The stock market is one of the most profitable investment vehicles available. Unfortunately, most people are wary of the stock market because the value of stocks fluctuate everyday with daily trading, and when the stock market crashes the value of their money may fall.
One thing prospective investors should understand is that the stock market is a long term investment.
Stocks are the most profitable investments over a long period. In any given twenty year period that includes even recessions the stock market outperforms all investment vehicles, even the real estate market.
For novices, the best way to take advantage of the stock market is to invest in Equity Funds. An initial amount of P5,000.00 to P10,000.00 can start an Equity Fund investment.
Equity Funds are Mutual Funds, companies that pool money together and invest in stocks with the purpose of making the most profit for the company and its investors.
Making Equity Funds Work
1. What are you saving for?
Being a long term investment, Equity Funds are best used to beef up funds for future needs like retirement fund, college education, retirement health care.
2. Diversify. Don’t put your eggs in one basket.
Make sure the future does not surprise you. One never knows what the future holds, and one can only predict ones future needs. A good mix for future needs is a guaranteed plan (like an education plan) matched with equity funds.
3. Hitching a ride.
Savings accounts are snails, bond investments are cars, and stocks are jet planes. Investing in equity funds is like hitching a ride on jet plane. You don’t have to be the pilot to enjoy the benefits.
4. How much to invest in Equity Funds?
Invest money that you can forget. If you start an investment of P10,000.00 and add P1,000.00 every month for 5 years, you would have over P500,000.00 in the fund after 20 years at an average return of 14% per year. Not bad for P58,000.00 you set aside for five years and forgot about.
Choose the best Equity Fund that suits your personality. Some equity funds are more aggressive than others. Ask your fund agent the equity fund’s investment philosophy and what type of stocks or companies their equity fund is invested in.
Although equity funds buy and sell shares on a daily basis, they stick to a certain mix that mirrors their philosophy. Some funds would invest more in Real Estate and Telecom shares, while others would invest less in these type of stocks and bulk up on mining and BPOs.
There is a philosophy in each investment strategy. Make sure you understand the company’s investment philosophy and that you are comfortable with it.
Showing posts with label Mutual Funds. Show all posts
Showing posts with label Mutual Funds. Show all posts
Wednesday, September 2, 2009
Monday, August 31, 2009
BOND FUNDS
One of the earliest Mutual Funds in the Philippines is the Bond Fund.
On the average, Peso Bond Funds over the past three years have earned 6% per year, while Dollar Bond Funds have earned an average of 3% per year over the past three years.
Bond Funds are comprised mostly of government issued bonds mixed with corporate bonds, capital bonds, retail treasury bonds, cash and time deposits.
It only takes P5,000.00 to start a Bond Fund investment. I’ve seen many people buy mobile phones worth more than that, every six months.
What are Bonds?
Bonds are loans that are certified by the borrowing entity like the national government, a corporation and in some cases local government unit.
How safe are bond investments?
Government bonds are as good as cash. Money in your wallet is a legal tender certified by the government with the words “ANG SALAPING ITO AY BAYARIN NG BANGKO SENTRAL AT PINANANAGUTAN NG REPUBLIKA NG PILIPINAS”. Government bonds are certified in the same way.
How does a bond work?
When a government’s projected spending is more than its projected collection it has to borrow money to fund is projects. One way to borrow money is to issue bonds.
The government floats bonds to financial institutions, for example a loan payable in five years at an interest of 5% per year. If financial institutions agree with the terms and wish to loan a total of 20 billion pesos, then 5-year bonds with a total worth of 20 billion pesos with annual interest of 5% are issued by the government to the financial institutions.
Financial institutions have many ways to make money out of it before the 5-year bond matures, like resell these bonds in smaller chunks and higher interest rates, or use these as assets to back up loans. The question is how do you make it work for you?
MAKING BOND FUNDS WORK FOR YOU
Understand that Bond Funds are Mutual Funds as such these are investments whose value fluctuate everyday due to everyday trading, but will always earn more than a time deposit.
I’ve met people who have hundreds of thousands of pesos decaying in savings accounts and checking accounts.
Savings and checking accounts are good for business transactions and emergency fund. Multiply your monthly expenses by three and that’s your emergency fund. If you have a business, you know your monthly expenses and how much money you need in the bank.
How much more of your savings and checking account money is left? Invest that in the Bond Fund.
Emergency Money in a Bond Fund makes more sense
Your savings and checking account gives you an interest of 1% per year, less 20% income tax every year. So after a year your P20,000.00 becomes P20,160.00
A Bond Fund has an entry fee of 2%, you have to lock it in for a year, then after that it will no longer be subject to any fees or taxes. So your P20,000 becomes P20,580.00 after a year.
The best part is after five years your P20,000 in the bank becomes P20,812.90 while your P20,000.00 Bond Fund investment would have reached P25,000.00 during the same period.
Bond Funds are not investment tools. Bond Funds are financial instruments that can create a buffer or emergency fund better than savings and checking accounts or time deposits.
