The Perfect Gift

It came with 10 centavos and this message from the manufacturer:

“May your purse or wallet never be empty and your heart always full.”

I would have loved it more if it had been full of cash instead; unfortunately for me, my girlfriend is stingier than I am (I love you honey ;)).

But then I remembered: a fat wallet does not necessarily equate to sound financial decision making.

Here’s to good, bountiful times shared among friends and loved ones. Cheers everyone! Happy holidays!

Investing in Singapore, Part 2: The Devil is in the Details

DEAR INVESTOR JUAN

Just to recap, in Part 1 we pretty much established the following things:

1. 50,000 pesos should be enough to start investing.
2. Invest in the long term.
3. Investing in a business in the Philippines is not advisable if you're working/living abroad.
4. If you're working/living abroad, better just invest where you are (in Jay's case, Singapore) so you can be more hands on.

Now we're ready to go into the nitty-gritty of investing in a more developed Asian market like Singapore.

5. Next step? Open an Internet banking account with your bank, in your case Jay, DBS. One important advantage of investing in countries like Singapore is convenience; Singaporean banks allow depositors to invest using a single bank account with an Internet banking service, unlike banks in the Philippines where investments can only be done over-the-counter, or with a separate trading account like in the case of BPI Trade.

6. Check out the the available investments. Looking at the investments page of the DBS website, we see that the bank offers three product types to individual investors: unit trusts, structured deposits, and treasury products.

Unit trusts are the same as the UITFs we have in the Philippines, and you'll find a more informative and user-friendly list from DBS's Asset Management website.

Structured deposits are derivative investments whose value depend on underlying assets, like bonds or stocks. Basically, it's a bet that the price of some asset, or anything that fluctuates like foreign exchange rates or interest rates, will move a certain way.

What DBS refers to as "treasury products" actually covers a diverse group of securities like currencies (the real thing), currency-linked investments (derivative investments, just like structured deposits), and government and corporate bonds.

7. So many, so complicated. What to choose? Since you're just starting out, I suggest that you stick with the more traditional investment funds offered by DBS, those that are invested in stocks, bonds, or a combination of both. Derivatives like structured deposits and currency-linked investments are too risky and complicated, in my opinion, for ordinary folk like you and I. And one important investment advice we can get from Warren Buffet is to never invest in something you don't understand.

In choosing the best fund for you, you can start by looking at the fact sheets from the DBS Asset Management website, like this one for the MyHome Fund - HomeSteady fund (sounds tailor-made for you, ain't it, Jay?). It turns out that there's nothing special about the fund, except the name: it's just an 80/20 combination of a Singapore stock index ETF and bond index ETF (in case you missed the article about ETFs, click here). This means, instead of paying 3% up front and 0.5% every year for a fancy-sounding investment fund, you can actually brew your own combo by investing in the ABF Singapore Bond Index Fund and DBS Singapore STI ETF on your own, at whatever proportion that suits your fancy (just remember the rule of thumb: higher risk, higher return if you invest all in stocks) with significantly lower fees.

These two index ETFs are cheap, good-enough funds to start with; all the others are too expensive, in my opinion. When you do get the hang of investing and are willing to take on more risk, then you can start investing in individual stocks by opening a DBS Vickers Online account, which will also give you access to investments in other markets like Hong Kong, Canada, and the US. Then, as they say, the world will have become your oyster. :)

One last thing. Since you're an account holder, you can always ask the DBS customer service reps questions about the specifics of opening accounts and investing in funds. Don't hesitate to take advantage of what you're entitled to.

PDIC Takes Over Pasig-based Rural Bank

IN THE NEWS from Inquirer.net

Image from Philstar Online. Happier days for FCB

Finally, here's the official public confirmation--five days after the fact.

"First Country Bank, a microfinance bank founded by a former education official, was padlocked by banking regulators due to insolvency (when firms owe more than they own) and recently taken over by the state-owned Philippine Deposit Insurance Corp. (Friday, December 10, to be exact)" Comments in parentheses are mine.

The article further makes the following observation:

"Other banking sources said that prior to the bank’s collapse, it was aggressively trying to boost liquidity by offering hefty interest rates.

Based on the bank’s website, for instance, First Country was offering a 10-percent annual interest rate for time deposits held for at least a year. This was despite the fact that benchmark 25-year bond yields have fallen below 10 percent a year. The website was also emphatic in pointing out that it was operating under the authority of the Bangko Sentral ng Pilipinas and had even placed the BSP logo right beside the contact person for those wishing to place money in its savings, time deposits and investment products."

