Credit upgrade impacts Pinoys’ savings attitude

CEBU, Philippines - Economists sing almost the same kind of song when it comes to explaining the effects of an investment grade on a country: lower rates on government debt, more investors, more business expansions and more jobs.

However, not so much has been mentioned about how an investment grade will really impact the savings and investments of a common Juan dela Cruz.

At a recent economic forum, Rafael Ayuste Jr., first senior vice president of Trust Banking Group and a trust officer of the Philippine National Bank, talked on how the Filipino could cope with the decreasing trend of interest rates or decreasing returns on investment, for that matter, especially now that the country has received the investment upgrades.

“Unless the economy will change, this is how we have to live with: If we want to get a yield today that’s the same with how much we got back in 2008, we have to add other kinds of investments in our portfolios,” he said.

He noted that the average returns on savings and time deposit accounts are seeing downhill trends.

In 2008, for example, average interest rate on savings was at 2.2 percent. This dwindled to 1.6 percent in 2010, before nose-diving to 1.04 percent today.

Time deposits used to earn 4.07 percent five years ago, but dropped to 3.06 percent in 2010. Today, they are earning at 2.02 percent.

Similar downward movements in returns are seen in other forms of investment like treasury bills and special deposit accounts, Ayuste said.

Lesser returns, but…

Ayuste, however, clarified that although the market, being stimulated by sound economic fundamentals, is giving lesser returns at the moment, Filipinos can always diversify into different asset classes in such a way that maximizes returns.

Filipino investors, he said, may also play around with other factors affecting returns, such as switching from fixed income securities to equity instruments, extending the investment horizon or duration to a much longer span or choosing investments with higher credit risks involved.

He, however, reminded them that higher returns also mean higher risks.

Ayuste said that with company information readily available on many channels nowadays, investors will never have a hard time collating data on which type of investment will prove to be better.

He also discouraged them from totally relying on their brokers, adding that as investors, they should be hands-on with their investments and see for themselves how these are faring in the market.

Having spent over 15 years in the trust business, Ayuste said unit investment trust funds (UITF) are a good venture since they do not charge the investor any kind of front or back loads, only management fees.

Do’s and don’ts

So when is the best time to invest, really? Ayuste said “when you have money.”

But it’s important, he added, to know one’s risk profile first and foremost and to select funds that meet one’s investment objectives and tolerance.

He stressed the weight of managing liquidity and urged potential Filipino investors to select no-load funds, those mutual funds in which shares are sold without commission or sales charge.

Ayuste also suggested that they select funds with proven track record and mind if they suddenly need to change strategies.

One thing Filipinos have to avoid, however, is to focus on short term gains and to ignore risks. He also discouraged investing in a fund just because of its current strong performance. (FREEMAN)