Appears in my No Nonsense Column at the Moneysense Magazine, March-April 2011 issue.

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As I write this column, the official exchange rate is Php 43.45 : US$ 1. A lot of people are really anxious as to the direction of the once mighty global currency standard. If my memory serves me right, I believe the US Dollar peaked at about PhP 55 : US$1 not too long ago. At a certain point period of time, the annual average depreciation of the Philippine Peso against the U.S. Dollar was pegged at about 7 to 8% per year. About 5 years or so, many Filipinos were still converting their money into US Dollars in an attempt to secure the value of their monies and even experience capital growth.

From its peak, the once mighty green bucks have significantly loss a lot of its value as against many currencies, including our once feeble Philippine Peso – by as much as one fourth, or 25%. If you consider inflation, the impact of the appreciation of the Philippine Peso has greatly eroded one’s portfolio had it been primarily invested in US Dollars.

The big question is, what should you do with US Dollars? If you have them, do you sell them? If you don’t have, do you buy? That’s a tough question to answer. Fortunately, there are some great insights posted at my website (www.randelltiongson.com) when I asked the readers of my blog on the options for the US Dollar. Here are some tidbits:

It depends on your objective. If you plan to retire in the US, then you should start accumulating at these “cheap” levels. If you plan on staying here, why bother with FX volatility. I wouldn’t buy it right now as a means of investment or speculation of it appreciating again (I already got out while it was Ps47). – Rich (unknown respondent)

“I find myself buying more of this currency now for travel funds. My thought is we can’t rule out the dollar just yet after all its still an international currency. But is it a wise investment on my part?” – Roy A. (Printing Business)

“If you have lots of it then keep it. No use selling it now since it already lost 10% of its value. Buy more dollars next year. Eventually it will go up once peso starts going down. Just be sure you are diversified. Just my opinion. (P.S. buti konti lang dollars ko! haha)” – Raymond (Hardware Business)

“Dump my USD before the year ends as the seasonal spikes in the Peso occurs. Then, when it starts to weaken, accumulate again.” – Raffy Pekson II (Corporate Executive)

“I think the dollar will never recover if quantitative easing in the U.S. will continue. With this scenario, I’d rather sell my dollars as soon as I get them. And split it into gold and peso. If a double dip recession comes true, the dollar will further lose value. Gold will appreciate and I would have the option to repurchase dollars with pesos to invest in good US blue chips like Google and Apple in anticipation of the eventual recovery from double dip recession.” Hilbert Cardenas (OFW)

“What to do with dollars? Well, I just burn them. They take up too much space.” Rafael Azanza (Management Professor)

There you go. Such varied suggestions but there are so much insight into such advices. There are a couple more comments in the said blog entry (https://www.randelltiongson.com/what-to-do-with-your-us-dollars/) and all are interesting to read.

The conclusion? Well, you really must consider the purpose of your investment first and foremost, your time frame for the investment as well as your risk tolerance. US Dollar, like any other investment, is an asset class. All asset classes have their purpose and particular contribution to any diversified portfolio. Remember, always practice prudence in anything – investing or otherwise.

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