An OFW asks about best investment for her retirement

Question:

Hi Miss Rose, I have been reading your articles and watching your videos on money matters. Can I please ask for your advice? I am an OFW in my 40's and I am trying to find investments in the Philippines to prepare me for retirement. Honestly, I have no idea about stocks or mutual funds. Can you please enlighten me about them? Thank you very much.

From Mrs. ACP via email

Answer:

Hi Mrs. ACP. If you are away and you want to invest here in the Philippines for your retirement, your best option is to invest in equity index funds. 

I will try to explain it as simply as possible.

What is a stock?

Stock or equity represents the ownership in a company. In the case of what you’re asking about, it refers to companies that are traded in the stock exchange. Do you know the reason why it is called equity? It’s because the benefits and rights of each of the stock (let’s say common stocks) are equal, no matter who holds it. I got this insight years ago when I attended an online class of Yale professor and Nobel Laureate Robert Schiller. 

Isn’t that amazing? It reminds us that we can take part in the earnings and other benefits of owning a listed corporation. And we should all take advantage of that.

There are two ways to do that. 

1. By buying the stocks directly

2. By buying funds – either mutual fund or UITF (Unit Investment Trust Fund). For your purposes, you may be indifferent to the two as they are basically the same in terms of benefits to you. They just differ in the technical descriptions such as type of entity, regulatory body, unit of measurement, etc. 

So, between these two ways of owning shares of stocks, I suggest you go with no. 2 which is to own them through funds.

Now let’s go further into the type of funds when it comes to management. (Note that we are just discussing the equity type here.)

1. Actively Managed funds – a fund manager does the stock picking for you.
2. Equity Index Funds – no active fund manager but the fund just mimics the index which is comprised of the top 30 corporations in the Philippine Stock Index (PSE).

Between the two, I am partial to the Equity Index Funds because records show that their returns beat actively managed funds in the long term.

How about other kinds of investments in the country?

I have received a number of letters from OFWs who share with me their challenges of getting into an actively managed business in the country while they work abroad. Usually, they leave the management to their family or friends. Most of them face challenges not just in the earnings of their businesses but also in their relationships.

It is almost impossible to run a business successfully if you are not around, so think twice, thrice or more before you get into this option.

Here’s one more thing to ponder upon. “Mas magaling ba mag-negosyo yong pamilya o kaibigan mo kaysa sa mga taipan natin?” (Are your family and friends better business people than our taipans?)

In both cases, you are going into business with them – your family, friends, the taipans.

Moreover, when you want out of the business, you just sell your investment and there are no hard feelings. Isn’t that great? 

How can you start now?

The option I suggest is to do it via cost averaging. Decide on an amount you will invest regularly. Set your automatic investment plan so that every month your money comes in and automatically invested, without any need of action on your part. I tell you, automating investment, especially in the stock market is the best way because you protect yourself from yourself.

What do I mean? When the stock market goes up, our human wiring makes us excited to invest. When the stock market goes down, our emotional brain gets scared and motivates us to sell our investments. That behavior is the exact opposite of how to make money in the stock market. So, since nobody can really predict the market, you are better of just automating it. And you have a couple of decades to go, so you are fine.

You can check out your local bank for their equity index UITF, or online platforms that sell equity index mutual funds. 

I wish you luck and a financially happy retirement back here in our country.

Cheers to high FQ!

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