Tags: Banking, Entrepreneurship
By Alexander Villafania
MAKATI CITY, METRO MANILA – Filipinos can get into many types of investments with potentially high gains and managed risks. Hence, it is important that we remain knowledgeable and vigilant like any good businessman should.
One of the many investments that has interested some risk-averse Filipinos is mutual funds. Essentially, these are money pooled together from more than one person and is managed by an investment professional who is usually called a fund manager. This person, who is often associated with companies that are involved in mutual funds management, invest the money through various investment options, including stock market, bonds, money market, among others.
Mutual funds is somewhat similar to a typical Filipino activity called “paluwagan” but in most cases, the money is reinvested into other businesses, thereby making the pooled money earn some more. The local website MutualFundsPhilippines.net provides quite a comprehensive description of this investment category.
An article in PinoyMoneyTalk.com noted that mutual funds has four categories and describes each one:
• Stock or equity funds — These are investments in shares of stock of Philippine corporations listed in the Philippine Stock Exchange. Equity funds offer the highest possibility of growth among all mutual fund types, but they also have a corresponding high amount or risk.
• Bond funds – These are investments in fixed-income securities such as bonds or treasury notes issued by the Philippine government and commercial papers issued by reputable Philippine companies. Because these bonds are normally guaranteed, the possibility of loss is very low. Investing in bond funds provide capital preservation while maintaining conservative asset growth.
• Balanced fund – It is a mixture of equity and bond funds. The high potential growth of equity investments is tempered by the conservative growth of fixed-income securities. The return of a balanced fund is normally somewhere between the return of an equity fund and a bond fund.
• Money market funds – These are similar to bond funds because they also invest in fixed-income securities and the growth of the fund is conservative. The main difference lies, however, in the term of money market fund investments, which is usually short-term such as one year or less.
Many Filipinos are quite unfamiliar with mutual funds especially with how it works. But unlike most investments, this one is less complex and is even more recommended for groups of people rather than individuals.
The four types of mutual funds provide investors more manageable options for the money they put in. They can also choose which category is applicable to them based on their needs.
After reaching a targeted amount, the partners in mutual funds entrust their money to the fund manager. Fitz Villafuerte wrote in his blog that fund managers are not your average financial experts. These are people who have had years of experience in investments and are more familiar in many financial territories.
Mutual fund managers seek out the best options and spread the money to diverse investments to maximize growth. Business World Online has a good reference list of current mutual funds companies, as well as their performance. Investors can get a good idea as to which companies can handle their finances better.
Villafuerte, who blogs on personal finance, noted several advantages of mutual funds. Essentially, participants in mutual funds can depend on professional management of their money, can be assured of a diverse souce of growth for their investment, a minimal amount of about P5,000 per person to start, and can be easily drawn out when needed.
What’s more, people who have invested in mutual funds have easy access to advice from their fund managers or even from financial experts from other companies involved in investments. Some of these experts give advice online. MutualFundsPhilippines.net has a guideline for first time mutual fund investors, which covers everything from choosing a fund strategy, checking fees, and checking the tenure of the fund manager.
An article from Millionaire Acts also has basic do’s and don’ts for people who want to start investing in mutual funds. Likewise, PinoyMoneyTalk.com also has an article that helps investors compute their mutual fund earnings.
With the country’s economy seeing some healthy gains after the global economic crisis two years ago, it would be high time for Filipinos to start putting their money to good use. Since Filipinos want to work together, perhaps mutual funds would be best for them.
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WHY INVEST? To Beat Inflation & Achieve Financial Goals
WHERE TO INVEST? Depend on your Investment Goals
Short term goal -invest in short term instrument. Long term goal -invest in long term instrument!
The RISK-RETURN Trade-off: Low Risk=Low Return; High Risk=High Return.
KNOW THE RISK! ROR is dependent on the amount of risk you assume.
RISK WHEN CALCULATED BECOMES NO RISK…
RISK BECOMES OPPORTUNITY… increase your Intelligence such that it lowers the Risk
INVESTMENT GOALS: House, Kid’s Education, Retirement, Car
…all long-term, but why most of your investments are in short term instruments?
Earn->Spend? or Earn->Save…Save…Save->Spend?
Spend kid’s education & retirement today to midnight sale, party, travel, gadgets?
