of your children. How to open up a PERA? According to the latest version of the draft rules, your chosen administrator must do two things even before he opens a PERA account for you. One, the administrator must adopt a “Pre-Acceptance Disclosure Policy” that will ensure you know what you are getting into. Among others, this disclosure policy contains the nature of a PERA, the penalties for withdrawing before you reach 55 years old, tax incentives, the type and classifications of PERA investment products available to you, the risks (and they should be clearly stated and not fudged in any way) and the administrator’s obligations and responsibilities, as well as the custodian’s and the investment manager’s. Two, your administrator should provide you with a “risk disclosure statement” which will be part of your contract. This statement should CLEARLY state all the risks—that there is a possibility you can lose some or all your money in a sharp market downturn. The account-opening process should “at least” involve the following: 1.    You need to answer a “client suitability assessment”, which is a questionnaire to determine your personal data (needed under the Anti-Money Laundering Law), investment objectives (why you are investing), investment experience (to determine your familiarity with investing), knowledge and financial sophistication and risk tolerance. If, in the future, you decide you want to place your money in investment instruments that don’t fit with your risk tolerance, you will have to write specific instructions to the administrator. 2.    The administrator will draw up an “investment policy statement” derived from the client suitability assessment. This is to be a clear reference frame for all your investment decisions and should include your investment objectives, strategies and limits. This will be part of your contract with the administrator. 3.    You will now identify the type of PERA account you want to open—all in writing—and your investment options. 4.    The documents that you expect to have as a result of this process should at least include the description of services to be provided by your administrator, fees and charges and how they are calculated, what the administrator needs to report to you regularly, who is your investment in case you decide to have one, a statement that you are aware of penalties for premature terminations and early withdrawals, who will be your custodian, a statement that you are aware of the limitations of the tax incentives and a disclosure from the administrator on how the company will determine which of your contributions will be entitled to tax credits. That’s it, and you’re on your way :-) It is clear from the latest version of the rules that the central bank is trying to make sure that every possible loophole that any unethical administrators or custodians may take advantage of will be plugged. I’m sure we all appreciate that, but can the law always be a perfect shield? As we have always been saying in MoneySmarts, the first line of defense is still, and will always be, watchfulness on the part of the investor—that’s you and I. Next: Where you can invest your PERA Previous posts on the PERA:

1. The PERA Bill at its core
2. Decoding the PERA Bill rules (Part 1)

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. Given the current global economic conditions, the values of the stocks in the Sun Flexilink Equity Fund portfolio have dropped resulting to the lower account value of your VUL policy. The drop in the account value of your policy is in no way due to any alleged misadventures of Sun Life's fund managers, it is merely a function of the market conditions as evidenced in newspaper headlines. Nonetheless, rest assured that Sun Life's fund managers are doing whatever they can given the uncertain environment and have pared down losses by investing in liquid and short-term instruments and holding on to cash to seize market opportunities. As for your insurance coverage, the premium for this (or the insurance charge) is deducted monthly from your account value through the cancellation of units. Since the account value of your VUL policy is lower than its value a year ago (due to the decline in the net asset value per share of the Sun Flexilink Equity Fund), more units have to be canceled to cover for the insurance charge (which is actually a fixed amount monthly). If the account value of your VUL policy is not sufficient to cover for the insurance charge, you will be asked to pay additional premium to keep your policy in-force. The benefit of keeping your policy in-force is that, regardless of market conditions or how your chosen fund is doing, you are guaranteed to be covered with life insurance equal to 5x your regular premium. It also affords you the opportunity to invest in blue-chip securities, high-grade government bonds and other instruments that are otherwise accessible only to investors with a large sum of money. VULs are long-term protection and savings instruments so, stay the course and keep the faith. Continue to pay your insurance premiums as the benefits of VUL as life insurance and forced savings far outweigh the disadvantages. If you are concerned with the decreasing account value of your VUL policy, you may ask your Sun Life agent to switch your investments to a less volatile fund - Sun Flexilink Money Market Fund or Sun Flexilink Bond Fund. When the market begins to pick up, you can then switch back to the Sun Flexilink Equity Fund. If you have any more concerns, please feel free to contact us at 849-9888  or send us an email at phil-marketing@sunlife.com.

