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Business

Getting more millennials to invest in equities

SHAREPHIL INVESTORS VIEWPOINT - Benito Teehankee - The Philippine Star

The Philippine Stock Exchange Index is down 25 percent since January. By all indications, this is one of the biggest bloodbath in the local capital market’s history. Wealth is being wiped out so fast that equity investors hold on to their seats each time the market opens just to keep from falling over as the drop continues.

But for those who want to think long-term and build an investment portfolio that will be part of this country’s future growth, now is the time to think carefully about getting into the market. In a country of more than 100 million and just a little over one million retail investors, any millennial (and this applies to Gen Z’s, too) with cash to spare for the long term should consider getting in even with a modest initial investment of P5,000 and small periodic amounts added every month.

Some would advise that the market has not yet bottomed out, and this may be true. But for millions of millennials who have never gotten into the market, the key point to remember is not whether the market has still to bottom out, but the fact that a 25 percent discount on anything of value is a very rare opportunity. Why be greedy and wait when you already have a huge discount and have time on your side to make your investment work for you over the next 10 to 20 years? 

Timing the market is for investment professionals and speculators. Being young is a tremendous advantage and millennials need to be long-term investors. Comprising a third of the country’s population, millennials need to realize that they are a major backbone of the country’s economy, a main source of its talent and innovative work force.

Why should they not have more equity in the economic growth that they have and will continue to help bring about?  Why should they settle for minuscule savings accounts interest rates and the occasional performance bonuses and salary increases when they can earn more by being in the front seat of the economic innovation and growth that our country is poised to enjoy post-COVID, especially after the government’s huge infrastructure push fully rolls out in three to five years?

A millennial who decides to get into equities has to work on saving consistently.

Saving is not a strength of young people. I often think that if I invested half of what I spent on beer during the ’80s when I was a young professional, I would have amassed a very nice nest egg by now, being two years away from retirement. Nobody told me to save and invest as a young worker, to my eternal regret. This is why I joined SharePHIL and now have made it my mission to convince young professionals to save and invest.

Our household consumption as a percent of GDP in 2018 was almost 74 percent. In comparison, the world average in 2018 based on 152 countries is about 63 percent; other ASEAN countries: Singapore – 34 percent, Thailand – 48 percent, Malaysia – 57 percent, Vietnam – 67 percent, and Cambodia – 70 percent. We sure love to spend, but we cannot build a life – much less a country, for that matter, on consumption.

Many have already invested in bancassurance products such as variable universal life insurance plans, but there are unnecessary costs with such products if one’s goal is simply to invest and save. A simple approach to saving for salaried young people – a sort of “personal finance for dummies”  – is to have three savings accounts. The salary account will cover day-to-day expenses. A second account will be for occasional expenses; this buffer account would cover significantly larger once-a-year expenses such as car maintenance or vacation travel. A third account will be for long-term expenses, which will be the source of investment placements and other funds for future use (like paying for a wedding or grad school).

The worst thing to do, which I did for many years when I was young, was to leave all my salary in the day-to-day account. Bad move. Money seen is eventually money spent. The key is to plan for a monthly savings program of, say, 10 percent of income. This amount should regularly be transferred to the long-term account to ensure that the account grows regularly. This is the principle of “pay yourself first”, that is, cover your future since you plan to be around for a while.

Working backwards, the occasional expense account should have enough for anticipated big-ticket items for the year. This might be equivalent to about two months’ worth of take-home pay as a rule of thumb. Now comes the acid test: what is left in the day-to-day account after giving the long-term and occasional accounts what they are due? Well, this is the amount to be budgeted for day-to-day expenses.

This is usually not much, but by keeping within this amount, one learns the discipline of deferred gratification and living within one’s means. There can be real joy in delaying an unnecessary cell phone upgrade, skipping an expensive restaurant dinner, or postponing a salon session. A good exercise for financial discipline is to go to a favorite store to check out an item one is really hankering for, hold the item, feel one’s heartbeat pounding with desire, and then go home without buying the item. The knowledge that one does not become less of a person by foregoing discretionary expense in order to prepare for the future can be a deeply empowering and spiritual experience.

Once the COVID crisis passes, as it will, the capital market will begin its usual surge as we get to work rebuilding our country’s ravaged economy. If more of the young would own equity by then, it will change the financial configuration of the country for good. This would be a welcome silver lining in an otherwise sad period in our country’s economic life. Let us make it count.

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Benito Teehankee is the Jose E. Cuisia Professor of Business Ethics and head of the Business for Human Development Network at De La Salle University. He currently sits on the Board of Trustees of SharePHIL.

The views and opinions expressed in this column are those of the author/s and do not necessarily reflect the official policy or position of SharePHIL, nor purport to reflect the opinions or views of SharePHIL or its members. Learn more about SharePHIL at http://sharephil.org

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