Why you should invest in Mutual Funds?

This is the second investment vehicle I invested in. The first was life insurance. The sequence doesn't really matter as long as you invest your money in assets.

So what is Mutual Fund? Mutual Fund is an investment programme funded by shareholders that trades in diversified holdings and is professionally managed.

I invested in mutual funds way back in year 2010. That was around 5 years ago but until now I still have more than half of it. Some of it I used to invest in real estate to generate passive income in the future. And the remaining, I think I'd probably have them grow for my retirement fund. 

Mutual Fund is a simple investment vehicle to learn and invest in. Let me share with you reasons why you should invest in Mutual Funds.

1.) Easier to manage

What makes Mutual Fund one of the easier investments for beginners is that it's professionally managed. A fund manager is in charge of this pool of money. He invests different portion of it to stocks, bonds and other securities. The fund manager does all the research on your behalf behalf too. All you have to do is to invest in a fund that matches your risk profile, invest on it and you can sit back and relax and watch your money grow over time. This is not the case with stocks where you have to do all the research and stuff.

2.) Affordability

With Mutual Fund, you can now own shares of top companies even with just a small amount of money. I was investing as low as 3 thousand pesos. Sometimes I invest 5 thousand or 10 thousand pesos depending on how much money I get to save. Once I was able to work abroad, the biggest amount I invested was around 50 thousand pesos. For some it could be a small amount or a big amount but I'm not trying to brag here. I just want to show that Mutual Fund is flexible when it comes to the amount we can afford to invest.

3.) Liquidity

Another good thing about Mutual Fund that I like is that it's liquid compared to let's say real estate. With Mutual Fund, you can easily withdraw your money for around 3 to 5 working days depending on the Mutual Fund company you invested in. Just make sure not to withdraw your money on the first few years as it has some deductions and the percentage and number of years depends on the Mutual Fund company.

4.) Diversification

"Do not put all your eggs in one basket." is a famous quote in the world of wealth management or investing. This is easily achieved with Mutual Fund through the fund manager which invests a portion of the pooled fund in stocks, bonds or other securities. Fund Managers manages a fund for different types of risk profiles. These are generally the risk taker, conservative or balanced type of risk profiles. Funds for risky type profile are more aggressive and has the highest potential returns however it is the most risky also that's why majority of fund is invested in stocks for this type of fund. Conservative fund is the opposite of risky fund. The majority of the fund is invested in government bonds which are low risk but also low returns. And lastly the balanced fund is the combination of risky and conservative fund. 

Now as an investor, it's important to know your risk profile so it's easy for you to choose which fund to invest. Are you a risk taker, conservative or balanced type of investor? Age could also be a factor when choosing risk profiles as you can take more risk while you're young compared to when you're older. This is because of the time which is one of the most important factors in investing.

When I first started, I chose a balanced fund but later on I realized I'm still young and I still have more time for my money to grow so I asked my agent to switch my mutual fund to the riskier type. Later on when I'm nearing my retirement I plan to move or switch my fund to the conservative type.

There you go for my thoughts about why Juan should invest in Mutual Funds. I hope you learned something. Cheers!

Why it's better to bet in Life Insurance than in a lottery ticket?

It's common for us Filipinos to be in Lotto or lottery tickets thinking that one day all the stars will align and we win that jackpot prize. I don't want to sound cocky or offensive but I often see old and poor looking people lining up in a long queue to bet in Lotto. And sadly, I also often hear or see in the news that once they finally win that grand prize they turn back to being poor and broke after several years of mismanaging the huge sum of money they've won. The funny thing here is the percentage of winning a grand prize in Lotto is approximately zero percent. If only they learned some basic financial management strategies they would have been introduced to life insurance. So what about Life Insurance? Basically, it's an insurance that pays out a sum of money either on the death of the insured person or after a set period.

If money is invested in life insurance, the beneficiary will get a considerable amount which they can use to start a business or place in some investment vehicle for it to grow. What's the probability you will get the amount? It's 100 percent since all of will die. The idea of life insurance is to protect your loved ones in case you leave this world earlier than expected. The analogy is like paying a place you're renting for the reason that you can't still afford to buy a home. Same goes to life insurance. You pay it every month so if something happens to you, the basic needs of your family will not be compromised like their lifestyle or the kid's education. But why only few Filipinos invest in it? Probably because people don't know about it or probably they want a quick rich scheme or worst they don't have money to pay for it.

I'm not an insurance agent and I also have nothing against people that bet in lottery tickets. I myself bet in lottery tickets once in a while. The only difference is that I do it for fun and not depending on it for my financial future. I still continuously educate myself financially. I still continue to save every month and invest my money to assets that will generate passive income for my future and my family's future. It's always better to have control on what your future is going to be. At the end of the day we are still held responsible to whatever kind of life we lived and not because we didn't end up winning the lottery or anything like that. In life it's always easy to make excuses. However every time we make an excuse we deprive ourselves of something we deserve.

