A few weeks ago, my brother was asking me about Ayala life Home Starter Bond. We emailed back and forth and got into the Mutual Fund discussion. I have explained to him the basics about mutual fund (click here if you want to learn too). He's an engineer and an Overseas Filipino Worker. I was trying to convince him to invest as i believe that Mutual Fund works in the long run. Besides, i read somewhere that majority of OFWs don't know where to put their money. Instead, they spend it in vacations and sight seeing. I don't mind that. I think they deserve that for all the hard work that they do. I just want to suggest that they save and invest too so that they still have money after they have decided to return to the Philippines. If you are an OFW and stumbled on this blog, i meant no offense. If you are saving and investing, i admire you. You earn better than me and that is something i want to do too. If you don't have investments yet, feel free to browse my blog and i hope i can help you in my small way.
Anyway, we sent email back and forth and I realized that to convince someone to invest, basic questions must be answered
What is your purpose for saving/investing?
How much of the savings do you plan to spend and when?
What is your risk tolerance?
Why do you want to save/invest?
Most single individuals would say they are saving to buy a car. Others for their wedding. For married individuals, it could be for down payment on a house or for future education expenses of their children.
Others will say that they are looking for investments that will generate income as well as long-term capital growth. There are more than hundred reasons why save and invest. The important thing is to know your reason. Your reason will be the basis for deciding where to invest.
How much of the savings do you plan to spend and when?
After determining your reasons for saving/investing, you should also know when you are planning to spend that money. Answer to this question will guide you on where to put your money. For example, if you are saving so that you have money to spend in case of emergencies but also looking to grow that money then your best bet might be the savings deposits offered by banks. They offer small interest but you can pull out your money anytime.
If, on the other hand, you are saving so that you'll have money ten years from now to pay for your child's education, then investing in long term suits you. You may consider investing in stocks or mutual fund.
The trick is knowing why you are saving, when you need the money and sticking with it. If you are saving for retirement which you foresee happening ten years from now, it would not make sense to just put your money in the bank. Your money will not earn that much interest and you don't need the ability to pull out the money fast. You are better off putting your money in long term investments since you don't expect using the money in the near term anyways.
Same goes for people who expect to use the money within five years. It will not make sense putting your money in long term investments if you might use the money anytime from now. Sure, long-term investments offer higher earning opportunity but the chargers are high as well if you will pull them in the short term.
What is your risk tolerance?
All investments have risk. Bank deposits offer lower interest rate but your investment is safer. For stocks, the returns may be higher and the same can be said for potential loss. The rule is the higher the risk, the higher the returns. Lower the risk, lower the returns. Most Filipinos are comfortable in just putting it in the bank. Nothing wrong with that. However, the growth of money in bank is very minimal.
If you have the money or time, consult a financial planner. If you are clueless on where to find registered financial planners, visit www.rfp.ph
(Note: I am not a financial planner and I'm not earning anything if i convinced my brother to invest. I am a CPA, who enjoys blogging and searching for best ways to invest. I have stocks investments and mutual fund but not yet a millionaire. By year-end, I'll share with you my earnings (and losses) in my stocks and mutual funds)
If you want to learn more about stocks and mutual fund, click the links below
