Investing for Filipinos: Investment Options Beyond Stocks

*Post contributed by Jason Garcia.

Only around 8 percent of Filipinos have investments in assets like stocks, bonds, and mutual funds. Although volatile, stock investment has proven to be a good instrument for building wealth. Other investment vehicles like mutual funds and VULs have made investing more accessible even for Filipinos who have little knowledge about the security markets. So what’s keeping many Filipinos from investing? One factor is that the complexity of investing is putting them off. There’s also the fear of losing money. After all, investments like stocks do come with risks. But investing is actually not as complicated as you think. And there are investment options that are safer than stocks. Several Philippine investments have also made the process easier. Read on to learn more.

Investing for Filipinos: Investment Options Beyond Stocks

Stocks

Simply put, stocks are shares of ownership in a company, particularly a corporation. You essentially become a part owner of the company you are investing in. Stock investment comes with risks because once a company dips in value, you lose out on your investment. After all, there’s no guarantee that a business will grow and make enormous profits. Just the same, stocks offer a high potential for capital growth. You get to take a piggyback ride on a corporation’s success.

The rule of thumb in investing is the higher the risks, the higher the potential for growth. There is no right investment vehicle for everyone. It all depends on your risk appetite and investment goals.

 

Corporate bonds

Investors who prefer lesser risks should consider corporate bonds. Corporate bonds are debt securities issued by a corporation. When you invest in a corporate bond, you are essentially lending money to the company. You will then earn interest from the bonds.

A form of debt financing, corporate bonds can be a major source of capital for companies. But to be able to offer debt securities at a favorable rate, a company has to have consistent earnings potential and a favorable credit quality. Some companies use their physical assets as collateral for the bonds, further making the bonds a safer investment. Moreover, should a company go bankrupt, it will prioritize its bondholders over its stockholders during liquidation. This means you’re the first to get paid.

 

Government bonds

Just like corporate bonds, government bonds are also a form of debt security. The difference is that it is issued by the government and not by corporations. This time, it’s the government that is borrowing money from you, not a private company.

The government uses bonds to fund budget deficits and to control the country’s money supply. Because these bonds are backed by the government’s credit, default is unlikely. As thus, government funds are considered risk-free. The downside is that the rate of return will also be low. There’s a chance the interest rate will not even beat inflation. More so, capital gain from government bonds will be minimal.

Mutual funds

Any financial advisor will tell you that the best way to shield your assets from risks is to diversify your investment portfolio. This means that you must spread out your assets, investing them in different types of investment vehicles, such as stocks, bonds, and commodities. Put simply, you should avoid putting all your eggs in one basket.

Choosing the best stocks and bonds to invest in can be a complicated process. It requires a certain level of know-how and information gathering. The learning process can also be long and exacting. Not everyone has the time nor patience for this. Fortunately, there are investment options that will allow you to benefit from the expertise of fund managers.

One such investment vehicle is the mutual fund. A mutual fund pools together your money and that of other investors. Fund managers will then use the pooled funds to purchase stocks and bonds from various sources. This results to a diversification of assets that minimizes your risk of losing money, as you won’t be investing in only one type of investment vehicle. More importantly, the portfolio will be managed by an expert who is familiar with the securities market.

 

Unit Investment Trust Funds (UITF)

Unit Investment Trusts are similar to mutual funds in many ways. It also pools together different types of investments. To be specific, UITFs bundle investment vehicles like stocks and bonds into one unit. The main difference is that these units are sold to investors, then kept as is for a specific period of time. With mutual funds, portfolio managers continue to play around with the funds, buying and selling securities where they see fit.

Because the fund managers hold on to UITFs until maturity, the management fee will be much lower than that of mutual funds.

Variable Unit-Linked (VUL) Funds

Variable Unit-Linked (VUL) Funds take diversification to another level, as it adds insurance into the equation. A unit-linked insurance plan can be used for several benefit payouts, including education, retirement, and life insurance.

VULs are often opened by investors looking to provide insurance coverage for beneficiaries. With a life insurance VUL, the beneficiary will receive the benefits upon the investor’s death. The plan’s investment options are structured much like that of a mutual fund. The assets in a VUL are managed to meet specific objectives.

 

Recent innovations have made it easier to tap investment vehicles that will help you achieve a specific goal. The Manulife GradMaker, for one, lets you invest in your child’s education with a few taps on the phone. It’s a mobile app for parents looking to invest in assets allocated for their children’s college funds. Everything is done online, from signing up to injecting funds into the policy. The funds will be invested in a Peso Dynamic Allocation Fund, a line of VUL funds managed by Manulife. The Peso Dynamic Allocation Fund combines investments in stocks listed in the Philippine Stock Exchange, high-quality corporate bonds, and government bonds. Your earnings will depend on the performance of the fund.

Whichever investment option you prefer, it’s important that you get started now. When it comes to investing, time is your greatest asset. Plus, you owe it to yourself to make sure your hard-earned many is growing and not just sitting idly in the bank. You also get more peace of mind when you know all your essential needs are covered. There’s nothing like financial freedom to make a person feel more secure. Explore your investment options now!

*Post contributed by Jason Garcia.