Are UITFs a good fit for you?

Question: I’ve reached a stage where I’m finally ready to invest. I have my emergency fund and I consistently put money into my life insurance policy. Now, it’s time to invest and I know there are many investment options. I am particularly leaning toward UITFs. I’m a beginner, so I don’t think stocks are the best option. What can you say about UITFs? Are they a good investment? – Ben via Facebook

Answer: An emergency fund, life insurance and now investing? Ben, you’re definitely on the right track to financial freedom, and it’s good that you’re studying the ins and outs of investments before jumping into one. As for which investments are good or bad, there’s no one best answer to that. It depends on who you are as an individual and your personal circumstances. With that, I’ve provided a guide below for you to think about. Invest in UITFs if you find yourself relating to the following statements:

I am a newbie investor

UITFs are “open-ended pooled trust funds denominated in pesos or any acceptable currency operated and administered by a trust entity (of a bank usually) and made available by participation,” according to the website (www.uitf.com.ph) of the Trust Officers Association of the Philippines (TOAP). This means UITFs are managed by financial institutions, usually banks.

For beginners, this is a good way to introduce one’s self into the world of investing. You’re participating without doing the heavy lifting, unlike stocks wherein you pick which stocks to buy. If you invest in an equity-based (simply stocks) UITF, the fund managers of the bank will pick which stocks to include in your UITF.

I am an investor, not a trader

Investors are in it for the long-term. They buy investments and hold them (while adding more money regularly). As for traders, they can trade intra-month, intra-week and, of course, intra-day. If you are a trader or are in it for the short-term, then UITFs are not for you.  As per the TOAP website, “UITFs are considered medium to long-term investments. Clients considering investing in UITFs must have the financial resources to stay invested in them for a reasonable period to maximize earnings potentials. If the funds to be invested will be needed by the client in the immediate future, then UITFs may not be a suitable investment vehicle for such client.”

I don’t want to actively manage my investment

Whether you’re busy with work or want to spend your free time relaxing or participating in your hobbies, UITFs are a good investment option if you don’t have the time to put into it. As I said earlier, don’t invest in something you don’t know much about. When it comes to investing, you, at least, have to know the basics of the instrument you’re interested in. It’s best to know what UITFs are, how they work and earn you money, and the fees you’ll have to pay. However, there’s no need to pour over charts and financial statements because UITFs are trusted to well-experienced, full-time investment managers who are trained to invest properly. They are mostly objective and are not prone to emotional investing, which is a common mistake of newbie investors.

So Ben, have you decided if UITFs are a good fit for you?  To help guide you more in your investment decisions, you must also ascertain your investment objective, time frame and risk tolerance. UITFs are not short-term investment vehicles. If the purpose of your investment is short-term in nature, say less than three years, then it is not a good investment for you because UITFs are market-to-market investments. The value of a UITF will depend on the performance of the market it is invested in. With the above in mind, you can make wiser decisions when it comes to picking your investments.

Catch me again with my friends Marvin Germo, Rex Mendoza, Paulo Tibig, Dodong Cacanando, Reina Pama and BSP Deputy Governor Diwa Guinigundo for iCon2016 on May 28, 2016 at the Samsung Hall of SM Aura. For details, visit www.icon2016.info God bless and see you in iCon2016, Ben!

Randell Tiongson is a registered financial planner. He is a speaker, author and columnist on personal finance. Follow him at his Facebook, Twitter and Instagram (@randelltiongson) or visit www.randelltiongson.com