Five common objections to investing

MONDAY, 15 AUGUST 2011 19:43 RIENZIE P. BIOLENA / PERSONAL FINANCE

I talk with people every day regarding investments—and their attitude is as diverse as their number. Some people are very willing to invest, spurred on by the books and articles that they have read, or the seminar they have attended. Some are on a “let’s-wait-and-see” attitude, open to the idea of investing, but with no timeline in mind—lukewarm if I can borrow a term. But some get away from investments like they would from a poisonous snake—no sooner they would touch investments than they would touch a viper.

But whatever the attitude in its infinite variations and permutations in the spectrum, there are five common objections that I come across when it comes to investing. I shall explore the first two in this article, and the next three in the next.

Objection #1: “I don’t have money to invest”. This objection might mean two things: first, the person cannot afford to invest, and; second, the he has the money but does not have the allocation for investment.

With the first one, the prospective investor is still building-up his cash base. The person would need to inspect his cash flow and see where he can increase his income or cut his expenses to be able to start in investing. As this being the case, what he needs is a competent advisor like a financial planner on how to help him with this.

The second is usually the case for people who have their capital tied up in businesses, or those whose income is tied up to (albeit oftentimes unnecessary) expenses. Whereas the first scenario involves the issue of affordability, the second one is more of reallocation. In this case, the key is to look closely where funding can be earmarked and then redirected towards investments. With entrepreneurs or businessmen, these funds are the ones sitting in traditional bank products; with people whose motto is carpe diem on expenses, this could mean slashing expenses on expensive coffee or shopping money.

Whichever the case, there are products in the market that can offer investments for as low as P1,000, significantly lowering the barrier to entry, a come-on that can let potential investors try it out first and then build-up at a later time.

Objection #2: “I might lose my money”. Fear is the operative emotion in this type of objection. Objections of this type could be from people who have had a bad experience in investing—they might have been a victim of the downmarket during the UITF scare or the recession—in which case, they pulled out their money at a loss. Or this might come from someone who has misconceptions on investing—they might have heard the horror stories from persons such as the ones above, or persons who knew such persons (us Filipinos are a fan of anecdotal experiences and stories)—in any which case they see investing as a risk and a gamble, like riding a bull where you can fall anytime.

Yes, it is true that people can lose money in investments. I, for one, have lost some of my money—some paper loss, some realized. Back in 2008, all of my savings were in a stock fund and when 2008 came, it went six feet under: savings and money intended for my set marriage in 2009. I lost part of it, as I was forced to withdraw for some marriage expenses money; but on majority I kept in the fund, because I refrained from realizing my loss and getting my fear better of me. I only went out full swing when the market is already recovering and I was having a gain. Lesson learned: always diversify and structure my assets so as to make available funds for some contingent events in the future and, as the adage goes, “do not put all your eggs in one basket”.

Yes, people can lose money—if they withdraw during down markets or in times of erratic market movements. But investments are for the long-term: for needs three, five, or even twenty years down the road. Going out prematurely is like giving birth prematurely—and you feel the same way: sad or depressed.

I have one friend who keeps on investing P10,000 month to his stock fund even during the recent crisis. On paper, his investment took a downward slope during recession, but this hasn’t stopped him in anyway to consistently “save” his money in his investment. Lo and behold, when I took a look at his portfolio after the recession, his portfolio was up by 33%.

For people who stayed with their investments even during down markets, or for people who keep adding even, then the story is a different one: one of success and happiness. These are people who know that investing is for the future and so they let their withdrawals also match this time horizon: in the future. Though the investments do not guarantee returns for the short-term, one thing is for sure: that the market does recover. For the period 1990-1997, the Phil. stock market was up by an astonishing 528%. Though it was down by only 71% from 1997-2002, it did recoup and gave a stellar return of 295% from 2002-2007. The recent recession shaved off 57%, but from there, it has risen up to more than 100%, and prospects are still looking good.

You might see yourself saying the same lines above when it comes to investments. It is understandable as something new or something that is as misunderstood and controversial as investment would really make anyone one think at least twice before committing oneself to it.

But at the root of it all, it really doesn’t take money to invest. Money is just the instrument used to invest, because what we are investing at and for is the future: our future needs and the future needs of our family. What is key is consistency, discipline and prudence, and the money will just come along.

I shall be exploring the other three common objections in my next article.

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Rienzie P Biolena, RFP is one of the pioneering registered financial planners in the Philippines, having taken up the first RFP Program in 2005. He is a senior financial adviser in Philam Asset Management, Inc. To know more about the RFP program, please e-mail info@rfp.ph or visit www.rfp.ph.