To earn more, Filipinos need to be less risk-averse

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To earn more, Filipinos need to be less risk-averse
Posted: 11:14 PM | Apr. 03, 2005
Elizabeth L. Sanchez
Inquirer News Service

A LOT of Filipinos have lost their shirts to investment scams and other money-making ventures that promised stratospheric yields.

Bigshot brokers who made their fortunes in the stock market like Wilson Sy or Ignacio Gimenez admit to losing money first before making it big.

Market experts however say Filipinos have more than just an allergic reaction to the very mention of risk when it comes to hard-earned money and lifetime savings.

In a recent launch by mutual fund PhilEquity Fund of its new partnership with eBiz, PhilEquity Management Inc. chair Roberto Lorayes says Filipinos are not natural investors.

In fact, there are a number of reasons why Filipinos are conservative when it comes to investing.

Lorayes says most Filipinos are risk-averse, they don't know where to put their money in, they seem to see a lack of investment opportunities and are overly brand name conscious.

He also notes that as a result of this conservative mindset, most Filipinos prefer to put their money in government securities or time deposits. Of course there is nothing wrong with that.

But what is happening is a situation of "dis-savings" where the investor suffers economic losses because of accelerating inflation at 8.5 percent to date against the returns they get from short-term fixed income investments like the 90-day Treasury bill at around 6.7 percent and the 90-day time deposit at 5.375 percent.

Author and financial adviser Francisco Colayco talks of another mindset wherein the common man wants to earn more because he feels the solution to financial security is to own and run a business. The common man also thinks there is no sense to save since savings don't give good earnings and that somehow, someone will always provide.

Mutual funds

Colayco says this is where mutual funds can expand wealth. Mutual funds are a pool of funds that are invested in fixed income securities or stocks and offer a certain yield.

"The mutual fund industry is a great equalizer. It makes the law of large numbers work for the common investor. Mutual funds to my mind has offered to us the platform for personal growth," he sais.

Colayco says in order to create wealth, investors should generally follow the 80/20 rule. This means one should set aside 20 percent of one's active income to create passive income while the 80 percent sustains one's needs.

An ordinary man which earns P20,000 a month or P240,000 a year for instance can grow his income to as much as P360,000 on the fifth year if he puts 20 percent of his money in a mutual fund like PhilEquity Fund Inc., assuming the interest rate earned a year from the fund is at least 15 percent.

"This is to me the magic of mutual funds or the magic of passive entrepreneurship. The challenge is to make this available to the ordinary income earner without too much frontloading," Colayco says.

Philequity fund

To respond to the challenge, PhilEquity Management through its flagship product PhilEquity Fund, is reaching out to the common investors by partnering with eBusiness Services Inc. to promote its products.

eBusiness Services is a subsidiary of iVantage Corp. and is engaged in financial services such as remittances.

Meantime, PhilEquity Fund is invested in a selection of stocks usually blue chip issues. In its 10-year operating history, it has generated a compounded annual return of 20 percent.

Aside from stocks PhilEquity also offers windows to invest in money market funds (i.e.Tbills) through its Money Market Fund; dollar bonds including Philippine sovereign dollar debt through its Dollar Income Fund; and invest in the composite index through its Index Fund.

One needs to shell out only P5,000 and for additional investments, at least P1,000. Shares in the mutual fund can be redeemed anytime the investor wishes to. A small fee is charged to those investors who wish to divest their investments before the end of two years or usually 2 percent of the total redemption proceeds if redeemed on the first year, 1.5 percent on the second year and none after the second year.

An investor could also invest through any of e-Biz's 12 branches nationwide.

With the stock market recently boosted by foreign funds, Lorayes is confident foreign money will stay here for some thing , specially after seeing at the government is taking bold steps in solving the country's fiscal problem.

Lorayes adds the growth in the stock market is supported by higher corporate incomes and the fast growing business process outsourcing industry or call centers.

"Because of all of these call centers, many unutilized condos are beginning to be occupied. Normally the stock market precedes a real estate boom and so you are now beginning to see that the property market is strengthening. Things are looking positively and foreign funds are moving heavily into Asia," Lorayes says.

In January, the PSE emerged as the best-performing stock exchange in the region with the 30-company composite index surging 10.8 percent or 196.73 points to 2,019.56 from 1,822.83 in December last year. It was the second-best performer in 2004.

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