Principles the crisis hasn’t changed

By Dr. Johnny Noet Ravalo
INQUIRER.net

The headlines are blaring, sound clips are plenty and online coverage seems never ending. Amidst all the financial difficulties, someone asked me what new lessons should be learned. I did not have to pause very long. I still think that the main lessons are no different from those that we have tried to share in this column on various occasions even though this crisis is unprecedented in many respects. For me, six lessons particularly stand out.

1. We simply do not have the ability to perfectly foresee the future. Lehman was after all an AA-rated credit so who would have imagined what would become of such a venerable Wall Street name. This human limitation is the best reason why we should be saving. We should save because it is the only way we can transfer purchasing power from when we have a surplus to when we may suddenly need more of it. In other words, saving during normal times helps us manage the difficult times. When difficult times kick in, our financial plans often shift to prioritizing liquidity over profitability. Unless we have a fool-proof way of either marrying into or inheriting liquidity just at the right time, we simply cannot maximize liquidity when we have no saving to speak of in the first place.

2. Change is the one constant in financial markets. With change, perceptions and fortunes can very well change as well. What may be heralded today may suddenly be frowned upon when market conditions change. Mortgage-Backed Securities (MBS) and Collateral Debt Obligations (CDO) were positioned as financial engineering responses to the needs in the housing market. They provided the means for more individuals to obtain their own home via mortgage while allowing financial institutions to re-package the exposures. Yet as market rates reversed, what were once labelled as “innovations” had evolved into the “sub-prime” saga.

3. Financial value is a relative concept. A trader, for example, would have a different mindset from an investor. This matters because ultimately the portfolio of a trader should be different from the portfolio of an investor. There is always that natural urge for any investor to get a bit more but without realizing it, some of us cross over and mimic a trading position and get consumed in the day-to-day changes in market values. This will be a problem because traders build their portfolios based on different investment objectives and look forward to “re-balancing” the portfolio to generate returns. Most retail investors would not have the “information infrastructure” to monitor the markets ticker-by-ticker and adjust their portfolios accordingly. Instead, it may be more prudent to give up on higher risk instruments for those that can provide a reasonable gain over longer periods, with due consideration to our shifting liquidity needs and the changing fortunes of the credit quality of the instrument issuer.

4. Financial markets provide a value-added service but they do not have to be “equal” to all to get this job done. This is perhaps the hardest lesson of all and it does not mean that financial markets are inherently unfair. What it simply says is that the financial market cannot accommodate everything that each of us want because trade-offs are necessary. For example, we cannot generate the highest return without taking more systemic risks. And no matter how we work on it, a pool worth P5,000 is much less flexible than a pool worth P500,000. This is not being unfair. Rather, it is a testament to our differences; differences that make markets work so that differentiated products are offered for different needs.

5. Market dynamics have a way of containing excesses. Unfortunately, the realignment is never painless because it may mean getting a bump, a bruise or a bleeding cut every now and then. This is not a critique of the financial market but more of a blunt reminder that there needs to be a certain amount of balance in what we do in these markets, both for our individual portfolios and our collective behaviour as stakeholders. It is important that we identify what we want out of our investments, make sure that our investment objectives are consistent with our own capacities and have the discipline to stay within our means. This is often not easy and this is where we really need the objective eye of financial advisers and brokers.

6. Finally, information is supreme in financial markets. It is important that we know what’s going on in the market because it is our saving that is at stake. The difference between an informed investor and a panicky investor is often the absence of quality information. Deal with financial institutions that make a clear effort to communicate with you and take the time to keep the lines open. This is not an excuse to abdicate on making financial decisions. That part still rests with us because it is the action item that comes from gathering the relevant information.

These are the lessons that I always keep in mind. I don’t mean to suggest that it is an exhaustive list and I do not also represent them to be a recipe for financial success. For me at least, it helps in maintaining a perspective and all day-to-day financial choices are anchored on that broad view.

Top tips on how to handle money in 2009

MANILA, Philippines--The year 2008 has been a challenging year. Oil soared high triggering an increase in prices of commodities from rice and sugar to canned goods and bread.

But it also slumped, resulting in rollback of prices at the gas pump and in transportation fares.

Inflation reached double-digit levels but recorded its lowest low as well. It was this year that the world felt the effects of a global financial crisis.

Thousands of workers in many countries have lost their jobs and homes as corporations and financial institutions buckled under the financial crisis.

Filipinos are not exempted. Crisis is in the air and many are taking stock and preparing for what may lie ahead. That includes managing finances better.

Some finance-savvy people share below how they are handling their finances in the midst of a global financial crunch:

Question: What have you done this year to manage your finances better?

Heinz Bulos, editor in chief, Money Sense magazine: My wife and I are Quicken types and it's easy to track where our money goes since we normally use credit cards and checks for transactions. But it's the cash withdrawn from the automated teller machine that's always difficult to account for. It's fine if we can't trace a few hundred pesos but when it's thousands of pesos "missing," something's not right. So we decided to centralize everything using a simple petty cash system--each of us can only replenish our cash every week once expenses are accounted for with proper receipts.

Karen Galarpe, blogger--Open for Business at www.inquirer.net, freelance editor and speaker on financial issues: I took a long hard look at my spending and have cut down wherever I can. For instance, I now patronize a salon that doesn't charge as much as the salon I used to go to, but still gives quality service. I also looked for a new school for my son that charges a more reasonable tuition fee yet still gives quality education. I patronize more Filipino products rather than imported ones which, more often than not, cost more. In short, I have become more conscious about getting more value for my money without resorting to deprivation. I have also continued my habit of writing down my expenses and checking if I'm living within my means.

Judith Go, Citigold wealth management director, Citibank Philippines: Crisis or no crisis, people need to review their finances every so often to look for areas where one can improve. It could be that the year before, you were setting aside 10 percent of your income, and this year, you will target a higher saving rate. Personally, I realigned my investment portfolio and went for a moderate-aggressive strategy. I know that the markets will recover and I want to take advantage of the tremendous upside when that happens.

Alijeffty Gonzales, registered financial planner, www.acgadvisors.net: 2008 will stand out as the year when classic principles of investments like diversification were turned upside down; the commonly accepted principle of bonds being inversely correlated to stocks does not seem to hold anymore as both dropped at the same time.

As this may affect the liquidity of my portfolio (I don't want to be forced to a selling position when prices are low), the first thing I did was to establish a cash position that is twice as large as I normally would require. This came from the cost-cutting of nonessential expenses and identifying new areas for generating income.

Question: What steps are you taking or will take to weather the financial crisis?

Heinz Bulos: I'm all for a little belt-tightening and some sacrifice, but cost-cutting goes only so far (plus it's not a lot of fun). So we're focusing on increasing the income side. It's not enough to diversify our income sources, working with different companies on ongoing projects. We realize it's very important to own the source of income itself, and that means focusing on our own business. We found a profitable market niche that works for us and we have lined up numerous projects in the coming year. We believe there are opportunities even in a financial crisis.

Karen Galarpe: I look for ways to increase my income without wearing myself down. I look for and work on projects that would be worth my while.

In other words, I don't just jump on any opportunity, but study wisely the pros and cons.

I have also continued being diligent in saving, and have taken steps to diversify my investments. I hope to increase my savings rate this 2009.

Judith Go: Where I used to think twice about spending for wants, now I think thrice, even four times, until I convince myself not to go ahead.

This is something I will keep doing even when the crisis is fully contained and we start to see a turnaround. I'm fortunate that this is something my kids have picked up as well--they are quite responsible when it comes to spending their allowance--and I hope that they'll continue to be this way as they grow into adulthood.

The gift of saving

By Dr. Johnny Noet Ravalo
INQUIRER.net

It’s the end of the year and by now all the gifts have been opened. That also means that our billing statements will soon be in the mail as well. No matter. It’s the season of sharing and we are just as happy to go through the shopping and the wrapping to remind family and friends that they matter.

As I look at my nephews, nieces and godchildren comparing their respective “loot for the season”, I realize that I grew up in a very different, much more measured environment. I turn philosophical (it comes with the season . . .) and ask myself: what gift did I receive from my parents that had a lasting impact on me?

The answer is as corny as it is discerning: my parents invested into my future by saving.

My father’s mantra was “simple living” and he found every opportunity to recite it as if it was a pledge (he still does today). I thought it was just an excuse so we did not have to eat out or take family vacations (if we couldn’t reach a place by car, don’t count on seeing it). Dad was a disciplinarian and it was not a wise move to get the ire of an ex-military man either by being short ten centavos or “agreeing” to receive those green candies in lieu of the right amount of change.

