MY MONEY STORY

Learning to Save and Invest Early
By Yvette Michelle Llanos Dee Yao

Belonging to a traditional Chinese family, I was raised to be very frugal, hardworking, business-minded, and practical. I sure was and still am. I remember saving most of the allowance given to me when I was a kid. My mother would always tease me that I am so kuripot that the only thing I buy in school was water. But even that is not true because I bring my own water jug and would not need to buy one.

When I get my ampaos (red envelopes with money) during birthdays and Christmas, I have the money deposited straight to my bank account. I never got the habit of spending money given to me. If it’s not anything important, then it is not worth spending on. At an early age, I already formed the habit of saving, thanks to my mother.

When I was in high school, I remember my father handing me an ATM and told me to use it if I need anything to spend on. I just looked at it, placed it in my wallet, and it stayed there for a really long time—untouched. I never withdrew money from that ATM and my father just told me one day that he already cut it. I wasn’t given another ATM since then.

I rarely ask money from my parents, except when I needed to buy an expensive book, photocopy a lot of school materials, or join a field trip. How did I manage to save so much? Simple, I started saving early, and on top of that I looked for alternative sources of income. Being Chinese, most of my summer was spent helping out in the business where we got some form of compensation. I also spent my summer being a student assistant in ICA, where we also get paid for helping out during enrollment. During my stint there, I was even able to get a tutee and had managed to take on the tutor role for a year. From time to time, I also sell stuff like cell phone batteries, CDs, gift items, and accessories to my friends.

On my own

When I stepped into college in 2000, I wanted to start handling my own finances. I got all my money from my mother and asked the permission of my father to let me handle all of my money. I wanted to have it consolidated so I’ll get a better picture of how much I had. I remember the reaction of our secretary when I told her that I wanted to get my money from my father, she was both surprised and proud. It was never expected. There was never a contention, most probably because they knew I wouldn’t spend it on anything impractical.

I wanted to try out investing and so I converted 70% of the money I had to dollars. I bought it at P53.85. After a month or so it started going up and – voila! – the next time I checked it was already at P56. Was that a good decision, especially now that the exchange rate is roughly at 46? Well, let’s just say it pays to be disciplined and invest early, even if the outcome is not necessarily favorable.

My pesos and dollars were both placed in time deposits, with very low rates. I asked my mother if there is a better alternative in the market. She then introduced me to CTFs (common trust funds), which are now known as UITFs (unit investment trust funds). I pooled my money with my mother to get a better rate, the minimum was $10,000.

Catching the investing bug

In my third year of college, I took up a Financial Investment Analysis class under George Gohu. I enjoyed it very much. We were asked to participate in an online trading competition, Virtual Tycoon. It was during that time that I developed a love for the stock market.

When I graduated from Ateneo and joined Philamlife-AIG as a management trainee, my financial world became bigger. I got introduced to so many things. The first thing I tried was mutual funds, which gave me very good yields. Being an employee of an insurance company, I purchased several personal insurance as well since I would eventually need it, especially when I get married.

2004 was my debut year in the stock market. My first stocks were IPO issues of SM and MWC. Too bad I wasn’t able to hold on to my MWC, which would have tripled in value by now. My knowledge and experience in the market got broader year after year. After seeing that my broker won’t lower down the commission fees they charged me, I opted to trade online. It was then that I met Juanis Barredo and Conrado Bate of CitisecOnline.com who gave me valuable insights that help changed my trading habits, from a speculator and day trader to a more disciplined and keener investor.

But this doesn’t mean I don’t lose money. I do but I have learned to cut losses which I believe is something most people, especially first time investors, won’t do. Choosing the right stocks and holding on for the long term is also key in investing in this market. If one has little time and minimal level of expertise, it is better to invest in mutual funds, UITFs, or variable life insurance.

