Tag Archives: Risk

Is it Safe to Invest in Mutual Fund?

02 Tuesday Sep 2014

Posted by in Personal Financing

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Mutual funds

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The title of this post is a common question I encountered when I am conducting seminars and group study about Financial Literacy.

So is it really safe to invest in mutual fund? My answer depends on your definition of safe.

First of all there is No Risk Free Investment. Different type of Investment has its own associated risk. It only depends on how much risk you can take to define it as safe.

Mutual fund is managed by a fund manager, who are trained to manage pooled money. So with decision making with regards to fund allocation I can say that mutual fund is safe. Mutual Fund is also govern by SEC and have pass with different government strict rules before it could operate and received new funding from investor.

In addition, the money is being held by its associated banks and the money and not by the Fund Manager. Fund Managers only manage the transactions.

Money value of the funds depends on the daily NAVPS of a certain fund. There are days that the NAVPS is low and there are days that NAVPS is high. If the current NAVPS is lower than your purchased cost per unit then you are losing, but if the current NAVPS is higher than your purchased cost per unit then you are gaining. Of course purchased cost per unit includes fees ad other charges of the mutual fund company.

There are different types of Mutual Fund to choose from, they Equity Funds, Balance Fund, Fixed Income Funds (Bonds) and Money Market Funds. There are other type of funds but those mentioned are the common types of Mutual Funds.

Equity Funds has the highest risk while the Money Market Funds has the lowest risk. But you should also understand that the higher the risk of an investment the higher also the potential gain of it.

Before investing in Mutual fund you should asses your goals/objective. If the length of time is short then it is not recommended for you to proceed with risky investment. But if the length of time is long then an investor could go to a riskier investment. (ie. Saving for your 1 year old son college expenses)

I hope this simple post gives you an idea to answer the question mentioned in the title, “Is it Safe to Invest in Mutual Fund?”

Learn first before investing. Happy Investing.

I also believe in the saying, “If your fail to Plan then You Plan to Fail”.

Investing Needs Focus, No Risk Free Investment

22 Saturday Mar 2014

Posted by in Personal Financing

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If you decide to invest you need to be focus. You need to focus on your goals. I need to remind you the basics of investing, know your goal before investing into any investing vehicle.

invest-2

For short term goal, invest to a non-risky investment and for long term goal you may invest in riskier investment. It is a fact that time reduces the risk of any investment, but time does not eliminate the risk. Every investment has its own risk you just need to make sure that you understood the risk before allowing yourself to be part of that investment.

When a broker says that they are offering a “Risk Free” investment I could say that it is a scam, or the broker does not know what he is selling and he is only after the commission.

Many of my colleagues who got their insurance due to sales pitch of brokers does not know their policy well, they don’t even know why they get those insurance. And worse they feel that it is a burden paying those insurance.

Insurance is a must in investing. Without insurance, your investment might be wasted. Just imagine being sick without insurance, definitely the last resort to do is to touch your investment especially if you did not work out you emergency funds.

There are lots of investment vehicle, before going to a certain investment, learn and know the risk associated with it. Before getting the next investment you need to master the ins and out of your chosen investment.

In addition always remember not to keep all your eggs in a basket. Which mean don’t keep your investment in a single investment company. Diversify.

Learn to Start Investing

17 Monday Jun 2013

Posted by in Personal Financing

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One day when I was discussing about Financial Literacy in one of my colleagues, he told me that he doesn’t want additional insurance or any other investment because he have already invested in a reputable company. When I asked about his policy he cannot tell me anything about his investment in that particular company, what he have told me is that he is pretty sure that he will earn.

The next question I ask him was when did he think that he will earn from that investment and the answer was he did not know all he knew was he will earn because his friend invested in the same company and later earn more than 50% after 2 years.

It is so sad to know that there are lots of sales agent whose mission is just to sale, they don’t care if their client knows the risk that they are going to face. There are lots of sweet talk from different agent.

As an investor we need to know the specific details on how a certain company will make our money become bigger. We also need to know the risk that we might face after investing. We need to understand that there is NO risk free investment.

We need to ask everything from the sales agent, and if he cannot respond it only means that he/she is not the right person to advise you about the particular investment. But still give him a chance to ask his superior maybe his just new, but if he cannot answer it with in one day that means his support is weak.

We need to be wise in investing our hard earned money. Don’t make your friendship, family relationships, and church relationships as your basis of investment. You need decide after knowing the ins and outs of your investment.

In investing we need to have some goals, it is why you need to know the estimated time frame of growth of your investment.

This morning my youngest son, Daniel, 6.5 years old, gave me 1 Saudi Riyal (11 Php), he told me that he want to start investing like his older brother. I asked him about his goal and replied “ What is goal” and after discussing with him the meaning of goal he understood and told me that he want to buy his own Nintendo DS next year.

One Saudi Riyals

I am glad that at a young age my son is starting to understand the idea of investing. He understood that in order for him to get what he wants, he need to sacrifice a portion of his daily “baon” and stop buying some of his wants.

So if my son got the idea and decided to start savings, I challenge you to act and move to start saving for your goals.