But he also took on two teaching loads in a graduate school, carrying out this responsibility at night after his day job and giving up his Saturdays. Yes, he loved both the teaching part and the mind games of the case studies (I found my business subjects in college quite easy in part because I read cases at a young age). But I could not understand why someone who lives in Quezon City and works full-time in Makati will bother to teach in a school along Taft Avenue. It was simply “out of his way” which for dad was a major infraction on “simple living”. Eventually though, I understood the payoff: for as long as he was teaching and taking the administrative load, my grade school (and then my high school) tuition was discounted significantly.

The biggest hurdle to saving though is that it remains an abstract asset until it is actually deployed. I knew about the tuition discount as a young boy but it wasn’t something I could see or hold. Back then, saving felt more like “foregoing present-day opportunities” rather than an investment for the future.

I don’t think I understood, really understood, why my parents were so “measured” until I was accepted to graduate school abroad. Despite the school acceptance, we still had to show the embassy a bank balance. After that, the trip itself and having to start a new life in an alien environment required a sizeable treasure by itself. I was fortunate to have received an academic scholarship which settled my tuition but I became a working student by circumstance. Trying to match a $3.75-an-hour minimum wage with an $800-a-month rent in Brookline meant that I had to focus more on “working” than on the “student” part of the equation. This was no longer someone else’s saving but something I had to generate and then manage on my own.

What is the point of all these?

I am very sure that I am better off today because of the invaluable opportunity of studying in Boston at a top-ranked institution. Professionally, the academic training gave me a different perspective, if not a broader toolkit to work with. At the personal level, one does not forget the challenges of living alone in a foreign environment without the comforts of family and, more importantly, the consequences of not having savings that you can tap when you need them when the need arises.

All these gains were possible only because my parents had the uncanny ability to maintain the discipline of saving. I’m sure they heard my siblings and I whenever we grumbled at yet another facet of “simple living” but I am very thankful that they either didn’t hear very well or simply chose to lend a deaf ear.

I concede that saving is harder today simply because it is harder to manage today’s environment. Income streams are not as permanent and the cost of living depends a lot on volatile external factors.

But perhaps saving is harder because we have lost our way with this virtue. Saving is not preventing expenses to be incurred but striking instead a hard balance between income and expenses. With a few hugs from my family, we are off to our favourite eating place. It’s an added expense but it does not necessarily make us poor savers. It runs counter to my parents “simple living” rules but I think we can still be effective at saving even if we indulge ourselves every now. In fact my father likes to eat out nowadays, I suppose because he doesn’t pay the bill anymore. The point is that his “simple living” rules are actually not absolute but very much relative.

This is the nature of saving. There must be some rules but do not have to be the same for everyone to make it work. To make the discipline work, we have to be comfortable with it. And the ultimate gauge of whether we are effective in our saving is the ability to transfer purchasing power through time when and where it is most needed.

This is the gift of saving that I have been so blessed to have received. I live a different life because someone saved for me when I didn’t have the capacity to do so and instilled in me the discipline for it when I did have such a capacity.

Savings program for ‘kasam-bahays’

By Dr. Johnny Noet Ravalo
INQUIRER.net

Al was already borrowing money on January 6, so early into the year. When he started working at P7,500 a month over a decade ago, he did not save despite having his living expenses fully covered. Today, he makes double that - not counting non-monetary benefits - and he still has no savings.

Grace sends money to her relatives every so often. Although something is better than nothing, the amount she remits really pales in comparison to what she earns. Grace doesn’t spend for her living expenses but she pours much of her income on cellphone loads.

Al and Grace are “kasam-bahays”. We could debate whether their problem is that they cannot save (capacity), do not want to save (willingness) or do not know how to save (awareness). That debate though would be for another time.

For now, what is on my mind is their saving habit: should employers take a pro-active role in developing the saving habits of their kasam-bahays?

If there is something I know quite well, it is that financial planning is not an inborn talent but more of an acquired discipline. Saving is difficult because it constantly tests our resolve and challenges our ability to react to changing market conditions.

The reality is that very few of our kasam-bahays have a saving plan. Many of them manage their day-to-day cash without thinking longer-term. The challenge then is to show them the longer-term benefits of saving without severely constricting their present-day liquidity.

How then do we move forward?

I think it boils down to our our kasam-bahays wanting to save, not just in words but in deed. This is first a mindset issue because there may be a perception that the saving plan is just an ingenious way to avoid paying our our kasam-bahays their due in income. If it gets to this point, then everything else becomes counter-productive and the working relationship is contaminated by mistrust.

Knowing that cash is important to our our kasam-bahays, deducting part of their existing income will not be a good way to start. This saving will just be felt as a loss in day-to-day liquidity without any perceivable gains.

Perhaps employers may consider advancing the saving and treating this as part of their our kasam-bahays benefits. For example, instead of giving a straight increase in pay, the full-year equivalent of the increase can be invested as a time deposit and periodically rolled over within the year. The beneficial owner of the time deposit is still our our kasam-bahays and they get to see their money grow within the year without any direct loss in day-to-day liquidity.

For our our kasam-bahays who have young children, one variant of this would be something like a trust fund. The fund grows over time for the benefit of our our kasam-bahays without any risk that the money will be depleted as day-to-day expense. As the child gets good grades, give cash gifts to further boost the outstanding balance.

Hopefully, our our kasam-bahays will be encouraged to save part of their income once they see the benefits of their saving plan. Employers can match every peso they save up to some pre-determined limit.

As a community of stakeholders, banking associations may wish to get together and offer special programs for new savings from our kasam-bahays or even other targeted constituencies such as families of OFWs. Certainly, tie ups with government agencies may eventually be needed to formalize these programs. Whatever these arrangements may be, we all benefit from broadening the saving base, increasing our saving rate from its present levels and providing more for our respective futures.

We need to bring saving to the level of those around us. We can talk about financial literacy or great saving schemes but unless we can execute these into actual mobilized saving, I doubt if there is anyone out there that would consider great talk as a success indicator. We need to help ourselves and those around us, just as everybody else helps us in one way or another.

I don’t think we have to look very far. After all, everything starts at home.

Loose change and your saving habits

By Dr. Johnny Noet Ravalo
INQUIRER.net

What do you do with loose change you acquire everyday? Do you drop them into canisters and forget about them? Do you count if you got the right amount in the first place? Do you leave them as a tip, finding them to be too much of a nuisance?

There are a lot of things that loose change in your hands – or lying somewhere around the house – can say about you and your saving habits.

Let me go back to Al of the Tale of Two Drivers that I wrote about months ago. Al’s salary is 40 percent higher than the other driver but he had no savings. Today, he still doesn’t save.

Al has the bad habit of being a “non-counter”. He doesn’t check if he got the right amount of change. It is not unusual for Al to be one paper bill short in change (he has been short P1,000, P500, P100, P50 and P20 ... at least he is that consistent). At the same time, Al has no qualms giving a would-be watch-your-car guy P30 even if parking has already been paid for at the car park entrance and the P30 is not even his money but the loose change of his employer.

Non-counters like Al often do not have any saving. Al takes a laid back, fatalistic perspective and is prone to dismiss his situation as part of the difficult times. What I find different about Al and other non-counters is that they often don’t have the urge to do something about their cash flows.

This is not about a lack of income since Al gets almost P170,000 a year. It is about a lack of perspective in handling his money. Al prefers to buy all the food he and his family consume daily. The family has a refrigerator but don’t cook. Al turned down an offer from his employer to pay for his son’s school expenses at a better school. As far as Al is concerned, he can easily afford the P350 a quarter he is presently paying, never mind if the teachers don’t show up. In his mind, moving his son to a P9,000 a year school makes no difference because the boy learns to read and write anyway.

Some non-counters are also “coin huggers”. Once they get their hands on coins, they will instinctively set them aside ... somewhere. The coins are left to pile up. They are merely part of normal transactions.

Coin hoggers are sensitive to form and scale. A crisp P100 bill is not the same as 20 pieces of P5 coins. They prefer P100 bills and their disinterest with coins can often be explained by their having more than sufficient income.

Coin hoggers are more of investors than savers. Instead of having 30-day time deposits, they most likely will go for higher yield-higher balance-longer tenor instruments. At the highest end of the income spectrum, coin hoggers simply skip the coins altogether and they become “coin avoiders.” Their saving simply would neither be defined nor affected by the tiny detail the rest of us refer to as coins.

Then there are “transactors.” These are people who set aside coins and count them. In most cases, transactors not only build value with their coins but also actively use them.

Most of us started out as transactors when we filled up our alkansiya. We derived great pleasure in taking stock of the weight of our alkansiya because it was the defining moment of building value. We didn’t want to break the alkansiya and instead just kept on feeding it more coins.

Transactors are patient savers who do not mind taking small steps in creating value. Today, the fancy term is emotional quotient but back then it was just plain patience. Among family and friends who kept their alkansiya growing up, I find them today to be conscientious savers. There is no need for them to learn of newer techniques of saving; they simply make the effort to set aside and keep going and going and going.

