Money Magnets

Chinese Characters for "CRISIS"

I am a Money Magnet! We are Money Magnets!

By Nina Laquindanum

For quite some time now, investors throughout the world have continuously been shaken by the news from Europe. The debt crisis of Greece, the European Union’s bailout plan, and the shocking announcement of former Greek Prime Minister Papandreou to hold a referendum have just been some of the events in the past weeks that have left the world watching the drama unfold from the edge of their seats. The past few days, the focus has somehow shifted to Italy as investors remain cautious about whether it will be next to take the hot seat after Greece with its debt. While news in other parts of the world do not seem as drama-packed as Europe, the bankruptcy filed by MF Global Holdings Ltd., the high rate of unemployment in the United States, as well as the slowdown in the economy of China, are among the other stories which have made investors skittish about what lies ahead.

With the gloomy skies above and the rain starting to pour, here are some tips to help you stay calm during these stormy times:

As a rule of thumb, your emergency buffer fund should be enough to cover at least six (6) months of your monthly expenses. This fund is essential to ensure that you have ample liquidity should the need arise.

For a minimum investment of P10,000, you may start investing in BPI Short Term Fund and contribute regularly to this fund through BPI’s Regular Subscription Plan (RSP). The RSP will allow you to build your emergency buffer fund by investing a minimum of P1,000 every month or every quarter.

#2 Be Patient and Remember Your Investment Horizon

The Client Suitability Assessment of BPI Asset Management will require you to answer a question pertaining to your investment horizon. In a nutshell, investment horizon refers to the time or period that you are willing to hold your funds in an investment product in order to fully benefit from its gains.

For instance, it is recommended that investors in equity funds such as BPI Equity Fund or Odyssey Philippine High Conviction Equity Fund, should have an investment horizon of at least five (5) years. Therefore, if your investments dipped by around ten percent because of the current global situation, you should not be overly concerned since this is only paper loss. Actual loss would only be incurred if you redeem your investment at that point in time.

#3 Diversify Your Investments

It’s not the first time we’ve heard the saying: “Don’t put all of your eggs in one basket.” Investing in money market, bond, and equity funds helps mitigate risk by ensuring that your investment is well diversified at all times. When the market sentiment is positive, equities tend to outperform both money market and bond investments. However, when it starts to rain, it helps to have both money market and bond investments in your portfolio as their gains may help you weather the storm.

Invest in BPI Investment Funds. For only P10,000, you have an investment that is diversified and  invested in a broad range of securities.

Money Magnets Note:  While it is true that UITFs and Mutual Funds have the capability to invest in a diversified portfolio of securities, this will greatly depend on the type of fund that you subscribe to.  Lately, we have also grasped the meaning of what Warren Buffett meant when he said that diversification is for amateurs.  True enough, we realized that to some extent, diversification is only protection for ignorance.  If you know what you're doing, you don't need to increase your risk by availing of securities that you are not familiar of.  In some ways, you reduce your risk by sticking to what you know and you are familiar with.  When looking to invest in a new instrument, make it a point to learn more about that particular investment vehicle first before jumping in.  Also take in to account what Robert Kiyosaki had to say about not being truly diversified simply because you hold only paper assets (stocks, UITFs, Mutual Funds).

It pays to be honest about your risk tolerance. During bull markets, conservative investors may become blinded by potential returns of more aggressive investments only to find themselves unable to sleep at night once the market becomes bearish, and eventually succumbing to selling their investments while the market is down. It is good to keep in mind that the higher the risk, the higher the return. While there is nothing wrong with investing in instruments that have a higher risk classification than your current risk profile, just make sure that you only take risks that you are comfortable with. After all, investing should help you feel more secure and confident financially, not restless and uneasy.

BPI Asset Management offers clients a wide array of Investment Funds that caters to different types of risk profiles ensuring a better customer need-product fit.

While any storm may seem terrifying at times, it is good to look back at the past and realize that in spite of how cataclysmic past events may have seemed to be, both our local and global economy always recover and bounce back. Soon, the clouds will clear and the sun will shine again. Then, we will also be able to reap our rewards.