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December 07, 2010

Purpose-driven Investing

BY Francisco J. Colayco

Invest Now

For the past years, we have been harping on the message that building wealth is an obligation. With today’s bright economic conditions and even brighter economic prospects in the next three to five years, it is imperative that we start focusing on investment literacy. The medium-to-long term future cannot be brighter as we have it today. If you as an 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 earlier decided to start securing 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 achieving financial comfort. It is prudent and correct investing that will ensure your financial independence. Business and investment confidence in the country is at its highest this decade.

The Philippines, as part of the emerging economies in Asia, cannot but be a significant beneficiary of global economic growth. The peso even assumed the character of an international currency when peso-denominated bond issues were oversubscribed by 13 times the country’s US$ 1 billion offering. This is on the back of overseas Filipino worker (OFW) remittances and exports which have both been growing without let up.

By the last quarter of this year, the country’s gross international reserves (GIR) have breached the US$50 billion mark, equivalent to more than nine months of import revenue. While this somehow hurts the export sector and OFWs, it does alleviate the country’s debt burden which is running at about the same US$50 billion-level.

That North America and Europe are going through their own economic difficulties further bolsters the attractiveness of Asian investments. If the Philippines is to go by the historical five-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 local mutual fund industry has given investors a yield range of 15% to 27% in annual cumulative rate of return (ACR) for equity funds; 13% to 19% ACR for balanced funds; and 6% to 10% ACR for bond funds. These values 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 expected to continue for the next three to five years.

The local real estate industry is also showing very strong performance, and investing in low cost, affordable housing and even high-end residential and commercial units could offer unique opportunities. However, unlike mutual funds, this type of investing is more directly personal: it generally requires higher unit investments and clearly a lot more intensive study as risk variables relating to the 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.

What can we do in the face of these oncoming opportunities? First, we must go 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.

vPrioritize 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 commit.

Choosing the kind of investments that suits your personal situation is the real challenge. Pooled funds like mutual funds or unit investment trust funds (UITFs) represent one of the better options for 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 to 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 next year is just around the corner: What better time to start than now?

Francisco J. Colayco (FJC) is founder and chairman of the Colayco Foundation for Education, an institution that provides financial literacy to ordinary income-earners, overseas Filipino workers, small business entrepreneurs and students. He has over 40 years of experience in the fields of service contracting, manufacturing, construction, shipbuilding, management consulting, banking and financial services. Mr. Colayco has authored four books on personal finance management. For comments and questions, email info@colaycofoundation.com. Visit www.colaycofoundation.com to learn more about its activities and programs, and to avail of its free ebook.


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