As a parting message let me quote Bill Gates, a billionaire and founder of Microsoft saying "If you are born poor, it's not your fault. But if you die poor, it's your fault."

When is the right time to invest?

I have read a lot of articles about investing and financial literacy. I also love watching ANC On The Money episodes as I learn a lot from it. And often I hear or read this question a lot.

"When is the right time to invest?"

Of course the answer is a resounding NOW. Why? Let me give you 3 reasons.

1.) Time

Time is the most important factor when it comes to investing. It is always better to start young so your hard earned money will have all the time for it to grow. Take for example a 25 year old yuppie who invests his 100 thousand pesos in a mutual with an annual return of 12% for 35 years. By age 60, he will have grown his 100 thousand pesos to a whopping 5,279,961 pesos. This is a good example of money working hard for you. :) On the other hand, if he started at age 35 (ten years later) and invested the same amount, by age 60 he will have grown his 100 thousand pesos to 1,700,006 pesos. In this scenario, delaying by 10 years will cost you 3,579,955 pesos. This is just a simple example but it clearly shows how important time is when it comes to investing.

2.) Circumstance

Everyone goes through different financial stages in life. The amount I'm able to set aside for investments is bigger now compared 3 years ago. I know that this will not be permanent so I try to maximize this situation. Another factor is that I'm still single and I just support my mom for her medicines as well as for the monthly salary of our helper (nanny) back home. 

I know for a fact that my expenses will become bigger by a wide margin once I get married and have kids so I take advantage of my situation now where I can set aside a big chunk of my salary for investments. What I'm trying to say here is that circumstances in life can also be controlled in your favor if you really want to invest in your future. To do this however, you have to be able to identify whether the decisions you are going to make is gonna negatively affect your finances. For instance, if you're a couple and you had a baby and you were not able to prepare for it financially, for sure it's gonna become a huge financial responsibility. It will be much harder for you to save and invest. Same goes to buying cars and not getting any ROI from it. Same goes to upgrading gadgets every year just to say to your self that you're "IN" when it comes to the latest gadgets. And the list goes on. These are things that we need to properly analyze first before jumping into conclusions whether we need it or not. Remember that usually as we grow older circumstance goes against us. Financial responsibilities gets harder and harder. Make sure you make wise decisions now while you still have time.

3.) Inflation

Let us define inflation first. Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service.

I remember my mentor once said, "Take advantage of this situation that you're able to invest in multiple properties as several years from now you won't be able to do it." This is because of inflation. Another common example is often you would hear from your parents or grand parents where they boast about how cheap the price of food or how small their allowance was during their time. The value of money depreciates over time. If you will not invest it, it will either lose its value over time or you will lose it forever (after spending into liabilities). On the other hand, if you invest it, you make inflation your ally. You will no longer get pissed when prices goes up because your investments or assets also appreciates in value.

Reasons why financial freedom is worth achieving

First, let's define what is financial freedom or financial independence. According to Wikipedia, "Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses."

It's one of those things that's very challenging to achieve in life especially for us Filipinos where majority are ignorant when it comes to wealth management. Yes it's a bit offensive by saying the word "ignorant" but that's the truth anyways. I was also ignorant before until I decided to educate myself and take action. And it's been quite a journey. I'm not there yet but I enjoy every process of it. I could not think of myself just being the same person I was before who was not in control of my finances and my future.

I will write different posts about the actions I took as well as the trials and failures I encountered on my ongoing journey to financial freedom. I know that it's gonna be an uphill battle however I'm fully aware that the rewards far more outweigh the sacrifices I will be experiencing. With that said, let me share with you four reasons why financially freedom is worth dreaming and achieving despite the daunting obstacles that awaits you.

1.) Time freedom

If you have the time freedom you would be able to control how you would like to spend your time. Right now as an employee working as a programmer, my time is controlled by my job. Sometimes I also spend time in the office even on weekends as we have to render overtime to catch up with development schedule. I like my job but I don't see myself working like this until I get old and weary.

I remember my mentor would say that wealthy people also have problems. The only difference is the quality of the problem is higher. They would often wonder or think what to do and where to travel and all that because they have the time and money. On the contrary, people that are still in the rat race cycle would often worry how to make time because they just don't have it.

2.) Be able to spend time with loved ones.

I'm an OFW (Overseas Foreign Worker) and I couldn't count how many times it crossed my mind thinking what my life would be if my parents were able to build assets. I have noticed this cycle has been happening over and over again with Filipino families. After a member of the family will graduate and starts to work, he will then support his family which is ideal. However this cycle goes on and on which is no longer right. When the student graduates and he builds his own family he also follows what his parents did. He will expect and depend on his children financially later on. It's not hard to notice this as it happens to my friend's families, my relatives, and even to some of my neighbors. How come they already knew that this cycle happens over and over and no one doesn't take action to change their future? It's something that I always wonder when I think about some Filipino families I know or some that I read in the news.

