1.) Know how it works
Among all the various financial needs that we have, retirement savings is the most challenging one to plan and execute, simply because of the time element and the uncertainty associated with longer period.

Typically retirement savings focuses on two stages. The first one is the accumulation phase, wherein you build a lump-sum amount before your desired retirement age. The objective of this stage is to generate above average returns. The second stage is the actual retirement phase, wherein you focus on generating steady returns.

2.) Determine how much you need
The thumb rule for establishing your retirement nest is as simple as taking into consideration your annual household expenses and dividing it by the interest rate you generate from bank deposits.

For example, if our monthly household expense is Php 50,000, our annual household expense is Php 600,000. Divide it by 3%, the prevailing deposit rate, we will come up with Php 20 million. In other words, if we have Php 20 million today, we can place in bank deposit at 3% interest rate and generate Php 50,000 every month and carry on our livelihood.

3.) Consider the impact of inflation and interest

The real challenge to retirement savings comes when we have to make assumptions on what will be our monthly household expenses come retirement and what will be the rate of return we can generate from our savings.

To keep it easy and simple, if our lump-sum requirement for retirement is Php 20 million in today’s scenario, we need to add up the rate of inflation, let’s say 5% for every year from now to the targeted retirement age. In our example above, the lump-sum amount that we need to build towards retirement if we were to retire after 20 years is Php 53,065,654.10.

These factors are being taken into account to make sure that the long-term return that we are to generate from our savings is well above the rate of inflation. If not, we will eventually be unable to maintain the purchasing power necessary to sustain us during the actual retirement phase. This aspect of maintaining or enhancing one’s purchasing power is critical to building a retirement fund.

4.) Identify your retirement savings options
Equities are perhaps the best-known form of investment. They are also known as shares, because they are literally, a share of ownership in the company that issues them. For this reason, prices tend to increase or decrease according to the profitability, assets and prospects of the issuing company.

Investing in Equities offers the greatest potential for an attractive return. In general, Equities can be expected to outperform other forms of investment in periods of rapid economic growth, when company profits rise. Hence, Equities are considered an important investment option for retirement savings, especially during the accumulation phase.

However, investing in equities can be quite difficult for many due to lack of time, knowledge, expertise and a large amount of money needed to achieve a diversified investment portfolio.

The good news is common investors can access these valuable investment opportunities at ease without the hurdles associated with directly investing into equities. Thanks to the availability of products like mutual funds and investment-linked insurance policies, everyone can now plan and execute their retirement plan.

5.) Review your retirement plan frequently
Given that we are making many assumptions in terms of inflation and interest rate, it is important that we review the plan and its progress from time to time and make requisite adjustments along the way. Consult a qualified professional who can help you draw up your retirement plan, identify your savings options and rebalance your retirement portfolio when necessary.

PHOTO CREDIT TO: MONEYSENSE

ABOUT THE AUTHOR
Naresh Krishnan is the Chief Operating Officer of Sun Life of Canada (Philippines), Inc. He has 20 years experience in the financial services, Mutual Fund and Life Insurance industry gained from his extensive experience in India, Indonesia and the Philippines. Starting his career in the Indian financial services industry, he played a pioneering role in introducing bank distribution of mutual funds. In Indonesia, he spearheaded wealth management, bancassurance and corporate distribution divisions for a life insurer. Prior to joining Sun Life Financial in the Philippines in January 2010, he was the President and CEO of a joint venture bancassurance company. In his current capacity at Sun Life Financial, he spearheads the various distribution channels and the mutual funds business.

Oftentimes, when a layperson is approached by someone who would talk about opportunities of being invested in the market, we get one of two responses: a wave of a hand, not to indicate a welcoming remark but instead means “not interested”, or a puzzled look.

This resistance from prospective investors, when asked, actually point to one prevailing reason –investing is perceived to be just too complicated to understand, especially given the highfaluting words and inconceivable figures of speech being used in the discourse.

I had the chance to prove this myself by doing a casual survey with some family and friends.

Most terms used in the financial industry seem intimidating, especially with the regular use of Greek letters, such as alpha and beta. While in the book of Revelation, alpha is used to mean “first”, nothing to that effect is implied in its investments application as a gauge of performance on a risk-adjusted basis; so does beta being “second”, even if it logically follows alpha in the Greek alphabet. Beta is a statistical measure used to ascertain the tendency of a security’s returns to respond to swings in the market.

On the other hand, the term inflation is actually a staple in market update presentations and business news, but is still seen as a big word by many. It aptly derives from the word “inflate” as it indicates an increase, although not to be confused as “a sudden increase in the value of investments.” On the contrary, inflation does otherwise. Inflation, simply put, is the increase in the overall prices of goods and services in the economy. This phenomenon of inflation is actually one compelling reason to prefer investments over your regular bank savings account. Case in point, a regular savings account earns below 1% per annum in interest, while overall increase in prices is seen by the government to average at 4.64% this year. Hence, essentially, money kept in savings accounts loses its value over inflation – the interest earned actually barely covers for the increase in consumer prices. Key learning from this would be: enhance, or at least preserve, the value of your money by looking into investment products that at least give you a return that beats inflation.

