Sharing my column at the Inquirer last Wednesday

http://business.inquirer.net/10159/know-your-investment-objective-first

Question: I have some extra money that I can invest. What’s the first thing I should consider before I invest?—Raymond Sison, businessman

Answer: It is admirable that you are considering investing your money. The majority of Filipinos do not invest their money and just keep their money locked in savings, which is better than those who do not even save at all.

Before you do anything with your hard-earned moohla, I would recommend that you first consider what your investment objective is. In my seminars, I always tell people that our objectives will determine nearly every action we make with regard to finance. It is paramount that you determine the reason for the investment first and foremost. What is the investment intended for? What do you wish to achieve in making such an investment? Is it for retirement, future education needs of your children, purchase of an asset, or a general fund? Knowing what your objectives are will help you choose appropriate investment instruments and asset classes.

To simplify objectives, one can categorize general purposes of investments as those that will result in capital growth, provide income or both. Certain investments will yield according to your desired purpose. For instance, people buy real-estate properties because of capital appreciation while some people buy them for income purposes. Investment objectives can also change according to one’s situation. Let me use real estate again as an example. When you were younger, you bought a piece of real-estate property because you want to have capital growth. Many years after, say during your retirement years, capital growth is now overshadowed by your need for income and the rent you can get from said property becomes your objective.

Investments in the stock market are generally done for capital appreciation and although it can also provide income through dividends, the general purpose of investing in the stock market is for growth.

Investing in fixed income securities (treasuries, bonds) are made for income purposes as it provides steady flow of interest payments. Even if fixed income is sometimes traded for capital growth, the main purpose for it is still income. An asset class or investment instrument can also provide both capital growth and income at the same time. However, and as a general principle, capital growth and income provision would be relatively diminished for instruments that provide both growth and income. Don’t you just wish you can invest in something that will give you both substantially? Don’t we all?

If you are looking at pooled funds like mutual funds, UITF or unit-linked (variable) insurance, it is very important to first know your purpose or your objective before investing in them. Just like any other investment instrument or asset class, pooled funds can give you capital growth (those invested primarily in equities), income (those invested primarily in bonds) or both (balanced funds).

It is good to first check what your intended purpose for making an investment and then look at instruments or asset classes that is a best fit. Also, investment objectives should not be your only criteria whenever you are choosing where to invest. Other factors are just as important such as time frame and risk tolerance, but let’s leave those for future discussions. To learn more about better investing and learning more on personal finance, let me invite you to my seminar “Steps to Financial Peace” on Aug. 12, 2011, at the Teatrino in Promenade, Greenhills. I will be joined by my friends, Francis Kong, Paulo Tibig and Jayson Lo. You can find out about the event through https://www.randelltiongson.com/steps-to-financial-peace/.

(The author is an advocate of life and personal finance and a director of the Registered Financial Planner Institute (Phils.) and has over 20 years’ experience in the financial services industry. To know more about becoming a registered financial planner (RFP), visit www.rfp.ph or e-mail info@rfp.ph.)

I just finished a Practical Finance Seminar in Singapore a few hours ago and it’s inspiring to see a few dozen Filipinos working hard outside the country, sacrificing and doing their best to have a better life. It is even more encouraging to see them getting financially educated even if they have to listen to a boring speaker like me. Sights like this makes my job fulfilling and keeps my passion burning to help Filipinos get more and more financial education.

I saw a tweet from my good friend Susan Ople of the Blas F. Ople Policy Center where she stated statistics on OFW remittances that blew my mind away. She stated that in 1975, the remittances amounted to US$ 103 Million. Today, remittances are now up to US$ 2 Billion a month!

Unfortunately, I need to state some facts that continues to disturb me and should disturb every other Filipino. A recent study conducted to determine the financial quotient of Filipinos revealed that only 1 out of 10 Filipinos prepare for retirement. NEDA numbers placed the average savings rate of the Philippines at 16% as compared to Indonesia, Malaysia, Thailand, Hong Kong and our other neighbors well above 30%. Less than 50% of Filipinos actually own their home, and that includes those whose homes are mortgaged. Less than 0.5% of Filipinos invest in the Stock Market. Less than 15% of Filipinos (family heads) own Life Insurance. Investments in pooled funds (Mutual Funds, UITFs, Variable Life) remains to be amazingly low.

With the huge amount of remittances being sent to the country in the last 30 years, one would assume that Filipinos today would have more money and a vast majority of our population would have a secured financial future. With the facts I wrote, it seems that money being sent home plus the money being generated at the home front does not end up being put to good work by saving and investing it. Our capital markets continues to be underdeveloped despite the nation having excess liquidity. If money is not being invested for the future, then one can logically assumed that almost all the money now is being used for consumption. The level of consumption of the country has reached an alarming rate juxtaposed with dismal savings rates being experienced.

Why is this so? I dare say that despite an increase in income, us Filipinos have yet to fully develop our zest for financial education. Financial literacy is a political, cultural and social issue — one that must be given preferential attention by every Filipino. If not, all the growth in remittances coupled by improvement in local income will be for naught if one will not have a secured future.

Despite the daunting task, I and a number of passionate people will continue to advocate financial education despite the odds even if it take one Filipino at a time. I pray that more and more will heed the call to do our part in bringing about a big change in our attitudes about money and heed the path towards Financial Peace.

I will be featured once more in a seminar in Singapore. This event is FREE but you must register by sending an email to jess_emerson_uy@yahoo.com

Details here…