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: 1.    banks and quasi-banks, and trust entities prequalified by the Bangko Sentral ng Pilipinas, 2.    investment company advisers, securities brokers and investment houses pre-qualified by the Securities and Exchange Commission, 3.    insurance companies and insurance brokers prequalified by the Insurance Commission. 4.    Other entities approved by regulatory bodies. The administrator will also need to be accredited by the Bureau of Internal Revenue. So for those who have been asking how to open a PERA account, it will have to be through these kinds of companies. Based on the rules, here are the core functions of the Administrator: 1.    educate and inculcate financial literacy in the contributor, 2.    record your cash contributions 3.    open the PERA account in your name 4.    implement your and/or your investment manager’s instructions on where to invest 5.    ensure that your contributions are invested in accordance with the regulatory authorities’ guidelines 6.    report to the BIR and to you all your contributions and withdrawals 7.    enforce PERA contribution limits and withdrawal limits 8.    compute the values of investments in accordance with internationally accepted accounting and valuation standards 9.    apply for BIR income tax credit certificates in your behalf 10.    pay appropriate taxes and penalties to the government, whether national or local 11.    keep and consolidate all necessary records and make regular reports to you and the regulatory authority on a regular basis. These administrators will only oversee and manage the records of your PERA. The custodian, which should be independent from the administrator for your protection from fraud, will be the one actually handling your funds or your securities. You also get to choose the custodian, as well as decide if you want an investment manager to help you choose your investments, but the custodian has to be prequalified by the central bank. Now, if you decide that you want an investment manager to help you make sense of where to put your money, you would need to have an investment management agreement with your chosen and trusted investment manager. Under the rules, an investment manager cannot just be any financial planner or any person you choose. Investment managers must be accredited with regulatory authorities and the following are those who may get accreditation: 1.    trust entities licensed as such by the BSP 2.    entities granted a limited-trust license by the BSP for the purpose of acting as a PERA Investment Manager 3.    investment company advisers licensed as such by the SEC 4.    securities brokers 5.    insurance brokers 6.    investment houses, and 7.    other entities or individuals as may be determined by the concerned regulatory authority as having the qualifications to be accredited as an investment manager. Next: What the rules say about how to open a PERA.

Chris, one of MoneySmarts’ regular readers, raised a very interesting question the other day:

I was offered last year by an agent of Sunlife to subscribe to this VUL insurance thing. I did, and put the fund in equity with a NAV of 1.8. Ok so far. After one year, they gave me this annual financial statement with an insurance charge of P230/month and the amount is deducted from the VUL units of my equity fund. Since the NAV of the fund is gong down due to their investments, they deducted bigger units from my VUL so, at the end of 12 months, 117 units na lang natira with a NAV of 1.2. I asked the agent what would happen if, say, the NAV goes down to P1 or lower, where will they get the deduction if my units were to be wiped out. The answer they gave me is: they will deduct in advance from the money I will give them next year! Why would I pay/suffer for the bad investments of their fund managers? Why should I continue to fund their misadventures? Are all VUL insurance the same? Or is this just true for Sunlife?

Dear Chris, Variable Universal Life insurance (VUL) are hybrid products. Think of them as a marriage between term insurance and an investment component—an offshoot of the “buy term and invest the difference” philosophy. In your case, by buying a VUL, you bought insurance and committed to put money regularly in their equity fund. I assume that you have a regular-pay VUL as opposed to a one-time pay VUL, and from the looks of it, the insurance portion of your VUL kicks in every month. You are not “paying for” their bad investment decisions, the insurance portion is part of the instrument that you bought in the first place. (How much is your insurance coverage, by the way?) I think the lesson here for everybody is to read the fine print of ANY financial instrument before signing on the dotted line. Don’t feel too bad about this—it’s a common error and I made the same mistake a few years ago! I suspect that if you look at your policy, you will find the insurance charges stated clearly but in small, fine letters. While you’re at it, look for all the other fees your agent might not have explained clearly to you. As for deducting in advance, that is something we will have to find out from Sunlife itself. I have already asked them to answer your questions through this blog, so keep watching this space! Hope this helps. Some related blog posts: 1. How not to get lost in the insurance maze 2. Costly mistake when buying variable life insurance How about you guys, what are your experiences with VULs?

The Registered Financial Planners (RFP) Phils. is giving free financial planning seminars to companies in an effort to help out firms and organizations who, in turn, want to help their employees manage their personal finances in the midst of the ongoing financial crisis. It guarantees that there will be no commercial promotion of any kind during the seminars. After the seminar, RFP Phils. will also be giving out survey questionnaires on Filipinos' saving and spending habits to more fully understand how Filipinos are coping during these financially challenging times. If you want to know the full results of the survey, answer the following questions through this blog, or copy the questionnaire in a Word file and email your answers to me at lightdream (at) gmail (dot) com. Name: (Optional) ________________________ Age: ____________________________________ Gender: Male, Female (Encircle one) Civil Status: Married, Single, Separated, Living with partner (Encircle one) Monthly Gross Family Income: a. 20,000 – 35,000 b. 36,000 – 50,000 c. 51,000 – 65,000 d. 66,000 – 80,000 e. 81,000 – 95,000 f. 96,000 – above Home ownership: Own, Rent, Living with parents/relatives (Encircle one) A)    How would you describe your personal financial situation? Would you say you:

1. Live comfortably
2. Meet your expenses with a little left over for extras
3. Just meet basic living expenses
4. Don’t have enough to meet expenses
5. Don’t know

B)    How often do you worry about money matters?

