Question: How do you invest wisely in an unstable market? What are the criteria that one should look for?—Rigel Kent Tugade (@rigeltugade) via Twitter

Answer: What you asked me is one loaded question. There are many ways to answer that question so let me take a shot at it. There really is no such thing as a stable market, in my opinion. Markets go through cycles or seasons. There are many things that affect market movements but largely, they are responding to the law of demand and supply. What investors should be wary about are wild fluctuations in the market environment and, unfortunately, that is what we are experiencing now.

Market movements, to a great degree, are about perceptions and fundamentals. People have a tendency to be severely optimistic or extremely pessimistic with their reactions which the markets reflect. Fundamentals of companies, business, economy and even politics affect markets in general. If business environment is good, companies are profitable, the economy is growing and there is political stability, expect the markets to respond positively and vice versa.

Severe movements in the market have both positive and negative impact. On a positive note, opportunities can be found with volatility for those who are risk takers. The downside of course is that capital loss can easily be experienced just as fast as profit can be made. The relationship of risk and return always comes into play whenever you invest. Yields will always be a function of the risk you are willing to take and as the cliché goes: High risk, high returns and low risk, low returns.

When investing, it is always prudent to know your investment objective, time frame and risk tolerance first and foremost. Investment instruments should be able to match the three I mentioned before considering parting with your hard-earned money. If your objective is long-term in nature, like retirement or college funding for your young children, then you may consider long-term instruments even if they can be volatile, like stocks, mutual funds and UITFs [Unit Investment Trust Funds], or even real estate. Although they are volatile, they are expected to grow over time—well, at least in theory. You may also want to practice cost averaging when you are investing in those instruments. You can invest regular amounts periodically, thereby averaging your investment cost. When market is low, your investment will allow you to buy more shares and vice versa—you will realize that you have gained from your investment over a long period of time. Cost averaging only works if you have a long-term perspective, say more than five years. I usually recommend monthly or quarterly investments over a long period of time because it is practical and it allows you to fully realize the benefits of cost averaging.

However, the best advice I can give you is to practice “diversification.” No one can predict what will happen in the future. While technical and fundamental analysis helps one discern, there really is no way we can be certain as to what will happen. It is best to diversify your portfolio among low- and high-risk instruments, as well as high liquid and low liquid investments. Having a severely low-risk portfolio means your money is not growing efficiently and is most likely growing at a rate slower than inflation. Over time, the value of your money diminishes as it loses purchasing power.

A very high-risk portfolio, however, can cause you many sleepless nights as fluctuations in the market can severely deplete your capital. As a financial planner, my recommendation has always been to strike a healthy balance and avoid extremes.

The good book even recommended diversification and here’s the proof: “But divide your investments among many places, for you do not know what risks might lie ahead.” (Ecclesiastes 11:2, NLT)

I hope this answers your question. By the way, the best thing you can do is also to invest in financial education.

* Appeared at the Philippine Daily Inquirer

2010 is a memorable year to many. A new leadership for the country brought about some renewed hope. Economic uncertainty in the European front was brought about by fiscal issues in some European countries. The US struggles to bolster its economy and it seems all the money being pumped in is not achieving the desired results. Asia has seen a lot of movement and has been performing pretty well. And, the Philippine Stock Market performed so well, it is perhaps the best performing market in 2010.

On a personal note, 2010 has been an awesome year for me as well. My advocacy of financial literacy for the Filipinos have brought me to many places like Albay, Bacolod, Cagayan de Oro, Davao, Cebu, Palawan and even Singapore. My audiences have been varied, from Doctors, Architects, Real Estate Brokers, Teachers, Students, Armed Forces, among others. This year has been a great year for collaboration with people I really admire as well – Cito Beltran, Francis Kong, Chinkee Tan, Eric Villarama, Carlo Ople, Jen Magalong, Paulo Tibig and others. My participation in the Registered Financial Planner Institute has allowed me to be part of the competency building of over 100 would be Financial Planners just for the year. My involvement with Go Negosyo allowed me to touch base with thousands of entrepreneurs. I think I’ve spoken in more campuses this year as well and I was very happy to successfully run the Blue Chip program, a 2 day financial literacy program for the youth. And to cap the year, I am so privileged to be part of the 2011 UCC Beacons of Change Program. It is not your typical coffee planner but really a vision log book that will help you usher genuine change in your life and that of your environment. I was selected to be part of this collaboration along with Francis Kong (for Inspiration) and Raju Mandhyan (for Mind Mapping); my module is all about the 12 steps to financial wellness. My quote “you build your empire/fortune one peso at a time” in the UCC Planner Launch became a bit popular as it was picked up in many blogs, articles and tweets.

… catch part 2

… conclusion

What should we do? Well, we should continue to build more professional practitioners, teach them well and make them adhere to values like competence, integrity and commitment. At the same time, those who are in a position to create awareness should go double time. Write more books, have more seminars, build more websites, blog more frequently, publish more articles… the list goes on. Take awareness to more main stream avenues like the mass media but it can go beyond that. I am ecstatic whenever our church (Victory Green Hills) will tackle topics that will revolve around money and personal finance. The church needs to look after its flock, money issues are foremost in their concerns. Church related celebrities like Bo Sanchez and Chinkee Tan have been talking about money and personal finance from a biblical perspective and are convincing people that God truly wants them to live victorious lives. I was once interviewed by a Bishop for his TV talk show and the topic is personal finance. I asked the Bishop why he felt that there is a need; he told me that the church is really concerned about the welfare of the people, spiritually and physically (or financially). The Bible is full of verses that relates directly to money issues and when you read it, you can really feel that God wants us to be living great lives in all aspects. Bo, Chinkee and many more are making people realize that… great! I am encouraged to see more authors write about the topic and its great that their books have been selling well. My good friends Efren Cruz (Pwede Na! series), Chinkee Tan (Till Debt Do Us Part, For Richer & For Poorer) are great & practical books to help people. I also endorsed a new book by Ardy Roberto on biblical finance. The country’s leading motivational and inspirational guru, Francis Kong, has been encouraging people to take control of their financial lives through many of his seminars and talks. These are all great… and we need more, more, more! Sometimes I do wonder if I’m making any impact at all, even a miniscule one – I guess only time will tell. However, I will continue to do what I am doing for the next 20+ years and longer, I hope. I want to encourage people in the profession not to give up too easily when their job becomes too challenging. I would like to encourage my peers in the training profession to continue to teach. I would hope that people like Efren, Chinkee, Ardy & Francis will continue to write books and speak to as many Filipinos as they can. I pray that there will be many of us who will help our brothers’ plan for their future.

22+ years in the industry. The past was good and the future will be bright if we do the right things in the present. Looking forward to my next 20+ years! Let’s go and help people plan for the future!

Share with God’s people who are in need. Practice hospitality. – Romans 12:13, NIV