On your mark, get S.E.T., go!

Question: How can I focus on investing when I am busy with my 8 am to 5 pm job? I have a co-worker who manages the funds of our other co-workers on the side. But he is always being caught by his boss doing things other than his job.

Answer: Mark my words, investing in registered financial securities is not just some hobby that you can perform in your spare time. That is why billion-dollar industries have sprouted to facilitate such investing.

You need to be all S.E.T. to invest directly in registered financial securities all by yourself. “S” stands for sizable funds. Sure, you can buy financial securities with a small amount of money. But like in many things, it is so easy to buy. What is more challenging is making money. And to make money on financial securities, you will need to have access to in-depth information.

You will also need to have “E,” which stands for both expertise and experience. You may be given investing information by your broker. But if you are not the sophisticated investor that you need to be, you will not be able to digest that information properly. On the other hand, even if only topline information is provided to a sophisticated investor, he will know what further questions to ask, where to seek answers and draw his best “guesstimate.”

Still, technical knowledge is never enough. A sophisticated investor is also one who has “been around the block.” He will know if indeed the technical knowledge is applicable for certain situations, like irrational gloom and exuberance.

And finally, the flow and analysis of information has to be continuous, going beyond regular office hours. The reason for this is that the world of investing has become so integrated that what happens in one geographical market that is in operation can impact one that has already closed for the day. Anticipating, interpreting and making recommendations on events is a full time job, which is why investors need to have “T”—time to manage their funds almost 24/7.

Now, if you lack in any one of the S, E or T, you do not need to immediately throw your hands in the air and give up. You can have your funds managed by licensed investment managers.

There are two types of fund management services into which you can enter. One is for retail investors or people who do not have at least P5 million in cash to invest, and one is for high net worth individuals.

Retail investment instruments come in the form of pooled funds, which in the Philippines are basically mutual funds, unit investment trust funds or UITFs and single-pay variable unit-linked insurance policies or VULs. All of them pool the funds of people with investment objectives and risk preference similar to those for which a particular pooled fund was set up. All are sold on forward pricing method (i.e. you will know how much shares or units you bought at the end of the day when the price of the pooled fund is determined provided you invested before the usual cut-off of 12 noon of the same day). The minimum to open a pooled fund account can be as low as P300 to as high P100,000. Some pooled funds have entry and exit fees, which are borne by the investor. One has a provision in law that exempts it from capital gains tax on the sale of pooled fund by the investor himself.

If you are a high net worth individual, you may approach a bank or firm and ask them to open an investment management account (IMA) with a portfolio structured for you based on your own investment objectives, risk preference, schedule of additions to your portfolio as well as schedule of withdrawals. There is no capital gains tax here because you and your IMA are one and the same and your IMA will already be levied final withholding taxes. IMAs can be directional (by you), on partial discretion (between you and the investment manager) and full discretion (on the part of the investment manager).

There is much more to discuss than the space for this article allows. I suggest you talk to your nearest financial planner who can walk you through the details of each type of outsourced fund management to see what is suitable for you.

Happy investing. INQ

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Efren Ll. Cruz is a registered financial planner and director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach. To consult with a YAMAN Coach, email [email protected]. To learn more about personal financial planning, attend the 97th RFP Program this August 2022. To inquire, e-mail [email protected] or text at 09176248110.