Aside from the highfaluting financial jargons, investment professionals, fondly use metaphors and interesting acronyms, particularly in technical (or charts) analysis.

MACD is not the short name or ticker, in investments parlance, for the publicly listed stock of McDonald’s in the U.S; neither does it stand “for Market Asset Company Dividends”. Chartists use the MACD (Moving Average Convergence / Divergence) as one of the indicators to predict price movements of stocks, commodities, and exchange rates, among others. It shows momentum of price increases, or alternatively, declines; thus, the call for a “buy”, or “sell”, respectively.

Dead cat bounce does not have anything to do with bounced checks, which are returned due to insufficient funds or uncollected deposit. Technical analysts use the metaphor dead cat bounce to regard a short rise in price followed by a price decline of a stock, derived from the idea that “even a dead cat will bounce if it falls from a great height”. It is specifically described as a continuation pattern that looks in the beginning like a reversal pattern, but would eventually decline further from the prior low.

Decoding the investments lingo indeed takes some effort. Unfortunately, human instincts would dictate: do not get into something you do not understand. Hence, we just lose the prospective investor, just right there; without even getting to the next level of introducing the available investment products that would actually satisfy their various needs.

This phenomenon of shying away from the perceived complex world of investments is reflected in the recent statistics: last year, total assets held in trust and those managed by investment companies in the Philippines amounted to PhP 2.46 trillion, 28% lower than the PhP 3.43 trillion maintained in bank deposits. Moreover, in 2008, the Philippine Stock Exchange reported that less than half of 1% of Filipinos make investments in the form of equities.

It’s time to break the barriers of investing.

A lot of financial institutions engaged in the business of asset management have started their financial literacy advocacies to promote awareness of the benefits of investing. Hopefully, all these efforts will bear fruit as we see continuous growth in the industry that advances financial freedom for Filipinos.

A myriad of opportunities await those who finally decide that it’s time. Put your money where it rightfully belongs. Start investing now.

In one Pugad Baboy’s strip, the characters Bab and Igno were dining in an expensive restaurant. Bab had just won a bet in cock-fighting and they were celebrating. When Igno expressed doubts over their capability to pay for their orders, Bab explained that his prize money was P300,000.00 and they are entitled to splurge everything (note: everything).The strip reflects the sentiment of the creator Pol Medina and I thought he captured the idea very well. Majority of the Filipinos love to do a one-day splurging and the strip was this representation. Not all will be fortunate to win in gambling but those who do usually spend everything rather quickly; treating the whole barangay to a drinking spree to celebrate his good fortune. After that, he goes back to either bumming around or doing his dreadful work and relishes on the good time he had the night before and hoping and praying he wins again.

More often, salaried employees do a lot of shopping after receiving their salary. Yes, some are actually legitimate purchases but a lot of times it is to purchase some not-so-important stuffs; stuffs that we actually can live without.

I remember one time my dad suspended three-fourths of his staffs in his restaurant. The reason: they had a big drinking session when they got paid and were not able to go to work the very next day because of hangover. That was 15 years ago. The mentality has not changed and most of the Filipinos are still stuck in the very race they wanted to get out of.

Perhaps, we often feel deprived of things and splurging is one of those times that we feel we are rewarded for the hard work we did. But remember this: living rich one day today may not let you live rich tomorrow.

The mentality should change soon and perhaps then a more applicable strip will be created:

Bab: Nanalo ako sa sabong!

Igno: Halika, mag-inuman tayo to celebrate!

Bab: Naku, tsaka nalang. Iipon ko muna to. Hindi naman araw-araw may ganoong biyaya.

Igno: Sabagay, sayang rin nga lang naman kung uubusin natin yan sa isang gabi lang. Tama yan ginagawa mo, Bab!

by: Kendrick Chua, CIS, The Wealth Warrior

We all make money mistakes once in a while and in my years of financial planning practice, I have come to realize the 10 Money Mistakes people often commit.

1.)    Spending all income. I know of people who spend their income down to the last peso the day before their payday. It’s as if they can’t stand having the money carried over to the next payday. As a result, when a glitch in accounting system delayed the pay, the solution: cash advance or buy on credit.

2.)    Spending more than you earn. What is worse than spending all your income? It’s spending more than what you earn. So if the cash runs out days before the next batch of funds come in, the result is incurring debt. You can always be a free-loader but then you won’t have any friends left.

3.)    Paying only the minimum amount due on the balance. Some credit card companies allow you to pay only 5% of your amount due and people take advantage of this much to the delight of these companies. It’s okay if you really don’t have the cash at the moment but don’t do it every so often. You’ll dig a hole so dip even the devil will have a hard time climbing out.

