The big question in the minds of many: ‘will the local market continue with its good run in the months to come?’ Some sectors are claiming that we are headed into a ‘bull’ territory and see the market continue to gain further; while others are cautioning that the market is in a ‘bubble’ and it will correct itself, if not crash soon. Analysts using fundamental and technical techniques can argue hard for both ways. I’ve spoken to someone who is dead serious that the market is in for an imminent crash because them Elliott Wave Theory says so. On the other hand, you can read that the markets will continue to ride to growth territories because the economy is growing.

Here’s my take on all these: past performance is never an indication of future performance! While historical data can be helpful in determining which investment route to take, I wish to caution the readers not to rely too much on historical data. Many factors can affect future performance like taking too aggressive or too conservative positions in their investment policies. The argument by many advocates of index investing is that they can trust the index better than active managers. Experience in many countries supports such an argument but clearly, the same argument is not the case in the Philippines – another “only in da pilipins” claim we can make.

When investing, regardless of what instrument you chose, always invest according to your investment objective, risk tolerance and time frame. If you are still unsure of the 3 factors I mentioned, take time to find out first before letting go of your hard-earned money. Further, when you do invest in instruments such as mutual funds or UITF (available in Banks), pay particular attention to the fee structure; some funds charge more than the others.

Oh, one more thing (last na!) – whenever you are investing, never invest in something you don’t understand. Take time to learn about the investment which you are planning to take and don’t worry, investing need not be rocket science and try to practice being prudent in as much as you can.

A simple man believes anything, but a prudent man gives thought to his steps. – Proverbs 14:15, NIV.

I was just reviewing the performance of local mutual funds courtesy of their helpful site, http://icap.com.ph. When you look at the year-to-date (YTD) performance of the equity funds, you will notice that nearly all funds trump the PSEi benchmark. The top 3 funds registered over 40% growth for their YTD numbers. It is also interesting to note that the 5 year YTD marks of the funds all beat the PSEi benchmark, with the exception of just 1 fund.

There is a view in many countries that investing in the index of the funds is the way to go as they perform better than most of the actively managed funds. However, this is not the case for the Philippine equity laced funds. By comparison, the top earner for the 5 year period is Phil Equity Fund, outperforming the index by as much as 6%.

Mutual funds are very convenient for those who do not have the competence and the time to manage their own stock portfolios. While many stock investors can claim to experience better return for their portfolios, the practicality of investing in the stock market through properly managed mutual funds (or UITF) is a better alternative to many – especially those who have better things to do than watch the market on a daily/weekly basis.

I am also encouraged by the relative good performance of many funds:  the 5 year period showed many of the equity funds doing somewhere between 16 % to as much as 21% p.a. growth despite the disastrous financial crisis of 2008. Here’s another good thing: most local equity funds outperformed overseas funds! When you take into account the strengthening of the Peso, the growth of our local funds puts a greater distance to overseas funds. Investing in a USD denominated fund in 2005 will cost you about P53:$1 as compared to P45:$1 today. Not bad eh?

The big question in the minds of many: ‘will the local market continue with its good run in the months to come?’ …

… to be continued.

I’ve been giving talks and lectures for many, many times. Without a doubt, the question I have been asked the most would be, “what is the best investment?” This is a question that will have an answer depending on the person being asked. If you are to ask a real estate agent, he will say real estate; a stock broker will say blue chip stocks; a banker will offer the latest bank products like a time deposit or a special savings account; a mutual fund representative will say mutual funds; an insurance agent would probably quote a variable life insurance – get the drift? However, my answer has always been consistent. The best investment for me? Well, I can’t really give an answer.

Okay, I must admit that many people give me a dumb-founded look whenever I answer them “I don’t know, it depends”. For someone who claims to be a personal finance guy who has been in the financial services industry for over 2 decades and a trainer in financial planning, I am pretty clueless ain’t I? I simply can’t tell anyone what the best investment is because there’s no such thing. My answer will always be “it depends!”

I have a simple four rule guide that I recommend to people whenever they are perplexed as to where they want to bring their hard-earned money.

1) Investment Objective – What is the investment for in the first place? Where do you plan to use it? Is it for retirement, education, purchase of a house? Or is it just to park your money while you are scouting for other investments?

2) Time Frame – When do you intend to use the money you are investing? Is it short (less than a year), medium (up to 7 years) or long term (more than 7 years)? It is unwise to put money in long term investments when you will need your money in the short term – you might end up realizing capital reduction or you may be levied with steep penalties should you liquidate your investment. It is likewise unwise to invest in short term instruments when the purpose of investment is for the long term like education or retirement – you will not realize a good appreciation of your investments as short term instruments generally give lower yields. In other words, your investment would be drastically reduced by inflation and find yourself with not much funds when you need it the most.

3) Risk Tolerance – Investors are usually conservative, moderate, or aggressive. Determine your risk tolerance first. Is liquidity and capital preservation an absolute must for you? Or are you willing to risk some potential capital loss in favor of potential capital hike? Remember the golden rule in investing – the higher the yield, the higher the risks and vice-versa.

4) Acumen – There are simple products and there are complicated products. If you are investing in the stock market and you are not familiar with some form of fundamentals, you might regret ever putting money there. If you can’t distinguish a structured note from a time deposit, you might want to reconsider your decision. I have a simple advice with regard to this – never ever invest in something you don’t understand.

Before parting with your money, I highly recommend that you go through the four-step rule first.

“But divide your investments among many places, for you do not know what risks might lie ahead.” Ecclesiastes 11:2 (NLT).