This is not a distinction between rich or poor. Non-counters may be ultra-rich while some transactors may not. What we are talking about here is the saving habit and how our attitude towards the small stuff can affect what we do with the bigger stuff, if ever we get there.

Saving does not guarantee that we will always have enough when we need the added purchasing power. By not saving though, we consign ourselves to the world of Al.

Al looks, behaves and is actually content. It is only when his children get sick, when added school expenses come up or when his mother wants to go to the province does he realize that he has no saving and must borrow again. If you borrow from Al, more likely he will actually produce some cash from somewhere. This is why it all boils down to perspective because his income does give him the notional capacity to save.

Do you know how many loose coins you have floating around at home?

More OFW families turn to savings

By Michelle Remo
Philippine Daily Inquirer

MORE HOUSEHOLDS ARE NOW saving the money sent to them by relatives working abroad, a survey by the Bangko Sentral ng Pilipinas showed.

The quarterly survey involved 486 OFW households.

The BSP said that 39.9 percent of households receiving money from overseas Filipino workers said they were saving a a portion of the remittances—a significant rise from the 30.4 percent seen in in the third quarter of last year.

Also, in the second quarter of this year, only 38.3 percent of respondent-households engaged in savings.

BSP officials said the increase in OFW savings was a welcome development, explaining that the rise in bank deposits would provide the needed funds to support investments.

Amando Tetangco Jr., governor of the central bank, also said savings by OFWs would help secure the country’s future.

The survey also showed a year-on-year increase in the number of households that allotted money for investments.

OFW households that engaged in investment activities in the third quarter stood at 7.6 percent of respondents, up from 7.4 percent in the same period last year.

The percentage number of OFW households that invested, however, was lower than the 8.3 percent reported in the second quarter.

Analysts said the global economic turmoil, which led to concerns about job security among OFWs, forced many households to save more.

Rather than invest the money sent in from abroad, people were forced to place their cash securely in banks, fearing the risks brought on by the crisis. This risk aversion could have led to the quarterly drop in the number of OFW households that engaged in investment activities.

The BSP said it would promote financial literacy among OFWs and their households. It had conducted road shows in various countries, educating OFWs about investments and savings. The BSP likewise conducted seminars on the same topics among families of OFWs.

“We want OFWs and their families to become financially sophisticated,” Tetangco earlier said.

In the first half of the year, remittances sent to the Philippines amounted to $8.5 billion, up 2.9 percent from that in the same period a year ago.

The government reported that $16.4 billion in remittances were sent in last year.

Remittances could post a decent single-digit growth for the full year 2009, the BSP said.

Cash-rich locals fueling stock market rally.

Cash-rich locals fueling stock market rally

By Doris Dumlao
Philippine Daily Inquirer


FOR THE FIRST TIME since the so-called foreign “invasion” in the 1990s, local rather than foreign money is driving the buoyant Philippine stock market as cash-rich Filipinos brought back offshore investments after the US-induced global financial crunch, a new research by Deutsche Bank said.

In a commentary titled “We Are Now Locally Priced” dated Sept. 10, Deutsche Bank noted as “fascinating” a shift in local stock market activity away from foreign to local investor dominance as the former’s share of value turnover had dipped to less than a third of all transactions registered on the Philippine Stock Exchange.

“For the first time in living memory, the Philippine stock market is being locally driven,” said the report, written by award-winning analyst Anton Periquet at the foreign bank’s local stock brokerage unit Deutsche Regis Partners Inc.

The boom in domestic investor appetite, based on the bank’s research, had something to do with the influx of overseas Filipino remittances to the country which, in turn, stabilized the country’s external position and elevated the Philippine peso from a “soft” currency to a “semi-hard” one.

“OFW [overseas Filipino worker] families may not own stocks. But the remittances that come their way from abroad exert a stabilizing influence on the balance of payments,” the research said.

“Savings-rich Filipinos, who traditionally park their money in US dollars, are hence no longer as fearful about losing their peso gains to currency depreciation as they once were. They thus now keep a larger proportion of their assets at home. This reversal in capital flight was reinforced by the collapse in US dollar yields—and of many favorite foreign bank depositories during the last financial crisis,” it noted.

The research pointed out that local mutual funds have been the principal beneficiary of the trend and local brokers the secondary ones. Without the local investor, it said the stock market turnover this year would have dried up completely as what usually happened in the past whenever financial markets collapsed.

Local Stocks Are Seen Extending their gains this week.

By Doris C. Dumlao
Philippine Daily Inquirer


LOCAL STOCKS ARE SEEN EXTENDING their gains this week, led by the property sector which may benefit from follow-through buying.

The main-share Philippine Stock Exchange index last week went up 39 points or 1.41 percent to close at 2,870.83.

Manny Cruz, an analyst at Asiasec Equities Inc., said the local market’s climb last week despite continued foreign selling depicted an inherent strength.

He added that the index had breached a critical barrier at 2,838 and was bound to retest major resistance at 2,906 early this week.

“A breakout from the 2,906 resistance will propel the index to march toward the 3,000 barrier,” Cruz said, noting that property issues would likely lead the runup.

Cruz issued a “buy” recommendation on two property issues—Filinvest Land Inc. and Robinsons Land Corp. as well as beauty product manufacturer Splash Corp. All these three attained breakout from key barriers during last week’s trading.

Scouting for investment options

Philippine Daily Inquirer

TODAY’S volatile markets can make anyone uneasy about their finances.

Most would in fact prefer to weather the storm by holding on to cash or maintaining bank deposits, rather than putting them in bonds, corporate notes and other investment instruments.

With the right strategy, however, one can find opportunities to benefit even in this crisis.

There is no miracle cure for market turbulence, but there are ways to mitigate the risk associated with volatile financial markets, and eventually place one’s self in a position to earn stable if not higher returns in the long run.

Lower returns

Holding on to money may be perceived to be of less risk in the short term, but keeping it idle may eventually translate to lower returns and diminished purchasing power due to inflation.

An option worth considering rather than keeping money in cash is participating in an investment fund, where the money of many investors is pooled into one big fund. Placing money in an investment fund allows investors several benefits.

They get access to experienced fund managers who constantly monitor and balance investment risks with return objectives through diversification and other strategies.

They also get better pricing on the purchase and sale of securities as these are dealt in the professional market, which is not usually available to individual clients with smaller amounts of funds.

“One such investment fund is the money market fund. This is one viable option for people who want to minimize the risk on their capital while meeting their short term liquidity needs,” says Josefina E. Sulit, Metrobank executive vice president and head of trust banking group.

In the investment world, a money market fund is considered the most conservative investment fund because its portfolios are invested primarily in assets such as short term government bonds and bank time deposits that are easily converted to cash and also provide better yields than traditional deposit products.

According to Sulit, Metrobank money market fund portfolios are invested in these assets by as much as 80 percent for MetroDollar Money Market Fund and 100 percent for the peso-denominated Metrofund Starter.

Good alternatives

“When there are financial uncertainties, money market funds are considered a good investment alternative, for as long as one sticks to the recommended investment horizon,” shares Sulit, who has been in the business of trust banking and investments for the past 30 years.

A weekly industry comparison of money market funds’ year-on-year returns showed that MetroDollar Money Market Fund and Metrofund Starter have consistently figured among the top performers of products in the same category and have consistently provided very competitive returns.

For example, as of Dec. 24, 2008, the performance of Metrofund Starter is 4.55 percent year-on-year and MetroDollar Money Market Fund is 4.56 percent.

“Fund management is an area that Metrobank has proven to be an expert on. No matter what the prevailing economic conditions are, the welfare of all our clients and other stakeholders is top priority. This means balancing the interests of our clients and complying with our regulators such as the BSP who strictly monitors our industry,” says Sulit.

Professional managers

Although times are tough all around the world, and it may stay that way this year, investors will have the distinct advantage of having their funds managed by professionals.

Money lessons you won't learn in class

INQUIRER.net

Q: I grew up not really knowing how to handle my own money. My parents gave me a daily allowance until my graduation from college, and when I needed something, I just had to ask them. Reality bit me hard when I started working and had to live on what I earned. Now that I am a father to two young sons, I want to impart the right lessons to my children, including how to handle money. Where do I start? – Tom

A: Along with a good education and the right values, the skill to handle money responsibly is one of the best gifts you can give to your children. You and your wife are right in saying that money lessons should be taught to kids at an early age. It would be good to raise them well with the right perspective on money so they will be able to decide responsibly for themselves in the future.

