“How many millionaires do you know who have become wealthy by investing in savings account? I rest my case.” – Robert G Allen
Very few of us in life will become rich quick. Unless, of course, you are a shady DPWH contractor, a “nepo” baby or a corrupt politician, who can amass billions in one dealing. But for a regular hardworking Juan dela Cruz, like us, there is no simple and easy strategy for making serious fortune in a short time period.
My husband and I were both regular corporate employees. This was our main source of income. I was just fortunate that as an insurance executive, I was exposed to the different financial instruments. That’s’ when I realized that the best way to build and grow your wealth, without needing big capital, is through investment. While saving money is important, it’s not enough. Investing in the financial markets offers many potential benefits. By making your money work through investments, you have better chance of earning higher returns than a savings account and beat inflation. It’s also an effective way to diversify your portfolio to reduce risk.
However, for many, investing can be intimidating and complex. While more Filipinos are now appreciating insurance as a tool to boost their financial resilience, much still needs to be done to get more Filipinos into investing. Based on Bangko Sentral ng Pilipinas (BSP) 2021 Financial Inclusion Survey, only 36% of Filipino adults (8 million) have investment products. This number barely improved since. This low rate is driven by lack of financial literacy, fear of risk, and a general lack of understanding of financial products in the market.
These were the reasons why I was a hesitant investor in the beginning. And why I lost some in the process. But through the years, I yearned, learned and earned through my investments. Sharing with my readers some pointers that guided me in my investment journey.
First of all, be clear with your financial goals. What are your objectives for investing? Is it for your child’s education, new car or house, birthday milestone or for your retirement? Remember to always make your goals specific, measurable, attainable and time-bound. These will allow you to identify your time horizon and guide you on the appropriate risk tolerance to take and right product to invest in.
Be sure to create and maintain an emergency fund. Before Istarted investing, I made sure that we have enough money, about six to eight months of our income in savings account. As most investment products are for medium and long term placements, it’s important that we have accessible and disposable funds in case we need it to cover an emergency, like hospitalization or sudden unemployment. The extra funds, we invested.
All investments involve some kind of risks. I knew that the moment I decided to invest, I was exposing myself to risks that can affect my returns long term. Investors have different risk tolerance. They can be conservative (low risks, low returns), Moderate (medium risks and medium returns), or Aggressive (high risks, high returns). The Libra that I am, I always go for the balance, so I consider my risk tolerance, in general, as moderate. Knowing my risk tolerance saved me from experiencing big time losses and the roller coaster emotional stress that goes with it. But it also prevented me from earning big time. But it’s fine with me as I am clear with my financial objectives.
When investing, aside from knowing your risk profile, it’s also important to consider your time horizon, referring to the time you are willing to stay and hold the portfolio. It can be short-term (1-3 years), Medium-term (5-7 years) or long-term (more than 10 years). Just ask yourself, when do I need the money? Knowing this can also influence your risk tolerance. When I was much younger, I invested on some aggressive products since I know I had more time to recover in case of a market dip. But when I reached 40, I started to take a more moderate approach. Now at 60, I am more conservative. If you need the money short term, avoid being aggressive but if you have more years ahead before your need, a more aggressive take can be considered. As I have personally experienced, the more time you are invested the higher the potential reward is. The sooner, the better.
A basic investment rule is diversify. Do not put all your eggs in one investment basket. Instead, consider having a mix of investments. Asexperienced, not all financial investments behave in the same way. The 3 major asset categories, stocks, bonds and cash have not moved in the same direction at the same time. There were market conditions in the past that caused my index funds to do well but caused my bond funds to have poor returns. By diversifying, I was able to avoid significant losses and ensure our overall returns still to be much healthier.
There are so many investment products/funds available in the market for you to choose from. We have tried mutual funds, investment-linked insurance, stocks, index funds, bonds and even Pag-Ibig’s MP2. You just need to select the best fund/product that will suit your needs. The good news is, there’s now an investment platform where investing starts at PHP50!
It is not impossible for the regular Juan dela Cruzes to build and grow their own finances. We just need to transform more Filipinos from just being savers to investors.
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