Knowing your monthly expenses opens you up to investment possibilities. Let’s have a run through:
1. Multiply monthly expenses by three, and deposit this amount in your savings or checking account.
2. Multiply monthly expenses by three, and invest this amount in Bond Funds.
3. Calculate your monthly expenses every quarter to check if you need to increase your emergency fund.
4. Let your Bond Fund grow
5. Remember the 10-20-70 rule for income? 10% goes to tithes, 20% goes to investments, 70% spend on yourself and family.
6. Once your emergency fund is set you can then invest in other financial vehicles.
Last tip: Understand what events should eat up your emergency fund
1. Loss of income – if you lose your job you have six months to find a new one. If this is not too comforting increase your bond fund emergency fund to comfortable levels.
2. Sickness and accidents – if you or an immediate family member gets sick and you don’t have health insurance touch your emergency fund.
3. Other people – This should fall under the 70% of the 10-20-70 income rule. If they frequently ask you for financial help, they won’t be able to help you financially in your time of need. Your emergency fund is for you, your spouse and your children.
4. Replace a lost item, like mobile phone – falls under 70%
5. Tuition – falls under 70%. While future tuitions should be planned and part of 20%
6. Car or House needs repair – touch your emergency fund. Although if you practice preventive maintenance then this should be under 70%
7. A business opportunity – get from 20%, and skim from 70%
Make a chart of events that occur or may occur in your life and identify these if they fall under the 10% or 20% or 70%.
On the average, Peso Bond Funds over the past three years have earned 6% per year, while Dollar Bond Funds have earned an average of 3% per year over the past three years.
Bond Funds are comprised mostly of government issued bonds mixed with corporate bonds, capital bonds, retail treasury bonds, cash and time deposits.
It only takes P5,000.00 to start a Bond Fund investment. I’ve seen many people buy mobile phones worth more than that, every six months.
What are Bonds?
Bonds are loans that are certified by the borrowing entity like the national government, a corporation and in some cases local government unit.
How safe are bond investments?
Government bonds are as good as cash. Money in your wallet is a legal tender certified by the government with the words “ANG SALAPING ITO AY BAYARIN NG BANGKO SENTRAL AT PINANANAGUTAN NG REPUBLIKA NG PILIPINAS”. Government bonds are certified in the same way.
How does a bond work?
When a government’s projected spending is more than its projected collection it has to borrow money to fund is projects. One way to borrow money is to issue bonds.
The government floats bonds to financial institutions, for example a loan payable in five years at an interest of 5% per year. If financial institutions agree with the terms and wish to loan a total of 20 billion pesos, then 5-year bonds with a total worth of 20 billion pesos with annual interest of 5% are issued by the government to the financial institutions.
Financial institutions have many ways to make money out of it before the 5-year bond matures, like resell these bonds in smaller chunks and higher interest rates, or use these as assets to back up loans. The question is how do you make it work for you?
MAKING BOND FUNDS WORK FOR YOU
Understand that Bond Funds are Mutual Funds as such these are investments whose value fluctuate everyday due to everyday trading, but will always earn more than a time deposit.
I’ve met people who have hundreds of thousands of pesos decaying in savings accounts and checking accounts.
Savings and checking accounts are good for business transactions and emergency fund. Multiply your monthly expenses by three and that’s your emergency fund. If you have a business, you know your monthly expenses and how much money you need in the bank.
How much more of your savings and checking account money is left? Invest that in the Bond Fund.
Emergency Money in a Bond Fund makes more sense
Your savings and checking account gives you an interest of 1% per year, less 20% income tax every year. So after a year your P20,000.00 becomes P20,160.00
A Bond Fund has an entry fee of 2%, you have to lock it in for a year, then after that it will no longer be subject to any fees or taxes. So your P20,000 becomes P20,580.00 after a year.
The best part is after five years your P20,000 in the bank becomes P20,812.90 while your P20,000.00 Bond Fund investment would have reached P25,000.00 during the same period.
Bond Funds are not investment tools. Bond Funds are financial instruments that can create a buffer or emergency fund better than savings and checking accounts or time deposits.
Knowing your monthly expenses opens you up to investment possibilities. Let’s have a run through:
1. Multiply monthly expenses by three, and deposit this amount in your savings or checking account.
2. Multiply monthly expenses by three, and invest this amount in Bond Funds.
3. Calculate your monthly expenses every quarter to check if you need to increase your emergency fund.
4. Let your Bond Fund grow
5. Remember the 10-20-70 rule for income? 10% goes to tithes, 20% goes to investments, 70% spend on yourself and family.
6. Once your emergency fund is set you can then invest in other financial vehicles.
Last tip: Understand what events should eat up your emergency fund
1. Loss of income – if you lose your job you have six months to find a new one. If this is not too comforting increase your bond fund emergency fund to comfortable levels.
2. Sickness and accidents – if you or an immediate family member gets sick and you don’t have health insurance touch your emergency fund.
3. Other people – This should fall under the 70% of the 10-20-70 income rule. If they frequently ask you for financial help, they won’t be able to help you financially in your time of need. Your emergency fund is for you, your spouse and your children.