Here are key money lessons you should teach your kids, which they won’t learn in class:

Money is valuable. It is not something that appears all the time at an ATM machine or in their wallet. It is a precious resource, one that is produced through hard work. Let your children know that you work hard to earn money so you could all have the basic necessities such as food, clothing, a nice home, and a good school for them. Thus, train them early to regard money as something they should handle well and not squander. With money, the family can have access to needs.

When you are at a supermarket or fast food, for instance, give your children a small amount of money for one small food item you order (maybe an ice cream cone or a lollipop) which they will hand over to the cashier. When they see that the cashier got the money from their extended hand and gave them back the item being bought, they will see the value of money firsthand.

Prioritize needs over wants. When your children keep asking you to buy something that’s not really a need (example, a toy), don’t go out and buy it right away. Let them learn delayed gratification. Explain to them that you will prioritize the family’s basic needs first, and you will need to save up for their wants. This will teach them to ask first if something is a need or a want, and to prioritize needs over wants.

Save for a rainy day. Always stress the importance of saving for the future. Let your children know that when they have enough money saved in the future, they can buy their own cars and drive them someday. Boys are usually fond of playing with toy cars. By linking their love of cars with the thought of having their own real cars someday, you can teach and motivate them to save.

Tell them too, what you are saving up for: it may be a new home if you are currently renting, or a vacation for the family next summer, and their tuition for the coming years in school. Let them know that you are in the habit of saving.

Watch where your money goes. Don’t make comments within your children’s earshot complaining that it’s almost the end of the month and you don’t know where your money went. Instead, let them know that you are keeping track of the family spending by having it all written down.

When you give them a money allowance for school (and you should, so they can learn how to use it), ask them at day’s end what they did with it. Tell them to write it down. With this simple gesture, they will get into the habit of watching their own spending and living within their means.

And while you’re at it, teach them how to make a budget. With their daily allowance, suggest amounts they can allot for savings and for spending. Instruct them not to go over their spending limit since that’s all the money they have for the day.

Live simply. It is a materialistic world we live in, and we are constantly bombarded with suggestions to buy this and that. Resist the urge to buy top name brands and live simply. Young children have no concept yet of what brands are high-end so communicate early on that it’s who they are inside that is more important than the brand of shoes they wear.

Money is not the ultimate goal. Let your children know that the best things in life are those that are free: time spent together as a family, having real friends, and being in good health. This will greatly help them put things in the proper perspective.

Stocks strategy: Fight or flight?

INQUIRER.net

Question: Early last year, I invested in an equity unit investment trust fund. Since the stock market took a nosedive, the value of my investment has gone down and it has not recovered. I’ve been thinking if I should get out of it to cut my losses. But what if the market goes up? What should I do? – Ric

Answer: Stocks are a very volatile and risky investment. Every day, every minute even, prices of stock prices change in the market. There may be a gain today and a loss tomorrow--that is why the risks are high.

Over time, stocks will definitely peak and plunge depending on what’s happening in the world and in the financial markets. When stock prices are at their peak and trading is voluminous and fast, we have what is termed a bull run in the market. When stock prices plunge and trading is slow, that is called a bear market—what we have right now.

It is inevitable that stock prices will go up and down. According to the book The Citibank Guide to Building Personal Wealth, “Benjamin Graham [well-known investor and professor of US millionaire Warren Buffet] stressed that the stock market prices are irrational and are driven by ‘market sentiment,’ or how investors are feeling at the time.” One should thus take a long-term view instead of looking at the short trend and panicking. So it’s a bear market now; stock prices have plunged down. Should you get out? Not if you don’t need the money next year. If you have the luxury of time, ride out the current market plunge and reap the gains in the years to come.

Warren Buffet is known to be picky about the stocks he buys. He has been described as a “value investor.” More than looking at the short term and projecting the short-term capital gains he may get from trading stocks, Buffet looks at the long term and the fundamentals of the company.

Investors will do well to take the cue from Buffet. Don’t panic at short-term trends. Ask yourself: “Have the fundamentals of the market changed? If not, and I was willing to hold when prices were higher, why am I not willing to hold when the prices are lower?”

The fact is, if the company is sound and has a good earning potential and a small debt-to-equity ratio, and if it is professionally managed, chances are its stocks will earn value over the long run.

Also, just as the recent market meltdown was swift, the next market recovery may be so rapid that you’ll be taken by surprise if you are not staying invested in the market. Thus if you don’t need the money in the short-term, it may be wise to keep the money in the equity fund you invested in anticipation of potential benefits in the future.

We are not fortune-tellers so we cannot accurately say when the stock market will recover. However, financial experts have said time and again that stocks or equities outperform other asset classes in the long run.

Here are some tips to maximize your investment in equities:

1. Choose stocks expected to grow well. “While as a private investor you cannot realistically hope to be outstandingly successful in picking individual stocks, you can choose to weight your equity portfolio towards markets and industries that are expected to grow well over the long term,” advise the authors of The Citibank Guide to Building Personal Wealth.

2. Consider investing in equity mutual funds or unit investment trust funds rather than individual stocks. Doing so will help you diversify your investments (thus diversifying the risk) and allow you to invest with a small amount of money. Mutual funds and UITFs are pooled funds, meaning, money from small investors are pooled together and invested collectively. Investors don’t have to shell out a lot of money to take part in the markets.

3. If investing in individual stocks, choose companies with a good track record—no scandals or rumors of mismanagement. Also keep an eye out for companies with a good profit record and a low debt-equity ratio.

4. Invest for the long haul. Ride out those market fluctuations and enjoy the gains in the future.

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

Dream wedding or starter fund?

How to make the right choice

INQUIRER.net

Q: My girlfriend and I are getting married next year in June after going steady for five years.We're very excited about this, and we are already starting to plan for our wedding. We both realize that weddings can now be so expensive. Catering alone can go up to six digits. Although my fiancée has shared her dream wedding details, a part of me is hesitant to go all the way in expenses. There is life after the wedding. What is the best thing to do? – Rico

A: Weddings and debuts can indeed be costly these days, especially if you want all the works. There's a whole wedding industry involved, from wedding planners, fashion designers, and cake bakers to giveaway suppliers, wedding singers, and invitation designers. Costs can go up in the millions of pesos—no kidding.

You are right in saying that there is life after the wedding to look forward to. In fact, that is the more important thing in your marriage, rather than the wedding day itself. Although it would be nice to have a fancy wedding in an out-of-town destination, the total cost may take away valuable funds you could use for starting your married life.

Let's look at this more closely. Here are the advantages and disadvantages of having a dream wedding:

Advantages:

1. You can make your fiancée's dream come true.

2. You can invite as many family and friends as you like.

3. Your wedding can be guaranteed to be unforgettable.

4. You will make many people happy.

Disadvantages:

1. It may hurt your pocket in a major way.

2. There will be too many details to look into, thus compounding stress for everyone involved.

3. If you don't have a big savings fund started, you might have to live from paycheck to paycheck after the wedding.

4. Worse, if you don't have enough budget for your dream wedding at this time, you may be saddled with debts to pay your wedding suppliers long after the wedding is over.

On the other hand, here are the advantages and disadvantages of having a simple wedding and using the bulk of your savings for a starter fund to live on after the wedding:

Advantages:

1. You'll begin your married life with some savings which you can use for starting a fund to build your own home, or for other priorities.

2. You won't be plagued with debts to pay your wedding suppliers.

3. You'll be able to start off your married life on a good positive note.

4. You're ready for any emergency crisis that may arise, even the day after the wedding.

Disadvantages:

1. Your fiancée may not have the wedding of her dreams.

2. You may have to invite only a limited number of guests, which may result in resentment for some people.

Simple but memorable wedding

Is it possible to still have a good wedding on a limited budget? The answer is a resounding yes.

Here are a few tips on how to do that:

1. Settle on a guest list comprising only your closest family and friends.

2. Find a venue that would not be too costly, yet is beautiful and appropriate. Look for an intimate church, a garden, or an events place that charges reasonably.

3. Book wedding suppliers who may not be that well-known but are reliable and good too. Ask around for referrals and look at their sample products.

4. Enlist the help of family and friends who will be able contribute to the wedding preparations: emcee the reception, do the invitation design, coordinate the wedding day itself, etcetera. Their help will be a labor of love and a wonderful gift to you.

5. Save on your honeymoon. See previous article “Ways to save on your honeymoon”.

Now as to your starter fund, Citibank Philippines' Jacqueline Wieneke, Vice President and Makati Branch Manager suggests: “Open a checking or savings account in both you and your fiancée's names for all the wedding cash gifts you receive.

Then, determine what portion of your funds you may set aside for your long-term needs that is in the next 3-5 years. You may invest this long-term pot in a pooled fund such as a unit investment trust fund so it can earn potentially higher returns over the years. You may also regularly add to the investment, as you are able, to enhance your potential returns.”

