Understand The Difference Between Assets and Liabilities

Why I choose to Invest in PhilEquity Dividend Yield Fund

From the blog "understanding mutual funds fees" it was mentioned that the formula for NAVPS is;

((Assets - Liabilities))÷outstanding share.

Given this formula, part of the fund assets are the accumulated amount invested by the different people interested on the particular fund. So, given this fact, the more people interested and invest on the fund, the increase also in the fund asset value, thus, likely the NAVPS also increases.

One of the reason, why i choose to invest in PhilEquity Dividend Yield Fund is based on this logic. The fund is still young, more and more will invest in the future or, I think since inception many investors were and still keen to invest on this fund, probably because of its feature — which is to invest only in companies that regularly give dividends, meaning companies that have good income for them to afford to share part of the profit to their share holders (the so called Dividends) — plus the fund good management and the market good performance. Thus, increasing the asset value resulting in increase also in the fund NAVPS. This is probably one of the reason why in just few months the fund grows by 20 percent plus already.

Applying this logic, I encourage you to invest on this fund while the NAVPS is still cheap. Take note though on the fees involve. The earlier you get in or invest, the likely your share will have more room to increase in value.

Consider this, if I have PHP20,000 now and is able to subscribe or invest at 1.19000 NAVPS value, the total share that I can subscribe is 16,218 factoring sales load of 3.5%. If after few years the NAVPS becomes 5.000, assuming that since the time I invested I did not add up. The value of my 16,218 share will be PHP81,090. From 20K with the same amount of share become 81K.

But of course, its up to you. Aside from fees which was discuss in my other blog (understanding mutual funds fee) there are risk involve. NAVPS value may not increase as expected, in fact it might also go down. I cannot guarantee and also the fund has no years of historical evidence that it is performing. But, likely the once who manage PEFI are the same group of people who manage PDYF. If they are able to increase NAVPS for PEFI by 3000% plus to date since inception, I guess likely, they can do the same with PDYF but it's not a guarantee though.

All I can guarantee is that if we put all our money in the bank, inflation will eat up its value. Our 100K today will increase a bit in few years but, it is not enough to beat inflation. 

So, for me I better take the risk for the chance to beat inflation plus interest earnings.

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Disclaimer: Study the fund first and the fees underlying it. Invest at your own risk and I'm not saying that investing in mutual funds is the only way, there are other of course.

"Bahala na si Batman" Attitude in Personal Finance

If I'm not mistaken "Bahala Na" approach is one of the Filipino cultural trait which is situationally based, that is to say, its meaning can best be understood in a situational setting. In this regard, I would like to pin point the "Bahala Na" attitude of us Pinoys towards financial handling given the benefit of a doubt that, we actually have sufficient enough to cover our priorities only that we mismanage it.

It's quite funny sometime that even the famous superhero is being involve with this expression. Like the "Bahala Na si Batman", perhaps, it is a funny expression for us to comfort ourselves when we are caught in a compromising situation where it seems like no immediate solution. Or, is it simply a sign that we are lacking in planning in which we tend to anyhow do or decide on something without thinking of the consequences that may arise later? In relation to personal finance, this type of attitude could be problematic not just towards ourselves but also to our friends, neighbours and relatives, in which, sometimes we are not aware as we tend to don't care as long as we solve our own first. Like say for instance, just after our payday instead of doing budgeting to plan our expenses, we spend something that is really not within our priority affecting the rest of daily expenses and, we know that it will, so at that moment, we tend to just say "Bahala Na si Batman" implying that somehow somebody or comically Batman will take care of the rest. Though, somehow it could ease the feeling of worries nevertheless still is an illusion and, I guess we are aware of that. So, what we really mean I think when we say this expression is that, we are expecting someone, our friends, neighbors or relatives perhaps to lend us their help monetarily should we run out of money already.

The bottom line I guess is that to prevent this kind of compromising situation and to avoid disturbing someone. Why not learn to plan our expenses via effective budgeting, it may seem hard at first but like any other instances in life, it's always not easy in the beginning, only by constantly doing it will make it slowly easier until it become a habit and, if it become one, we might even feel like our day is lacking without it being done the same as any other habit would feel. 

Click to read: The first Step: Manage your Cashflow

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The Third Step: Emergency Fund, The Importance of It

Why do we need to understand the importance of EMERGENCY FUND before proceeding to investment?

Perhaps, one of the reason is to avoid touching our investment intended for long term. 

Consider this, let's assume we manage to make our cash flow positive and able to manage our debt but then decided to jump right away to long investing without really understanding the importance of EMERGENCY FUND. And, let's assume that at this time, we decided and make it a goal to retire with sufficient savings to cover for our own expenses at the age of 65. 

During the 12 years of working and investing we were satisfied with our investments earning. Assuming that our investment from PHP100,000 at an average of 12% compound interest ballooned to 400,000. However, about this time an unexpected emergency happen, perhaps we lost our job or one of family or ourselves got sick. 

Where do you think is obvious choice to fund our emergency? Say, we only needed PHP300,000 to settle our emergency and decided to get that from our investment earning. We didn't lose, right? Since we still manage to retain our capital. 

Yes, indeed our capital will be retained at this point in time but, our biggest lose will be the 12 years of letting our money compound for itself. At that point in time, we just LOSE 12 YEARS towards our retirement age goal.

Another obvious importance of emergency fund is that it will serve as our buffer fund whenever we encounter an unexpected circumstance in life such as temporal lose of Job or minor medical needs that requires immediate liquidation of cash. This is why it is advise to just place this fund in a savings account for easy liquidation, we just need around 3-6 months of our expenses to be place in a savings account for our buffer fund. Now, for major emergencies this fund may not be enough especially like hospitalisation need or expenses, we certainly don't want to top up this fund using credit to settle such emergencies. It would be wise therefore for us to get a medical insurance, this will back up our emergency fund or, perhaps our emergency fund will not be touch as usually, if we know how to pick a medical insurance properly, it would be enough to cover such emergencies. Once the 3-6 months worth of expenses has been save in a savings account, the rest should be diversified to other investment vehicle like say mutual fund, property, insurance, stocks and business.

Click: Different Investment Vehicle Available