Category — Personal Finance

If you are an employer, you can offer your employees a benefit you bigger-company rivals might be giving theirs. There are now ‘bite-sized’ insurance plans that also have an savings component as well.

Pioneer Life Inc has such a product line called Sparxx. Berba say’s it’s a bite-sized product but it has great benefits. Sparxx acts like a savings account where you can add value to it by buying ‘top-up’ cards ranging from Php300 to Php5000. This gains interest until the insurance plan matures(maximum of ten years).

The more you buy Sparxx, the higher your coverage will become

An interesting post was on Inquirer.net yesterday and I couldn’t resist the urge to post the options that were given by some leaders in finance in our country:

Teresa Marcial-Javier
EVP/head of asset management and trust group
Bank of the Philippine Islands

“For a moderately conservative portfolio worth P250,000, invest 15 percent, or P37,500, in BPI Short-Term Fund; 26 percent, or P65,000, in ALFM Peso Bond Fund; 26 percent, or P65,000, in BPI Premium Bond Fund; 23 percent, or P57,500, in ABF Philippines Bond Index Fund; and 10 percent, or P25,000, in BPI Equity Fund.”

Pascual Garcia III
President
Philippine Savings Bank

Given the volatility of markets worldwide, money market funds and bank time deposits are ideal to maintain liquidity in order to be able to enter the equity markets via equity funds when price levels are lower and more favorable.

Tony Cripps
Chief executive officer
HSBC Philippines

The second half will be quite volatile for developed markets given the risks of European contagion and the US debt problems. Developed markets will be quite challenging in the second half and be risk-averse so, personally, I’d be in cash just because I think the markets are going to be choppy. The best thing to do is open an HSBC account and put the P250,000 in it. I think that, in the short term, the market will be quite challenging. On a longer term horizon (three to five years), I’d invest in Philippine growth stocks. I like the mining sector. I’m positive on the Philippines and upbeat on sectors like infrastructure. So on a longer term horizon, I’d recommend investing in a growth fund—more equity than fixed income.

Eugene Acevedo
Retired banker/former president
Philippine National Bank

I still like my (buy) Aussie dollar idea, a proxy play on gold and China growth. Allot P100,000 for this. Add to that P50,000 for power generation equity shares as I expect demand to keep rising faster than the economy. For the remaining P100,000, invest in YOURSELF. That’s right—YOURSELF. Pay for gym membership and get a trainer. Save on future medical expenses. Learn Mandarin to make your resumé more marketable regionally. Pick up a musical instrument to open up the creative side of your brain. Get a trusted style icon friend to help you fix your look.

Arcus Fernando
Country treasurer
Citi Philippines

I like long tenor peso government bonds, 10 years or longer. There is good value in locking in at the current levels. With global growth at risk and with the inflation outlook benign, monetary authorities worldwide are expected to keep interest rates low. The concern over the poor growth in the United States and Euro area will lead global investors to focus on emerging markets assets and currencies—Philippine assets and the peso included. Local equities may show some interesting valuations, but given the poor global growth picture, equity markets will tend to be more volatile. Investments in stocks over the near term would be best for those with higher risk tolerance.

Marvin Fausto
Chief investment officer
Banco de Oro Unibank

If the funds will be needed within 12 months, I suggest you invest in our BDO Peso Money market (PMMF) fund to enjoy relatively high yield for a short term and very conservative investment. Investments are in deposits, government securities and SDA [special deposit accounts] of the BSP [Bangko Sentral ng Pilipinas]. One can terminate and withdraw from the fund anytime. Yields are very stable and earns higher than what you get from an ordinary deposit. BDO PMMF generates returns of 3 to 4 percent per year. If funds can be invested longer, I suggest the BDO Equity fund. The fund is invested in listed equities that are designed to outperform the stock market. The fund has outperformed the stock market for the past five years due to disciplined and professional management. It is for investors with higher risk appetite and who are willing to ride the volatility of the market in order to generate higher returns over the long term.

Rene Sarmiento
First vice president/head of trust group
China Bank

Those with conservative risk profile may invest in time deposits or special savings deposits of China Bank where they can earn fixed rates of returns. Conservative persons with longer-term orientation may buy government securities from the bank’s treasury department. Yields on GS investments vary depending on the term of the instrument and the prevailing market prices.

The more sophisticated and aggressive individuals may opt to invest in pooled funds such as the Unit Investment Trust Funds (UITFs). Yields on UITFs vary depending on the specific fund’s performance. The performance of UITFs will exhibit some volatility since assets held by these funds are marked-to-market daily. China Bank offers three peso-denominated UITF variants: China Bank Money Market Fund, GS Fund and Balanced Fund where the investment requirement is only P100,000. These UITFs cater to investors with varying risk appetites, needs and objectives. For instance, if a client desires a high level of liquidity and still wishes to enjoy better earnings potential than letting his funds remain in a deposit account, he could look at the Money Market Fund. Those with higher risk tolerance may consider the Balanced Fund. For those who also want added insurance coverage, variable life insurance plan from China Bank’s bancassurance arm, Manulife-China Bank Life Assurance Corp. (MCBLife), may be an option.

This actually got me thinking about some money I have stored. I could probably resist buying or buy while the prices are low then wait.