But before making these financial decisions, Wieneke also advised: "Discuss your financial objectives and risk appetite with your fiancée to make sure you are both in agreement."

Start your married life with security and peace of mind. Congratulations!

Making money work hard using mutual funds.

Philippine Daily Inquirer

The recent global financial crisis has taught investment-savvy Filipinos one valuable lesson: Find other ways of saving up for the future.

And today, more and more Filipinos are beginning to find mutual funds as a viable alternative investment instrument and with reason.

The ability of mutual funds to provide returns higher than inflation and other traditional deposits makes it a wise investment option.

Still, while some have begun to appreciate the rewards of investing in mutual funds, others have yet to discover it.

Mutual funds defined

A mutual fund is an investment company that pools money from numerous investors and in exchange, issues corresponding shares to the latter. The pooled funds are then invested by professional fund managers in various securities according to the investment objectives and policies of the fund.

The investment is aimed at increasing the value of the fund and consequently, the value of the shares of its investors.

While there are no guarantees, its growth potential is limitless.

The concept of mutual fund in the Philippines is not all that new.

It first came to be in the early 1950s but its existence was short-lived due to scams that hounded the industry then.

The absence of stringent regulations at that time led to such practices as the charging of exorbitant fees and sales loads, making it very difficult for some investors to break-even.

So, when the stock market fell in the late 1950s, the mutual fund industry crumbled. Three of the four companies closed and the only one left eventually shifted its business.

In response, the government later enacted the Investment Company Act (Republic Act No. 2629), which contained stringent laws that in turn hampered the revival of the industry.

It was only in 1969 when Trinity Shares registered its business and made mutual funds available to the Philippine market again.

With the success of Trinity Shares in terms of its sales growth and fund performance, two other fund companies soon followed suit.

During this time, however, the mutual fund industry was very heavily dependent on the equities market for lack of other instruments to invest in.

So when the First Quarter Storm came and all the political instability led to a stock market drop of 30 percent in the 1970s, the mutual fund industry also fell.

But that was not the end of mutual funds in the Philippines.

Rebirth

The SEC in 1989 attempted to revive the industry by coming out with implementing rules and regulations of the Investment Company Act, meant to protect the interest of mutual fund investors. And so, mutual fund companies were on the rise again.

Today, with necessary controls and regulations in place, the mutual fund industry has regained investor confidence. There are now 41 mutual funds in the market with over P60 billion in assets under management as of April 2009.

Not just about money

While the returns of the funds are slowly picking up in the aftermath of the financial crisis, it is wise to say that, “It’s not always about the yield. When investing, one needs to look for three things, at least: Yield, Safety and Liquidity.”

Diversification is another inherent advantage of investing in mutual funds.

The more instruments one has in his investment portfolio, the better protected are his investments.

In mutual funds, a minimal investment can give the investor access to a wide range of securities precisely because his money is pooled with the money of others.

With a mere P10,000, one enjoys the benefits of mutual funds.

Investing in mutual funds also allows investors to benefit from the expertise of professional fund managers who have the research capabilities, skills, knowledge, experience and commitment that allow them to decide when and what securities to buy and sell so as to yield the best possible returns to the fund and its shareholders.

Some mutual fund companies offer free inter-fund transferability feature. This is so because of the fact that investors’ needs, preferences and investment objectives may change, so companies allow investors to shift their investments among certain funds up to four times a year, free of charge.

The world of mutual funds is indeed growing and opening up.

More and more investors are slowly realizing why mutual funds are a viable investment option.

After all, who would not want the limitless growth potential? And while they say returns are proportionate to risk, it is clear that there are enough safeguards to protect the mutual fund industry.

(This financial literacy piece was prepared by Sun Life Financial-Philippines in partnership with the Inquirer.)

What kids can learn about money, according to age.

CHILDREN ARE like sponges; they generally absorb knowledge fast. Parents can take advantage of this wonderful time by teaching them about money early on.

In Rich Kid Smart Kid, author Robert T. Kiyosaki wrote: “I am often asked, ‘At what age should I start teaching my child about money?’ My answer is, ‘When your child becomes interested in money.’”

Lifestyle trainer Chinkee Tan, author of the book Till Debt Do Us Part, shares that kids can be taught about money as early as four years old.

“Here are the ages at which a child can start learning about money,” says Chinkee, “and the kinds of things he or she is probably able to learn at that stage:

Ages 4-5: What Money Does and Is

Show the connection between what your child wants to buy and the money needed.

Ages 5-6: Where Money Comes From

Reward for good behavior or task completed should be EARNED.

Ages 7-8: How To Save

Set aside a portion of every peso your child receives from loved ones or relatives as savings. Teach your child the value of savings.

Ages 8-11: How To Invest Your Money Wisely

Save money through banks and other financial institutions. This allows the child to understand the effect that interest has on his or her money.

Ages 11-14: How Money Works

Money can be generated by getting into business. Money issues like borrowing, making loans and its effects should also be discussed. The goal is for the child to understand the pros and cons of borrowing.

Ages 14-18: How to Make More Money

At this age, a child also needs to understand how these things work: personal budgeting, overdrafts, credit cards, bank charges and so on. The goal is for the child to be independent in handling his or her personal finances.”

Here in the Philippines, money is taught as early as preschool. It is part of the Math curriculum. But always supplement at home what is taught in school.

Philamlife to acquire 51% of Ayala Life

Joint venture with BPI to boost operations

By Doris Dumlao

Philippine Daily Inquirer


PHILIPPINE AMERICAN Life and General Insurance Co. (Philamlife) has entered into a deal to acquire a 51-percent stake in the Ayala Group’s life insurance business to form a formidable bancassurance venture with local banking giant Bank of the Philippine Islands.


The biggest and most profitable insurance company in the country, a crown jewel that was earlier put up for grabs by the American International Group, has turned into an acquirer of a majority stake in BPI subsidiary Ayala Life Assurance Inc. (Ayala Life).


Under an agreement announced yesterday, Ayala Life will serve as the platform for BPI and Philamlife’s strategic bancassurance partnership.


“This partnership is a direct result of our strategy to focus on the core life insurance and wealth management business. Philamlife and BPI are strong and trusted brand names in the industry. This is an exciting and positive development that will significantly increase our distribution footprint and offer a substantially wider selection of quality life insurance products to BPI’s customers,” Philamlife president and chief executive Trevor Bull said in a statement.


BPI president and CEO Aurelio Montinola III said the joint venture was fully in line with BPI’s vision to offer a full range of financial products and services to its customers.


“We believe that there are significant cross selling opportunities on both sides. We feel that in the same way that Philamlife will have access to our customer base for life insurance products, BPI will have reciprocal access to Philamlife’s customers for banking products, ” Montinola said.


BPI Capital and ING acted as financial advisers to BPI while Deutsche Bank acted as sole financial adviser to the Philamlife group for the transaction. The joint venture is subject to regulatory approvals. The value of the deal was not disclosed.


The joint venture is seen benefiting from the combined synergies, high quality resources and strength of two leading companies in the Philippines’ financial industry. Philamlife is expected to bring insurance distribution, product development, and innovation to the joint venture, particularly in the area of bancassurance, while gaining exclusive access to BPI’s customer base via its extensive branch network.


With 158 years of experience in the local banking industry, BPI is the most valuable Philippine bank with P146 billion in market capitalization as of yesterday.

No savings at 30?

INQUIRER.net

Q: I just turned 30 years old and realized I have been working for almost a decade and have little to show for it. I'm ashamed to say that I don't have much savings. Although I work, there doesn't seem to be enough left to set aside. What should I do?


A: Working is one of life's simple joys. With it, we can put to use our talents and learn more about the industry we are in and its impact in the economy. By working, we can meet new friends and contribute to society. Plus we get to earn from working which can help provide for our families' needs.


Because we cannot predict the future and cannot be assured of a job forever, it is important to save money. This will tide us over should we lose our jobs, or get sick, or the time comes when we need to retire from active work.


At 30, you should start saving for your future now, and more so since you weren't able to start earlier. Ideally, saving should have been a habit begun while still a child. This would then become a well-ingrained habit throughout life. But do not worry, it's not yet too late. The important thing is you have realized how important it is to save, and commit to do so beginning today.


You actually raised an interesting question: How can you save when there doesn't seem to be enough left for savings? This is a dilemma most people face. How can you save when all your take-home money is used up by the end of the month (and may even be living on credit until the next pay day)?


The answer is quite simple. Instead of waiting until there is money left after paying your bills and other expenses, do it the other way: Save first before spending a single peso from your take-home pay. This is what financial experts mean when they say “Pay yourself first.” It means treating savings as a bill which you have to prioritize over any other bill or expense. By doing this, you will be able to stash away money for your savings which would otherwise have been spent on something you think you need but actually can live without.