To date, I have already tried on quite a handful of financial instruments – CASA accounts, time deposits, mutual funds, insurance, stocks, UITFs, corporate notes issued through banks, and even currency trading. But the number of instruments a person has is not a measure of how financially adept a person is. What is more important is that a person understand how these instruments work and whether it has a role to play in her portfolio – either as a diversification tool or to meet her financial goals.

If asked how early one should invest, I would say that it should be as soon as possible. Kids should be taught about saving and investing at an early age. Financial discipline has to be ingrained to the children’s mentality as soon as they can understand it. My colleagues would actually tease me that the first word my baby would utter would be “A-C” (trading symbol for Ayala Corporation). Kids or teenagers should also be given a freehand on how to spend and invest their money (with some supervision). On top of that, a person should learn to explore and read about the instruments that interest him or her. Do not procrastinate investing and don’t be lazy in filling out those application forms.

My friend asked me what made it easy for me to decide to get married, I quickly replied “be financially independent” and everything follows.

[sidebar]

MY MONEY LESSONS

The ABCs of Investing

Yvette Michelle Llanos Dee Yao caught the investing bug early on. Here are some things she learned:

1. Make mistakes early. Yvette started investing in currencies, converting 70% of her savings to dollars. It went up, only to later fall in value. Despite the loss, she says it still pays to be disciplined and invest early than not trying at all.
2. Try everything. She has not used lack of knowledge as an excuse for not investing. Rather, Yvette has tried all sorts of investment vehicles, from time deposits to stocks. But she got into them after understanding how they work and how they would contribute to her portfolio.
3. Don’t procrastinate. Procrastination is one of the biggest obstacles to investing. Yvette believes kids should be taught about money as early as possible and teenagers should be given a free hand (with some handholding) in managing their money.

EXPERT ADVICE>INCOME-TACTS.COM

By Kendrick Chua

Unleashing the Animal Instinct within You

With the ongoing and seemingly prolonged global financial crisis, it is wise to take a step back and examine our investing attitude. Metaphorically, each of us portrays a particular animal with our investing attitude and our animal instincts may be indicative of how our personalities are dealing with the on-going turmoil. But ever wondered which animal you are? Let’s find out.

Bull

The Bull represents optimism and hope. He always sees opportunity in every crisis and is not daunted by the economic condition no matter how bleak it seems to be. As a result, he has a long term view on his investments and doesn’t mind the extreme volatility or even if his portfolio drops 50%! He believes it will bounce back “eventually.” You’ll love to be in the Bull’s company as his optimism rubs on you. The Bull believes this is going to be a fantastic year as he shares the spotlight with his cousin, the Ox.

Bear

The Bear is the extreme opposite of the Bull. He predicts gloom and doom, believes each economic crisis is the “worst there is” and every where he looks, he sees the sky falling. He is far worse than Chicken Little. The bear invests for the short term. Any profit, no matter how small, is quickly locked in because he fears that tomorrow or the next minute, the market is going to crash. The Bear short sells everything in hopes that the market does indeed crash. But after the smoke has cleared the problem is no bigger than an acorn dropping on his head. Refrain from being in the territory of the bear, he will eat you alive.

Pig

The Pig is greedy to say the least. He gobbles up everything in sight. The Pig still holds on to his stocks long after he should have locked profits. If there were run-ups during the bull market hey-days such as Paxys (PAX) and Pacifica (PA), he feels there should be several run-ups coming again and so he stayed and held his positions only to find out later on that the Bear is already sizing him up ready to chow him down.

Chicken

The Chicken lives up to his name, constantly being fearful of everything. On bull runs, he is scared that the moment he invests, the market will start to go down and go into a deep and prolonged correction. Yet, he is also afraid of bear markets for fear that the market can go even lower than the current levels. As a result, Chickens stays invested in time deposits and complain to other Chickens that the yields are low. The Chicken loves misery and he looks for company.

Turkey

This avian creature is slightly braver than his cousin, the Chicken. The significant difference between the two is that while the Chicken is too, well, chicken, the Turkey is gullible. He takes pride in joining the bandwagon, believing that where most people place their money is a sure thing. It follows high-profile analysts and acts on their recommendation even though conventional wisdom tells otherwise. An example would be Jim Cramer adamantly calling a hold on Bear Stearns. Turkeys followed his advice and suffered.

