What and where to invest your savings?
The latest pyramiding investment scam in southern Luzon shows that there are more Filipinos now who have savings to invest. But it also shows that some people never learn and still get fooled even with the previous scams that have been well publicized and aired in almost all media. Or it could be that some people are so uninformed, uneducated, or greedy that they still put their savings into "get rich" schemes that are sure to fail. The government, particularly the Central Bank, has been initiating and making programs to broaden and improve financial literacy among the working population, especially the OFWs. But it seems it is taking a long time, considering that in its last survey, only 25 percent of Filipinos have bank accounts.
The 25 percent of Filipinos who have bank accounts are the upper class and portion of the upper middle class. This is understandable because it is only when one's income exceeds his consumption expenses, that there are savings. In Economics 101, this is stated as, "the higher the income, the higher the marginal propensity to save." In the coming years, as the per capita income of the Filipinos grows and the family's disposable income more than covers its expenses, the saving rate relative to our GDP (Gross Domestic Product) will be higher. This will be good for the economy as these savings will translate to investments which will further grow the economy.
The objective of investing is to get a decent or respectable return on the investment. A return that is higher than the inflation rate of the country, while protecting or not losing the principal. Under present circumstances, these would be a rate of return of 4 percent to 8 percent, given the current inflation rate of 3 percent to 4 percent. At the very least, there should be no erosion of the principal. Then we have to decide if we want to be a passive or an active investor and the time horizon of the investment, whether short-term, medium-term or long-term.
For short-term investments, 30 to 90 days, money market placements which pay 2 to 3 percent per annum and special time deposits would be the better alternative to your savings deposits. For larger amounts, commercial papers and listed bonds of prime corporations would give you a yield of 4 percent to 5 percent.
In the medium-term, two years to four years, there are still bonds and preferred shares of banks and prime companies that will yield 6 to 7 percent. But if you have a good risk appetite, an equity fund or a balanced fund by some of the big insurance companies will yield 10 to 12 percent on a five-year holding period. You just have to review the fund performance and fund managers, and negotiate for the commissions that the fund and the fund managers charge. Or you can buy any of the two Exchange Traded Funds (ETF) currently listed in the Philippine Stock Exchange, and pay only a 1.5 percent commission and no management fees. These ETFs are actually funds that buy/are bought from a composite of the common stock of bluer chip companies. Most of the time, it tracks the movement of the PSE, so when the market is up, the price of these ETFs will go up, and will go down when the PSE is down. In a way, this is an investment on the Philippine economy, so if you believe the economy will keep on growing in the next five years, you will probably get a return of 12 to 14 percent per year, which will be the growth of the Philippine economy in the next five years in nominal terms.
For active investments, i.e. investments where you have to be involved, your choice is real estate or a business. If you are already in a business which gives you a return on investment (ROI) of at least 10 percent, then you should invest in expanding your business, if it is a good move. For property investments, unless you are extremely lucky in terms of location, rental income seldom exceeds 6 percent, and you have to contend with insurance, taxes, and maintenance expenses. There is a potential capital appreciation on properties, but you have to consider the number of new condominiums, houses, and buildings that will be coming on stream in the coming years.
There are other investment possibilities such as jewelry, art objects, precious metals, commodity futures and foreign exchange, but these are for specialists and not for ordinary investors. As always, the equation is "high returns equal high risk." The other and more important factor in investing is "when to invest" or the timing of investing. Great returns have always been due to perfect timing. Like if you had put your money in DMCI, SM PRIME, Ayala Corp., AEVI, Jolibee, and other prime stocks five years ago, you would have doubled your money by now. Nobody can predict the future so nobody can do perfect timing. I have made some educated guesses that were 70 percent correct and they made very good profits. I can say that I've made profits in most and I've lost in some, but I never lost money in a scam.
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