Now that sounds like a very insightful comment; unfortunately it's one based on perfect hindsight and is thus utterly useless to investors who had already been duped by the bank. This insight would have been more helpful had it been published before the collapse, and not after.

Let's hope mainstream media follows up the story and and bears more of the burden of protecting innocent and misinformed investors. Yeah, right now that's pretty much all we can do: hope.

Breaking Bad News: First Country Bank Now Under PDIC Control

I just received this heads up from our good friend who, himself, is a depositor of First Country Bank.

I am a regular poster here. the FCB has been taken over by PDIC just this morning, so i am ready to wait for my claims

This is terrible, terrible news, mostly for investors whose trust in Philippine institutions is shaky enough as it is, and innocent Filipinos who would have to ultimately shoulder the costs of this "perfect crime". Depositors actually do not really bear full risk since deposits are insured by the PDIC; they'll lose sleep some nights, for sure, and most probably be hassled by delayed claims, but in the end they'll get back their deposit, with interest, and be okay.

If you or someone you know is a depositor of the bank, be sure to file your claims as soon as you can. I'll make updates as soon as I get them. Also, please do post comments whenever you hear something new.

I hope the higher ups, people we recently voted for, do something about this madness soon. And may the owners and managers of First Country Bank and everyone else who is involved in this bullshit (I'm thinking this would not have gone on this long without the participation of crooks from the BSP and the PDIC and some other government units) rot in hell.

Investing in Singapore, Part 1: First Things First

DEAR INVESTOR JUAN

Juan dude,

"You're so money!" - Swingers

Got to read some of your articles and found them enlightening, haha. So, here I am hoping for a dash of your opinion bro.. Ok here's my situation. I am 28, an engineer working in Singapore and I recently got to think of getting my feet wet on the "investment thing". For now, it's baby steps though. So I'm gonna need an insider's point of view on this... As they say, engineering and accounting, do mix well like oil and water, so help me through it bro. Question is how do I start? For now, I am willing to break my piggy bank of 50,000 pesos for investment. Long term or short term? I'm thinking of maybe around 6 months? If it's longer-term, maybe a lesser figure then. At first I'm thinking of starting up a microbusiness, considering the amount, but then, since I am based here in Singapore, I think it's out of the question already. So my next idea is to invest through the bank. UITFs? Money market funds, equity funds? What do you think? My knowledge regarding this is so minimal, that my understanding of it is... one's higher risk/higher profit, and the other ones lesser risk/gain, hehe.. (Tama ba?) and I think I'm open for higher risk, hehe... Another thing is since I'm in Singapore, is it possible to start an account locally there (BDO? Internet banking?), or would I have to invest with a local bank here (DBS is my trusted bank here. I did look through their trust investments, but I can't really make any decision about it); you might wanna check it out too, if you have the luxury of time, 'cos I can't seem to understand or decide if it's worth it.

To sum it up, I'm still clueless, but ready to jump in, hehe...  So, appreciate to hear from you pare, privately, or publicly.

Salamat,

Jay


Yo, Jay, dude! :)

Nice to hear from you, and even better to know that you have decided to "get your feet wet" and invest. That's a very, very good first step, believe me; a lot of people have trouble even getting past that.

You have a handful of concerns, so let me go through them one by one so that I won't miss anything.

1. Amount? 50,000 pesos is enough money to start with. With 50,000 pesos, you can invest in most available funds, and even individual stocks, both in the Philippines and in Singapore. But it does not mean you should end there. Try to set aside 5 to 10% of your monthly salary in a savings account and invest whenever you accumulate 50,000 pesos or thereabouts.

2. Short or long term? Definitely long term, regardless of the size of your investment. Why? I'm sure you neither have the time nor the patience to actively play the investment game; don't get me wrong, most of us wouldn't. The best thing to do, in my opinion, is invest, close your eyes, and cash out at the opportune time (when you get married, decide to buy a new house, retire, etc.). Remember, the longer you wait, the higher the chance your investment will have grown appreciably, and that's a fact.

3. Microbusiness? Like a franchise or something? One thing that kind of investment requires is time, yours or someone else's. I've actually been thinking of the doing same thing: I've playing around with a business idea or two this past year, but I know that all of that will have to wait for either me to come back to the Philippines, or find a suitable and capable business partner who can manage the business in my stead. So until you find a way to resolve this issue, like me, you'll have to stick with investments you can easily manage while you're there.

