Are US dollars still good investments?
EFREN Ll. CRUZ
Question: I am an OFW and I want to know if holding on to US Dollars and maybe investing them is a smart thing to do? – asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: You are working abroad to provide better opportunities for your family, chiefly through higher earnings. Earning in US dollars is a bonus provided you manage your finances well. What do I mean?
You can be likened to an expensive sports car. You are capable of earning enormous income, called human capital over your productive years as a sports car is capable of tremendous speed. However, if you merely spend your human capital instead of investing even a portion of it for your future so that you increase your earning potential, you are nothing but a sports car racing always in first gear.
Put another way, your hard work can be likened to running on a treadmill; no matter how hard you run, you are still in the same spot.
Therefore, just holding on to US dollars by keeping them in a “safe” savings account will not suffice. Of course, the old way of thinking is that the peso will eternally be weak versus the US dollar. But recent history has shown that the peso can appreciate versus the US dollar. And with global growth not anymore being centered on the United States, combined with the robust growth of the Philippine economy, there is a good chance that the peso will once more appreciate against the US greenback.
The rule of investing is that the higher the risk, the higher the potential return. Historically as well, investing in an emerging market like the Philippines comes with higher risk than investing in a highly developed economy such as the US. Such a situation will persist in the foreseeable future. Therefore, returns on Philippine investment securities should be potentially higher than those in the US.
So, is the conclusion to just convert your US dollars and invest everything in Philippine pesos? Not necessarily.
As I always say to people who ask about the best investment around, the answer will depend on your goals and risk preference. If you want to earn for a goal that will require a high return and where the fund will entirely be spent eventually in pesos, then by all means convert everything to pesos and invest locally. This way, you will avoid the currency risk that comes with investing in US dollars but eventually spending in pesos.
So, when should you invest in US dollars? If you can stomach the risk of cross currency investing, you may want to keep a part of your money in US dollars for investment globally, especially in other emerging markets where investing is initially required in US currency. Or you may keep in US dollars that portion of your funds that you will be spending also in US dollars, thus limiting your risk to just investment risk.
One last thing though, you may want to keep your money in pesos and invest it locally for what is called patriotic investing. If more and more Filipinos send money back home, the stronger will be the currency, the more money will there be for companies to use to grow their businesses, the more employment will there be, and the brighter the future will be for Filipinos.
(Efren Ll. Cruz is a seasoned investment adviser and Registered Financial Planner of RFP® Philippines. He can be reached at (0917) 505-0709 and at email@example.com. To know more about personal finance, please visit www.personalfinance.ph. To become a true financial planner, attend our three-day training from August 17-19, 2017 in Cebu City. Details are available at www.personalfinance.ph/fptraining.html.)