A Young Professional’s Investment Must Haves
Here in the Philippines, most individuals are not well-versed with the different investment instruments that financial institutions offer to the public. In fact, the majority of the young working population does not allocate any portion of their take home pay as their savings. The excitement of immersing into the “real world” and having a hefty paycheck every month seems to get in the way of planning for one’s financial future. There’s this notion among young professionals to live in the now, choosing instant gratification over financial security.
But as many personal finance gurus would advise, it is better to start saving and planning for one’s future as early as NOW. You may not have any dependents right now, any family to feed nor children to send to a goodschool, but eventually, your plans in life will change and it is likely that most will choose to start their own families. So as early as NOW, why not look into the different investment instruments available in the Philippines to help you get a head start towards not just financial stability but eventually, financial freedom.
Before we discuss some of the most common investment vehicles in the nation, we would like to stress first the importance of having an emergency fund and getting health insurance. These two are the building blocks that will serve as your foundation as you build a good investment portfolio.
How many times have we heard stories of people who passed over into investments without first securing an emergency fund, only to find themselves being forced to remove a sizeable amount of their investments to pay for their immediate needs? But assuming you have already stored enough money to keep you afloat in the next six months, and that you have already acquired a life insurance and a good health plan, here are some of the investment instruments that you should consider getting right now:
Paper Assets / Investments
This includes bonds, UITFs or mutual funds, or direct stock investments. These are called paper assets because most of the time, proof of ownership of these investments are written on a piece of paper, the value of which can increase or decrease with time.
Bonds are issued by both the government and private corporations, usually to generate cash that will be used to fund expansion projects and other similar ventures. As payment for using your money, these entities pay interest, usually twice a year. And the capital amount you lent them are returned to you after an agreed period of time, which can range from 3 months, 1 year and up to 25 years. But since the government and private corporations are relatively stable and the chances of them going bankrupt are slim to none, interest rates are usually low, sometimes not enough to beat inflation.
UITFs and mutual funds are simply pooling money invested by fund managers in various investment vehicles such as bonds and stocks. If you do not have the time to regularly monitor your investments, then this is the perfect option for you. As a small price for managing your investments, UITF and mutual fund companies charge a small management fee, which isdeducted from the actual money you invested.
On the other hand, investing directly in the stock market without having to go through fund managers is one of the best investment vehicles you can park your money into. Historically and in the long run, buying shares of solid and stable companies listed under the Philippine Stock Exchange can give you an annual capital growth of 10 to 15%. However, this is more time-consuming since it requires you to monitor your investments from time to time.
Let’s have an example to better illustrate the advantages of starting early. For instance, at age 23 you start setting aside P2,000 from your monthly salary and decide to invest it in the stock market. This is equivalent to P24,000 a year. If you religiously allocated P2,000 per month for the next 10 years, then you would have saved a total of P240,000 by the time you turn 33. At a yearly growth rate of 10%, your P240,000 would have grown to P420,000! And you earned that passively just by continuously putting aside P2,000 from your monthly paycheck. What more if you increased the amount you saved proportional to the increase in your salary?
Another investment instrument and by far the most common here in the Philippines is real estate. It is a traditional form of investment since most of the time, the value of land or any property increases over time. The downside here is that most real estate investments require a huge initial cash outflow in the form of down payment. This is one reason why most young professionals prefer paper assets over real estate. But the good news is, new, property developments such as condominiums give the young population an opportunity to get their feet wet in the world of real estate investments without necessarily requiring a huge chunk of their paycheck. Another good strategy is to invest in multi-door apartments in good locations where you are assured of getting passive income in the form of rental payments.
Whatever investment vehicle you prefer, just always note that they come with risks and to minimize these, proper knowledge and research must be done first before jumping to the water. The important thing to remember is to be able to start as early as possible because really, TIME is the most valuable component in any form of investment.