The Best Investments for Your Goals

August 13, 2015


Marvin Fausto
Real estate, mutual funds, and stocks – these are only three of numerous investments Filipinos can take advantage of. Most prefer to invest in real estate – 7 out of 10 Filipinos own their homes – while others prefer mutual funds and similar instruments. With a selection to choose from, you’re left wondering, “Where should I invest in? What should my investment portfolio look like?”
Marvin Fausto, founding President of the Fund Managers Association of the Philippines (FMAP), says in an interview with Moneymax.ph, “Invest with a purpose.
“There is no one size fits all when it comes to investments. The right investment for you depends on your goals,” he says. Whether you’re saving for retirement or your child’s education, Moneymax.ph enumerates the best investments for your goals:

Short-Term Goals (3 years or less)

Short-term goals include saving for that new sala set or your upcoming wedding. If you need the money in three years or less, it’s best to invest in safer and liquid investments. “Liquid assets” are those that are easy to buy and sell, such as a savings account where you can withdraw your money any time. On the contrary, a house is an illiquid investment because it can take months or even years to sell it.
Best Investments:
Marvin Fausto suggests investing in money-market funds and time deposits for your short-term goals. These instruments make your money grow through set interest rates and maturity dates.
Do not go into riskier investments, such as the stock market, if you need your money in less than three years. This will not give you enough time to recuperate your losses if you enter the market at its peak and then it crashes. You may end up losing your hard-earned money.
Here is a list of the top performing money-market funds and time deposits with the best rates:

UITF Money-Market Funds
(Aug 01 2013-2015)

ROI*

Time Deposit

Interest Rate

UCPB Cash Management Fund

4.53%

PSBank 1-Yr Fixed-Term Deposit

1.50%

RCBC Savings Bank Peso Money Market UITF

4.31%

Metrobank 1-Yr Time Deposit

1.38%

Sterling Money Market Fund

3.12%

Landbank 1-Yr Time Deposit

1.25%

*All data for UITF returns are from here.

Medium-Term Goals (4-9 years)

Are you planning to buy a car? Saving for your child’s education? Or saving up a down payment for a house? These fall under your medium-term goals. Four to nine years is too long a period for time deposits with an interest rate lower than 2%. With a longer time horizon, you can go into riskier investments where you can earn more in your set amount of time.
Best Investments:
For your medium-term goals, it’s best to put your money in a mix of risky and safe investments. Balanced funds and equity-based UITFs are ideal if you need the money in four to nine years. Balanced funds are composed of both conservative and high-risk holdings, while equity-based funds are made up of 100% stocks which are high-risk.
However, despite the higher risk involved in these funds, the risk is lessened since they are handled by fund managers, experts in the field. It’s the fund manager’s job to pick the holdings of the balanced and equity funds, and they aim to maximize returns while minimizing risks. If you need the money in four to nine years’ time, balanced and equity based UITFs are ideal for you. Here are the top performing balanced funds and equity funds over a five year period:

 Balanced Fund
(Aug 01, 2010-Aug 03, 2015)

ROI

Equity Fund
(Aug 01, 2010- Aug 03, 2015)

ROI

UCPB Balanced Fund

85.27%

UCPB Equity Fund

134.67%

Metro Balanced Fund

70.41%

AB Capital Equity Fund

119.55%

BPI Balanced Fund

68.32%

 AUB Equity Investment Trust Fund

84.43%

*All data for UITF returns are from here.

Long-Term Goals (10 years and more)

Retirement and funding your child’s college tuition are some long-term goals to save up for. Even if these goals are still decades down the road, it’s best to start early. Time is your most valuable asset, and Marvin Fausto, along with his wife Rose, instills this in their three sons, who started saving and investing in grade school.
When you start investing actually matters more than how much you invest. Look at the table below and see how a 25-year old’s investments outperform a 35-year old’s even if the latter puts in more money:

Current Age

Years until Age 65

Annual Investment (Php)

Years of Investing

Interest Rate

Investment at Age 65

25

40

60,000

30
(at age 55)

8%

14,676,197.30

35

30

120,000

30
(at age 65)

8%

13,593,985.35

25

40

60,000

40
(at age 65)

8%

15,543,391.12

As the table above shows, a 25-year old who only puts in Php 60,000 a year until the age of 55 earns more come retirement age than the 35-year old who puts in Php 120,000. This is the power of compound interest and the importance of starting early. Don’t wait until you have a larger paycheck or more disposable income before you start investing. Start as soon as you can to make your long-term goals a reality.
Best Investments:
With more than 10 years to make your money work for you, you can take on riskier investments for your long-term goals. Some of these include investing in the stock market and buying real estate.
The stock market allows you to reap a larger return on investment than short- and medium-term instruments such as bonds and UITFs. You can earn 50% annual returns in the stock market, but you can lose just as much if you don’t know what you’re doing. Investing in the stock market is ideal for your long-term goals because an investing horizon of more than 10 years greatly minimizes your risks from market crashes, which can take years to recover from.
On Oct 01, 2007, the benchmark of the Philippine Stock Exchange Index (PSEi) was 3,597.92. At the time of the 2008 stock market crash, the PSEi benchmark was valued at 2,612.89 (Oct 02, 2008), a loss of -27%. A long time horizon allows you more time recover when similar events happen.
Real estate is also another investment for your long-term goals – but approach this with caution. Unless you are rolling in cash, you’ll end up taking out a housing loan which can last well above 10 years. In addition, the real estate market follows an up-and-down cycle. The uptrend is when people are buying properties left and right, and a downtrend is when people sell, driving prices down. If you buy during the peak of an uptrend, and sell during a downtrend, you can either break even or lose money.
Just like investing in the stock market for the long-term, buy-and-hold property investing allows you to minimize your risks. Aside from a buy-and-hold strategy, you can put your investment to work by renting your property out. Stay tuned in the coming weeks for an article focused on real estate investing.

investments for your goals

Your portfolio can be a mix of time deposits, stocks, and real estate depending on your goals.

Can I have more than one investment at a time?

“Your goals will help determine your investments,” says Marvin Fausto. Your portfolio can be a mix of time deposits, stocks, and real estate depending on your goals. The key is to use (or not use) the money depending on your goals. Don’t use your earnings from the stock market only after a year. Leave it for a decade and let it grow. Stocks are for your long-term goals. At the same time, once the time deposit matures after a year, you can take it out and use it to fund your short-term goals or put it in other investment vehicles.
Minimize your risk by diversifying your investments, but at the same time, make sure that you have your finances are in order. Even if one of your goals is to own a home, but you’re only starting your first job right out of college, it’s best to hold off on buying property. You won’t be able to afford the monthly amortization. What you can do is invest in other instruments with a low starting capital, and put your earnings from those into your future down payment for a home.
“There is no ‘one size fits all’ when it comes to your asset allocation. What’s important is that you invest with a purpose,” as Marvin Fausto reiterates. “Set your goals. Align your investments and strategy to your goals, and stick to your strategy.”
If you want to know more on money-market funds and UITFs and the stock market, you can check out the linked articles.

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