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.

How to Minimise the Risk in Stock Market Investing

Equity investing is one of the potentially rewarding investment and at the same time a high risk type of investment. But, is there a way to lessen the risk? 

Well, I think there is, it is called "Money Cost Averaging". It is an investing strategy where you invest fixed amount of sum at a regular interval over a long period of time. The amount of money invested at each interval remains the same over time, but the number of shares purchased varies based on the market value of the shares at the time of a purchase. When the markets are up, you buy fewer shares due to the higher cost per share. When the markets are down, the situation is reversed and you purchase a greater number of shares. It's a strategic way to invest because you buy more shares when the cost is low, so you get an average cost per share over time, meaning you don't have to invest the time and effort to monitor market movements and strategically time your investments. Having said that, this strategy then works well with mutual fund investing. This is because in mutual fund the fixed sum is simply divided with the cost per share to get the number of share bought, whilst when you are directly investing in equity, there is a minimum lot to buy depending on the cost per share. Of course, you can choose to buy or sell through odd lot but, you might find it difficult to buy or sell as few only trade in it. Using this strategy in direct equity investing will result to often have remainder on the fixed amount invested. Thus, the core concept of the strategy to which it will invest with a fixed amount at a regular interval is hardly meet. Keep in mind though that, unless the mutual fund NAVPS you invested in is increasing fast enough to compensate the investment fees involve, it might take a while before you appreciate the result. 

Below is the illustration of how money cost averaging supposed to works to lessen the risk given the 3 scenario in equity market. (Click to Enlarge)

Click the Image to Enlarge

Click the Image to Enlarge

First, when the market or the NAVPS is suppose to be in bullish trend. With this scenario, you probably wish you have invested huge amount early on so as to gain more but, keep in mind that equity market is not always in bullish trend. The gain may be reduce but then so as the risk in this scenario.

Second, when the market is suppose to be moving sideway. As seen in the illustration, even though it's moving sideway, still the result yield to be favourable.

Third, when the market is suppose to be in bearish sentiment with up trend bias. As you can see, with this scenario the result still yield to be positive.

In all the scenario, the result may seem like always favourable but this strategy requires discipline to stick to it over a long period of time. It may seem easy but when emotional thinking kicks in like say for instance when you speculate that the market is going to be bullish, you are probably tempted to invest more than the planned fixed amount to be invested at a regular basis, and when at bearish trend, fear will probably kicks in and will reduce or not fund the investment yet. So, to avoid this, keep in mind the core idea of this strategy and, most importantly study the fund you are planning to invest in, understand its feature and know the fees involve. The illustration shows only the sales load but there is another visible fee which is the exit fee, that's if you plan to withdraw your investment within the allotted holding period. 

Investing in Mutual fund in Philippines comes with a cost, Click: (Understanding Mutual Fund Fees), know how much will it affect your gain because, I'm sure for the first few months you will not appreciate your investment result as it will be dragged down by the visible fees involve, unless of course the fund you invested in grow fast enough to compensate the investment fees. You'll realise this if you monitor your investment closely factoring the fees involve and inflation. This probably is another reason why it is most advisable to invest long term in mutual fund following this strategy diligently.

Why Consumer Price Index is more Accurate in Monitoring Our Investment Against the Real Value

A sample of how CPI and Inflation are computed (Click to Blow Up)

I realised that monitoring CPI from the day we started investing is much more accurate and useful than averaging inflation rate. Say for instance, if I started investing last 2006 up to until June 2014 and if I simply average the inflation starting from that year to June 2014, I could probably get more or less 8% only. But, if I based it from CPI last 2006 to June 2014 and calculate the rate of change, the result would be 39.6% which means my total capital investment since that year lost its value by 39.6%. 

What We Need to Ask Ourselves when Assessing our Cashflow Considering the Increase in Price of Goods in Philippines

Cumulative Inflation Rate In Philippines From DEC 2006

From this illustration, at least 5 question we have to ask ourselves when assessing our cash flow.