4. Replace a lost item, like mobile phone – falls under 70%
5. Tuition – falls under 70%. While future tuitions should be planned and part of 20%
6. Car or House needs repair – touch your emergency fund. Although if you practice preventive maintenance then this should be under 70%
7. A business opportunity – get from 20%, and skim from 70%
Make a chart of events that occur or may occur in your life and identify these if they fall under the 10% or 20% or 70%.
Saturday, August 29, 2009
What is a Mutual Fund?
In the United States and Canada almost 70% of the people invest in mutual funds. In the Philippines, less than 1% are invested in mutual funds.
There will be many posts in this blog about mutual funds because it is a legal investment scheme that even a student can afford. A starting investment amount of P5,000.00 and you can add P500.00 to it any time
According to the US Securities and Exchange Commission a Mutual Fund is a company that pools money from investors and invests the money in stocks, bonds, short-term money-market instruments, or other securities.
Bond Funds invest in government funds to make the safest profitable medium-term investment for the company and its investors; while Equity Funds invest in stocks with the purpose of making the most profit for the company and its investors.
Things I like about Mutual Funds:
1. Investors are shareholders – thus are co-owners of the fund
2. Fund managers are also investors – it ensures they work for the shareholders to profit
3. What the fund earns is what shareholders also earn
4. Investors are charged a minimum amount upon entry (0.5% to 5% of investment). No charges when exiting the fund.
How to make it work?
First of all, the money invested in the mutual fund must have a purpose:
- college tuition for your new born child
- your retirement fund thirty five years from now
- your second home twenty years from now
- your health fund thirty years from now
- your travel fund fifteen years from now
- your silver wedding anniversary fund twenty five years from now
Second: understand it's a long term investment, as emphasized by the examples above.
- once you put money in, you only add to it
- never take money out from it
- emergency money belongs in the bank not it mutual funds
Third: you draw money from it only when the time for your specified purpose for it arrives.
- JR needs P100,000.00 for his first semester in college, redeem P100,000.00 worth of shares
- You spend P50,000.00 per month after you retire, ask the mutual fund to deposit in your bank account P50,000.00 worth of shares every month.
- Your silver anniversary is due next month. Close the fund you opened for your silver wedding anniversary.
Fourth: understand the timing of your needs, it is best to have one fund per need
- JR starts college fifteen years from now, invest in a fund that will finance it
- Retiring in thirty years, open a separate fund for it
For more information on Mutual Funds visit the Investment Company Association of the Philippines (ICAP). Here you will find all the mutual fund companies in the Philippines and all the types of mutual funds that are available for you.
Understand that each company and each fund has its own philosophy in investing. Some companies are more aggressive than others, while some are more conservative than others; which is why they have varying returns.
No company or fund is better than the other. Check each funds' track record, then choose which fund is suitable for your specific need.
There will be many posts in this blog about mutual funds because it is a legal investment scheme that even a student can afford. A starting investment amount of P5,000.00 and you can add P500.00 to it any time
According to the US Securities and Exchange Commission a Mutual Fund is a company that pools money from investors and invests the money in stocks, bonds, short-term money-market instruments, or other securities.
Bond Funds invest in government funds to make the safest profitable medium-term investment for the company and its investors; while Equity Funds invest in stocks with the purpose of making the most profit for the company and its investors.
Things I like about Mutual Funds:
1. Investors are shareholders – thus are co-owners of the fund
2. Fund managers are also investors – it ensures they work for the shareholders to profit
3. What the fund earns is what shareholders also earn
4. Investors are charged a minimum amount upon entry (0.5% to 5% of investment). No charges when exiting the fund.
How to make it work?
First of all, the money invested in the mutual fund must have a purpose:
- college tuition for your new born child
- your retirement fund thirty five years from now
- your second home twenty years from now
- your health fund thirty years from now
- your travel fund fifteen years from now
- your silver wedding anniversary fund twenty five years from now
Second: understand it's a long term investment, as emphasized by the examples above.
- once you put money in, you only add to it
- never take money out from it
- emergency money belongs in the bank not it mutual funds
Third: you draw money from it only when the time for your specified purpose for it arrives.
- JR needs P100,000.00 for his first semester in college, redeem P100,000.00 worth of shares
- You spend P50,000.00 per month after you retire, ask the mutual fund to deposit in your bank account P50,000.00 worth of shares every month.
- Your silver anniversary is due next month. Close the fund you opened for your silver wedding anniversary.
Fourth: understand the timing of your needs, it is best to have one fund per need
- JR starts college fifteen years from now, invest in a fund that will finance it
- Retiring in thirty years, open a separate fund for it
For more information on Mutual Funds visit the Investment Company Association of the Philippines (ICAP). Here you will find all the mutual fund companies in the Philippines and all the types of mutual funds that are available for you.
Understand that each company and each fund has its own philosophy in investing. Some companies are more aggressive than others, while some are more conservative than others; which is why they have varying returns.
No company or fund is better than the other. Check each funds' track record, then choose which fund is suitable for your specific need.
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