1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

C)    How would you describe the extent of this crisis’ impact on your personal finances?

1. No impact
2. Some impact
3. Major impact, but I can handle it
4. Very high impact, I’m having difficulties
5. Wouldn’t say

D)    How often would you say you spend money on things you can’t afford?

1. Often
2. Sometimes
3. Rarely
4. Never
5. Don’t know

E)    Have you ever felt that your financial situation was out of control?

1. Yes
2. No

F)    How closely do you watch the amount of money you spend?

1. Very closely
2. Fairly closely
3. Not too closely
4. Not at all closely
5. Don’t want to say

G)    To what extent is this increased watchfulness a result of the ongoing crisis?

1. Not at all connected to the crisis
2. To some extent a result of the crisis
3. A direct result of the crisis
4. Wouldn’t say

H)    Are you always aware of how much money you are spending or you just have a general idea?

1. Always aware
2. Have a general idea
3. Neither
4. Both

I)    Which expenses are you having most trouble budgeting for now but are still including in your expense list?

1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car/cars
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

J)    If you need to cut back on your expenses, which items would you need to remove from your list or have already scrimped on in recent months? (Choose up to three)

1. Entertainment and recreation
2. Food and dining out
3. Shopping and personal items
4. Bills and utilities
5. Car
6. Home and housing
7. Luxury items
8. Children and schooling
9. Credit card payments
10. Medical
11. Taxes
12. Insurance
13. Regular savings for retirement
14. Investments
15. Health insurance
16. Debt payments
17. Others
18. Nothing

K) Which items do you splurge on, even when you know you should not? (Choose up to three)

1. Food and dining out
2. Entertainment and recreation
3. Shopping and personal items
4. Home and housing
5. Children and schooling
6. Bills and utilities
7. Cars
8. Medical
9. Luxury items
10. Travel
11. Others
12. None of the above. I have everything under control

L)    Do you or your spouse have a formal budget for your household?

1. Yes
2. No

M)    Would you say you are saving and investing as much money as you should, or should be saving and investing more?

1. As much as I should
2. Should be saving and investing more
3. I don’t know

N)    Do you have savings in the bank that you can count on when there’s an emergency?

1. Yes
2. No

O)    How many weeks’ worth of living expenses can your savings cover?

1. One to two
2. Three to four
3. Five to six
4. Seven to eight
5. Nine to ten
6. More than ten

P)    Have you resorted to borrowing money in the last six months to cope with financial needs?

1. Yes
2. No

Q)   Do you foresee a need to borrow money in the next six months to cope with financial needs?

1. Yes
2. No

R)    Have there been unexpected expenses over the past year that have severely set you back financially?

1. Yes
2. No

S)    Which unexpected expenses have set you back financially?

1. Medical
2. Cars
3. Home and housing
4. Life events and children
5. Work-related
6. Travel/vacation
7. Taxes
8. Pets/veterinary bills
9. New baby
10. Need to take care of parents/relatives
11. Business-related expenses
12. Others

END OF SURVEY

There’s no official statement yet from Philamlife, but AIG issued a late advisory that it will no longer sell its crown jewels including the local office. Read the story here. I am almost disappointed. Consolidation is always good for any industry. A sale to BPI, BDO or some other big player could only push the others to offer the public with better products. The flipside is that the sale might put pressure on the buying entity to recover its investments, and this could mean dividends originally meant for policyholders could be lessened. Would a need to repatriate earnings to AIG have the same effect? I guess we will soon see. What I know for sure, though, is that Philam’s huge sales force, are probably doing a dance of joy. For the last few months, I heard that the company has been pushing everyone to up the ante despite the impending sale. Reactions?

