Monday, October 15, 2012

Short Answers to Unanswered Questions: Forex, VULs, and UITFs


I've had a very busy past couple of weeks, so now I find myself with more than a handful of unanswered emails and comments from some of you. I will thus dedicate the next couple of posts to respond to these in a short but hopefully still-adequate manner.


Dear Investor Juan,

I would like to know your thoughts about Forex Trading. Is this a good investment? I only know very little about Forex. A friend of mine who works in Singapore said she has an officemate who earns a lot from Forex. Others also said it's faster to earn in here. 

I also don't know of any Forex Trading company in the Philippines. The thought of having to transact a foreign company with no office in the Philippines over the internet makes me have second thoughts about Forex trading. 

Can you enlighten me please? Thank you.


Dear Neil,

Like you, I also know very little about forex or currency trading. What I do know is that it's just like any kind of speculative investment: "traders" or investors buy and sell particular currencies based on their expectations for the future prices of these currencies.

As I've said several times in this blog, I strongly advise against forex trading and most other speculative investments mainly because expectations about future prices tend to be based on hunches, gut feel, and luck and there is very little emphasis on fundamentals. And of course you'll hear more success stories than failed forex trades: who in his or her right mind would brag about a losing trade, right? So yeah, stay away from forex trading, especially since you admitted at the very beginning that you know very little about it.


Dear Investor Juan,

I have just started reading your blog and I may I just say how enlightening it is to read about savings and investments for a change. I am not really the saver type, more like the spender, but circumstances have changed and now I find the need to save more money. What changed? My husband and I now have a baby and now I find myself thinking about my baby and her future more than anything else. Soooo, having said that, I need your opinion on how and where we can invest to maximize our resources.

To start, we already have an emergency fund. In addition to this, my husband and I both have Sunlife Maxilink Balanced Fund (got it 2 years ago), and term life insurances. Now we have extra cash which we want to invest in. At first we were decided on getting another VUL from Sunlife but after being enlightened by your blog, I see the need to diversify and probably venture into Mutual Funds. But before that, what is the difference between VULs and MFs, except that the former has life insurance tied on it? If I invest the same amount for the same period of time, would I get the same return? Which one has more value for money?

I would really appreciate your advice and let me thank you in advance for all of your help.

Looking forward,

Dear Khristine,

Congratulations on the baby! And for being more financially responsible now, that's a very big first step. :)

In a nutshell, a VUL is a combination of a mutual fund and straight insurance; it may seem that you're getting one or the other for free, but you're really paying for both. Another reason why it's attractive to investors is because it seems that contributions are not "lost," unlike with term life insurance where premiums are considered spent when the policy expires. But really, you would get the same effect--and pay even lower fees-- if you just get a vanilla mutual fund or UITF and a cheap term life policy. You might want to check out my past post about life insurance for more details.


Dear Investor Juan,

Chanced upon your blog, been browsing the net to know more about UITFs and mutual funds. Thank you for sharing, you have very informative posts :) Now I am very much keen to apply for an investment plan. By the way, regarding UITF, can I redeem anytime after the holding period?


Dear Anne,

You can redeem units any time after and even before the minimum holding period, actually. The only difference is that you'll be charged with an early redemption fee if you redeem before. So if liquidity is a big factor for you, you might want to consider the redemption fee and the minimum holding period in choosing a UITF.

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