Investment Ideas for Tough Times
October 01, 2020
Help your nest egg grow faster, by putting your funds into real estate and other hard-working investment instruments. By Bob Guerrero The slowdown caused by COVID-19 has blindsided many of us financially. So as we recover, it’s more important than ever to make your money work for you. Savings accounts in banks give a tiny interest rate; they are easily canceled out by inflation, meaning your savings actually lose a lot of value over time. This is why it’s advisable to place some of your money in these other instruments that can make your hard-earned cash grow much faster. Unit Investment Trust Funds (UITFs) and Mutual Funds Both of these instruments work the same way: money is pooled from many different people, and professional managers decide which stocks or other investments the money is placed in. There’s one key difference between the two: a UITF is a bank instrument governed by the Bangko Sentral ng Pilipinas, while a mutual fund is a corporation overseen by the Securities and Exchange Commission. Either system allows you to create a portfolio of funds based on your risk appetite. You can invest in conservative funds that give modest but generally safe returns; as well as more aggressive equity (stock market-based) funds that are riskier, but offer much higher returns should the market perform well. The best part of UITFs and mutual funds is that you can invest for as low as P5,000 to P10,000 in most of them. Most major banks offer UITFs. The UITF or mutual fund will update you regularly on the value of your investment. You can sell or add on any time you please. Since mutual funds and UITFs invest in a basket of equities or investments, your money is diversified, and is theoretically not as susceptible to volatility, compared to investing in individual stocks. Ayala REIT A REIT or Real Estate Investment Fund is a company that owns, operates, or finances income-generating real estate. It is similar to a mutual fund, in that investors can buy into it. The REIT then shares dividends to its investors at regular intervals. It’s a way of investing in and earning from real estate without having to actually pony up the large amounts needed to buy a property! Ayala Land started the first REIT in the Philippines, the AREIT, last August via an Initial Public Offering (IPO) with the Philippine Stock Exchange. AREIT owns and manages prime office spaces in Solaris One, Ayala North Exchange, and McKinley Exchange. It is predicted that a REIT can offer between 4.85 and 5.85 percent dividends yearly, and its share price behaves like a stock, going up and down. First Metro Philippine Equity Exchange Traded Fund (FMETF) An exchange traded fund (ETF) works like a cross between a mutual fund and a stock. Like a mutual fund, fund managers select a basket of stocks to invest in. In this case the composition is from the PSE Index, or the top publicly traded business in the nation. Like a stock, its price can go up and down and is traded in the PSE. Unlike in more developed economies, the Philippines only has a single ETF in play: the First Metro Philippine Equity Exchange Traded Fund (FMETF), which you can invest in through a stock broker or online exchange. As with UITFs and mutual funds, you can indirectly own stocks in many companies just by getting into one instrument. But unlike MFs or UITFs, the stock price of the FMETF can be tracked at any time during the trading day. Variable Universal Life (VUL) Insurance Life insurance is a great idea for breadwinners and heads of the family. A VUL from a reputable insurance company can give you a degree protection while allowing your money to grow. Some VULs also offer flexible premiums. If you wish to invest more, then put in a bigger amount. If you have a financial reversal then you might be able to reduce your premiums. You can also have access to the funds in case of an emergency. VULs give the best of both worlds: protection of insurance with the ability to invest. Real Estate In terms of security and guaranteed appreciation, land is still the Gold Standard. Yes, it requires a higher level of commitment – bigger income requirements and investment outlays, among other things – but the value they gain over time is almost unbeatable. For example, a lot in Ayala Alabang cost P230 per square meter (sqm) in 1978, but that investment benefited from a compounded annual growth rate (CAGR) of 16 to 17 percent through several recessions and recoveries. That same parcel is worth up to P110,000 per sqm today! Investing in real estate today is easier than you think; Avida Land has affordable, right-sized cuts with easy financing terms available. For the best value, check out Avida’s developments in the provinces, like Alviera in Pampanga, Altaraza in Bulacan, or Nuvali in Laguna. No matter what form of investment you choose, now is certainly the right time to jump in. COVID-19 has suppressed values, and once the pandemic ceases and the economy picks up, we can expect the value on these investments to soar.