What are Mutual Funds and how it can work for you

Did you know that 9 out of 10 Filipinos are NOT preparing for their retirement? You could be one of them.

A survey by the Global Aging Institute showed that majority or 90% of Filipino employees have no savings, are in poor health, and would be a burden to their children when they retire.

Honestly, is your current financial situation pointing to that direction?

Four years ago, I was in a small conference when one of the participants asked me what I do for a living. I said that I was a freelance researcher with clients in the US and Canada, and that I earn in dollars.

I thought it would impress him but it was the opposite. With caution, he asked "San mo, iho, nilalagay yung earnings mo sa work?" Sa banko po," I responded with hesitation since I don't like talking with people about money. "Bukod sa banko, saan pa?"

I couldn't answer the second question since all my money was in a bank savings account.

That guy, who was in his fifties, told me that what I was doing was wrong. Then he gave me a brief lecture about compounding interest, and that he earned his first million in five years by investing Php 100,000 in a Mutual Fund and made regular monthly contributions of Php 10,000.

He told me,

"iho, make money work for you and you can be a millionaire."

His informal lecture hit me right in the head. I worked very hard just to earn money but couldn't breakthrough financially because I didn't make money work for me.

OK, SO WHAT ARE MUTUAL FUNDS?

See the video below by Mr. Aya Laraya of Pesos and Sense for an introduction on Mutual Funds:

There are other important benefits of investing money in Mutual Funds.

1. It's better than keeping your money in the bank. Bank interest rates for savings accounts in the Philippines are normally below 1%. If our country's annual inflation rate is a 3% to 4 %, it means your money is losing its value every year.

In an Equity Fund (i.e. Mutual Funds which invest in stocks), your money beats inflation since it can earn up to 15% interest or higher.

2. These are legal and safe investments. Maraming scam ngayon. But you can be sure of Mutual Fund companies as they're regulated by the Securities and Exchange Commission. Check the company's background first before investing.

Also, check the Fund's investment goals and historical performance. For example, Sun Life's Prosperity Philippine Stock Index Funds is designed to mirror the Philippine Stock Exchange Index (PSEi). Based on the website, this is how it outperformed the benchmark since was launched on May 5, 2015:

3. You can invest in top companies traded in the Philippine Stock Exchange (PSE). There's a saying that you should not put all your eggs in one basket. In Mutual Funds, your money is invested in different companies and across different industries.

Sun Life's Prosperity Philippine Stock Index Funds, for example, invests in the top 30 companies traded in the PSE, which include the following:

There are other Mutual Funds such as Balanced Funds, Equity Funds, Bond Funds, and Dollar Funds. Learn more here.

4. Finally, it's convenient. If you don't have the risk appetite, time, knowledge and patience to watch the stock market, investing in Mutual Funds is best for you.

HOW MUCH DO I NEED TO INVEST TO OPEN AN ACCOUNT?

You can start an investment in Mutual Funds for as low as Php 5,000.

HOW MUCH IS NEEDED FOR REGULAR PURCHASES?

You can buy additional shares for a minimum of Php 1,000.

Yes, all you need to do is make those regular investments and wait for it to grow within the time frame you chose.

Afterwards, you can liquidate your investments by redeeming shares at the prevailing Net Asset Value Per Share (NAVPS).

That's passive income. That's working smart. That's pure investment!

Watch the video below by Sun Life Financial for more info on the benefits of investing in Mutual Funds:

ARE THERE RISKS IN INVESTING IN MUTUAL FUNDS?

All forms of investments have risks. Just like investments in VULs and Stocks, Mutual Funds returns are not guaranteed because they are subject to market forces, the performance of companies where the Fund invests, and the skill of the Fund Manager.

But because these companies are mandated by the SEC to perform for the best interests of their shareholders, I'm sure they'll grow your money well. That's what you're paying them to do.

For prudence, always check the Fund's historical performance and goals before you open an account to make sure it's in line with your goals.

And remember:

"the greater the risk, the greater the reward."

Your money may be very safe in your savings account, but it can lose value over time because of inflation. In Mutual Funds, you can choose to invest where the risks are greater but have greater potential rewards.

WHAT'S YOUR DECISION?

When I opened my Mutual Fund account, several months ago, I began with the minimum Php 5,000. And with regular purchases of shares, my fund has increased more than I expected.

I'm excited to see it grow in the next five to ten years! How about you? Saan mo inilalagay yung earnings mo?

I encourage you to start investing in Mutual Funds. I can help you. I'm a Certified Investment Solicitor by the Securities and Exchange Commission and is associated with the insurance and investment company that has a bright yellow sun logo.

Check my SEC certification here.

Thanks for reading my article. Send me a message for questions or request for an appointment by filling out the form below. It's always good to meet 1-on-1 to discuss your financial needs and plans. Also, feel free to put your comments below. I hope to hear from you.