Vulture

Known as the scavenger of the market, the Vulture buys investments that are long dead and forgotten. He lives up to his name and profited from the great bull run of the PSEi from 2003 to 2007 by either investing in individual stocks or mutual funds. Both reaped handsome rewards. The Vulture now circles the sky ready to swoop down once again anytime soon for dead and battered stocks—truly a feast for him.

Cheetah

The fastest creature in the financial market, the Cheetah loves trading actions. He uses technical analysis and often buys and sells several stocks in a single day. The faster the action, the better it is for him! He loves the adrenaline rush especially on key-reversal days! With the advent of online trading, things just got faster for him. He doesn’t look at any P/E ratio or EPS. For him, the time spent analyzing fundamental data can be better use plotting target prices and chasing break-outs.

Tortoise

The Tortoise abides by the slow-and-steady rule. He doesn’t get enticed by get-rich-quick and other Ponzi schemes. But when he does have second thoughts, he reminds himself that after all, it was his uncle that outran the hare in the race and he too will get his fair share of success. The Tortoise invested early in his life and does this regularly and is on track in building a sizeable nest egg by the time the race is finish. Whereas now he is being laughed at, by then, he will do the laughing.

Lion

The Lion is neither an optimist nor pessimist. He is a realist. And because of this, he has a well-diversified portfolio that can shield him from the Bear’s claw. He stacked up on cash on the sidelines and likes to do some scavenging before the Vulture scoops down. Moreover, he knows when to sell a battered stock or hold on to a winner. He does thorough research before plowing in funds and roars on the investment gurus that announces hot tips (he has their heads for breakfast). The Lion didn’t achieve his status as the king of the jungle. He did this by prudently managing his funds since he was a cub.

So which animal are you?

PULL QUOTE

The Tortoise abides by the slow-and-steady rule. He doesn’t get enticed by get-rich-quick and other Ponzi schemes. But when he does have second thoughts, he reminds himself that after all, it was his uncle that outran the hare in the race and he too will get his fair share of success.

PROFILE

Kendrick Chua started his career as a life underwriter and licensed mutual fund representative for one of the leading financial institutions in the country three years ago. He is a regular contrinutor to Income-Tacts (www.income-tacts.com), the country’s premiere on-line community on personal finance. A marketing management graduate from De La Salle University in 2005, he has always shown strong interest and enthusiasm in financial planning and investment management. Other financial articles can be read in his blog, www.thewealthwarrior.net. Comments and suggestions may be sent to Kendrick.c.chua@sunlife.com

EASY MONEY>MONEY VOCABULARY

FOREX

Are you into forex trading? Test your know-how in this vocabulary quiz.

1. Flat adj. A: smooth currency movement. B: neither long nor short position. C: zero trading profit. D: a bad note.

2. Indicative Quote n. A: guaranteed price. B: forecast price. C: estimated price. D: fixed price.

3. Cross Rate n. A: exchange rate between two non-official currencies. B: exchange rate between two currencies. C: bid price for one currency. D: ask price for one currency.

4. Euroyen n. A: yen deposits held in Europe. B: euro deposits held in Japan. C: yen deposits held outside Japan. D: euro deposits held outside Europe.

5. Soft adj. a currency that A: is made of paper bills. B: fluctuates often. C: is relatively stable. D: is not hard.

6. Pip n. A: smallest price change. B: the currency of Papua New Guinea. C: a famous 70’s Filipino actor. D: a newly hired currency trader.

7. Mine and Yours n. A: currencies held by opposing traders. B: term to signify buying and selling. C: term which means profit and loss. D: positions held in two currencies.

8. Loonie n. A: a crazy currency trader. B: wild volatility in the forex market. C: a currency speculator. D: Canadian dollar.