4.) Not getting life insurance early. In one of my previous posts, I mentioned that the best time to buy life insurance is when you don’t need it. I repeat: when you don’t need it. When you’re young and healthy (hopefully) your premiums are low, your accumulation rate is longer and you can fully-paid up the insurance earlier.

5.)    Not investing early for retirement. One of the 7 habits Covey taught is to “Begin with the End in Mind”. Once you start working, prepare for your retirement. You can never plan too early for this stage. Aim to belong to the 3% Filipinos who are either financially independent or wealthy at age 65. The rest of the 97% are dead, still working or dependent on charity. Choose your side and choose it wisely.

6.)    Not investing aggressively while still young. Some of the baby boomers I have talked to regretted that not only did they not start investing early, they did not invest aggressively. Now, even if they do want to, they cannot afford to invest as aggressively as they would want to. Follow their advice, start young and start aggressive.

7.) Not planning for major financial obligations. Giving birth is not an emergency. It is something being prepared for. Nine months is a good duration to set up enough funds for it. Same goes with education and wedding. Prepare well financially. It can let you enjoy the fruits more.

8.)    Not doing proper research before investing. Some people happen to be scammed more than others. No it is not bad luck as they always thin. Rather, it is the gullibility that resulted from lack of proper research before getting into the investment or joining the company.

9.) Not preparing for rainy days a.k.a. not saving. At some points in our working career, emergencies and unexpected financial circumstances will happen: getting laid off, getting sick and hospitalized, etc.  Although not often, but they are bound to happen. Not having a contingency fund is planning a project without a plan B. You need to have an emergency fund to prepare you for these “disasters”. Otherwise, you’ll be left with no choice but to borrow and be in debt. A good rule of thumb is having three to six months worth of cash easily accessible.

10.) Not giving back to the Lord. This may well be the biggest financial mistake. The Lord, in all His graciousness, provided for all our needs and at times, even some wants. Isn’t it just right we give a part back to him through our tithes and offerings? Seriously, the Lord doesn’t need our money but it is our own way of submitting and thanking Him for all the blessings we are receiving bountifully. The Lord did promise that when we offer Him the first fruits of our labor, he will provide us with blessings so full, we won’t even have enough containers to store them.

Bonus

11.) Not having hospitalization or medical insurance. The paradox of medical insurance is that you need to get sick and hospitalize for you to find this investment worthwhile. But it is better that you have one and not use it at all rather than having none and need to have one. It will greatly mitigate a lot of your expenses which can be allocated for other purposes.

Ask anyone what trait defines Chinese the most and you’ll likely get one of these two answers—rich or cheap. To a certain extent, the answers are accurate. After all, despite accounting for only 2% of the total Philippine population, seven out of the ten richest Filipinos are of Chinese descent. Although most Chinese will not plead guilty, it has what defined this race based on the society’s perception. It has what defined me.

Society has identified Chinese as being cheap for the longest time. Having personally been ridiculed as one, I’d like to believe that the Chinese are above this stigma. We are frugal and if that’s a euphemism for the adjective then so be it. We look at the value of a commodity rather than its price. It is simply a trait we have been accustomed to.

Recently, I traveled with a group of Chinese Filipinos and in one of our shopping activities, several of them bought Rolex watches. They reasoned that the price was much cheaper compared to the ones being sold here. They certainly had the money but the same group is contented in flying economy class and seating in cramped seats hardly getting any sleep on the red eye flight home. They find value in the first and none in the second.

Perhaps this has its roots from our forefathers who came to the Philippines several decades back. Being in a foreign land, they just had to fend for themselves and saved whatever they can here to send back home, similar to our present-day OFWs. Thus, they had hardly any room for frivolous spending.

The Chinese persistent adherence to the idea of “saving” became the corner stone for their financial success. Long before financial planning was coined, the Chinese were already practicing it albeit informally. Present money management advises us to save 10-20% of our income. The Chinese would have none of it; saving at the very least 50% and living on the rest. In fact, my mom prodigiously saves 70% of her income—a practice she did for the past thirty years. She led by example, we, her children, learned by example.

And it is a not a wonder that the Chinese do not flash their wealth through material things. A lot are contented in driving boring vehicles and living in ordinary homes both which do not justify and reflect how much they are really worth. For them, their comforts and security lies in the fact that they have fat bank accounts.

A monk residing here once told me that the Chinese fear the uncertainty of the future and that is why they prepare very well for it. They know how to look at the bigger picture and anticipate problems long before they occur. It may well be a Confucian value we inherited as the great sage said, “In times of peace, prepare for war.” To put things in perspective, “in times of abundance, prepare for scarcity.”

While the Chinese may be experts in saving, they very well know that this alone won’t make them financially successful. They need to make it grow. This necessity has fired up the entrepreneurial spirits of the Chinese building businesses one after the other. Although majority of the business owners run dull businesses: auto-supply, hardware, printing, textile and garments, trading among others, these have proven to be great investments. Nothing really glamorous in them yet, these businesses are generally responsible for the wealth the Chinese now enjoy.

