Using the Sinulog as guide

Q: I have money that can be placed in long-term instruments like bonds, stocks and pooled funds. However, I am hesitant to start because I am fearful that my money would not grow if I get it back after three years. Nobody can give me assurance that my money will grow after the said period. Can you shed light on this concern of mine?  “Ask a friend, ask Efren” service at www.personalfinance.ph

A: When we mention Sinulog, what immediately comes to mind is the biggest festival in Cebu that commemorates the acceptance of Christianity by the Filipino people back in the time when Magellan came to Cebu.  Sinulog is a ritual honoring the miraculous image of the Santo Niño with dance moves resembling that of the sinulog or current of a river then known as Pahina River.  Let’s focus on the literal meaning of sinulog, which is river current.

Investing also has its own dance moves (i.e. up, down, sideways).  But these moves are merely subject to the sinulog or current of the bigger picture, which is financial planning.

If you have the time, energy and enough interest, take a straight and long stick, perhaps at least a meter long.  With a straightened palm, try balancing the stick by just looking at the part of the stick touching your palm.  You will most certainly have a difficult time doing so.  Do that balancing act again but this time by looking at the end of the stick farthest from your palm.  You will see that balancing the stick will be a lot easier.

The sinulog of financial planning is nothing more than long-term goals (the farthest end of your “stick”).  How will someone know if the growth of his investments is enough if he does not have goals to measure them against in the first place?

Take the case of preparing for retirement.  If you say you need to invest for retirement, how will you know what kind of returns you need to make if you had not yet quantified the cost of your ideal lifestyle in retirement?  Such a lifestyle will have to be balanced with the amount of investment you will be starting with, what you will add periodically, the length of time you have left for investing as well as your preference for taking risks. It has been said many times and in many ways that if you aim at nothing, you will hit it.

On the way to achieving your goals, you will need benchmarks.  These benchmarks are mere guides to tell you if you are on track to achieving your goals.  The benchmarks are not the goals themselves.

If you are fixated on making money by the third year, which is actually just a short period, you are effectively making your benchmark,  your goal.  The growth of investments does not happen in a straight line. Many times, investments would sit for a number of years and may even decline before they shoot up in value and more than make up for the years of inaction.

The Philippine Stock Exchange Index or PSEi, for one, was practically moving within a wide sideways channel from 1987 to 2009 before it made its breakout move in the following years.  Within that period, the PSEi rose from a low of 800 (1987) to a high of 3,200 (1993), then declined to 2,600 (1995) only to rise back to 3,200 (1996). The PSEi then dropped back to 1,000 (2002), rose back to as high as 3,600 (2007), faltered to 1,900 a year later and finally rose again to 3,000 (2009) before staging its breakout move. If you insisted on returns by the third year, you would have probably given up on the stock market as early as 1990 when the PSEi fell to its lowest point of 650.

The rule is not to throw in the towel if your investments do not live up to expectations within a relative short period.  The better tactic is to save and invest more to stay on track.  It’s like stepping on the gas some more when you see that you are running late for an appointment.  Provided the fundamentals of your investment are still intact, buying some more at a lower price may just be the solution. If you pull out your money instead, you will be faced with the harder task of finding another investment outlet.

In the end, it is the sinulog or current of your goals that says how you will invest, not the other way around.  Let sinulog take you home.

If you want to learn more about concrete steps in financial planning, check out the free resources at www.personalfinance.ph. You may also attend one of the remaining first quarter 2014 EnRich™ personal finance training as follows: March 8 in Davao City, March 15 in Cebu City and March 22 in Quezon City. Details for the next EnRich™ may be found in the website.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and author. Questions about the article may be sent by SMS to 0917-5050709 or e-mailed to [email protected]. To learn more about the RFP program, attend a free orientation on March 13, 2014, 7 p.m. at the PSE Center. E-mail [email protected] or text <name><e-mail><RFP> at 0917-3464126 to register.)