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Tuesday, May 3, 2011

Where to invest my money?

Where to invest my money? 

There is no right mix of investments that will suit all people. Everyone is different and faces unique circumstances. You have to determine for yourself the right investment portfolio that will work for you given your goals and financial situation.

A financial planner may help you out. Study the different investment vehicles available and see where best you can park your money:

1. Bank deposits

Time deposits. Your money will be kept by the bank for a fixed period (30 days, 60 days, 90 days or more) in exchange for an interest rate higher than that offered by a savings account. A time deposit is easily accessible, but early withdrawal may cost you a fee.

Some banks, however, have introduced time deposit products that allow partial withdrawals without touching the interest rate. For those who want to save and invest smartly, be more diligent in choosing banks.

Foreign currency. You may choose to invest in US dollar, euro or other foreign currency savings or time deposits. Be on guard though, since a foreign currency may weaken against the peso anytime. In that case, you may choose to ride out the exchange rate fluctuation or switch to another currency.

Pros: They are safe since the Philippine Deposit Insurance Corporation (PDIC) insures deposits up to P500,000. They provide fixed interest. They are also easily accessible. A savings and current account can help you manage your day-to-day expenses.

Cons: Interest on savings and current accounts are minimal.

What to do: Consider investing in a time deposit for higher interest. The secret to earning in a time deposit is to hold it for a long term at an interest rate higher than the inflation rate. You can also have investment in foreign currency to take advantage of higher rates depending on the market.

2. Government securities

Pros: They are relatively reliable since these are guaranteed by the Philippine government. They also provide fixed income. You can easily access them and sell them through the money market as handled by banks.

Cons: Interest may be lower as compared to other investments.

What to do: Hold some government securities as part of your portfolio. You may want to invest directly in Treasury bills or join a mutual fund or unit investment trust fund investing in fixed income instruments like government securities.

3. Bonds

Pros: As fixed income instruments, they give fixed interest income for a specified number of years. This rate is usually higher than that offered by government securities or bank deposits.

Cons: Bonds come with a risk. They are not guaranteed by an insurance company like PDIC. The higher the interest offered, the higher the risk that the company will default on payments.

What to do: Put some money in bonds depending on your financial goal to let you realize more returns. Hold it for the long term. Choose only bonds with good rating. You may want to join a mutual fund or unit investment trust fund directly investing in bonds to save you the trouble of identifying the best performing bonds in the market. 

4. Stocks

Pros: When there is a bull run in the market, stocks perform well. You also gain a lot when you get good stocks during the initial public offering. In the long run, stocks may outperform bonds in terms of yield.

Cons: There is a big risk of losing your capital as market prices change daily.

What to do: Invest only what you can afford to lose. Hold your stock investment for the long term to ride out market price fluctuations. You may also invest in stocks via a mutual fund or a unit investment trust fund

5. Real estate

Pros: You may earn a lot as the price of property appreciates over time.

Cons: Sometimes the real estate market is down and you may not get a good market value for your property. It is also not very accessible since you need time to sell it once you need the funds. Maintenance costs may also be high.

What to do: When buying real estate, time it right when you can get a good price for your property. If you can rent it out, you can use the money to invest elsewhere.

6. Mutual funds and Unit Investment Trust Fund (UITFs) - It is a investment vehicle which are product and services offered by both corporation and banks. Just deposit a minimum amount in the company or bank and they will do to invest the money for you. 

They charge you as for managerial fees for handling you money. If directly investing in money market, stocks and bonds seems tedious, time-consuming, and baffling, consider getting into mutual funds. 

Its up to you to choose any of these any investment vehicles mention above. Happy earnings..

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