Yet those who may not be as entrepreneurial have not allowed themselves to be left behind. They looked for other viable investments to make their money grow. And this includes being highly meticulous about interest rates for their deposits, literally shopping from one bank to another. While interest rates may vary little, as small as 0.5%; this difference multiplied by the millions and millions each Chinese possesses becomes a significant number.

Aside from these, the Chinese pride themselves for being debt-free. They avoid it like plaque. Rarely will the Chinese borrow money from friends or even relatives. It is a shame to do so and to be in one. If the inevitable happen that they do need to borrow money, they’d pay the whole thing off as soon as possible. Failure to do so is even more shameful. They wouldn’t dare tarnish their good name.

From the time our ancestors first settled here up until this very moment, our money management philosophies remained unchanged. Even the consumption-mentality of the West did little to influence the quality that has defined us. Our identity held its own. We will continue to be perceived this way—“rich” and “cheap”. But behind all those admirations and labels, lies the dedication of the Chinese in pursuing financial success.

“Save a little each day, every day and see small things grow big,” says Bam Aquino, a social entrepreneur in a Sun Life advertisement. Yet, long before those words were popularized in a television commercial, the Japanese were already living that principle, which they called, Kaizen.

Kaizen came from two words, “Kai” which means to change and “Zen” which means for the better. Both words embody the philosophy of making continuous improvements in all aspects of life.

With a GDP of $5 trillion dollars, Japan is the world’s second largest economy next to the United States. Yet Japan didn’t achieve its status as a global economic leader dramatically; it took them 60 long years to recover and rebuild their country from the ravages of the Second World War. And one of the crucial factors that made Japan’s momentous growth possible was the application of Kaizen, a strong desire to be better and to be the best.

The principle of continuous improvement can likewise be applied in financial planning. So diverse is the field that we can always find something to improve on. In asset allocation for instance, portfolios can be regularly rebalanced for us to maximize gains and opportunities and minimize losses and risks. In debt management we can look for institutions that offer lower interests and more flexible terms. And in financial literacy, we can be wiser and smarter about the environment today than yesterday.

One of my greatest frustrations as a financial planner is that most of the people I have talked to do not want to undergo the process of financial planning. They feel it’s boring, old-fashioned and down-right slow. Guess what? They are right. It is boring, old-fashion and down-right slow! That’s why it is effective.

But for the others who heeded the advice, reaped the rewards. One of my clients, Celine Salazar a single mother of two who works in the training and development department of a business process outsourcing company started 2009 with nothing in savings. But I worked with her through a formal financial plan. She diligently saved P2,000.00 pesos every pay day. Within a year, her savings grew to more than P50,000.00 pesos. Considering all her obligations and the environment she is in, it was a great accomplishment.

Salazar will be the first to agree that it wasn’t an overnight success. It did take her quite awhile to accumulate that amount. But she was steadfast in her commitment and even when she was on maternity leave, she still saved that up. Two thousand may not be much, yes. But when added to the other two thousand pesos she saved before, it becomes significant.

Then there’s another client of mine who invests regularly in mutual funds. Not even the financial crisis that struck the world two years ago stopped him from investing. As a result of this practice, he was able to buy shares at lower prices. The result: huge gains when the market rebounded!

The Kaizen principle can also help us in being keener in spotting opportunities to make our money grow…legitimately.

Mr. Randell Tiongson, one of the most respected financial planners in the Philippines noted this paradox, “For a conservative country like the Philippines, a lot of people are getting scammed.”

True. Several years ago, a financial organization was offering lucrative returns for its investors. Enticed by the potential of growing money exponentially, a lot were lured into it. Despite tell-tale signs of it being a pyramiding scheme, nobody bothered questioning its legitimacy. As long as the investors were paid, everyone was happy.

A crackdown ensued and it was proven that the institution was indeed a scam. When the dust settled, the investors were bewildered. The masterminds were nowhere to be found taking with them millions and millions of pesos along with the dreams of the investors.

Several years after, another organization offered the same thing. Although it was a Ponzi scheme instead, the result was the same: investors lost money.

Financial planning never advocated get-rich quick schemes but rather a consistent saving and investing approach to achieve financial independence.

Kaizen is all about improvements, no matter how small, are still improvements. Vincent Van Gogh once said, “Great things are not done by impulse but by a series of small things brought together.”

The philosophy is applicable to money management as it is to any facet. Even if one is contented with his or her financial status, there is always a way to improve it further, to make it better; to look for a higher yielding investment, to spend a little less, to save a little more and to dream a bigger dream.

Nowadays, Celine (not her real name), a relationship manager for a private bank in the Philippines, is all smiles when talking to her clients. Her smile reflects their sentiments, who just a year ago, were also hit by the prevailing market conditions. After all, no amount of wealth can shield her high net worth clients from the financial crisis. And seeing the value of their investments, reaching tens of millions, dropped substantially is extremely disheartening.