9. Flip n. A: shift from long to short positions. B: shift from short to long positions. C: quick trading of a currency for another. D: another term for loonie.

10. Spot Trade n. a trade A: to be settled at a future date. B: already settled. C: settled for immediate delivery. D: settled at a fixed price.

ANSWERS:

1. B. 2. C. 3. A. 4. C. 5. B. 6. A. 7. B. 8. D. 9. A. 10 C.

EASY MONEY>CLICK

Most Popular Personal Finance Blogs

There are literally hundreds of personal finance blogs worldwide. For this list, we borrowed from the “Top 100+ Personal Finance Blogs” list of Wisebread.com, which ranked more than 200 blogs based on traffic – a pretty good measure of popularity. We got the top 10 and here’s what we think.

1. Consumerist

www.consumerist.com

What’s good: It’s produced by Consumers Union, the publisher of the ultimate buyer’s guide Consumer Reports, so you can expect objective, well-research information. Although run by a bunch of professional editors, it doesn’t take itself too seriously (see entries like “Cops Find “Ball of Pubic Hair” in Wendy’s Sandwich, Act Surprised”). Besides, it’s the 38^th most popular blog in the world.

What’s bad: It suffers from too many categories (although some titles are a lot of fun, e.g. Evil, Badvertising, and WCIA, which stands for Worst Company in America) and confusing navigation. While there are tips on buying and saving money, it’s largely a consumer alert service.

Most linked post: Facebook’s New Terms Of Service: “We Can Do Anything We Want With Your Content. Forever.”

Recommendation: Browse it

2. SavingsAdvice.com

www.savingadvice.com

What’s good: Run by a couple of bloggers with a pool of writers, it is very much a great resource for savings tips, with categories such as Cars, Credit Cards, Health, Shopping, and Travel. Beyond the blog, it features forums, newsletters, calculators, forums, and blogs of other members.

What’s bad: There’s too much going on, so just stick to the blog if you want to keep it simple.

Most linked post: 20 Firefox Extensions That Will Save You Money

Recommendation: Browse it

3. Wise Bread

www.wisebread.com

What’s good: A money-saving blog run by a community of 21 bloggers, it covers five main areas – Personal Finance, Frugal Living, Career and Income, Life Hacks, and Deals and Coupons – and several sub-categories under each. The diversity of bloggers makes for an interesting mix of views and advice. Plus the interface and navigation are clean.

What’s bad: There’s little to dislike, except maybe it lacks the quirkiness of individual, truly personal blogs.

Most linked post: Remove Car Dents Quickly and Cheaply

Recommendation: Bookmark it

4. The Simple Dollar

www.thesimpledollar.com

What’s good: Written by a 20-something guy named Trent Hamm who went through his own financial meltdown but has gotten back on track, it’s full of practical tips based on his personal experience. Most of the entries are written in the format of itemized tips, making for easy reading. And the obscure pop culture reference makes it a fun read.

What’s bad: Too many categories.

Most linked post: 30 Essential Pieces of Free (and Open) Software for Windows

Recommendation: Bookmark it

5. Bargaineering

www.bargaineering.com

What’s good: Started by then fresh graduate Jim Wang, and how co-written with two contributors, the blog is a mix of financial news, personal accounts, and money tips under three simple categories – Banking, Credit Cards, and Frugal Living. A new interesting category is Devil’s Advocate, a contrarian view of conventional financial advice.

What’s bad: Advice from someone in his mid-twenties with no financial background can come off as a little unsure sometimes, especially in the defensive tone on some of his Devil’s Advocate entries.

Most linked post: 2008 Federal Income Tax Brackets: Official IRS Figures

Recommendation: Browse it

6. My Money Blog

www.mymoneyblog.com

What’s good: One of the earliest personal finance blogs, it belongs to a subset of anonymous bloggers who actually post their financial information and track their progress toward financial freedom (net worth at $213,190, from practically zero when he started the blog in 2004). You get to see his investment portfolio, learn from his mistakes, enjoy the numerous interesting charts, and be inspired by his progress.

