ONE OF MAN’S NATURAL INSTINCTS is to dive for cover when threatened. This is why when times are hard and financial markets are troubled, people scramble for ways to keep their money safe.

Ask those who have seen their stock investments lose 26 percent of their holdings since the start of the year. Or those who bought or earned their dollars at P55 and are now faced with a P46 to the dollar exchange rate.

They don’t even have to be the ones to feel the pain. Seeing friends and family lose money also puts would-be investors in a kind of paralysis.

Some say this may be the time to rediscover the uncomplicated beauty of cash. Only few market contrarians can commit what could now be sharply depleted portfolios, so the bigger part of the herd are likely looking for relatively safe perches on the sidelines.

Options for “safe” cash investments are fairly straightforward. Time deposits and special deposit accounts in banks offer convenience, easy access and -– the most attractive perk of all -– a deposit insurance of up to P250,000. Money market funds sold by mutual fund companies and banks are not guaranteed by the Philippine Deposit Insurance Corp. but offer slightly better returns than a bank deposit and are now the darling of many liquidity-addicted savers. Treasury bills are also considered safe, short-term investments because of the almost nil risk of default, but if you need to sell them before they mature, you may not be able to get the same amount that you bought them for because prices and yields move in opposite directions.

Finding best deals

How to find the best deals? Since there is no single source of information on savings account rates, you have to go from bank to bank. For money market placements in banks, go to the website http://www.uitf.com.ph and for money market placements in mutual funds, go to http://www.icap.com.ph. Make sure you ask about fees because these erode whatever returns you might get. Management fees of different bank money market funds, for example, range from 0.5 percent to 2 percent.

Cash and near-cash placements, however, have few fans in general among financial planners or investment experts, mainly because they don’t protect against a silent tax -– inflation. With inflation hitting a near 17-year high of 12.5 percent in August , an annual return of 4 percent for special deposit accounts looks pitiful. Time deposit rates are even much lower.

“Is your money in the bank really safe? Safety means your money is growing faster than inflation,” says Ben P. Pañares, chief operating officer of Sun Life Asset Management Co., Inc.

Pañares has barely warmed his seat at SLAMC having been hired only a month ago but he’s an old hand in the investment industry, having cut his teeth back in the 1990s in the US in Bank of America. He says that studies in behavioral finance show that most people get carried away by each little noise in the bushes.

“With all our degrees and education, we will not act rationally when it comes to investments. If we are in a forest with dinosaurs and we hear a growl, we run and hide instead of finding out first if the dinosaur is a plant-eater or a flesh-eater,” he says.

Staying the course even when the market goes topsy-turvy can be a good strategy for investors who want to avoid getting creamed by inflation. “You should always have some cash, of course, and our money market funds answer that particular need, but the truth is market timing is only 8 percent of portfolio return. The rest is diversification and asset allocation. We really shouldn’t be worried about the ups and downs of the market. It’s inflation we should be worried about,” Pañares explains.

Bangko Sentral ng Pilipinas managing director Johnny Noe Ravalo says inflation hits everything, from cash holdings to bonds to stocks, in varying degrees.

“Inflation is not so silent anymore and it hits everybody across the board. TIPS (Treasury Inflation-Protected Securities) in the US protect investors from inflation, but we don’t have that here. There is nothing out there to protect us from inflation, but only ways to minimize the effects,” says Ravalo.

No magic formula

Ravalo warns against people peddling silver bullets and catchall solutions to keeping your money safe. “There is really no golden promise; no magic formula. There are unlimited options, but doing this successfully means you have to understand two things: whether you are trying to protect your principal or you are investing for the future,” he says.

If you’re in the protecting-your-principal stage, you are really talking about pure savings. If you need your money in the next three to six months, for example, get out of the market. Same with the investments of those who are already about to retire. But if you have five, 10 to 30 years to grow your money, you can opt to risk a little bit more in the hope of a little bit more return.

“Knowing where you are tells you what options to take. If you have an investment horizon of five to 10 years, there’s really no sense in panicking every day when the peso goes 10 centavos up or down,” says Ravalo.

Both Ravalo and Pañares stress that the choice of investment manager or financial institution is a big component of keeping your money safe. Peñares says different funds handle their portfolio differently, and some people may opt for less spectacular returns for more stability and consistency. “Sun Life, for example, will not take added risk for only incremental return,” he says.

“The first line of defense really is to cap your greed. Deal only with trusted, accredited, regulated institutions that have proven track record,” says Ravalo. “Consistent high returns do not happen in the financial market without consequences. You may hit a jackpot once, tsamba ka, but it is not possible to do it everyday,” he adds.

Don’t ask for trouble by chasing after returns. This has often resulted in massive losses, as in the case of Multitel, Francswiss, Deutchfrancs and Performance Investments Products Corp. (PIPC) pyramid scams. Investors were made to believe their money were safe and would yield consistent spectacular returns at the same time.

Barring investments in such scams means you have to learn to divvy up your portfolio among different trusted investment instruments –- an art that’s called asset allocation among finance professionals. Sun Life’s Peñares says asset allocation and diversification is also a trusted strategy in keeping money safe.

“Different kinds of investments will act differently and putting your money in various baskets protects you from getting hit all at once by a market turbulence,” he says.

If these all get too complicated for comfort and you are tempted to hide your money under the covers, consider that 10 years from now, many of us might be wondering what the fuss was all about in 2008, something that happens every time the market bounces back from its lows.

(For more personal finance articles, visit INQUIRER.net’s Money Smarts blog here)