Financial Planning: Investing in the New Year

By Francisco J. Colayco

Christmas is a time to celebrate and be with family and friends. It also falls on the last few days of the year when everyone is preparing for the New Year also. As Christians, we use this season to improve our spiritual life as we remember the birth of Jesus Christ. But we could also use this time of the year to plan for the improvement of our financial life. My message for your New Year financial planning is: INVEST NOW!

Financial Planning: Colayco Foundation

Investment Literacy Is Key


For the past years, we have been harping on the central message that to build wealth is an obligation. With the bright economic conditions with us today and even brighter economic prospects in the next three to five years, it is imperative that we focus today on investment literacy. The medium-to-long term future cannot be brighter as we have it today. If you, as income earner, miss the opportunity to participate in our capital markets in the next five years, you will be regretting it for the rest of your life.


If you had decided earlier to secure your financial future, you probably would have put away some savings by now. But as we always say, earning and saving money is a prerequisite, not a guarantee, to achieve financial comfort. It is prudent and correct investing that will ensure your financial independence.


Everything Going For Us!


Business and investment confidence in our country is the highest in this decade. The Philippines, as part of the emerging economies of Asia, cannot but be a significant beneficiary in the global economic growth. Our Peso has even assumed the character of an international currency when our Peso denominated bond issues were oversubscribed by thirteen times our US$1B offering. OF remittances and even exports have been growing without let up supporting a strong Peso. By the last quarter of 2010, our Gross International Reserves (GIR) has breached the US$50B mark, more than 9 nine months of imports. While this somehow hurts the export sector and OFs, it does alleviate the country’s debt burden running at about the same US$50B level.


In the global arena, North America and Europe are going through their own economic difficulties thus further bolstering the attractiveness of Asian investments. If we are to go by the historical five to seven year bull market period, 2009 thru 2014 (possibly even 2016) could be a unique opportunity for personal investing. Over the last five years, the Philippine Mutual Fund industry has given investors a yield range of 15%-27% annual cumulative rate of return (ACR) for Equity Funds; 13%-19% ACR for Balanced Funds; and 6%-10% ACR for Bond Funds. These rates of return beat our annual inflation rate by a factor of 2x to 9x. The good news is that barring any major global and/or domestic economic upheaval, this trend is still expected to continue for the next three to five years.


Our real estate industry is also showing very strong performance.   Investing in low cost, affordable housing and even high-end residential and commercial units offer unique opportunities. However unlike investing in Mutual Funds, this type of investing is more directly personal, generally requiring higher unit investments and clearly a lot more intensive study as risk variables relating to reliability of the developer, location, product quality as well as titling and liquidity issues are more complex. With sustained income generation and correct leveraging, real estate investments can provide very attractive yields to investors.


The Challenge


What can we do in the face of these oncoming opportunities? First is back to basics. Determine your present net worth and the amount of investible funds you have and can have, given your regular cash flow. More importantly, find out how much additional funds you can raise by liquidating your non-earning assets. Pay close attention to your depreciating assets, which do not contribute to your income earning capacity. Prioritize your financial goals by targeting specific amounts that you will need at specific times in the future. This will give you the rate of return you will need your investments to achieve and thus the kind and level of risk you may have to take. Make adjustments in any of these variables (goals, amount of regular investments and time frame for each investment) according to what you can reasonably assure yourself to implement.


Choosing the kind of investments that suits your personal situation is your real challenge. Pooled funds like Mutual Funds or Unit Investment Trust Funds (UITFs) represent one of the better options for the average income earners. Invest in your own business? Stay employed and do regular investing? Do all? There are many ways to get started. You can always allocate your time and money according to what makes sense for you. Spend time to study your options. If necessary, consult with knowledgeable advisors.


Finally, when all is done, draw up your personal investing plan and act without delay! The New Year is just around the corner – what better time to start than now.


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Financial Planning: Investing in the New Year