If you’re an OFW, you enjoy our most heartfelt gratitude: your remittances help support the Philippine economy in the global downturn, with inflows reaching record highs of $20.117 billion in 2011, as reported by the Bangko Sentral ng Pilipinas (BSP). But what happens to all that money when it hits our shores? If you’re wondering what else to do with your income after you’ve paid your kids’ tuition fees and built your house… where can you invest the rest?
With the Philippine economy on an apparent upswing, the opportunities for profit have also multiplied. Where you put your money depends on your appetite for risk and desire for return. Francisco J. Colayco, in his book Pera Mo, Palaguin Mo! suggests three factors that need to be evaluated prior to writing that check:
Appetite for risk: How safe—or how risky—is the investment? What are the risks that come with it? Colayco asks that you evaluate if “the financial return or income [is] commensurate to the risk [you are] taking,” while keeping in mind that the risks are not always financial.
“Sometimes it is not only money you are putting at risk,” Colayco reminds his readers. “It may also include family relations, reputation, your job security and other personal, professional relationships.”
Liquidity: “How long will my money be tied up?” Colayco suggests you ask. “May I withdraw anytime and convert it back to cash?”
Potential Yield: Is the advertised return on the investment higher than prevailing inflation rates?
You can take advantage of a wide variety of investment opportunities in the Philippines that offer the right mix of these three factors. These opportunities also have varying barriers to entry—mutual funds, for instance, may only require an initial minimum investment of about P5,000, while investments in medium-scale businesses or property may require that you sink in millions of pesos.
Let’s start with government securities, stocks and mutual funds. These short-term investments are good choices for investors with relatively modest sums to invest. Government securities are debt investments, i.e. you literally lend money to the government. Stocks represent units of ownership in companies, i.e. you buy a piece of a company. Mutual funds are collective investment schemes that trade in both government securities, stocks, and other securities.
You can buy government securities at any of the thirty-odd authorized government securities dealers (GSEDs) listed in the Bureau of Treasury. Banks and other financial concerns also offer a variety of mutual funds with varying degrees of risk and return. To get the most out of your investment, you’ll need to shop around for the right product.
It helps to ask the right people; personal finance blogger Fitz Villafuerte refers all such questions to his broker. “I always tell them, I’m not a stock market expert, so I’m not going to give you stock market advice. Go to Citisec online, they’re my stockbroker, and they offer free stock market investing seminars.”
Investing in businesses requires greater amounts of capital, know-how, and appetite for risk. Entrepreneurship carries with it a large potential for failure—“for the majority who are not truly prepared, their attempt to go into business, more likely, will fail,” says Colayco. For starter entrepreneurs, Colayco suggests buying a franchise instead.
“The advantage of getting a franchise is you minimize the risks involved in doing business,” explains Colayco. “[It’s] also one of the best ways to learn how to manage or run a particular business. When you buy a franchise you are also buying the opportunity to learn the whole business process, from sourcing of supplies to managing inventory and handling people, among other things.”
For starter tips on buying a franchise, read "Questions to ask before buying a red-hot franchise"
Investing in property requires the largest amounts of capital, and is the least liquid option among the ones listed here. “Look at your house as a good short-term investment only if you are able to buy it below the market value,” writes Armando Ang, author of Tips and Traps when Buying or Building a Home. “If you buy at the market rate, then your costs of buying and selling will almost always end in a loss on the deal.”
Investment in property has one shining upside: its value tends to appreciate over time. “It is a passive investment that increases in value by allowing market forces to work for you without sweat,” says Ang. “It’s a tangible asset that can grow in value as time passes by. It also serves both for shelter and an investment for future generations.”