You may think it's easy to say but hard to do. The truth is, saving can be done by anyone. Here are five easy steps on how to build up your savings easily:


1. As soon as you receive your salary, take out a certain percentage, start with 5%, and put this in an envelope you will mark “Savings.” Live on what is left of your salary.

2. Do not touch your savings if funds are running low a few days before your next payday. Instead, adjust your spending so that your funds will be enough until payday.

3. Open a separate savings account in the bank and deposit the funds you have set aside in your “Savings” envelope.

4. Deposit to your savings account every payday to ensure that the money earmarked for your savings will not be spent.

5. Once you have built up your savings a little bit, transfer some of it to a time deposit so it can earn a higher rate of interest. Later on, you can also move some of your funds to a mutual fund or unit investment trust fund so it can possibly earn even more interest. These investments have a risk attached to them, so discuss first with the bank or financial advisor if these are right for you.


One other important thing to do is to make a budget or spending plan. Write your projected income and expenses and see where you can cut down on spending. For instance, look at how you spend for your lunch every day. If you regularly buy food, think of bringing baon lunch to work. The excess funds freed (maybe about P500 a month) may then be added to your savings.


What can you use your savings for? It can be money for your retirement. You might think that at 30, retirement is so far away. However, saving for it now can make your money grow faster for you even if you put in only a small amount of money regularly. It is due to compound interest, which lets your money earn interest on top of money that has already earned interest.


Your savings can also be your emergency fund. This should be equal to three to six months' (even more) worth of expenses, which should be helpful when sudden unforeseen events occur: a job loss, an illness, etcetera.


Savings is doable. Start today and keep at it for a long long time.


*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

What's the safest way I can invest?

INQUIRER.net

Q: What's the best way to save these days? I am expecting a big amount of money to come from the sale of a lot we've had in the family for a long time. With the global economic crisis affecting our economy, I want to play it safe yet grow my money. – Edwin

A: It's good that you are thinking of protecting your money (your capital) by investing the proceeds from the sale of your lot. Investing your money may make it grow over time.

Understand, though, that with investing comes risks and rewards. If you want your investment to grow and yield higher possible returns on your investment, be prepared to meet setbacks and losses if they happen. Investments that yield higher returns come with higher risks such as heavy losses, as what stock market investors have realized last year at the height of the global financial crisis. Investments that have low risks may more or less safeguard your capital but give you low rewards as well (low interest income or minimal capital gains).

Bank deposits and government securities may offer you relatively safe investment options.

Bank deposits take the form of savings accounts, interest-bearing checking accounts, and time deposits. You deposit your cash in the bank and you get interest back after a month or so. While this may seem to be safe and will preserve your investment, this may not actually be the case as inflation may eat into your investment.

The current rate for savings accounts, for instance, is about 0.75 percent per annum. The inflation rate is way higher than that, which means that the growth to be yielded by your investment in a savings account will be overtaken by the rise in prices of commodities.

Time deposits may give better rates, but still may not be enough to match the cost of inflation. You may need to keep your money on deposit for a longer term to achieve a higher rate of return.

As “The Citibank Guide to Building Personal Wealth” (a book published by Citibank) says, “Inflation is a major risk if you hold large sums of cash permanently, because it reduces the buying power of cash.” Put simply, inflation may erode the value of your investments over time.

We mentioned government securities above. These come in the form of treasury bills, treasury notes, and treasury bonds. Bills have the shorter term (less than a year), and bonds have the longest term. Government securities are generally low risk since the government guarantees to meet its obligations and pay the published interest rate.

But since you mentioned that you want to grow your money, it may be wise to look into other forms of investment as well to achieve your goals:

1. Stocks or equities may give you high possible returns over the long term, but these come with high risk, which you don't seem to want to assume at this time.

2. Bonds may also give you good rates of return, but these also come with some form of risk, although lower than that of stocks.

3. Pooled funds come in the form of mutual funds or unit investment trust funds (UITFs) and depending on their nature may be invested in stocks alone, bonds alone, money market funds (government securities and commercial papers), or a combination of these.

To keep your money safe and make it grow at the same time, we advise that you do what wise investors have been doing all along: Diversify! Keep some funds in bank deposits, some in government securities, and some in pooled funds. Since you may have other financial goals and may have a timetable in needing your funds later on (example, for retirement), we advise that you consult a financial professional who will assess your risk profile and suggest the best possible allocation of your investments.

You may also invest your money in tangible assets such as real estate property. However, market values fluctuate over time, so be prepared for any eventuality. Investing in a business also comes with a high risk as not all businesses realize income. Jewelry and art are also forms of investment, but bear in mind that it may take a while for their value to increase. Converting them to cash may also take a longer time should you find the need to do so.

Whatever investments you go into, study all aspects thoroughly. Look into the pros and cons before deciding. We wish you the best.

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for

any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net

10 money questions couples should ask

By Lynda C. Corpuz

1: Why do we fight about money?

Melvin Esteban, a registered financial consultant, explains that couples fight about money because they do not have enough of it. Toti Tanchoco, Jr., Cocolife senior vice president for finance, says, “They fight about spending it – not money per se.”


Fr. Ted, Gonzales, S.J., Center for Family Ministries (CEFAM)-Ateneo De Manila University overall program coordinator says couples undergo counselling for a lot of reasons. “Money is one of the issues, but not the main issue. [The] money issue is maybe a symbol or a mirror of the quality of their relationship for it historically traces how they view money,” he says.


2: How do divvy up financial duties?

Melvin points out that the wife is the default keeper of the purse, especially if the couple is starting out. “Generally, females are more budget conscious,” he reasons. Toti, however, says the wife should not be handling everything. “It’s incidental she’s handling the finances but it should not be ‘binigay sa iyo, bahala ka na (It was given to you, you deal with it),’” he says. Fr. Ted explains, “Although that is not always the case, we still have the tendency to repeat the same old patterns. But a mature couple should be together in managing their household finances.”


Couple Bambi and Francous Groleaus share money responsibilities by simply doing what they’re best at. For instance, Francois attended to the particulars of their wedding venue while Bambi took care of the entourage’s needs. Planning a year in advance, and targeting a P500,000 budget, she prepared the spreadsheet while he ended up filling it in. Culturally, Bambi says Filipina wives usually budget for everything while Francois says French men often take charge of investments.


3: Should we really have to tell each other about each purchase we make?

It is just fair to tell your spouse what you buy, but there is no need to detail small purchases, Melvin says. “Just make sure you tell each other if the purchase is big, like a car, a house, or an educational plan. Both of you should decide on that big purchase,” Melvin says. “It is always best to be open with each other,” Toti points out.


4: How do deal with our personal luho? (frivolities)

It’s important that a couple sets the right priorities. Buying that new designer bag or getting yet another gadget isn’t a priority. “The way we use money is how we prioritize what is important. The couple should really sit down and talk about their priorities,” Fr. Ted says.

With two pre-teen children, Bernie and Coralu Santos follow the adage of living within your means. “For me, if it’s not yet a necessity, I won’t buy it. I’ll just look and look at it, but I won’t buy it immediately,” Bernie says. “We wait for the right timing, and if we can afford it already, we buy,” Coralu adds.


But that doesn’t mean you should never spend on yourself. You just have to put a lid on it. An allowance system is a good way to budget and limit discretionary expenses. Toti says it is wise to set aside money not just for basic requirements like food, utilities, and children’s education, but also a little for recreation. Melvin recommends 50% of one’s income go to a common fund, 30% to allowance, and 20% to savings. “As income increases, savings should also be increased. Bonuses can be used to treat yourself to your personal luho once in a while,” he says.


5: Should we only have a joint account?

Thirteen years after their marriage, the Santoses opened a joint account just two years ago. “Bakit kailan lang? Kasi wala kaming ganoon, `yun lang ang dahilan (Why just now? Because we didn’t have that before, that’s all),” Bernie says. But apart from their joint account now, they still have their personal accounts.


Meanwhile, the Groleaus started early. “When we got married, we started to contribute to the common fund for our household needs. We still continue each of our personal accounts,” Francois shares. “We put an equal amount for the common fund. When there’s extra money, Francois is the first to put in additional funds,” Bambi shares. Although they have personal accounts, it does not mean they are keeping secrets about where their money goes. “I still tell Francois how much I’m putting in my account,” she cites.


The two couples are doing an acceptable compromise. They have a joint account for common expenses and personal accounts for individual expenses. Melvin adds that having a joint account is good because you can still have access to the family’s wealth in case of your spouse’s incapacity or death.


6: How do we deal with financial crises like being victimized by a scam or piling up a huge debt?

Fr. Ted says it’s always a danger when one spouse gets into a financial mess. “Like an addiction, you don’t want to let it out with your spouse since there’s some shame about it. Those can break up the relationship and leave deep wounds. It’s truly traumatic to have creditors running after the spouse,” he says.


