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.

Life Insurance, Making Sense of it

First, I want to ask 2 question:

Does anyone of you here have no dependents (wife/children/parents) and enough asset to pay off your debt and the cost of dying ( funeral, estate lawyer's fees, etc.)?

How about with dependents (wife/children/parents) and have enough assets to provide for them after death (investments, trusts, etc.).

If anyone of you are in this situation, insurance is probably an unnecessary expense for you

However, if we have dependents (especially if we are the primary provider) or significant debts that outweigh our assets, then we likely will need insurance to ensure that our dependents are looked after if something happens to us.

Allow me to show you a sample on how an insurance suppose to help our dependents and how much ideally should be in our policy.

Say we are the primary provider at the time of accident and unfortunately the total balance amount to be paid in our mortgages and car loan are around 500K and 100K respectively.

At this point in time, we would wish that the total debt balance has been paid off. We certainly don't want the burden to be pass on to our dependents right? Therefore, we would wish that our lump sum policy coverage is at least 600K (add a little bit more to cover the debt interest). This only covers our debt alone.

How about our income, we surely wish that our dependents after the accident will have continues stream of cash inflow, right?

Now,  say we have a net income amounting  600K annually. We would wish that this cash amount will continue to flow in yearly right? So, we would wish that our dependents will invest in such that the investment will yield 600K per year. If we don't trust that our dependents will invest, we might want to hire trustees or financial planners to do it for them. Say, our dependents/trustees/financial planners somehow knew where to invest that will possibly yield 10% every year. To replace our income, they will need at least 6M when the policy pay off and a little bit more to guard against inflation. This 6M if invested at 10% annually will yield 600K yearly, enough to replace the lost income.

So now, to cover our total debt and to replace our income we will need at least a policy that will pay off at least 6.6M. 6M for investment that will replace the income and 600K to payoff the total debt.

These are just 2 factors in considering the amount of policy we need to have, others would be like when we want our child to study in a university which we need to consider the cost also. Say we need 3M for his/her study. We would wish to add it up to our policy.

Maybe now, insurance make sense to us. But for me, we don't need a life insurance that need to pay premiums throughout our lifetime. So long as we strive to be financially secured someday, what we should get is a renewable term insurance. Remember my question number 2? That's the situation we intend to be in. Our goal is to increase our assets in a certain period where these assets are sufficient or even more than enough to provide for our dependents. When we reach this point in time in His grace, insurance is the least of our worries. By this time, our worries should already be diverted on how to make sure that these assets will be pass on rightfully to our dependents otherwise it will be all for nothing. 

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