Top five objections to investing: Part II

MONDAY, 05 SEPTEMBER 2011 19:46 RIENZIE P. BIOLENA / PERSONAL FINANCE

IN my previous article, we have talked about the first two common objections to investing: having no money to invest and the risk of losing that money. But we have also seen that one does not need much money to start investing. One can go in for as little as P1,000 and that over time, the money invested truly gives higher returns than savings accounts or time deposits.

Now we explore and continue on to the other three common objections or hesitations when it comes to investing:

Objection #3: “I don’t have time.” Generally speaking, having an investment does not take much time or effort. Dedicated professionals like Registered Financial Planners® give objective advice on the different investment instruments, tailor-suit for each individual’s needs. Nonetheless, financial advisors, bankers, insurance agents and securities dealer do also aid in giving investment advice quickly and usually in the time that you give them.

Should you finally decide to invest, maintenance is virtually effortless. Think of the financial people you are dealing with as part of your team of experts, ready to guide you and advise you when you need it.

If you bought into bonds and decide to hold it until maturity, you basically just have to wait for the coupon payments up until the term of the bond ends, not unless you decide to sell it, in which case, your dealer shall advice you on the potential gain or loss. If you hold mutual funds, then it is the fund manager who is now doing all the trading for you. There is no need to check the bond or stock market when and what to buy, sell or hold. If you are holding onto stock, your broker may contact you from time to time and recommend when to buy and sell particular stocks. But generally, if you are into your investments for the long-term, then all you need to do is buy on dips and watch your nest egg grow.

In all decisions regarding finances, always remember that time is money. Money we can recoup, but not opportunity lost in time.

In one of the retirement planning seminars that I conducted, I was sharing to the participants the importance of investing and setting aside a portion of one’s income for such purpose. When I shared the historical returns of various investment vehicles to them, I was surprised at the general sentiment of the crowd: “I should have done it earlier.”

Starting out early means having time as your ally in investing because the longer you stay with your investment, the more it outlives and outperforms the ups and downs of the market or reap the benefits of the power of compounding. For instance, the stock market has moved 150 percent from the 2008 market lows up until Aug. 26 this year (even after the Euro zone crisis, the Middle East crisis, the Japan tsunami and the continuing US economic and debt drama).

Come to think of it, if we really would not have time, it is NOT to invest.

Objection #4: “I’m already happy with my savings and time deposit accounts.” For most Filipinos, the way to keep and grow money is still with savings or time deposit (TD) accounts. But these are not purely investments in the sense that these are deposit instruments: You lend your money to the bank and in return, they give you a fixed rate of interest. In short, this is a debtor-creditor relationship.

But investing is on a different level. Investing means putting your money in higher yielding instruments like stocks, bonds, mutual funds, real estate, even art. Time deposits can give you an average of 2.75 percent per year; while savings give you around 1 percent. Less tax, TDs yield 2.2 percent and savings yield 0.8 percent net.

Good news is the average Philippine inflation rate from 1995 is at 5.7 percent, having its peak at 9.3 percent for the years 1998 and 2008.

Meaning, if you put all your money in just savings and time deposit, the prices of goods such as groceries, gas, tuition fee, etc. would have overtaken them!

Being happy with just ordinary bank accounts is like being happy with a small blanket that’s only up to half your legs in the middle of a chilly night. What you might want on top of your small blanket is a large, thick one whenever you need it—in this case, investments.

I am not saying to pull out all savings and time deposits and put it all on investments. That is wrong. The prudent thing to do with managing one’s assets is DIVERSIFICATION. Meaning, you diversify among different asset classes that suit your needs, liquidity, and risk appetite.

Objection #5: “It could be a scam.” One ironic thing about some (if not majority of) Filipinos is that they approach investing as they would approach a rabid dog. Yet, when a friend or a neighbor comes by and introduces someone who promises the highest returns (double your money in months or even weeks) “guaranteed” and all that is needed to do is shell out a couple of tens of thousands (or hundreds of thousands) of pesos for a business model that is new, with a company that is barely known. Well, chances are that person would happily walk into it like it’s the land of milk and honey. But with that high a return with no chance of a loss, most probably it is a scam. So many of our fellowmen has been victim of this, just because of misplaced trust and misinformation.

But do not me misled: Not all scams are investments, and not all investments are scams.

How to keep track of red flags? Just look at the name of the company. Is it reputable? If an investment opportunity is from a company and a business model that is barely known, or just started out yet, then the potential investor should see this as a sign to probe deeper.

Financial institutions and businesses whose names and reputation are already cemented in the financial industry should give you the added confidence that your money is being handled prudently and professionally.

At the end of the day, investing is not rocket science. What is generally feared or given apprehension only needs to be understood and comprehended. Investment is a tool that is given, available and beneficial to all. One just needs to start and hurdle over misconceptions and one’s own fear for investing is indeed rewarding.

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 Advisor in Philam Asset Management, Inc. To know more about RFP program, please e-mail info@rfp.ph or visit www.rfp.ph.