(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Question: With the way the economy is going, I’d like to invest my savings better so it will earn more for me in the long run. But aside from having time deposits, I don’t have any experience in investing. What can you suggest I get into that is safe but will grow my money? I am working as manager for a retail company. – Mario S.

Answer: Investing is one of the best things you can do in life. With it, you can reach your financial goals and safeguard your family’s future. You can grow your money and build wealth as you make your money work for you.

It’s good that you are planning to invest your savings. Here are some differences between savings and investments. Savings are for short-term needs and for liquidity purposes. Investments are for the long-term. Savings are low risk and are insured by the Philippine Deposit Insurance System (PDIC) up to the amount of P250,000. Investments, on the other hand, are riskier and are not covered by any insurance. Savings give low returns and may not be a good strategic move since inflation can eat into your savings. Investments, meanwhile, may give relatively higher potential returns, and may be able to beat inflation.

Putting your money in a savings account in the bank will keep your money safe, but your money pot will grow very slowly. If the interest rate offered is lower than the rate of inflation, it may even lose its purchasing value.

Thus, if you want to maximize the earning potential of your money, you have to have investments. Some people who have diligently put aside money for investments in their younger years get to live on interest income during retirement. You can be one of those persons if you start investing while you’re young and make wise investment decisions.

Available investments
There are many types of investments you can get into. Aside from cash deposits (such as time deposit in the bank), you can consider debt instruments, stocks or equities, real estate, or a business venture.

Debt instruments come in the form of bills, notes, and bonds issued by the government or by corporations. In effect, when you invest in a debt instrument, you are lending money to the issuer of the debt instrument. In exchange, the issuer will pay you an agreed amount of interest periodically over a specified term, and will pay you the full amount of the principal when the instrument matures. Bills are due within a year and are also called money market instruments. Notes mature in a year or up to 10 years. Bonds mature beyond 10 years.

Debt instruments are good investments for starting investors since the risk is not that high as compared to stocks, real estate or a business venture. You are guaranteed a fixed income over the term of the instrument, unless the issuer defaults, which does not happen often anyway. Before investing in debt instruments, study the terms thoroughly and get only those given a high rating by independent credit rating agencies such as Standard & Poor’s.

Stocks or entities let you “own” a portion of a corporation and give you a claim over its earnings and assets. You can invest in stocks through a broker licensed by the local stock exchange. Since stocks are actively traded daily in the stock market, prices fluctuate and it’s possible to earn today and lose tomorrow. The risk is very high, but the potential to earn is also very high when the stock market is up. In the long term, stocks have proven to be a good investment for many people.

Because of the volatility of stocks, you may want to defer getting into it until you have become more experienced in investing. Also, consider investing in stocks if you can hold on to your investment for the long term.

Real estate is worth investing into for the long term as well. But bear in mind that there are many costs involved, from annual real estate taxes to maintenance costs. Real estate carries with it a medium risk. You may earn or lose depending on the performance of the real estate market.

A business venture is also a form of investment. However, the risk is high, as not all businesses earn over time. There are many factors to the success of a business. One must not only have enough capital; you must also devote time to growing it and ensuring that it will meet market demands.

Since you are working full time, a business venture is not feasible at this time, unless you want to take a less involved role in running it. Real estate may take a big amount of capital. And since stocks may be quite sophisticated for the first time investor, we thus recommend that you invest in debt instruments.

You can directly invest in a specific debt instrument. Visit your bank to determine what debt instruments they have available. Oftentimes though, the capital required may be high.

An easier way is to invest via a pooled fund, such as a mutual fund or a unit investment trust fund. These funds gather the small investments of many investors and the fund manager puts the total fund in a number of debt instruments. (The funds may also invest in stocks only, or a combination of stocks and debt instruments. You will be advised of the nature of the fund before you invest.) The minimum amount of investment required from an investor may be as low as P5,000 or P10,000 only.

Inquire about mutual funds from mutual fund companies, or unit investment trust funds from banks. With funds, you can easily invest and after a short holding period, you can encash your investment should you need to, subject however to the market price at the time of liquidation.

Remember that investments should be viewed as a long-term strategy to build up wealth. The more you leave it alone, the more it will grow and work for you.

(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts)

*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.

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