Reliable investment options for your extra income
Breaking down the available options for investing your extra cash
It’s the best of times, it’s the worst of times, to borrow that classic line. The rise of populist leaders advocating isolationism and protectionism has shocked the free world. Our own country is reeling from drug war-related killings and the armed conflict in Mindanao.
Yet there’s still a lot of money chasing yields among local investors. Despite a slower-than-expected 6.4 percent gross domestic product (GDP) growth in the first quarter, the Philippines is still one of the fastest growing regions in the world.
One major source of optimism is the Philippine House of Representatives’ passing of the first phase of the tax reform package certified by President Duterte as an urgent piece of legislation. This package simplifies and lowers personal income tax rates while broadening value added tax coverage, rationalizing estate and donor’s tax, and adjusting oil and automobile excise taxes. It will put more money in the pockets of consumers and fund the government’s build-build-build infrastructure program. With the House version meeting the minimum reforms sought by the Department of Finance, all eyes are now on how the Senate version shapes up.
Given the current environment, we look at the potential implication on
different asset classes by asking investment experts. It’s not one-size-fits-all, and this is certainly not a recommendation to take on greater risks, but an attempt to explore some of the options out there in the market.
Debt securities are typically for conservative investors who are willing to accept a fixed return. Bonds issued by investment-grade sovereigns (such as the Philippine government) as well as those issued by top-tier corporations carry less default risks but also offer lower interest rates. On the other hand, lowerrated borrowers have to pay more to raise money. For existing bondholders, a downtrend in interest rates boosts the capital values of their bonds. But how about when the global trend is for interest rates to bottom out from record lows, like what is happening now?
In this environment, some investment experts say that while short-term rates have risen, there’s still an opportunity to make money out of longerdated instruments. “It depends on the curve; the more promising [period] is on the further end of the curve,” says ATR Asset Management head of research Jomar Lacson. One can invest in fixed income by buying these debt securities or by participating in pooled funds (mutual funds or unit investment trust funds) that invest primarily in fixed income.
When one buys company stocks, that person bets on that company’s prospects. The shareholder makes money if the price of stocks rises or if the company declares dividends. When the stock market is on a bull run, it doesn’t take a genius to make money as the tide typically lifts all boats. But when the market is toppish, selective stock picking is the name of the game.
In the case of the Philippine stock market, a lot of hope has been built into the passage of the tax reform program, which, in turn, is key to attaining the promise of a golden age of infrastructure. The good news is that many investment houses believe there’s room for the main-share Philippine Stock Exchange index to test new highs. COL Financial sees the index reaching 8,700 by this yearend while UBS expects the index to hit 8,800 through 2018.
The stock market is influenced by a lot of things: macroeconomic trajectory, corporate earnings, flow/rotation of funds between developed and emerging markets, even politics. It’s not an asset class for everyone. It’s suitable for people with a higher appetite for risks and excess funds they can invest for the long haul. Young people or parents setting up trust funds for their kids may opt to set aside a portion of their portfolio for stocks to benefit from long-term upside.
Stock investing can be addicting for some people who really monitor the market in real-time and act swiftly on potential catalysts on a day-to-day basis, but not everyone has the time or expertise to manage a portfolio. One option is to invest in equity-laced funds, thereby leaving your money to the hands of a professional manager. For newbies, one common strategy is pesocost averaging or buying one stock regularly over a long period of time. For people who are not sure what to buy, stock expert Mike Oyson says to just choose either Ayala Corp. or SM Investments Corp., noting that both of these conglomerates mimic the behavior of the PSEi. It’s just like choosing between business tycoons Jaime Zobel de Ayala and Teresita Sy-Coson: Whom would you trust to manage your money?
A banker once told me that you can’t go wrong with investing in real estate— and that if you do get it wrong, time can correct it. For many, an ideal way to build passive income is to have a portfolio of property assets, especially residential units, to lease out. The conventional wisdom is that there’s no way for property prices to go but up, especially in a growing economy. But the rate of increase in capital values can be faster or slower depending on the macro environment and the location of the property. When there’s too much supply of real estate for sale or rent, it’s more difficult to strike a deal. And of course, real estate, unlike stocks or bonds, is not a liquid asset class. Plus, it ties up capital. But for people with lots of excess cash who don’t know what to do with it, investing in real estate is an attractive proposition. For those really looking for greater upside, ATRAM’s Lacson says the key is to buy property in areas in the early stages of development, like the Bay area or Arca South.
Art is for the more discerning investor seeking diversification or wealth creation or both. The investor must have the time, passion, and discipline to hunt for pieces that will likely be more valuable in the future. But because art is in the eye of the beholder, pricing art isn’t as simple as counting the passing of time. Like real estate, art isn’t a liquid investment either so the investor must have a long-term horizon.
Authentication is also crucial when investing in art, especially if the artist has been dead for a long time. For contemporary art, some collectors just opt to buy directly from artists to make sure the pieces are authentic and so they don’t have to pay the middleman. Malaysian Valentine Willie, one of Southeast Asia’s most-sought art dealers before retiring in 2012, offers three tips:
1 Don’t lose sleep over your art purchase. Don’t borrow for it or spend your savings on it.
2 Ask advice from reputable dealers or do your own research to find overlooked corners or periods of art history.
3 Buy what you want to hang in your home. You may find that your investment could enrich you beyond your bank account. •
“Despite a slower-than-expected gross domestic product (GDP) growth in the first quarter, the Philippines is still one of the fastest growing regions in the world.”