Saving is Not Investing

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In a recent article from BPI Asset Management, author Kleia Crucero highlighted why in the past 5 years, if you simply placed your money in a savings account or even a time-deposit account, you would have lost a fraction of your money's value due to inflation.

The five year average time deposit rate and 5 year average inflation rate for the Philippines are highlighted in the table below.  While your saving's numerical value actually increased, your money's purchasing power actually decreased by -2.49% annually due to inflation.

This article highlights the fact that we should strive to find other investment instruments that can effectively beat the inflation rate.  Possible alternatives are investing in bonds, stocks, mutual funds, or Unit Investment Trust funds (UITFs).

Continue reading the article to know more.

Saving is not Investing
by: Kleia Ann L. Crucero

According to the Bangko Sentral ng Pilipinas' Consumer Expectations Survey for the first quarter
of 2013, 24.5 percent (24.5%) of Philippine households had savings.  However, we have a habit of putting the money we set aside in either a savings or a time deposit account, often forgetting to pay attention to the “undercover robber” called, inflation.
Inflation is the rise in the prices of goods and services.  For example, a kilo of premium rice today costs P40 compared with P26.34 ten (10) years ago.  Because of the increase in prices, your money loses its purchasing power over time.  If you put your extra earnings in a savings deposit account, it will not earn as much as to keep up with the inflation.
The table below shows the 5-year average of both time deposit rate and inflation rate. Comparing both rates gives you a real rate of return of -2.49%. If you saved P10, 000 in 2008 and you placed it in a savings account, you actually lost P1, 431 during the five-year period!
According to the same survey, less than 1% of Manila households invest in mutual funds, stocks, corporate bonds or government securities.  Many of us do not consider investing because we either get intimidated by the word or we do not want to take risks.  In investing, you have to take some risk to reap the rewards. In the example below, if you place your money in a time deposit account, you would have earned P1, 199 for five (5) years. Had you invested in a bond fund, you would have earned P1, 914 more.

The illustration above is just one of the pooled funds managed by BPI. Pooled funds are investment outlets wherein various investors invest their money in a fund which in turn is invested by the fund manager in either fixed income or stocks.   In BPI, we have various funds to choose from suited to your risk profile.

The Philippines is now an investment grade country and the outlook of our economy for the rest of the year is promising.  This is the best time to invest.  In investing, you are not only beating inflation, you also let your money work for you.

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