The foundations of real prosperity

Many years ago, people said that the Philippine peso was weak and had little value. I remember that many Pinoys converted their money to US dollars because the peso lost value so fast; it seemed then to be the prudent thing to do.

About 10 years ago, I met a person selling a financial product that promised a yield of 2 percent a year over 15-plus years. I challenged the person pushing the product because of the ridiculously low yield for an instrument that you needed to wait for at least a decade to mature. The person selling the product told me the actual yield of the product was much higher if you factored the historical depreciation of the peso—he used 8 percent.

He said that in reality, you actually got a product that gives you 10 percent a year. Duh! I remember politely telling him to change his sales pitch as he was on dangerously thin ice. I doubted that he followed my advice, though, as there were hordes of people selling horrible dollar-based financial products then that capitalized on the weakening of the peso as a sales pitch.

About the same time, I started telling people to not put too much of their money in US dollars because I felt that the appreciation of the US currency was too much, too fast and beyond logic. Even back then, studies showed that the US economy was not as strong as people thought; in fact, it was a time bomb waiting to explode.

No, I do not have a crystal ball nor am I a genius in forecasting. I merely urged people to diversify and exercise common sense, something that is quite fundamental.

When you put most of your eggs in one basket, you are taking too much risk. Somehow, many people saw the American dollar as a risk-free endeavor … much like how some people see real estate or any other asset class of their liking. While it’s OK to have a “favorite” asset or asset class, we need to make sure that our bias does not make us totally discard the value of diversification.

Time often makes one realize there’s no such thing as “risk-free.” Things change and times change.

I remember my parents and grandparents telling us that the best investment was land, land and land. I had a cousin who once told me that the best investments were those in the stock market. My businessmen-friends, on the other hand, would tell me that nothing beats having your own business. Well, they may be sensible and may be correct at some point. However, we can’t really make a judgment call on something that is relative … relative to our own perspectives.

In the end, we always need to factor in the risks of our initiatives—is it OK to take the risk that is inherent to the endeavor we are undertaking? Is it consistent with the achievement of our financial objective? Did we consider the time frame for our undertaking? Too many questions, but they all deserve to be answered.

It is my belief that whatever our undertaking in life, it must have a good foundation-this is true with our investments as well. We need to develop our base on proper money management, prudent financial behavior, appropriate savings, self-control, financial discipline and a lot of common sense—these are the foundations that would bring real prosperity.

“He is like a man building a house, who dug down deep and laid the foundation on rock. When a flood came, the torrent struck that house but could not shake it, because it was well-built” (Luke 6:48, NIV).

Learn proper retirement by attending Retire 2014 at the Astoria Hotel. Joining me in this workshop is Marvin Germo. For inquiries, send an e-mail to [email protected].

(Randell Tiongson is a director of the Registered Financial Planner Institute Philippines, a columnist, best-selling author and speaker on personal finance. To read his blogs, visit www.randelltiongson.com. To learn more about financial planning, attend our FREE personal talk on Oct. 23, 7 p.m. at PSE Ortigas. To register, e-mail [email protected] or text <name><e-mail><RFPinfo> at 0917-3464126.)