BANK SAVING IS NOT INVESTING… money that you can easily withdraw in “small excuse” or false emergencies – gimmick, partying, sale, outing?
INVESTING IS A LONG-TERM COMMITMENT TO YOUR GOAL!
Investing is not one-time… it’s a habit, a long-term process of put & put, not put & take.
- A commitment that you will not touch that money for other purpose!
- A commitment to continuously invest… until you get what you want!
There are many ways to invest: mutual funds, stocks, bonds, UITF, long-term healthcare, investment in insurance, savings & time deposits, real estate, etc. You name it, & someone will sell it to you.
Be careful. When you get into the area of more “sophisticated” investment, you may need some advice & direction in order to make good investment choices. There are basic rules you must consider.
Rule #1: If your investment goes into “loanership investments” (savings, time deposits, cash values), your return will be low (1-4%).
Rule #2: If your investment go into “ownership investments” (mutual funds, stocks, equities), your return may be as high as 12% or more. There are no guarantees. If you want to maximize your return on investment, you have to accept some risk.
If you invest directly in stock market,
-You need to gain extensive knowledge in the stock market. You need the time & expertise to select, combine & monitor the stocks in your portfolio.
- Know how to analyze which stocks are “good” & which are “bad.”
Do you have capability & resources to get the right information before it makes the news? If you get your news from other people or newspaper… you may “buy” or “sale” too late.
Managing a stock portfolio is a complex process that is best left to professional fund managers… Utilize a concept of investment that provides professional money management, an investment concept called mutual funds.
• Mutual funds are among the most popular financial planning vehicles in the USA. More than 80% of Americans own mutual funds. There are more than 7,300 mutual funds today with a total net asset of more than $7 trillion.
• Mutual funds industry in the Philippines is still very small. Very few Filipinos own mutual funds. There are only about 30 mutual funds in the Phils.
Mutual fund is an investment company that combines money from individuals & invests in a diversified portfolio of securities.
Each investor is a shareholder who buys shares of the fund.
Each share represents a proportion of ownership in the fund’s assets.
Because hundreds of its shareholders have chosen to pool their money in a given mutual fund, the fund can easily diversify its investments among the stocks & bonds of many companies.
MUTUAL FUNDS ARE USUALLY CLASSIFIED INTO:
1. BOND FUND – funds that invest in government securities.
2. STOCKS/EQUITY – funds that invest in a variety of stocks & equities. Aggressive in capital growth –deals with equity investments that are generally blue chips or growth stocks listed & traded on the Philippine Stock Exchange.
3. BALANCED – combines profitability of equity investments & the stability of fixed-income instruments.
MUTUAL FUNDS PROVIDE THE FOLLOWING BENEFITS:
1. PROFESSIONAL MANAGEMENT – the most important advantage!
• Mutual funds take the stress away from small investors who want to invest in the financial markets. This is because the mutual funds are handled by competent professional fund managers who choose the right investment for them. Investing directly in the stock market is risky.
• The sales charge (entry fee) you’ll pay when you first invest is a small price for the security of having team of professionals actively & constantly monitoring the stocks & make the investment decisions.
2. ACCESSIBLE & AFFORDABLE… Easy to buy… Offer wide variety of services to meet shareholders’ need — variety of investment minimums allowing participation at affordable amount.
3. LIQUIDITY… Your money is always available. No need to find a buyer. The fund is always ready to buy back its shares from you. Mutual fund shares can be redeemed and collected within 7 days at the prevailing Net Asset Value per Share (NAVPS).
4. NET OF TAX… Harness the power of tax advantages!
5. DIVERSIFICATION… To help reduce the risks inherent in any investment, a mutual fund carefully selects a diversified portfolio. A diversified investment portfolio that contains a number of different types of investments tends to have a lower level of risk than a portfolio with more similar types of investments.
6. ASSET ALLOCATION… The process of developing a diversified portfolio by mixing different asset classes –such as stocks, bonds, & cash equivalents –in varying proportions to help reduce risk & maximize potential return.
7. MONEY COST AVERAGING… Money cost averaging advocates the investment of a constant money amount, regardless of the price of the investment. Over a period of time, this generally results in a lower purchase price per investment than if the total purchase was made at one time.
For more info, attend our Free Wealth Academy series at:
IMG-ILOILO WEALTH MANAGEMENT ACADEMY. CLICK THIS LINK FOR OUR SCHEDULES:
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