Last Saturday, the moment of truth arrived for my eldest daughter: it was time to get her school card for the third quarter. As my eyes skimmed over her grades, I fought the urge to be the perfectionist, the slave-driver mom, the one who pushes and pushes “to do your best.” Can a single figure summarize all the effort that go into learning or doing something? I’m sure the answer is different for various things, but inevitably, we rely on measurements for performance, whether at school, at work, in life and most especially when it comes to investing. People often interchange yield and return when talking about how investments perform. They are not the same, and if you look at resources around the web, not everybody defines them the same way, too. So, I turned to my trusted “The Wall Street Journal Guide to Planning Your Financial Future” for an easy introduction to the main difference between yield and return:

LOOKING FOR YIELD You find yield by dividing what you receive in interest or dividends on an investment by the amount you spend on it. For example: $200 – annual interest ÷$2000 – invested ------------------------ 10% YIELD Yield is sometimes confused with the interest rate an investment pays because the rate is also stated as a percentage of investment. But while yield depends on the rate, it is often a different number. That’s because the yield represents what someone paying the current price of the bond, rather than its stated, or par, value, receives on the investment. When the price is more than par, the yield is lower than the interest rate, and when the price is less, the rate is higher.

Let’s decode that. For example, the Aboitiz bond sells this March for P100,000 (that’s the original price or par value) with a coupon of 8% this year. I found out from this website that the interest stated when the bond is originally issued is called coupon because bonds used to have actual coupons attached to them and you clip them off to redeem them for each interest payment. Cool, huh? That should make this easier to remember ;-) You aren’t able to buy the bond, but decided that you would buy in June. By then interest rates start falling a bit, and in the secondary market, you finally buy the Aboitiz bond for P102,000 or P2,000 above par. Using the WSJ guide, this means the bond will be yielding only 7.84% (P8,000 annual interest ÷ P102,000 current price). Notice that your yield has now fallen below the original 8%. The guide further explains that there are different ways to calculate yield on fixed-income investments: there is the yield based on the earliest date a bond may be redeemed by the issuer and there is the yield to maturity, or what your total return would be in today’s dollars if you hold the bond until it matured. Lesson? Ask for details when buying fixed-income instruments and especially about yield. Return, on the other hand, especially total return, is more often used on equity investments and is a more comprehensive measurement of performance. Total return is simply everything you gained on an investment, from interest or dividends to capital appreciation. For example, you bought 100 PLDT (TEL) shares at P1,000 per share a few years ago. It closed today at P2,175, giving you a P1,175 per share gain. You received P10,000 in dividends. Your total return would be: P117,500 + P10,000 = P127,500 How do you compare this return with other investments? Find the percent return this way: Total return ÷ Price of investment = Percent return P127,500 ÷ P1,000,000 P100,000 = 12.75% 127.5% If you bought and sold TEL within one year, you enjoyed a 12.75% 127.5% return. But if it took you two years to get that, your annual return would be 6.375% 63.75%. (Oops, sorry for the P900,000 error! One zero can make so much damage! Thanks for the correction!) The search for the best yield/return I haven’t yet met a person who wouldn’t like to get the highest yield or return for each and every peso he saves and invests. Unless you’re into rigging government contracts, earning money is not that easy, you know? But chasing after the highest returns and yields possible can sometimes land us in trouble. Remember Legacy? Remember Multitel? Remember Francswiss and Deutchfrancs? PIPC? Personally, I believe we need to look into yields and returns on a holistic level. In a carefully diversified portfolio, for example, there’s space for lower yields that give more stability, and a little bit of space to riskier, and higher yielding ones. When the portfolio doesn’t give the returns we expect, like in a drab year such as what we have now, remember that that little figure does not summarize who we are and what’s most important in our lives. Gotta think about that when I discuss with my daughter her performance for the third quarter. :-D

This just in: the central bank has approved the Philippine National Bank’s high-yielding, long-term deposit product. Offer size is P5 billion, and the offer will be made before June. Read the news item here. The technical term for the instrument is long-term negotiable certificates of deposit. Yep, the alphabet soup is out again. LTNCDs have become another option for bank depositors wanting more returns for their money. Aside from the following, there are no details yet about the offer:

“Individual investors get the interest coupon tax-free if they hold the LTNCDs to maturity compared to the local central bank's special deposit account (SDA) and government securities, which are subject to the 20 percent withholding tax. Unlike regular deposits, banks are able to offer higher yields on LTNCDs because funds raised from these are exempt from the reserve requirement.”

Will update you once I get to talk to PNB. Here are some related posts and articles about LTNCDs: 1. Your Landbank LTNCD questions answered 2. Gov’t bank targets OFWs with high-yield deposit product 3. LTNCDs: Bank get creative in attracting deposits 4. Chinabank to raise P8B from raising long-term deposit instruments 5. High-yield deposit scheme for OFWs set 6. Metrobank to offer P10B high-yield deposit products