“Being a private banker is not just about meeting my target but it is also about helping my clients maximize their gains,” Celine adds. But what gains could have there been last year when even good news seem to come short?

Heading into the last quarter of 2008, the scenario couldn’t have been gloomier. The sub-prime crisis that erupted the year before ended with the Lehman Brothers filing for Chapter 11 and AIG being bailed out by the United States government. Albeit frightening, it is not surprising to see the Dow Jones Industrial Average fell more than 500 points on certain nights. Investors have even surrendered to the fate of an ominous depression. The global financial markets were on the brink of a meltdown prompting people to believe that 2009 would not be any better if not worse. Economist would go on to predict an L-shaped economy, meaning no recovery in sight.

Come 2009, it would seem that the forecast would hold true when Chrysler and General Motors, two of the BIG three U.S. automobile companies filed for bankruptcy. Several months into the year, things were just turning from bad to worse.

But just when the proverbial light at the end of the tunnel is nowhere to be seen, the monetary and fiscal policies of different central banks such as rate cuts, capital infusions and guaranteeing bank deposits started taking effect en route to an economic recovery.

According to a report from the Hang Seng Investment Services -  “In the recent G20 Summit, leaders agreed to further enhance cooperation in boosting global economy and would not step out of any stimulus plans before a sustainable recovery is warranted.” Clearly, all the stimulus packages that were implemented last year, had a positive note on the global economy and everything that was broken is currently being fixed.

Leading the pack of the recovery is China. The report adds, “China plays a critical role in reshaping the global economic outlook with its strong and efficient stimulus measures launched this year. The 4 trillion package as well as the 8.2 trillion new bank loans have successfully restored market confidence on China’s economic development.”

China’s GDP jumped to 8.9% in the third quarter validating the monetary policies that the Chinese government has been implementing since last year and is well on track to reach the full year target of 8.0%

During the past couple of months, the Shanghai Composite index rallied 104%to a high of 3,462 from 1,700 established in November of last year before correcting 20% to just slightly above 3000. Despite investors saying it was just a bear market rally, analyst believed that the correction was healthy and much needed.

Not to be outdone, the S&P 500 staged its own rally by surging 14% year-to-date and 41% for the past six months after hitting the trough. This phenomenon is brought about by the better-than-expected earnings performance for the second quarter of 2009 reflecting improved macroeconomic indicators.

Naturally, the rest of the world followed suit with Japan, the largest economy next to the United States rallied 14% year-to-date. The rest of the regional markets were not left behind:  Hang Seng Index (+43%), Taiwan Stock Exchange (+61%), Straight Times Index (+45%) and Australian Stock Exchange (+27%).

Not to be outdone, our own Philippine Composite Index also boasted its own rally hitting an 18-month high just after the second quarter. This happened after the cash peaked last March, a sign that the market is ready to make a turnaround.

True enough, the rally brought the index to the 2,900-level and seemed poised to breached the psychological resistance of 3,000. This level marked an impressive 56% year-to-date performance and a 29% year-on-year return. Trough to peak marked an unprecedented 74% gain. Daily volume and value turnover also increased by 98% and 133% to 2.2 million shares and Php4.5 billion respectively, according to the BSP’s second quarter report.

True to the forecast of the analysts, the Philippines did not enter a recession (technically as recession is defined as two quarters of negative growth) allaying all fears and even posted a growth of 1.5% for the second quarter of 2009. Inflation also slowed this year to just 0.7% in September compared to the 11% a year ago. Gross International Reserves (GIR) has once again established a record high of $41 billion dollars.

With the indicators ending on positive notes, it seems that the Philippines has indeed proven resilient to the financial crisis.

Onwards and Upwards to 2010?

Now begs the question: Can these rallies be sustainable until 2010? Somewhere along, investors believe that markets will and should correct. That is healthy. But after witnessing what transpired last 2008, with corrections turning into crashes, investors are not sure if they do want to see one. At least not before the index reach its highs again and they recoup all their losses.

While the consensus among analysts and fund managers is that this crisis is not yet over, is there any reason then to be hopeful and be bullish at all? Alijeffty Gonzales, a Registered Financial Planner and business development consultant for Insular Life Assurance Company thinks so. “Let’s go back to some fundamentals. Interest rates are still historically very low. When you talk about the correlation of fixed-income and equities, a low interest environment is always good for the equities.”

Currently, the interest rate stands at 4.0% as opposed to the 0.25% Fed Fund rate and with inflation still below one percent, it is unlikely that the Central Bank will hike the rate in the near future. “There is bias towards equities because interest rates will not go up anytime soon,” he confirms. Fund managers report that it will only be in the first or second quarter of 2010 that the Central Bank will start hiking interest rate by only 25bps.