• If our cash inflow is based alone on salary and in reference to the day we start working, did our salary increases more than the rate of which the price of goods also increases? 
• From the day we decide to put our money in the bank, did it grow sufficient enough to compensate the cumulative increase also in price of basic goods? 
• In reference to the day we start investing, is it already earning more than the cumulative increase in price of goods from the day we start investing? 
• Did the net income of our other source of income such as business increases more than at least the rate of increase in price of basic goods? 
• What are the available investment vehicle today that can possibly outweigh inflation and compensate all other investment fees? 

Perhaps, by asking these questions when assessing our cash flow planning, we can project somehow the needed earning or cash inflow in order to compensate one of the unavoidable economic factor "The Inflation". Of course, it's not enough to just realized this fact, I guess the hardest part when we realize something is actually whether we act upon that realization. Otherwise, it is as good as just a stored knowledge.

Different Type of Investment Vehicle

Below are some of the investment vehicle available in Philippines that I'm familiar with.

1. Savings Account - It is advise that 3-6 months of our expenses or salary should be reserve for emergency fund. Placing it in a savings account should be ideal since it's easy to withdraw incase of emergency. Though the real value may be dragged by inflation, at least we are sure that however small is the interest, it's gaining somehow and it serve the purpose. The rest should be diversified to other investment vehicle. (See: Emergency Fund, The Importance of it)

2. Insurance- This serve as a protection against uncertainty of life not for us, but for our dependents while our assets are not yet sufficient enough to cover for their needs. Now a days, Insurances offer different packages. Some offer a combination of life insurance, healthcare and investment where, after certain period in time it will yield interest, it may not be that much but still will serve the purpose plus additional benefit. (See: Insurance, Making Sense of it)

3. Real Estate - An investment that I guess expensive but worth it. We all needs a place we can call our own home whereby, should the zonal value of the property goes up at least we have the option to sell it, or perhaps rent it out later to generate passive income or it can be part of our will to be pass on to our next generation. Take note though, unless our cashflow is way more than enough to venture on property investing alone, we better just get a property for the purpose of buying ourselves our own home, this is because, gaining from property requires a lot of time moreover, the capital venture requires huge amount. Installment for downpayment and amortisation may be sufficient but it's not all that there is in a property investing. There maybe a lot of unexpected expenses that we are not aware of after buying, before handover or even when already handover. Or, should we plan to rent it out later on, the monthly rental payment may not be sufficient to cover the amortisation and other fees or worst we might not able or will have a hard time finding someone to rent the property. (See: Checklist Before Buying Real State in the Philippines)

4. Mutual Funds - The idea of mutual funds if we think of it is really simple. It’s an accumulation of funds via different people in order to come up with a lump sum amount to be invested in stocks, bonds, fixed security and others. These funds are within the care of mutual fund managers and regulated by SEC. The idea is the same as with banks, SSS, PAG-IBIG, cooperative and alikes , only that they provide different type of services and return. Depending on which company and what type of funds we are getting, the gain from it can actually be rewarding as historically, it earns way more than beating the inflation rate. Besides, earning from mutual funds are tax free. Take note though that there are certain fees such as sales load, management fees and exit fees (See: Understanding Mutual Fund Fees) which we need to understand before investing because, these will drag down our suppose gain and will add up to our loses as these are charged whether the funds are losing or gaining.

5. Stock Market - This is when we decide to put our investment in equity via our own hands. No need to pay fees such as sales load, management or exit fees. But, if we think that it's as simple as buy and sell without really knowing what we are buying or when to buy and to sell. Well, kinda but, with this kind of approach we probably are gambling. It really is not as simple as we think, we have to have an idea at least how to read the balance sheets of the companies we are interested in and how to read technical indicators. One thing I realised in stock market is that, it's not all about the company performance but also about the psychological and emotional behaviour of each and everyone involve or participants of the stock market. (See: Psychology in Stock Market)

6. Business- Probably a good source of passive income but, it requires a certain potential idea or concept where consumers are likely willing to avail or buy and, it needs perhaps a huge amount of capital to realise that idea or concept.

So far, these are the different type of investments vehicle that I'm familiar with where we can possibly diversify our investments.

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Note: These are just my own impression of those investment vehicles that I'm familiar with.