Toti says tendencies or habits like these should be known early on. “These should be discussed before getting married so you can agree to discipline each of your spending, saving, and investing habits,” he says.


Fr. Ted says the guilty spouse will have to be honest about the unmanageability of the situation and go through a genuine recovery. “Because if there’s no real examination of life, and a real surrender of that behavior, it will drain the whole family of their patience, resources, and understanding,” he explains.


Always remember your spouse loves you very much that he or she is willing to marry you, Melvin says. “No matter how grave the situation is, your spouse will always be your partner to help you. The more you keep it a secret, the worse it gets,” he says.


Fr. Ted says, despite everything, trust that something good will still happen and be ready to make amends. “Making amends is righting the wrong. But when you love tenderly, you will know your strengths and weaknesses, and you can act justly,” he says.


7: How do we handle power struggles related to money?

Couples should review their values if they keep on fighting about money, especially in the context of who has the bigger income, “because it can sometimes be a power to some, an excuse to dominate or lord it over the other person,” Fr. Ted says. “But if you really look at it, a family is just one unit regardless of who’s earning more.”


“The best way is to talk and there should always be a compromise for everything,” Melvin says. If the wife earns more, the husband should take it as a constructive challenge, he adds. “If the wife is earning more, it should be an inspiration for the man, especially if he is insecure about it. But should he really be insecure about it? It’s all about role-playing, and one should accept each other’s role,” Toti says.


8: Is it possible for us to live on one income?

While it is ideal for one spouse to stay at home to focus on the children and household matters, given the times, living on a single income can be difficult. The wife should only stay at home if she cannot earn more than a house help, Melvin says. “Otherwise, both should work. Of course there are other reasons to be considered, thus the saying, ‘a mother’s love is always priceless,’” he says.


The Santoses found it necessary not just to work full-time but find extra sources of income. Whenever their workload allowed, they accepted sidelines to add to their finances. Money they saved from these sidelines automatically went to their children’s accounts.


It may be difficult, but not impossible. It takes a lot of financial discipline to live within a single income, but that works easier if the working spouse is earning an adequate amount of money.


9: How should we deal with parents who are financially dependent on us?

The Santoses are helping their relatives. “Tumutulong din kami. Hindi puwedeng mawala `yun sa monthly budget naming(We help out. We need to include this in our budget),” Coralu says. Fr. Ted says the questions here are: How much do you give? And how regular? He adds that some in-laws are becoming too dependent, as in the cases of migrant workers who have the whole barangay of relatives waiting for their salaries. “Assess if there is an abuse already and what is the effect of this constant shelling out for the relatives. If unmanageable, this will drain the couple’s budget,” he warns.


Dealing with in-laws and relatives about money has emotional strains to it, Melvin says. He suggests if you are earning more than you are actually spending, it is but right that you support your parents and in-laws. “Remember, you and your spouse would not be where you are now if not for your parents,” he says.


Toti, however, believes that couples have to meet their own needs first. “It will not help in your planning as a couple and it just tolerates the parasitical situation. But if you know you’ll have to still provide for your parents, don’t marry yet. Becoming independent is the idea why you’re starting a family,” he says.


10: How do I deal with an uncooperative spouse?

Melvin subscribes to what the best sales people believe is “your 99.” “That means, 99% of the time, you’re thinking of what’s good for them. So you have to convince him or her on anything,” he says. Fr. Ted advises to first exhaust all means, like counselling or attending marriage encounters. But if it is really unmanageable, the Church will look into the marriage’s viability. “The Church wants a couple to have a relationship grounded in love. But it also tries to be objective in considering certain relationships that are out of control, especially if there were already hints of unmanageability before the marriage,” he explains.

Money mistakes seniors make

INQUIRER.net

Question: My aunt is in her early 70s. She used to work as a nurse in the US but has retired here in the Philippines. We assumed she had built up some savings for retirement because she worked hard abroad for more than 30 years. So we are puzzled that today she has difficulty paying for all her medical expenses and other bills. She bought a car in cash a couple of years ago and hired a driver, but other than that we are not aware of other high-ticket items she purchased. What could have gone wrong? How can I avoid ending up like that? – Paula


Answer: Many people think that retirement would be a breeze; after all, they have earned it after working for so long. But as your aunt may have found out, retirement is not really a bed of roses if one hasn’t prepared for it.


It may be possible that your aunt has indeed saved up, but it may not have been enough or the fund was not taken care of for it to last long. This is a common mistake seniors make in managing their finances.


Below are common mistakes seniors make when it comes to managing their finances. Think about what you can do to prevent committing them.


1. Not having a retirement fund. It’s in the Filipino culture to take care of our aging parents. That is why nursing homes for the elderly are very few in the country. Most Filipinos expect their adult children to take care of them when they are old, thus they have not saved up for funding their own retirement.


The reality, though, is not all adult children have the means to support their aging parents since they may also be having a hard time supporting their own families. This is why everyone should save up for his own retirement. This may be in the form of a pension fund or a do-it-yourself investment portfolio.


2. Not maximizing the potential gains of a retirement fund. Put simply, this means not investing your retirement fund well before you retire such that you miss out on potentially higher gains.


For instance, putting all of one’s savings in a savings account will yield only about 0.75 percent interest per annum. Contrast that with a special time deposit which could earn you about 6 percent per annum in five years. Even a retail treasury bond may yield 8 percent in three years’ time. Bonds and stocks and pooled funds (unit investment funds and mutual funds) may even earn you more depending on the market.


3. Not adjusting investments as retirement looms. Ideally, when you are nearing retirement, you should shift your investments from risky assets (such as equities) to less risky ones. As high risk investments may earn you more but may also make you lose, you can’t afford to put your entire retirement fund in peril so close to retirement age.


When you are young, you can take on more risks in investing by exploring investments that may give you a higher yield. You will have enough time to ride out the market volatility and recover any losses. Then be more conservative and protect your capital as you see retirement in the horizon.


4. Being asset-rich but cash-poor. Your aunt, for instance, has a car, but has difficulty paying her regular bills. Would it not make better sense to let go of the car so she can buy her medicines and pay for her living expenses monthly?


For some seniors, liquidating assets may be a good move to fund living expenses. Put cash in more easily accessible investments such as bank deposits.


5. Overspending. Living it up sounds so wonderful at retirement, but seniors must recognize that money will dry up with no income coming in. This is why one must live within his means. Live simply and make your retirement fund last longer.


6. Having inadequate insurance. It is during one’s sunset years that health care and medical bills rise. So it is just right that one should avail of health insurance while still young. In that way, you will be protected and new chronic illnesses (such as hypertension) cropping up afterward will still be covered in old age. Make sure you have health insurance, disability insurance, and accident insurance.


7. Not having guaranteed income. To ensure a worry-free retirement, one should consider having a steady guaranteed income stream even during retirement age. And it would be best if this income stream can beat inflation, meaning, it would earn at a rate higher than the inflation rate. Examples of such income sources would be money market investments and real estate rentals. With these, money would still come in even if you’re not working and toiling in an office eight hours a day.


Or if you still can, consider working even part-time. Aside from keeping your mind sharp, a job at retirement age will give you income that could help you with your day-to-day expenses.


*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

Don’t risk what you can’t afford to lose

By Ma. Salve Duplito
INQUIRER.net


FOR TODAY'S GENERATION, the fall of America’s economy and how this has turned others around the world hostile may seem like the most depressing news in decades. But watching the global financial crisis through the eyes of one of the Philippines’ ruling families with a conglomerate that has been around before World War II may change your perspective a bit.

In a rare peek into the Aboitiz family’s management style and his own personal finance strategies, newly installed president and chief executive officer of Aboitiz Power, Erramon Aboitiz, spoke about how Filipinos can keep their heads above water in these challenging times.

He is also the president and CEO of the family’s holding company, Aboitiz Equity Ventures.

Aboitiz, who admitted that the family has through the years made a deliberate effort to keep their personal lives private, also described what goes inside the family boardroom, how decisions are made and how leaders are chosen.


The Aboitiz family controls the country’s second biggest power distribution and generation group and it also has major investments in banking, food, transport, real estate and construction. In 2008, the family landed on Forbes magazine’s list of 25 wealthiest families in the Philippines with an estimated net worth of $125 million.


Question: How can Filipinos keep their head above water in these difficult times? How should they handle their finances and invest their money? What is the best way to preserve the wealth that they have?


Answer: I always say don’t put at risk what you cannot afford to lose. You can always take risks and people do take risks. That’s the only way that you are going to make money or succeed in a financial way. Otherwise, you are going to put your money under your mattress and even that means you are taking a risk.


