By Randell Tiongson, RFP
As I was about to write this column, I had what writers call a ‘writer’s block’ which is really a lame excuse for not writing, haha. I wanted to write something the readers would like to read about so I asked my Twitter followers for suggestions for a topic. I got quite a number of nice tips but the suggestion of Abie Aquino caught my fancy – she asked “where should OFWs invest their money?”
We all know how the country’s economy is kept afloat by the OFW remittances which continue to grow despite the odds. In fact, many experts feel that remittances should have been in a decline for the last few years. Yet, year after year, we are amazed that the amount of money being sent home still continues to surge, notwithstanding the situation of many of the countries that employ our brothers and sisters. Credit to this phenomenon can only be given to the OFWs themselves, their unbelievable resilience and unrelenting spirit. One needs to look beyond the numbers to truly fathom this phenomenon — we need to really to spend time with our OFWs and their families to better understand them and I am blessed to have done so, in quite a number of occasions.
In my time with the OFWs, I see something that is quite consistent with all of them. Our brothers and sisters abroad have a keen ability to endure adversity and make sacrifices for their loved ones. The longing for their families, long work hours, unfair labor practices, hostile and dangerous environments and discrimination are just a few of what an OFW endures on a daily basis. All of these, an OFW endures so that he can uplift the standard of living of his loved ones and he can finally achieve some financial freedom. In other words, sacrifice heavily now for a secured future.
We all know that a disturbing number of our OFWs do not end up having a secured future. While they may experience improved standards of living, it is normally unsustainable. The moment an OFW stops being employed, contracts get cut or not renewed, everything seems crashing down for many of them. Further, stories of OFWs who clocked in decades of servitude overseas yet experiencing near poverty levels during retirement continue to hound us. It is sad that all the years of labor and sacrifice will be in vain, so it seems.
Investment formula for OFWs
What can the OFW do then? Here’s a formula that I recommend to OFWs and to everyone as well. Spend less than what you earn, invest the difference and do it over a long, long period of time. It starts with money management and prosperity really starts with savings. As the OFW builds up his savings, he can start to put his money into work and build up his nest egg. Where should the OFW should put his money? That depends on many factors: investment objective, time frame, acumen, and risk tolerance to name a few.
I notice the favorite investments of OFWs are real estate and small businesses. They are great investments that can really build capital and provide a steady stream of income. For a small (or big) business, it is crucial that the OFW or his spouse should have both the mindset and the skills of an entrepreneur. Business is never easy and it requires a lot of dedication, yet it is one that can really generate the most growth.
The nature of any business is also a speculative one so one should realize the risks inherent in a business venture. Real estate is a less volatile investment as compared to a business and can likewise generate good capital growth and income. However, real estate locks liquidity and can be difficult to acquire since it requires a lot of money to own a property. Further, many investors end up locking all their money into a property only to realize later that the growth and income derived may not be as much as he wanted it to be.
The OFW can also look at financial instruments and there’s a lot to choose from. Debt instruments like time deposits, special deposit accounts (SDA), treasury notes and corporate bonds can and should be part of the investment – they are relatively low risk and great for liquidity purposes. However, debt instruments have unappealing returns and may not be a good hedge against inflation. The stock market is also something that they can consider, they are great for capital and a fantastic way to hedge against inflation but the investors must always be mindful of the many risks involve. Capital loss should be expected as much as capital gains while investing in the equities market. Pooled funds are also great vehicles for the OFWs. They come in the form of Mutual Funds, Unit Investment Trust Fund (UITF) or Variable Life Insurance (Investment linked). Such pooled funds have low entry amounts and they can benefit from professional money management. They are relatively liquid and depending on the fund, they can generate good capital growth. Downside in investing in pooled funds is that it carries an investment management cost and it carries no guarantees.
So, where should the OFW put his money? I say that he should try several and learn to diversify. It is foolish to think that one investment can answer all our needs and to be frank, having only one kind of an investment can be too risky for my taste. Here’s another suggestion I urge the OFWs (and everyone else) to make – invest in financial education. Financial education will answer the many financial questions we ask.
Randell Tiongson is an advocate of Life & Personal Finance. He is a Di rector of the Registered Financial Planner Institute (Phil s.), a columnist of the Philippine Daily Inquirer and has over 20 years experience in the financial services industry. For speaking engagements, financial planning, training and consultancy, write to firstname.lastname@example.org. To read his personal finance blogs, visit www.randelltiongson.com