What’s bad: It’s a solid, all-around personal finance blogs, so there’s nothing to quibble about.

Most linked post: Best No/Low Fee 0% APR Balance Transfer Offers

Recommendation: Bookmark it

7. The Digerati Life

www.thedigeratilife.com

What’s good: Here’s a woman’s take on personal finance (from the point of view of a Silicon Valley software engineer, although she has since turned pro-blogger full-time). You’ll find entries you’d rarely find elsewhere, like “The Economics of Cosmetics” and “How to Look Good on a Budget.” Plus there’s a good coverage of career and entrepreneurship topics.

What’s bad: Despite the title, there’s little in the way of life hacks using technology, something you’d expect from a techie.

Most linked post: Fierce Financial Tips: The Carnival of Personal Finance

Recommendation: Bookmark it

8. Consumerism Commentary

www.consumerismcommentary.com

What’s good: A pioneer in personal finance blogging, Flexo started the blog to hold himself accountable for his finances. Now working with an associate editor, the site has grown and so has his net worth (from $13,150 in 2003 to the current $207,307). The topics cover banking, work, credit cards, investing, and saving, among other topics.

What’s bad: As with heavily-trafficked blogs of pro-bloggers, the ads can be distracting.

Most linked post: Economic Stimulus Tax Rebate Calculator

Recommendation: Browse it

9. Five Cent Nickel

www.fivecentnickel.com

What’s good: While many personal finance bloggers are single or married without kids, here you get the perspective of a family man with four kids. That shows in categories like Family & Life and House & Home.

What’s bad: There seems to be too many tax entries (not relevant to us), more than any other topic.

Most linked post: Dave Ramsey is Bad at Math

Recommendation: Browse it

10. Get Rich Slowly

www.getrichslowly.com

What’s good: It’s fairly new but it’s one of the best out there. Another of the financial journey genre, Money magazine has called it the most inspiring money blog.

What’s bad: Can’t find anything to complain about.

Most linked post: Which Online High-Yield Savings Account is Best?

Recommendation: Bookmark it

Weather Proof Investment Strategies
Through market crashes, financial crises, and economic slowdowns, you can follow some simple strategies to keep your portfolio from getting wiped out
By Doby Atilano

Every time the market undergoes a massive correction or when a crisis sprouts from any economy, investors are usually scared to start investing. We can see this through sales reports of most financial institutions during an economic crisis. In addition, investors are not just scared to reenter the market during the bad conditions; most have also lost a big portion of their investment portfolios so they will need as much cash to finance themselves during the difficult times. This leads many to have less disposable assets to invest in during the crisis.

However, this is not true for all investors. Those not focused on fund returns but on their investment strategy prevail even in tough times. Most of us have heard or learned through newspapers and investment gurus that “dollar cost averaging” is the best way to invest your money.

However, due to a lack of discipline or a swing of negative emotion, even investment gurus that teach the strategy or people that are well informed still deviate from it and incur massive losses especially during a crisis.

Usually, the reason is temptation to be over exposed during a flourishing market, which usually bites the investor’s back when the market turns sour the next day. A sharp and disciplined investor will first find out his risk appetite to determine how much risk he is willing to take and whether or not it is suitable for him to invest in equities, fixed income securities, treasuries, or a mixture. After which, he will be able to determine what proportion of his portfolio he should put in an asset class.

Diversification through time
Since most investment vehicles that provide significant returns swing up and down with greater volatility, one should only put a maximum of 10% of his monthly income in order to buy the same units or shares at different points in time – a method called “diversification through time” or “dollar cost averaging” (or in our case, peso cost averaging).

Some units will be purchased at an expensive price, which could lead to paper losses when the market dips, and some units will be purchased cheaply (in most cases during an economic crisis), which will compensate for the previous losses and magnify the returns during an inevitable rebound or an upswing in the market.

