Where and how else you can invest your savings, from Smart Parenting July 2015 issue
By Jaclyn Lutanco-Chua
If you are looking over your finances and find that you have extra savings, congratulations! You now have the opportunity to make these extra cash grow by purchasing assets that will generate even more money, a move known as “investing.”
If you still want to play safe and just opt to put all your money in the bank, know that this is not smart money management. “Money put in a regular savings account will only earn 0.8% interest per annum. This means if you have P100,000, you only get P800 at the end of the year,” points out financial planner Harvard Uy de Baron. So by all means, set aside money in the bank for your day-to-day expenses or for emergencies; but if you have more cash than you need, put them in investment products that will give you higher returns. Some examples are:
- MUTUAL FUNDS or UNIT INVESTMENT TRUST FUNDS (UITF)
WHAT IT IS: A company (usually a bank or a financial company) pools money from different people, and invest these in a range of products and companies at their discretion. You are treated as one of many investors, and have partial ownership of the fund and the income it generates.
HOW MUCH YOU NEED TO GET STARTED: P5,000 to P10,00
- Affordability. “Because you are just one of many investors, you can participate in the fund without having to fork over a big amount of capital,” says Uy de Baron.
- Liquidity. You can opt to leave the fund or redeem your shares anytime, though the company will charge you a fee for doing so.
- No need to think. The investment company will do all the research, monitoring, and decision-making for you.
CONS: No fixed rate of return, as interest rate and dividends will depend on market conditions.
PERFECT FOR YOU IF: You are just starting out in investing, and would like to try something safe
HOW TO GET STARTED: Inquire with your bank manager. Read newspapers, so you can see announcements from companies planning to sell corporate bonds, then ask friends to refer a professional fund manager.
WHAT IT IS: You buy part (“shares”) of a company, thus having a claim on its profits. If the company does well, so do you; if they flounder, you lose money too.
HOW MUCH TO GET STARTED: At least P50,000
- Unlimited potential. If the market is good, there is no limit on how high stock prices can go, and you stand to make a windfall.
- Affordability. P50,000 is not a lot of money.
- High-risk. Prices fluctuate all the time, and when the market is bad, your losses can be huge.
- It’s a lot of work. You need to constantly study the market—read newspapers, take note of trends, and stay in frequent touch with your broker.
- You need to spend more to make more. “P50,000 will not buy you a lot of shares in a company, nor will it allow you to buy shares from many different companies—what we call diversification. It’s important to diversify so that you have more stock options available in case others don’t do well,” advises Uy de Baron.
PERFECT FOR YOU IF: You have an eye—and the patience—for observing market trends, you have more than P50,000 to spare, and you can make quick decisions.
HOW TO GET STARTED: Get in touch with a stockbroker, or contact a brokerage firm. If you want to do it wholly on your own (and spend less on commissions), you can search the Internet for a list of accredited online trading brokers.
WHAT IT IS: You start, develop, and grow your own business
HOW MUCH YOU NEED TO GET STARTED: You can work from home with very little overhead expenditure, team up with partners to keep your capital output low, or go all out and spend millions on a new concept or franchise.
- You become your own boss, and make money out of doing something you love.
- If your concept takes off, you can get a 100% return on your investment in a year’s time.
- Added responsibility. Not just for your money, but for the welfare of your employees as well.
- Always stay on your toes. If you want to beat the competition, you must constantly study the market and find ways to innovate.
PERFECT FOR YOU IF: You are a risk-taker; you can imagine yourself doing or selling the same thing every day for the rest of your life
HOW TO GET STARTED: Buy books and magazines on entrepreneurship. Attend Entrepreneur magazine’s networking nights, where participants can mingle with experts to gather insights and advice.
WHAT IT IS: You buy a policy, then make regular payments (known as premiums). When you make a claim (when you die, retire, or become critically ill), the insurer will pay out for the loss that is covered under the policy.
HOW MUCH YOU NEED TO GET STARTED: “If you are a 30-year-old non-smoking female, you can get a policy on as little as P885.83 per month!” says Reena Leechiu-Chua, a financial advisor with one of the leading insurance and financial firms in the country.
- Should anything happen to you, getting an insurance policy is the best and cheapest way to solve tax problems. “When you die, your heirs cannot touch anything in your bank accounts, not until they fully pay the estate taxes, inheritance taxes, etc. etc,” says Leechiu-Chua of Sun Life Financial Philippines. “This is not a problem with redeeming insurance policies. In many cases, cash from the insurance policy is what the heirs use to pay the taxes. So in effect, they do not have to dip into the rest of your savings.”
- Flexibility. Insurance rates can be customized, depending on your age, financial condition, and needs. Unlike other financial products, which have a fixed price regardless of your circumstances.