GDP Up but Fails to Stir Up the Market

30 Thursday May 2013

Posted by in Stock Market

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Despite the First Quarter 2013 GDP report that grows with 7.8%, ahead of estimates, the market still fails to recover from it’s lost that started last week.

GDP

If you are like me who does not really understood what GDP means, except that I know it’s a country’s economic growth calculation, I have researched the meaning from investopedia.com as follow:

What is GDP?

The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period – you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

The market continues to goes down as of this writing. Nobody really knows until when will be this Philippine bullish market will end and bounce back.

As a long term investor, don’t panic. I still believe that it is just a market correction and still not a market crash.

Did you remember that the market started the year at 5,860.99 which is actually a record high on that time, and market closed today at 6953.35 which is 18.63% higher than it’s opening price also known as YTD.

YTD %
The percent gain or loss that the portfolio has achieved over the Year To Date (YTD) period. Refer to the “as of” date to determine the exact period.

Since I am in the stock market for almost 1.5 years, I don’t have this problem of panic, I know it’s just part of the market cycle.

For investors, this is really a good time to buy since the market is down and there is really a good chance that the market will bounce soon. Investors have 2 option if they have money to buy more stocks.

1.)   Buy on stages ( aka Peso Cost Averaging)

2.)   Buy until the market is on it’s lowest price.

Number 1, is easier because you will be doing cost averaging. On number 2, nobody really knows when it will be up or until when it will be bullish. Yes there is Technical Analysis, but when the market is affected by outside force, nobody knows what might happen.

I have read a news about “BASE III” but I still need to understand the effect of this to Philippine Economy or I can say Global Economy. Read More about BASE III here and here

For research purpose, I have copied some information in the net about this article:

What is BASE III

“Basel III” is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:

  • improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source
  • improve risk management and governance
  • strengthen banks’ transparency and disclosures.

The reforms target:

  • bank-level, or microprudential, regulation, which will help raise the resilience of individual banking institutions to periods of stress.
  • macroprudential, system wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time.

What is BIS?

As shown in Wikipedia:

The Bank for International Settlements (BIS) is an international organization of central banks which “fosters international monetary and financial cooperation and serves as a bank for central banks”.[2] As an international institution, it is not accountable to any single national government.

The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City

All I can say is that stay with your plan, if you cannot handle the loss then make a cut loss, and if not just close your online broker account and watch some movie. Do some research. For long term investor, like those people in Equity Mutual Fund, relax and wait for the rebound.

Always remember the Higher the Risk the higher the possible Returns, The Lower the Risk the Lower the possible returns. So it’s up to you on which investment path will you go.

The best thing to do is to study first. Remember that you don’t have to be emotional when it comes to stock market movement.

For OFW, Our exchange rate today is Php 42.36 : 1 USD, good for us.

Happy to report that after the closing today I still have 19.5% Gain YTD.

Mitigating Risk Via Diversification, Mentioned in The Bible

11 Thursday Apr 2013

Posted by in Personal Financing, Stock Market

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Ecclesiastes 11:2, clearly says that our investing should be diversified, so whatever happen to one, the other can compensate for the lost. When we do investing, a thorough study should be done in each investment that we make. Research is the main thing. All investment has it’s own risk but if we study it very well, we will be able to see that each investment has different risk. We might find a risk in a type of investment like mutual fund but it is not a risk when it comes to real state.

What a Wise Person Does

11 Invest your money in foreign trade, and one of these days you will make a profit. 2 Put your investments in several places—many places even—because you never know what kind of bad luck you are going to have in this world.

3 No matter which direction a tree falls, it will lie where it fell. When the clouds are full, it rains. 4 If you wait until the wind and the weather are just right, you will never plant anything and never harvest anything. 5 God made everything, and you can no more understand what he does than you understand how new life begins in the womb of a pregnant woman. 6 Do your planting in the morning and in the evening, too. You never know whether it will all grow well or whether one planting will do better than the other.

7 It is good to be able to enjoy the pleasant light of day. 8 Be grateful for every year you live. No matter how long you live, remember that you will be dead much longer. There is nothing at all to look forward to.

As an example doing a diversified portfolio in stock market is the best thing to do, if you want to mitigate some risk. In choosing stock, you need to choose from different sector. As an example, you might have some stock from Banks, Construction, Holdings, Industrial and more. Normally this different sectors will not perform the same. There will be gain in one sector and losses at other.

bible-ecclesiastes

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Ecclesiastes 11:4 says that we should not wait, but we need to act now. Procrastination should not be performed. And Ecclesiastes 11:6 it says that you need to be constant investor. In stock market there is what we called cost averaging. So it only means that you can buy anytime, even low or high it doesn’t matter. But of course this could only be applied to Long term investors and not for traders.

We will all go to the end of our life, we need to be a happy investors and not a stressful investor. Investing aims to make our life better and not to make our life in a misery just because of stress in the stock market.

If people will just follow what was mention in Ecclesiastes and just believe that God can do everything about your plans then be at peace whatever happen to your investment. If diversification fails it only means that the whole economy is going down. So do your part share what you have learn and make people financially literate but not greedy.

Be wise and learn the ins and out of investing. The riskiest thing is when you do not know anything. Happy Investing.

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