… con’t.

Getting into an investment program that will give you growth which is way below inflation rates (even at its lowest levels) over a long period of time was bereft of any sound reasoning. I was curious as to why he often proposed such a strategy and I was baffled by his response. He said the US dollar has historically performed well against the peso and showed me a chart that the average depreciation of the peso was about 8 percent per year. He then said  the 2-percent growth added to the 8-percent depreciation of the peso will result to an effective annual return of 10 percent over a period of 15 years.

Arguably, the explanation of the adviser will seem to be a compelling one to many. His mathematics being a bit off tangent notwithstanding, I politely queried about the possibility of the pesos depreciating slower than 8 percent and even a probability that the peso may actually appreciate against the mighty US dollar in a span of 15 years. He confidently replied that such a scenario will never happen, citing history and an obvious over-confidence on the US and a discontent for the Philippines.

With a bruised nationalistic pride, I could have carried on the discussion pointing at a closer review of historical data (a longer span of the parity rates will result to a lower depreciation rate), macroeconomic factors, geo-political considerations and fundamental analysis and so on; but it was not my place to argue my position. I just gave the adviser a personal advice to consider diversification in his recommendations and to think about other factors prior to making a pitch to his potential clients. Even at the time of the said discussion (The US dollar was still soaring), the argument of the advisor was full of folly, the most dominant of which is the consideration of risk factors.

Today, those who listened to the said adviser are now trying to accept the bad decision they have made. Clearly, they have lost a significant amount in the value of their hard-earned monies. Whilst I do understand that one can’t predict the future, economic or otherwise, sound financial principles such as diversification and asset allocation would minimize substantial erosion of one’s savings and investment. A good adviser would have considered many things prior to making recommendations and he must always stick to prudence before anything else.

Be careful before listening to any advice. It is not too difficult to discern competence if we listen intently.

“Whoever strays from the path of prudence comes to rest in the company of the dead.”­ —Proverbs 21:16, NIV

Radio DJs nowadays play less music and more talk even on the FM Band which can entertain, but can also be annoying when it is overdone. I’ve also noticed that some radio DJs have started to give advice on air. While some are sound advice, some are horrible ones.

As I was listening to the radio a few days ago, I heard a DJ give an advice and she referred to it as “retail therapy.” She said that one way she deals with a “bad day” was to go shopping. Even if she does not need anything, she will set out to buy something regardless of worth, and such an activity will help her through the day. I have tried to find some semblance of any logic on the advice but I was dumbfounded and could not find any. I shrugged in antipathy because the advice was so, well… bad.

I have always expressed that we should seek counsel especially in matters of finances. Many of our woes are brought about by our innocence and many times by our ignorance on financial issues. Seeking counsel then is not only prudent; it is the wise thing to do. However, wisdom reiterates that we must also seek sound advice and always avoid bad advice. There are many who claim to be financial advisors and some will even carry such a designation and yet not all of them will give sound advice and may actually give horrible advice.

Many years ago, I once had a lengthy discussion with a financial adviser who always recommends US-dollar investments for his potential clients. I engaged the advisor further when I realized that the investment program he was recommending carried quite a low yield. I believe it was like a measly 2 percent p.a. compounded over a period of 15 years.

… to be continued.