4. Philippines or Singapore? Even before coming here, I've been looking for ways to manage investments in the Philippines (specifically, in UITFs) while I'm in Hong Kong; suffice it to say, I was not able to find one. There are advantages to investing in Philippine funds: fees are lower and the entire system is significantly more conservative than what they have in the US, Hong Kong, and Singapore, so we are somewhat less affected by global financial crises, like what happened in 2008.

Of course, there are also valuable advantages to investing in more developed markets like Hong Kong and Singapore. Unfortunately, I now have to go back to studying, so I will have to talk about all of these things in Part 2. :)

Answers for Thursdee, Part 2: BPI Family's Plan Ahead Time Deposit, T-Bills, and Bonds

DEAR INVESTOR JUAN

As promised, here are my answers to the rest of Thursdee's questions.

2. We were supposed to place 100,000 pesos in BPI Family's Plan Ahead account. Have you heard of this? It indicated 4.5% monthly income but the money would be locked for 5 years. Is this a good investment?

BPI Family's Plan Ahead account is basically a five-year time deposit product that is also offered by other banks, albeit at different interest rates. Five-year time deposits are attractive to some investors because interest income from these accounts are tax-free (the 20% tax is waived by law); of course, the caveat is that you won't be able to use your money for five years, which is a considerable amount of time to give up access to capital for most people.

We see the following details about the product from BPI's website:

Now we see why you thought this investment would provide a "monthly income" of 4.5%, or 54% per year, a figure that's closer to what loan sharks charge than what actually exists in "formal" markets; 4.5% is actually a yearly and not a monthly rate. The label "monthly" just means interest will be paid to you every month, amounting to 0.375% of your investment, instead of every year. 

This practice of misleading depositors, inadvertently or not, actually borders on being unethical, not just for BPI but other banks as well; I just say "borders" because because the bank actually does say in its website that the rate is an annual rate, although in a not-so-obvious way.

That being said, it does not necessarily mean that Plan Ahead is a bad product. But try to shop around for better rates from other, similarly reputable banks. Or if you have no qualms about investing in rural banks and are willing to completely place your trust in the Philippine Deposit Insurance Corporation (which insures bank deposits of up to 500 thousand pesos), they you may consider investing in these five-year deposits, most of which feature rates that are twice as high as that offered by BPI and other commercial banks.

3. Can you tell me more about Treasury bills and bonds? Is it really risk-free. I read also from one of the websites I came about during my "research" that it provides higher yield than time deposit accounts. Should we invest our 100,000 here instead of BPI's five-year time deposit?

Treasury bills or T-bills are short-term (one year or less) debt instruments offered by the government to investors; it basically represents what the government borrows from the investing public. Treasury securities (including Treasury bonds which are long-term) are considered "risk-free" only in the sense that it's impossible for the government to not be able to pay what it owes; as a last resort, the government can always just print money to pay off its debt, but of course while devaluing the currency at the same time. So strictly, treasuries are not really completely risk free since what investors earn can actually lose purchasing power, most likely from inflation. Still, since they are regarded as safe investments, they offer the lowest possible returns among available investment instruments (remember the high risk, high return rule).

A bond is just a generic type of long-term debt instrument that is sold by the government (Treasury bonds) or corporations (corporate bonds). Corporate bonds are riskier than government securities because it's entirely possible for corporate issuers to default on their debt (since they don't have an option to print their own money), and thus provide higher returns than Treasury securities. The last time I checked, annual returns on corporate bonds are in the range of 5 to 6% per year, after tax.

Both T-bills and bonds are sold by most banks and other brokers, albeit at higher minimum required investment amounts than other investment instruments. But there are alternatives for retail investors like you and I. If you want a safe investment similar to T-bills, you can always just invest in a time deposit account, or even a money market fund (mutual or UITF) so you won't sacrifice liquidity (meaning you can always sell your holdings at no or low cost). If you're comfortable with the additional risk of bonds (which significantly less than what you'll get from investing in stocks), then you can just invest in bond funds.

I hope you're satisfied with my answers to your questions, Thursdee. Happy investing and good luck. :)

Study Break

FINANCIAL TUMBLR-ISM

The problem with being a student (again!) is that you never seem to run out of student-things to do. In the next couple of weeks, I'll be busy preparing for three final exams, one project presentation (on Saturday!), and a term paper.

I've been busy working on a couple of these requirements these past few days, so I didn't have time to prepare anything worthwhile for today. So I'll just leave you with a little nugget of financial wisdom I picked up from the good ol' interwebs.

I'll be back on Monday with a fresh, new post. That's a guarantee. :)