Re­li­able in­vest­ment op­tions for your ex­tra in­come

Break­ing down the avail­able op­tions for in­vest­ing your ex­tra cash

Red Magazine - - Editor's Note | Contents - WORDS DORIS DUMLAO-ABADILLA ART NIMU MUALLAM

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.

Fixed in­come

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.

Eq­ui­ties

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?

Real estate

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

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.”

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