Continued from Understanding the Risks of Investing

After acknowledging the inevitability of risk, the next step to successful investing is to know the proverbial “enemy” – become acquainted with the different kinds of risks attendant to UITFs so that you could be properly guided in your choices and decisions. These are some of the risks you should be aware of:

• Interest Rate Risk – Changes in the interest rates affect the value of fixed income investments such as bonds, which are among components of most UITFs. When interest rates rise, bond prices fall and conversely, when interest rates decline, bond prices rise. As the prices of bonds comprising a UITF adjust to changes in interest rates, the fund’s share price may rise or decline accordingly. Even government securities, although considered credit risk-free, are subject to interest rate risk.
• Market/Price Risk – This refers to the risk that UITF could lose value due to a decline in securities prices, which may sometimes happen rapidly or unpredictably. The value of investments fluctuate over a given time period because of general market conditions, economic changes or other events that impact large portions f the market such as political events, natural calamities, etc.
• Liquidity Risk – This describes the risk that certain securities in the UITF portfolio may be difficult or impossible to sell at a particular time or, if sole, will affect market prices substantially. This could delay the redemption of investments in UITF until its assets can be converted to cash. Even Government Securities, supposedly the most liquid of fixed income securities in the Philippine market, may be subject to liquidity risk particularly if sizeable volumes are involved. So far, despite the heavy selling of government securities, the market has provided the liquidity needed by the redemptions of UITFs.
• Credit Risk – This is the risk that a UITF may lose value in the event the issuer of a bond included in its portfolio defaults or could default on his obligation. Such default will drive down the price of the issue and may make the security difficult to sell. As these happen, the UITF’s NAVPU could decline in value. You can be sure that UITFs invested purely in government securities are free from this risk.
• Counterparty Risk – This is the risk that a counterparty in the trading of the securities included in the UITF portfolio, for some reason fails to deliver the cash or securities on the agreed trade. UITFs minimize this risk by dealing only with accredited counterparties and keeping securities with independent third party custodians, as a regulatory requirement.

Accepting and being able to identify the risks involved in investing – in short, knowing what you are getting into – is just half the battle. The other half, while sounding merely intuitive, could be more difficult and complicated than the first. This entails knowing yourself as an investor – being able to honestly assess your own objectives, return requirements, investment horizon and risk tolerance. People have different understanding and appetites for risk. The key to stress-free investing is to take only the risks you are comfortable with.

Obviously, how well you know yourself as an investor will determine your level of comfort.

Armed with this knowledge of what risk is and how it will impact your investing live, you can now look back at the UITF experience squarely and unemotionally.
While not immune to risks, UITFs are products formulated according to global standards and stringent regulatory policies. They are primarily designed to provide the investor a spectrum of investment alternatives that could match his own risk/return preferences. By requirement, each UITF is accompanied by a Declaration of Trust that embodies its investment objectives and policies. Ideally, the investor should be aware of these objectives and policies to make sure these match his own objectives and investment profile. A scrutiny of the Fund’s declarations should provide a clue to what kind of risks it is allowed to take. For example, a money market fund may state that it is limiting its investments to short term investments of government and prime corporations. This limits the interest rate risk and the credit risk taken by the fund. On the other hand, a bond fund may state that it is invested in longer-term bonds but will limit its investments to government securities. This means the fund will be exposed to interest rate risk but not to credit risk because government securities are considered free of credit risk. An equity fund may be subject to market risk but will not be subject to credit or interest rate risk. Therefore, a simple inquiry into a UITF’s policies could give the investor relevant insight regarding the Fund and its suitability to his own needs.

Note: This comes from a paper I have downloaded somewhere and can’t find the source.

For the majority of UITF investors, May 2006 was the watershed month that dealt them first-hand knowledge of how market risks and volatility could affect the value of their investments. After over a year of basking in double-digit returns, UITF participants suddenly found themselves looking not only at the prospect of pared earnings, but, more dreadfully, the loss of a part of their principal. Rising global and domestic interest rates reduced the values of the UITF’s underlying assets, pulling UITF NAVPUs down and alarming some investors and alarming some investors into cutting short their intended time horizon and redeeming their participations, even when this means realizing some losses.

On the other hand, there are some investors who made the conscious choice to stay invested in the UITFs, taking comfort in the knowledge that recovery is, somewhere along the line, in the offing, even inevitable. These investors recognize that since these funds are generally long-term in nature, fluctuations in NAVPUs could not be helped and thus should not distract them from their long-term view of the markets. These are the investors who are aware of the risk inherent in investing. As such, they are the ones who stand a better chance of enjoying its rewards or, at the very least, of sleeping better at night instead of constantly grinding their teeth over the fate of their fortunes.

One of the most investment gurus of our age, Peter Lynch, once said that the organ needed for successful investing is not the brain nor the heart, but the stomach. Having the stomach for risk, in other words, accepting its existence – is, therefore, a prerequisite of investing. Any sane investor given a choice would go for risk-free investments. Unfortunately, there is no such thing. Whether we like it or not, risk will always be part of investing. Even kept in savings accounts could be at risk because of inflation could at anytime overtake the savings rate and diminish such money’s purchasing power. Thus, to think that UITFs are exempt from risk is just plain unrealistic.

Continue to Part 2 of Understanding the Risks of Investments.

Note: This comes from a paper I have downloaded somewhere and can’t find the source.