The key to be able to apply this method consistently even in hard times is to only expose a small amount of your earnings per month in a vehicle that moves up and down and to keep a considerable amount of liquidity. Some experienced investors only expose their interest income from their very liquid high yield deposit accounts. The more frequent and the longer an investor invests in one particular fund, the less risk he will have to take.

Financial history clearly shows that markets always end up higher in the long term. Furthermore, the risk is further reduced because of the investment frequency or diversification through time.

Generally, most investment products that provide substantial returns in the long term such as equities or stock move towards only that directions and that is upwards (when we are lucky), sideways, or downwards (which seems to occur more often these days). If we expose more than 10% of our savings in an investment tool that goes up and down, we will feel big losses and get affected if the market suddenly goes down.

In conclusion, investing during a downward trending market or even during a financial crisis makes sense if we apply “diversification through time” or “peso cost averaging” and if we only invest 10% or less from our monthly income.

We have also seen that investing more frequently into one particular investment that moves up and down can substantially reduce risk. Furthermore, risk can even be further reduced if the strategy is consistently followed during the long term. In essence applying peso cost averaging on a downward trending fund makes sense if done consistently and frequently over the long term as the unit prices of the chosen fund will be bought at very cheap prices, translating into magnified returns as soon as it recovers. Lastly, it also makes sense to brush off greed and not be tempted to get over exposed in volatile investments especially in a bull market as this can give significant losses when the market turns into a bear.

[Sidebar]

GAM JAPAN EQUITY FUND
This example shows the performance of one particular fund after a big crash and a slight rebound that is still marginally lower than its crash. In this example, the fund did not get back to its previous high five years ago.

If you invested a one-time investment of $6,000 five years ago last August 31, 2000, five years after or on August 31, 2005, his money would have shrunk to $4,717. In this case if the $6,000 invested is more than 10% or more of your monthly income, you would have felt the losses and directly hit your current lifestyle.

However, if you took a dollar cost averaging strategy instead of looking at the fund’s return, and you invest less than 10% per month of your income, you would have either minimized your losses or earned substantially more than the investor who just put most of his money in the fund at one point in time.

Our example shows that if you invested the same amount of $6,000 over the same time period but in installments of $100 per month, you would not only have reduced your risk but also would have generated a substantial amount of return. In our example, you would have made a 26% return and increased your investment to $7,605. In this case, substantial downward swings from the fund has spared you from sacrificing your current and future lifestyle as you only exposed 10% of you income monthly or $100 a month. Small investments every month or year will not hurt you especially when there is a big downturn in the market.

[PULL QUOTE]
5 Weather-Proof Investing Strategies
Follow these simple strategies to whether any financial storm:

1. Apply diversification through time or peso cost averaging, investing every month a fixed number of units to capture different prices, including cheap ones especially during an economic crisis.

2. Invest 10% or less from your monthly income to minimize your exposure.

3. Invest more frequently into one particular investment that moves up and down, to maximize peso cost averaging.

4. Avoid the temptation to get over exposed in volatile investments and get caught in a market bubble about to pop.

5. Stay for the long haul, as financial history clearly shows that markets always end up higher in the long term.

[PROFILE]
Doby Atilano is a registered financial planner and founder of the Global Investors Center, a pioneering education facility specializing in global portfolio management. Bringing together representatives from Fortune 500’s top fund management companies abroad as trainers, this facility is keen on educating the general public in independently choosing the right investment opportunities abroad.

The seminars convened within the Global Investor’s Center will help impart proper investment knowledge to its students, giving them the opportunity to maximize their investment portfolios in a global scale. Lectures available include “Positioning Your Personal Finances for the Inevitable Market Rebound,” “Forex Trading: The Basics in Currency Trading,” “Investment 101 for Newlyweds: Building for Your Future,” “Benefits of Managed Futures in a Well Diversified Portfolio,” and “Save for the Longest Vacation of Your Life: Your Retirement.”

To learn more about the Global Investors Center, call tel. nos. 994-7424 or 328-8858, e-mail inquiry@gicphil.com, or visit their Web site at www.gicphil.com.