Gone are the days where a simple savings account is all the average Filipino needs to know about. Many institutions are pushing for greater financial literacy and this includes educating everyone on the different financial products that they should seriously consider. With interest rates so low that inflation will surely overtake it, savings accounts just don’t cut it anymore. So what else should Filipinos know about?
Before you rush to withdraw all your money, wait and take stock of your current situation first. Think of all the big expenses that you need money for. For most families, it’s education, property expenses, food, and retirement among others. Are these goals right around the corner or do you have to wait a few decades to attain it? Depending on your answers, you’ll be able to find out an investment that’s just right for you.
Aside from this, a general rule of thumb is to have at least three months of income stored aside for emergency purposes. This is where a savings account is best, of course. As long as this emergency fund is never touched, you can focus on other investments.
Generally, the younger a person is, the longer it usually takes before they need the invested money. When the time frame is long, it’s easier to withstand temporary dips in an investment’s value. Stocks are good investments for people who fit this profile. Over a long period of time, they usually provide better returns but you would need a lot of patience and an iron will to stomach the fluctuations. A large amount of money is usually needed but the key to being successful here is to know how to diversify. This is when you have many different stocks.
When you invest in stocks, make sure to take the time to study the company’s financials. If you invest using only tips or your ‘gut instinct’, it might feel good for a while but know that it rarely works out well. These are high-risk investments but they also provide the potential for high returns.
If you’re a retiree or someone who wants to be able to get their investments with sure growth, then there are safe products like bonds and time deposits. These provide lower returns but you’ll be able to sleep soundly knowing that the fluctuations aren’t that great. This is perfect for those who want low-risk instruments. This kind of investment is good if you want to beat inflation rates but don’t want to take bigger risks.
Investors who are looking for low-risk instruments should also consider government bonds. These are among the safest investments because you will be dealing with the government. Of course, don’t expect to get high yields, but at least you will be dealing with very low risks as well.
Mutual Funds and Unit Investment Trust Funds (UITFs)
If you want an investment that offers medium-high rewards for the same amount of risk, then you can take a look at mutual funds and UITFs. These are popular alternatives to investing in bonds or stocks. For as little as a few thousand pesos, you’ll be able to buy shares of a fund that pools all the investments of each fund holder and then invests it according to objectives that were established in its prospectus. There are many available funds that have different amounts of risk involved. A conservative option is a bond fund, while a more aggressive one is an equity fund.
The benefit of placing your investments in a fund that’s managed by professional fund managers is that you’ll be able tap into their knowledge. You’ll also be able to reap the benefits of diversification without having to shell out a lot of money.
Remember, with every financial product you consider, make sure that you have emergency funds put aside. This is so no matter what happens, you’ll have funds to fall back on.