Sharing an article used for UCC’s Beacon of Change program….

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What to Do With P 100,000: Three Goals to Fulfill Before Investing

If you had P 100,000, what would be the best way to invest it—assuming you have an emergency fund for crisis situations and no debt? How do you ensure your financial well-being?

“You must determine your investment objective,” says Personal Finance coach, Randell Tiongson. “What is your time frame? What is your tolerance for risk? These are some of the questions you have to ask yourself.”

What you do will depend on whether you see yourself as a low-, moderate-, or high-risk investor.  “Whatever your goals are, you have to become a no-nonsense investor.

If you are not too keen on risks such as loss of capital, (in other words, you are a low-risk investor) you could look into time deposits, special deposit accounts, treasury bills, or mutual funds/ Unit Investment Trust Funds (UITFs) that are invested in fixed income securities or bonds.” These investments, Tiongson says, are low-yield investments but they are highly recommended for those who want to play it safe.

For moderate-risk investors, he has this advice: “You can look at mutual funds/ UITFs that have both bonds and stocks in the fund, popularly referred to as ‘Balance Funds’.”

For high-risk investors, Tiongson recommends investments that have higher yields— the stock market or going into business.

It is good to set short-term and long-term goals, says Tiongson. He suggests three financial goals you can set for yourself for 2011. Your first goal, he says, is to aim to have a positive cash flow. “Balance the budget and ensure there is a surplus. Everything starts from here. In simple terms, that means you must earn more money or spend less money. It’s actually best if you do both.”

Secondly, you should set savings goals. Foremost, aim to set up an emergency fund equivalent to at least three months’ worth of monthly expenses. Once this has been set up, set savings goals for your short-, medium-, and long- term needs.  Dedicate yourself to generating the amounts you have set as your savings goal.

Your third goal should be to start building your capability to invest. Tiongson suggests that after an emergency fund has been set aside, one should create a separate investment fund, set up solely for the purpose of investing. “Build on it peso by peso. Wait for good investment opportunities.”

Once you have set your financial goals, you may feel that you do not have the resources or the sufficient know-how to achieve those goals. Tiongson outlines specific steps that you can take to ensure your financial well-being. “Budget well,” he says. “Itemize all your expenses and arrange them according to priority. Knowing what you need to spend on helps your budgeting process. Adjust your budget accordingly to ensure you will have a surplus. Be prepared to cut on spending for your wants (as opposed to spending on your needs).”

Finally, Tiongson says that you should also make sure you pay close attention to building your skills, whatever the job or position you hold. “Education is an investment. Build on your competence. In fact, education could be what sets you on the road to earning more money.”

Tiongson wrote “The Twelve Easy Steps to Financial Wellness” as an add-on to the UCC Vision Logbook, available at UCC Coffee Concept stores. Building on the theme “Positive Change and Planning for Change,” the UCC Vision Logbook aims to deliver to loyal UCC customers a blend of motivational and practical information to bring about positive change.

The UCC Vision Logbook was put together by Tiongson, visionary restaurateur and UCC owner Hubert Young, motivational speaker Francis Kong, mind mapping expert Raju Mandhyan, and entrepreneurship advocate, Jay Bernardo, for Let’s Go Foundation.

UCC customers can avail themselves of the basic vision logbook by presenting an accumulated P5,000 in UCC Coffee Concept Store receipts. A customer may claim the logbook by presenting receipts issued within the promo period (December 15, 2010, to February 28, 2011). More add-on modules designed by the Beacons of Change are also available for every P 1,500 single minimum receipt purchase at UCC Coffee Concept Stores within the promo period.

… 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.