The local stock market is once again under the radar of foreign fund managers. Foreign buying is up Php 15.7 billion the end of June. Although the equities are not considered “cheap” anymore, it still presents a good valuation with 14-15x price-to-earnings ratio.

With 2010 being an election year, Gonzales feels that the growth will be broad base but singles out consumer stocks next year that can benefit a lot from the event. This is because of the added liquidity in the market that happens during election year. “Fast turnaround consumer goods will benefit from the liquidity,” he further adds.

But for those who are still afraid of volatility or not familiar with investing in the stock market, corporate bonds present a great alternative for bank deposits. The demand for these fixed-income instruments is very evident from the oversubscriptions of the past offerings. Currently the Php3.2 trillion pesos earn only a mere 2-3% per annum, a far cry from the 7-9% these bonds offer.

With much expansion going on because of the low cost of doing business, expect more offerings next year and expect them to be oversubscribed as well.

Other assets as alternatives

Real estate should be another viable investment come 2010. According to Richard Laneda, a research analyst, residential properties will see a better turnaround next year. “The drop in sales in properties is just a result of drop in confidence; people did not actually lose so much money. So as the world economy seeks stabilization, confidence will gradually return.”

With the Real Estate Investment Trust (REIT) law expected to be pass this year, the property sector should indeed excite the real estate and even the stock market investors. A Real Estate Investment Trust is a corporation comprising of only income generating assets, like malls and office buildings. REITs have to payout at least 90% of distributable income.

“Investors buying a REIT should look at the yield which is the amount of income you get for every peso you pay,” explains Laneda. “REIT is basically income generating asset, you buy it for the yield and not for growth. It is good as it may be an alternative investment for bonds,” he further adds.

Another asset class to watch keenly is the commodities. “The bias towards commodities has something to do with the inflationary fear brought about by low interest rate,” explains Gonzales.

Commodities have long been traditionally seen as a hedge against inflation. By hedging, it lessens or mitigates the loss of purchasing power brought about by inflation because commodity prices also rise along with inflation thereby increasing in value when other asset classes are depreciating.

The most popular of it is gold. Gold has headlined once again into the financial environment when it breached the $1,000.00 dollar per ounce. Although debates have not been scarce on whether the value is the ceiling or a new floor, fundamentals will show that allocating a portion to gold may not be such a bad investment decision.

When interest rates are high, gold prices go down. But when interest rates are low, gold prices go up just like now. Dollar deposits are earning negative return after subtracting inflation. And with the Federal Reserve likely maintaining interest rates at their current level, gold may find itself breaching resistance after resistance.

To put things in better perspective, in 1970s, the gold is valued at $35 dollars an ounce. Both cash and gold can buy the same amount of goods and services. But because of inflation from then until now, the $35 dollars certainly is not what it used to be. Gold price on the other hand, has increased by 2,700%!

Bullish on emerging markets

With global economy recovering from one of the world’s worst financial crises in history, investing opportunities are not limited to just the Philippines.

“As most major economies are still in the recessionary stage, it would be good to focus some of our attention on prospects in emerging countries such as Hong Kong, China, India, Brazil, Russia and Eastern Europe”, explains Jacque Dinglasan-Atilano, marketing director for Global Investor’s Center, Philippines.

The Bombay Sensex, Brazil Bovespa Stock Index and Russian RTS Index have so far gained 74%, 64%, 127% respectively.

Amongst these markets, Atilano emphasized on China because of its fast growing economy and Brazil due to the rising commodity prices given that its economy is heavily linked with commodities like coffee, soybeans and iron ore. On the other hand, regions like Russia and Eastern Europe are receiving positive growth due to the increasing prices of oil which stands at $79 dollars per barrel as of October 2009

While individual can do the investing on their own through international brokers, it may be wise to invest in managed funds instead. It will make investing easier since you are leaving the job of managing your money to the experts. Through managed funds, investors can participate in the growth of the emerging markets. A 10-15% of the investible fund spread in regular intervals is the most ideal strategy to utilize in exposure to international markets.

The not-so-rosy side of the coin

While 2010 presents lucrative investment opportunities, there is still a caveat to all of these. Just like any other year, there are also risks to consider.

First and foremost is the tightening of monetary policies. The third largest economy may already be signifying such intention after it rallied the global economy out of recession. Too much liquidity and easy credit can create an asset bubble which can result to a hard landing.

Although still premature, analysts are already forecasting a rate hike by China in the first quarter of 2010 and increasing reserve requirements to sap excess liquidity off the market.

Other central banks are also hinting at implementing such strategies next year. What the world wants to avoid now is a “double-dip” with the global economy dipping lower in 2010 or 2011.

The 2010 bull-run may be also be dampen by political risks. Former President Joseph Estrada has already announced his presidential candidacy with Makati Mayor Jejomar Binay as his running-mate. Although the Supreme Court hasn’t ruled anything in favor or against Estrada, expect the controversies to be hotter as election comes nearer.

