Man of still, steal or steel?

Question: The US markets started 2014 on a negative note. While doomsayers are not that plentiful, nobody is overly bullish about the prospects of the New Year, not like with the start of 2013. Some, from analysts to fortune tellers, are even raising caution. Do you think the prospects for investing in the Philippines will not be good for 2014?—Posted on PFA’s “ask a friend, ask Efren” service at www.personalfinance.ph

Answer:  Nobody or nothing is exempted from risks, and that includes investing in the Philippines in whatever year.

Risk is inextricably woven into investing. Volatility in asset prices is not the new normal. It has always been part of what is normal.

It is in what people do with that risk and price volatility that makes them great investors. Put another way, without risk, there would be no great investors to speak of.

The question is, what do you intend to do in the face of all the risks?

Well, you could cower in fear and just place your money in “safe” instruments or by being a man of still. But do remember that the cardinal rule in investing is never broken: high risk, high (potential) return; low risk, low (potential) return.

Investing in low risk instruments may seem easy.

However, if their corresponding returns are below the inflation rate and/or are not aligned with what you need to earn to achieve your financial goals then you are just setting yourself up for disappointment.

I am heartened, however, by developments in the Philippines in the last decade. There is an increasing number of Filipinos, both here and abroad, who are now more open to taking on risks to grow their wealth better.

This is evidenced by the growing number of people, especially from the younger generation, who are talking about personal finance in Yahoo groups and Facebook groups.

Many newspapers and magazines now have a section on personal finance. There is now a proliferation of seminars and trainings on personal financial planning and offered to both professionals and the average Juan.

There is even a growing number of couples who consult us now on how to fund their married life from the wedding and raising a family down to retirement.

You can also face the risks by cheating your way to growing your wealth or by being a man of “steal.”

Examples of taking shortcuts to growing wealth are going after the one time/big time gains (remember the cardinal rule in investing), doing the opposite of being a man of still by falling prey to pyramiding and Ponzi scams, and borrowing heavily to invest and (much worse) to acquire non-earning assets.

On the matter of borrowing heavily, we stress at our EnRich™ training the importance of human capital or the financial worth of a person’s remaining productive years. Human capital can amount to millions. Unfortunately, many fail to see the value of their human capital and instead mortgage their future to the hilt.

The best option is to be a man of steel. Everyone, without exception, has the capacity to be a great investor. Ride the risk. The sooner you do it the better. But don’t do it blindly. Here are some ways to properly ride the risk:

1.) Protect your downside by getting life insurance first. Nothing is guaranteed in investing. Life insurance is there to ensure that you will leave something to your family should you be called from this life early at a time when you are still building up to your target wealth.

2.) Invest only in what you need. The only way you will know what you need to earn is by quantifying your goals. You can then compare your goals with what you currently have and what you can prospectively add to determine what amount of investment return you will need. Know also that each level of return comes with a corresponding level of risk. If you are not comfortable with the level of risk then you should rethink your goals.

3.) Apply A.S.K., the 2,000 year-old formula for growing wealth. “A” stands for asking for divine guidance. “S” stands for seeking through in-depth study. And “K” stands for knocking or committing to action.

4.) Diversify your investments. Spread your money over different asset classes, geographical locations, currencies, industries, sectors and even time frames. Peso cost averaging or investing fixed peso amounts periodically is a way of diversifying your investment over different time frames.

5.) Have a portfolio dashboard. Monitor your investment performance in terms of return and risk vis-à-vis your goals periodically. Many product providers report their performance in print media, SMS, the Internet and e-mail. Some have gone as far as incorporating personal finance tools.

So what do I think about the prospects of investing in the Philippines in 2014? Investing in the Philippines is always good no matter the year, if you are a man of steel.

If you want to learn more about being a man of steel, please visit www.personalfinance.ph. You will find a lot of free useful resources there. You may also attend one of the 2014 EnRich™ personal finance trainings as follows: February 22 in San Fernando, Pampanga, March 1 in Baguio City, March 8 in Davao City, March 15 in Cebu City and March 22 in Metro Manila. Details for the next EnRich™ may be found on the website.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected]. To learn more about the RFP program, attend a FREE orientation on Jan. 15, 7 p.m. at the PSE Center. E-mail [email protected] or text <name><e-mail><RFP> at 0917-3464126 to register.)