Tuesday, December 28, 2010

Holiday Mailbag


Dear Investor Juan,

Good day, I've always wanted to invest in foreign stocks, however I don't know how. Then, I discovered dividend reinvestment plans (DRIP) wherein you can invest in stocks that reinvests dividends. I understand foreign stocks offer DRIPs.

Would you know how I can apply for a DRIP account? Hope you can assist me step by step.

I don't have any account overseas.

Thank you for your help.

Dear She,

There are two main advantages of the DRIP: one, the company you buy the stock from automatically allocates stock to you so you don't through a broker/middleman and you avoid brokerage fees; two, you get to automatically increase your stock holdings even if you don't have enough cash to meet the minimum required investment amount.

I'm not sure if listed firms in the Philippines offer DRIPs, but the good news is that investments with DRIP-like features are widely available to all investors: equity mutual funds and UITFs automatically reinvest all dividend income, apart from a small cash amount reserved for administrative/management expenses.


Dear Investor Juan,

Can you please explain the Retail Treasury Bond portion of this website (http://www.bdo.com.ph/Personal/DepositsInvestments/IAS/GovernmentSecurities.asp) like you would to a 7-year old child. What would it mean to me if I have 1 million pesos to invest? How much will I get how often?


Dear Confused,

Like we talked about in past posts here and here, Treasury securities (Treasury bills, which are short term, and Treasury bonds, which are long term) are debt offered by the government to the investing public. These investments are considered "risk-free" or safe because there's almost no chance that the government will not be able to pay its loans to its creditors.

Retail Treasury bonds are just plain-vanilla Treasury bonds that are denominated in much more affordable amounts (i.e., 5,000 pesos) compared to the typical minimum buy-in of 100,000 pesos (please see bottom portion of the website you mentioned).

As BDO rarely updates its website, all the rates we see on the page are from issues as far back as 2001, and are thus not indicative of prevailing market rates (if you check the Bureau of the Treasury's website, you'll see that current interest rates are significantly lower). But using the 4-year RTB featured on the website as an example, if you invest 1 million pesos you'll receive 142,500 pesos in interest or coupon payments per year less 20% withholding tax, or 114,000 pesos per year.


Dear Investor Juan,

How do we invest in ETFs? Do we have to go to Hong Kong just to do this?


Dear Anonymous,

Unfortunately, now, the answer is yes since ETFs are not yet available in the Philippines. But according to a good source (a fund manager-friend who works in one of the country's top banks), we'll soon see ETFs introduced in the Philippine Stock Exchange, so let's just sit back and wait. :)
Related Posts Plugin for WordPress, Blogger...