Poll automation presents a quick and effective method but its reliability will be fully tested next year. As early as now, some lawmakers are already hinting of a possible transition government in case there is a failure of election due to system glitches and malfunctions.

The recent deluge of typhoons that has wrecked havoc in Metro Manila and Northern Luzon is also a risk worth considering. Analysts have already downgraded the country’s fourth quarter GDP to 1.2% and a full year target of 1.4% from a high of 1.9%.

The cumulative damages of the big three: Ondoy, Pepeng and Ramil can go as high as 38 billion pesos in infrastructures and farmlands.

With tax breaks being given for those affected by floods and the government spending left and right to assist in the rehabilitation of the typhoon, the country’s fiscal deficit can only go lower. Currently at 237.5 billion pesos, the figure is significantly higher than the 53.4 billion pesos deficit incurred in the same period last year. Analysts are estimating the deficit to reach 300 billion pesos by the end of the year.

Prudent planning is still the key

Despite more situations favoring a continuing rally, investment planning still calls for prudence in the wake of all the opportunities and risks. So how should the investors play 2010?

1.) Establishing your goals

Time and again, investors neglect the most important step in investing and that is what gets most burned. Not establishing a goal prior to investing is akin to driving without any destination in mind. Two things can happen in situation like this: Get lost and waste a lot of resources. And both are luxuries you can’t afford.

2.) Analyzing risk appetite

With several asset classes that are lucrative for investors, it doesn’t mean that everything is well suited for you. Investors who are still afraid of volatility should shun away from equities and commodities and may well be better off sticking to government securities, corporate bonds and its alternative-real estate investment trust.

3.) Keeping enough funds for emergency purposes

As a rule of thumb, one should keep cash worth three to six months of living expenses placed in a very liquid financial instrument as an emergency fund. This fund sole purpose is to address emergency concerns that are unplanned and unexpected. It must readily be accessible without the need to dip into the other invested funds. The last thing you’d want is cutting your losses to pay for your car repairs after it got flooded.

4.) Speculating only a small portion of the investible funds

Investors often interchange investing and speculating. When you are speculating, you are in essence gambling – this is not investing. Speculating only a small portion of the portfolio is acceptable. After all, it is difficult to resist a hunch or a tip when it is dropped onto your lap especially if it promises immense profit for the investor.

5.) Doing thorough research

Prudence calls for thorough research before investing in any particular asset. Whether it is equities, corporate bonds or even real estate properties, due diligence is imminent in determining whether it is profitable and if it is worth the risk involve.

The investment scenario has made a drastic turnaround from last year. The opportunities just outlined above clearly gives investors an upbeat and exciting outlook heading into 2010.  But this doesn’t mean you should jump into the water without careful thought. Prudent investment management is still recommended not only next year, but in any given year.

I’ve always been a segurista.

I am never without an umbrella. The thought of traipsing all over the city in a pantsuit, oops, wet pantsuit, was never appealing to me. That or have a driver at my beck and call —-

then again, an umbrella is much more doable.

I am never without stocks of candles, instant food, batteries and flashlights. The rainy season in this country almost always translate to floods and brownouts.

I can probably go on with no TV but not without light. Or sustenance.

My OCD (Obsessive Compulsive Disorder) starts to kick in every time June starts. Rains and floods can be inconvenient, but their effects are a real pain. It is in these times that I begin inspecting my house’s ceilings for possible leaks as well as electric connections in danger of being damaged by rains.

What is my point, you ask? In a chitchat with friends over dinner last Friday, I realized that no matter how much effort you put into preparing, there are things you just can’t prepare for overnight. It was enough to throw me in into a fit of panic.

You see, my friend Anya recently got married. As they have slowly been easing into the cozy comfort of married life, my friend got pregnant and is now nearly the mother of a baby boy. She started talking about the expected expenses of having a kid. So I nonchalantly asked where she intended to send the baby to school. Since the dad was an Atenean, she said, the kid would have to go there, too.

Me: Would you need to sell everything by then when Siopito [my nickname for her little boy] goes to school

Anya chucked me a brochure with a charming kid’s face on it.

Anya: No, silly. We have a plan.

Me: How do you plan for something like that? Do you now how much tuition fees increase every year?!

Anya: Well, I came across Sun MaxiLink Bright, a real life-saver. First, It provides life insurance protection so at least my baby is secure no matter what happens to me,. then, it enhances my money’s growth potential so by the time Siopito has to go to school, I would have accumulated funds to cover his education

Me: [Here is the part where I sink in to a state of panic.] Gosh! I only have a number of years before I myself settle down and have a kid of my own to send to school! Is it too late for me?

Anya: When you finally have a kid of your own, you too can save for his college education through Sun MaxiLink Bright. It’s payable for as short as at least five years…so, no, it’s really not too late for you.

Me: [sighs] But it’s never too early to start either, right? Since I’m bent on having my own baby anyway, I might as well get a Sun MaxiLink Bright myself! And right away, too!