3.) Able to spend more time on things I love to do... living life to the fullest as they say.

Since the day I started this journey to financial freedom, I would often think how it would be like to live a life where you have control over your time, be able to do the things you wanted to do anytime.

Let me ask you what's your ideal day if you had the time? If I had my way I would see myself in the future like sending my kids to school in the morning, doing some recreation stuff or managing some business in the afternoon and cooking for my wife and family in the evening. The list of activities is endless if you're financially free. Try to ask yourself what would you do if money and time is not an issue. The idea of thinking about it should already excite you. How much more if you make it happen?

4.) Less stress

I love my job but I have to say it can be stressful at times. I always say to myself that I cannot be working for the rest of my life. My plan is to retire around 35 to 40 years old. I think it's feasible. I also believe that stress is a silent killer. If you always get stressed it causes different kinds of sickness. Although there's a positive and negative kind of stress but that's out of this topic already.

Imagine yourself on the beach relaxing under a coconut tree sitting on your comfortable beach chair reading your favorite book and sipping your favorite drink. Nice huh? ;) Life is supposed to be fun and worthwhile. Make your life count. I know life is much deeper than that like the legacy you will leave and all but for sure life would not be worthwhile if it's full of stress and problems. And the worst part of it is if you have no control over it.

These are the things that drives me to achieve my ultimate goal which is financial freedom. Are you on the same journey? You can share your thoughts in the comments below or if you have a blog discussing similar topics as mine please feel free to share in the comments too.  

Short Term Loan versus Long Term Loan

A friend of mine messaged me how I was. He's an ex-colleague from a previous company I was working with. After some small chit-chat he was asking about the equity that I'm currently paying. Here goes our conversation which I translated in english. I also just picked the parts of our conversation that are meaningful.

Friend: I have a small question... you have 2 condo units in Philippines right? You're done paying the equity?

Me: Yep... I'm still paying it though...

Friend: What's your plan after paying the equity? Are you gonna take loan in Philippines?

Me: I'm gonna have it rented. Yep, I'll take a loan in the Philippines.

Friend: I checked the interest rates and its quite expensive...

Me: Yeah! It's really like that... how much is the interest rate? I'll give you a good link listing the interest rates of banks in the Philippines...

Friend: I checked BPI (Bank of Philippines Islands). I used their loan calculator. The amount of 2 million pesos for 10 years will become 3.5 millions plus after everything gets fully paid.

Me: I see... Just remember to negotiate with several banks to get the lowest interest rate. Mine... I'm planning to have the tenant pay the remaining balance.

Friend: Hmmm... it's really expensive though if the tenant will pay my monthly amortization... Let's say my estimated monthly amortization would be 25 thousand pesos so it would be too much for the tenant to pay this amount every month...

Me: Most likely you have to divide with the tenant your monthly amortization expenses. My plan though is to have a loan that is around 30 years to pay so that I will have an amortization of around 10K-12K per month which my tenant can shoulder.

Friend: What?! The interest should be quite high if it's a 30 year loan...

Me: Yeah! Interest should be high but the tenant will be the one to pay it anyways... :)

Friend: Hmmm... you're right... you have a point.

Me: In the long run you will also get some passive income since every year your rental fee should increase while your amortization will stay fixed... :)

Friend: Nice... hehehe! But I'll try to take a loan here in SG if they will allow... if not I will try to follow your plan. Is it ok? hehe!

Me: Sure! We can share some info with our friends who also invested in Condominiums back in our country. That would be cool... :)

My friend is planning to get a loan that is payable for 10-15 years to pay his Condo unit. My take on this is that it's better to have a loan which would be payable in 25-30 years. Yes, it will have a high interest rate. But with this strategy you can have the tenant pay the monthly amortization thus making your property self liquidating. Aside from that you will also get some passive income every year as your rental fee goes up. Of course your monthly amortization will stay fixed for 30 years.

Getting a loan for short term let's say payable in around 5-10 years would be ideal if you have some extra cash or extra savings that you can convert into solid asset. This is also an advantage since after fully paying your property you can negotiate with a bank to have your property as a collateral so you can get additional properties or assets. You can do this method infinitely which is the reason why I got interested in real estate investing compared to paper assets.

Short term or long term loan has its own advantages and disadvantages. Just be sure to understand what are the implications or scenarios before choosing which type of loan is appropriate based on you current financial situation.

I hope you learned something from it and hope it will help in your decision what type of loan you'll get in the future. Just be sure that loan we'll be invested in an asset and not a liability. Good debt versus bad debt if you get what I mean.

And lastly here is the link I gave to my friend. It's from one of my favorite sites. It's about investing in foreclosed properties in the Philippines.