But never risk something that you cannot afford to lose. Stay within your means. Make sure that what you invest--the exposure that you put in--if you lose it, you can afford to lose it. It’s not the whole thing.


I think business is that way, too. We won’t bet everything on one thing, no matter how much we believe in it and no matter how good it looks. Spread it around, that’s one.


The next one is, never overextend yourself. Be prudent in the risks that you take and the amounts of money that you borrow.


Of course, the Filipino way--unlike the Americans where they have no savings at all--is to always save for a rainy day because the rains will come.


Q: Is this also true for someone like you who has never known a single day of want in your life?


A: That’s not necessarily true. Like everyone, when my ancestors first came to the Philippines, they had nothing. There were ups and downs. In 1929, the company almost went bankrupt. In our history, there have been good times and bad times.


But from a personal point of view, our style has always been to start from the bottom. You work yourself up. Money wasn’t just given to us at the beginning. When we were kids, like everybody else, we had an allowance. And many times we had much less than our classmates. Even when we go to clubs, we had limitations on how much we could sign. It wasn’t like we had carte blanche authority to do whatever we wanted to do. We also had to budget and be frugal.


Q: So, how does it feel to take over the reins of the company in a difficult year like 2009? What are your priorities and what changes can your shareholders expect?


A: It looks and feels like nothing will change. Our plans are very long-term. It’s not like I came from somewhere else; I was part of the company all these years. Obviously, everybody has a different style but from a corporate direction, we will continue what we have been doing, which is to focus on core competencies. I don’t think you’ll expect us to get involved in radically different types of businesses. Of all our businesses, power has taken the limelight and absorbed most of the resources in the last few years, but we still want to grow our other businesses.


Q: So what is your style? How different are you from Jon Ramon Aboitiz (former president and CEO of Aboitiz Power who retired in December 2008)?


A: I am a very private person. (Laughs) Without going into details, everybody has his own style. But one of the reasons why I say that there won’t be any change is because our decisions are collective decisions. These are decisions that the family have made together knowing what our different stakeholders want and expect. The desires of our stakeholders have not changed, and that’s what we are bound to. That’s what we are expected to comply with and to satisfy.


We like to run things almost by consensus. We believe in what the majority wants. I may not necessarily agree with something in totality, but if that’s what everybody wants, then so be it. But once that is decided, then everybody is behind it. Our agreement is we can shout, we can argue, we can raise our voices at each other when we are discussing, bang our fists and kick the floor, but once that decision is made, that is our decision.


That’s how we do it. Whether it turns out good or bad, that’s our decision. We have to live with it, benefit from it or pay for it. There’s no, “Well you did that, that’s your problem, you fix it.” No, no, no.


If there’s one thing I hate the most, it is when somebody says “I told you so.” Or, “This is the way I felt,” or “I didn’t agree with that,” because the time to say that was before, not after.


Q: Who had the biggest influence in your management style?


A: I can’t pinpoint one particular person. We are beings that evolve depending on how things go. You learn from many things, from circumstances or other people that you see. I am a melting pot of different things.


Q: Did you always know you would head the company?


A: No. It’s really funny. I was in Japan last year with our partners. One of them asked me, “How old were you when they decided you would become the president?” How old was I? It just happened a few months ago! Our style--and this is the way the family operates--is that we believe in meritocracy. How could one decide 20 years ago you are “it”? You don’t know how you are going to perform.


To become a leader doesn’t mean you are the smartest guy in the group. It doesn’t mean you’re the brightest. Over time, different circumstances, different decisions, different events get you to be accepted as that person. It’s not one thing that you did, not that you’re the brightest, not that you were the one trained for it. Over time, things developed that way. Like I said, we believe in meritocracy so obviously doing well in your job and the decisions you make are a very important part of it, but so is being accepted by your peers.


There’s a Latin expression, “primus inter pares,” which means “first among equals.” You consider yourselves as equals but there has to be the first and the first has to be accepted. So when we sit around the table, everybody has the right to say things. Everybody has exactly the same opportunity. But when a decision has to be made, everybody’s behind it.


In family-run business, it doesn’t always work that way. Many businesses including family businesses are still very autocratic in their style. That may not necessarily work. In many families, the older brother or the eldest family takes over. Ours is not that way. It’s the one that everybody chose. It’s not that we vote on it, but over the years, you see that the leadership evolves over time.
___

Miami banker gives $60 million of his own to employees

By Martha Brannigan

After selling a majority stake in Miami-based City National Bancshares last November, all he did was take $60 million of the proceeds _ $60 million out of his own pocket _ and hand it to his tellers, bookkeepers, clerks, everyone on the payroll. All 399 workers on the staff received bonuses, and he even tracked down 72 former employees so they could share in the windfall.

For longtime employees, the bonus _ based on years of service _ amounted to tens of thousands of dollars, and in some cases, more than $100,000.

At a time when financial titans are being paraded before Congress to explain how they blew billions on executives' bonuses even as they received a taxpayer bailout, the big-hearted banker's selfless deed stands out.

"I retired seven years ago, and all of a sudden I get this wonderful letter and phone call," said Evelyn J. Budde, who spent 43 years at City National Bank of Florida, rising to vice president.

"I was shocked," said William Perry. In 43½ years at City National, he climbed from janitor to vice president. Like many longtime City National employees, he forged an unbreakable bond with the bank that continued into retirement. Perry returns regularly for the annual employees' dinner.

Abess didn't publicize what he had done. He didn't even show up at the bank to bask in his employees' gratitude on the day the bonus envelopes were distributed. He was inundated with letters soon afterward.

Asked later what motivated him, Abess said he had long dreamed of a way to reward employees. He had been thinking of creating an employee stock option plan before he decided to sell the bank.

"Those people who joined me and stayed with me at the bank with no promise of equity _ I always thought someday I'm going to surprise them," he said. "I sure as heck don't need (the money)."

In exchange for an 83 percent stake in the business, the Spanish bank Caja Madrid paid $927 million in November. Abess retained a minority share and is still the board chairman and chief executive officer at City National.

Even before the sale, Abess wasn't hurting for money. He bought his 11.8-acre, $23 million estate in Miami's Cliff Hammocks neighborhood from actor Sylvester Stallone in 1999.

Abess' father, Leonard L. Abess, founded City National in 1946 with Baron de Hirsch Meyer as one of the first postwar commercial banks in the region. Abess Jr. started his career in the bank's print shop, which made forms and documents. Working his way up the ladder gave him an appreciation for the role that employees play in the success of an enterprise.

"I saw that if the president doesn't come to work, it's not a big deal," he said. "But if the tellers don't show up, it's a serious problem."

Many people presume that Abess inherited the bank from his father, but he didn't.

In fact, in true Miami fashion, the bank has a colorful history. City National was sold in the early 1980s to an investment group that, in turn, resold it to Colombian coffee magnate Alberto Duque.

The dapper and charming Duque was the toast of Miami _ until he was convicted of bilking two dozen Miami banks out of about $108 million in connection with his coffee business.

Duque went to federal prison _ he eventually fled the country from a halfway house _ and City National went on the block in bankruptcy court.

In 1985, the younger Abess bought majority control in the bankruptcy proceedings for $21 million _ all of it borrowed, he says _ and he later acquired the rest from about 200 investors for about $6 million. Under his hand, the bank grew from $400 million in assets and seven offices to $2.75 billion in assets and 18 offices.

Sharing the wealth with staffers came naturally. Abess and his wife, Jayne, have long been big contributors to local organizations, such as the Greater Miami Jewish Federation and Mount Sinai Medical Center. In 2006, the Abesses gave $5 million to the University of Miami to promote environmental studies.

But he also wanted to reach out to his staff. "I wonder if I did enough," he recently mused.

"I knew some of these people since I was 7 years old. I didn't feel right getting the money myself," said Abess, who was concerned that their 401(k) plans had taken a beating in the downdraft on Wall Street last year.

To prepare employees, Abess made an online video just before the merger was completed and explained in it that a windfall was coming soon. He also wanted to make sure that people realized it was a one-time bonus _ and certainly not severance pay or a nudge for them to move on.

Three days later, about 2 p.m. Nov. 7, a Friday, a handful of senior employees fanned out throughout the bank's offices to dole out vouchers that detailed the sums deposited in their payroll accounts. A handful of senior executives got separate payouts.

"We expected a bonus, but the type we received _ our mouths are still open," said Carleatha E. Barbary, a 39-year veteran.

Geneva Lawson, a 72-year-old safety-deposit clerk who has spent 51 years with City National, including a stint as Abess' boss in the print shop, plans to buy a new car _ and to save a bit.

Workers were provided with financial counseling and special high-rate certificates of deposit at City National.

"It was like a lottery, only better," Virginia C. Dunn, managing senior vice president, said of the gift. "Because it came from someone's heart."