Now I know what the word segurista really means. Ultimately, it’s really about preparing for rainy days (literally and figuratively).

Several financial vehicles are actually available to the discerning investor. The wide spectrum of savings and investment instruments reflects their risk and return relationship. On one end, we have the low risk or guaranteed return instruments offering small returns on our investments. Sometimes so small, it barely copes with inflation. On the opposite extreme, we have high risk instruments like stock market equities that are quite risky but that can potentially give high returns.

Between these two polar extremes can be found a variety of mutual funds.

What are Mutual Funds?
Mutual Funds are professionally managed instruments that pool investors’ resources together in order to buy into instruments at lower costs. As such, they give more affordable access to otherwise expensive instruments. They are diversified as they combine low risk-low return and high risk-high return instruments to suit different investor needs. Furthermore, they are liquid and may be increased or withdrawn at any time in order to allow more flexibility in investing.

Beat Inflation with Mutual Funds
If you don’t have the time to jump into the high risk-high return stock market, or the resources to invest in government securities, you can start off by exploring mutual fund options such as the Sun Life Prosperity Balanced Fund or the Bond Fund. While the Bond Fund is designed to preserve capital and generate regular income, the Balanced Fund combines the stability of the low risk instruments with some equities to provide a boost on capital appreciation.

Assuming an investment of P1 Million, the table below (Fig. 1) shows how typical deposit accounts and these two Sun Life Prosperity Funds fare against inflation over the last 5 years.

There are mutual funds that cater to varying risk-and-return preferences and investment objectives. Feel free to choose from any of them. In doing so, always remember to consider inflation and the instruments’ ability to beat it.

If you want more information on these investment options, speak to a mutual fund representative.Sun Life Mutual Fund representatives can be reached at 849-9888 / 1-800-10-sunlife or visit www.sunlife.com.ph.

Retirement. The word springs to mind a thousand ugly words — wrinkles, weak bones, senior citizenship, bottles and bottles of health supplements and huge amounts of time pining for what has been.

It’s a mean feat in this country to retire. The common practice being — parents work day and night to send kids to school, kids graduate from school, are sent off to the real world and the parents have no choice but to retire ungraciously – with all their money spent on their kids futures, forgetting they too, have a future to think of.

I’ve seen how parents transform into dependents as soon as they quit work. They become slaves of their children, taking care of apos, and seemingly minding every nook and cranny of everyone’s lives. I’ve seen siblings fight with each other, pointing fingers on who should accompany mom/dad for their regular check ups, who will cover this month’s medicines. When they get confined, who’s to take a day off work to stay at the hospital or to drive for them?

It may be blamed on culture and old practices. But life moves so fast, there will always come a time when one is trapped with decisions that lead to pitiful consequences. If there was anything that the parents of our generation seemed to have forgotten, it was to think of themselves, too.

Take for example my friend, Pam. It’s only been three years since she started working and her parents have been ragging on her to provide for their household since it’s her turn to earn the big bucks. “Anak, siguro naman pwede mong suklian ang pagpapa-aral namin sa’yo, ” says her mom who recently retired , decided on being the one to take care of Pam’s yet-to-be-born daughter.

During a brunch date with my friends, Pam recounted how her mom would come to their house [she lived next door], and nag her to pay their bills. To this, Sophie, another friend, grunted in exasperation. Apparently, her mom ventured as well into retirement, confident that since her daughter was working in a multinational oil company, she could retire with probably an image of herself lying on a bed of money.

Thankfully, we can choose not to perpetuate it any longer. It’s not too late for me and you and every Juan dela Cruz who’s willing to brave the path of financial preparation.

The average Filipina/Filipino might think: How am I supposed to plan my retirement fund when I haven’t even gotten to prepare for the most basic necessities of life? I need a house, my kids’ educational fund…not to mention, the dogs’ grooming, a new car, newer laptops, a pro camera and the list goes on… Retirement is the last thing on my mind. And sadly with this being last, one will tend to forget about it totally. The next time one looks, he is retired and…poor.

Because I choose not to be poor when I retire [I can take old, but I don’t want to be old and poor], I evaluated my options  to plan for the perfect retirement.

1. Save away. I will start another bank account and dub it the “Retiring Gracefully Fund” and won’t touch it for however long I remain un-retired.

Or

2. I can avail of the Sun MaxiLink Prime product I stumbled upon my RSS feed this morning. Sun MaxiLink Prime is a VUL Product  that provides me with life insurance protection of 200% of the Face Amount plus the fund value of my policy. Even better, it gives me the choice to invest a portion of my premiums in 5 potentially high-yielding funds to grow my wealth and fund future needs such as retirement. Essentially, my policy’s fund value can be my retirement fund. Hello, retirement!

Not bad, at all. If anything else, the second option makes me excited to retire. Can you imagine all the ballroom dancing I can do with my time and money? I can go to the beach, read a book, travel about or sleep all day…I can do anything I want, except be a burden to anybody else!