- Can be expensive, if you have pre-existing health conditions, or are considered high risk (i.e. participate in a dangerous sport).
- Because there are many different policies (and respective terms and conditions) to choose from, you might find it daunting to get one. “Best to talk to a financial advisor from a reputable company to guide you on your decisions,” says Leechiu-Chua.
PERFECT FOR YOU IF: You are currently young, healthy, with disposable income, and have a family that you would like to see taken cared of should anything happen to you. Also advisable if you have many assets (i.e. properties) that you would like to protect in case you pass away.
HOW TO GET STARTED: Ask friends to refer you to a personal financial advisor. You can also check out the website of the Philippine Insurance Commission (www.insurance.gov.ph).
WHAT IT IS: “You buy a piece of property—which can be a piece of land, house and lot, a warehouse, a condominium unit, or an office commercial space—that you then rent out or sell,” says Carl Dy, president of Spectrum Investments, a property portfolio consulting and managing company.
HOW MUCH YOU NEED TO GET STARTED: About P100,000 to P200,000 for a vacant residential lot in the provinces; P800,000 to P1.5 million for older condominium units in Metro Manila; P1.5 million to P3 million for brand new condominium units in prime locations.
- Property almost always increases in value over time. “A piece of land that costs P300,000 today may be worth millions in the future,” says Dy.
- Stable, monthly return on your capital. “You are guaranteed rent money every month, unlike buying stocks where you sometimes have to wait a long time before you can sell your shares,” says Dy.
- Leverage. Real estate is one of the few investments where bank loans come in very handy. “You can buy a property, earn 100% from it, but only need to shell out 20-30% of the purchase price,” points out Dy. “For example, you have your eye on a condo unit that costs P1.8 million. You can buy it with just P700,000 from your own pocket, then leverage bank loan facilities to pay the remaining P1.8 million. If this P1.8 million loan results in a 10-year loan of P20,000 a month, what you can do is immediately rent the unit out for the same amount. In effect, you never have to dip into your own savings to pay for the loan, and over the long term, the asset ends up paying for itself,” he adds.
- Not as liquid as as other forms of investments. “Some property may be quick to resell, others hard. Sometimes you can resell it at the price that you want, other times you might have to sell at a price lower than the market value,” says Dy.
- Quality of tenants. If you choose to rent out your unit, you risk not being able to find a tenant (so you have no income), or end up with a bad tenant. “If you want to go into the rental business, you need to consult experts who can educate you on how to handle and screen tenants,” advises Dy.
- Additional expenses. There are fees that come with owning property, like yearly property taxes and homeowner maintenance dues. “But these taxes are used by the government to keep your barangay clean and safe, while association dues are used to maintain and keep your property in good condition. All these contribute to the rise of your property’s value,” says Dy.
PERFECT FOR YOU IF: You have extra cash at the moment, and would like to put it aside on something that will benefit you in the medium to long-term. “I always say that real estate is the best product to fund your retirement,” says Dy.
HOW TO GET STARTED: Best to seek advice from property experts like Dy, who can guide you on which property is best for you, given your needs and financial condition. After this, you can proceed to inquire with developers or real estate brokers.
SIDEBAR: First-time investor? Here are some things to remember before you part with your money:
- Make sure you have enough savings set aside for your daily needs and for emergencies. “If you are married and are the sole breadwinner, you need to save at least 10%-15% of your income,” shares financial planner Harvard Uy de Baron. “If you and your spouse are working, then you must save 15%-20%. After this, if there is still money left over, then that is what you use to invest.”
- Learn to track your money. “There are many budgeting software and mobile apps that you can download for free,” says Uy de Baron.
- Seek the advice of a financial planner or other experts in the field. Consultations are free, as the planner only earns by getting a commission once you buy or invest in a product. So best to ask around for referrals, as there are many fly-by-night financial planners around.
- If you are acquiring property with the intent of renting it out for income, choose your location wisely. “Find areas with upcoming growth, like new roads being built, near schools, malls, and offices,” shares property consultant Carl Dy. “For example, there is now a growing need for housing in the Manila Bay area, due to new expats coming to the newly-opened hotels, as well as for the employees of those hotels.”
For more information, you may get in touch with:
Carl Dy is the President of Spectrum Investments, a property portfolio management company. He has over a decade of experience in the real estate industry working for property giant Ayala Land as Sales Director of Ayala Land Premier. For free consultations, you may reach him at 0917-5316310, or email him at email@example.com.
Financial planner Harvard Uy De Baron can give consultations on debt management, portfolio management, savings management, and estate planning.. You may reach him at 0917-8874278, or email him at firstname.lastname@example.org.
Reena Leechiu-Chua can assist with mutual fund investments, life insurance, and pension and educational plans. You can call or text her at 0917.8445624, or email her at email@example.com.