ILLUSTRATION BY RUTH MACAPAGAL
Christmas this year was definitely not a happy one for investors in Philippine financial instruments, who thought 2022 was the year markets would recover and gaily wrapped gifts of better returns and better outlook would be good reasons for a “ho, ho, ho.”
Instead, similar to 2008, there was nowhere to run as both stocks and bonds took a beating. Imagine, the Philippine Stock Exchange Index started 2022 at 7,101.64 and ended the year at 6,566.39, down 7.5 percent. Some corporate 2-year bond rates were at 2.8 percent or thereabouts at the start of 2022 and now, even time deposit rates could give much higher. But that’s just a snapshot of the beginning and the end of the year; everything in between was also frothy and crazy!
However, very much unlike 2008, there are happy options for the next few months if you know how to make your money work for you. And this is why this obligatory “Where to put your money in 2023” still makes sense. Even for seasoned investors, some years can make you feel like you’re greenhorn and this definitely is one of them. Truly, only the market itself is the expert.
So here are some ideas on how to make your money work for you in 2023.
1. This is the best time to be in cash. During recent conversations with investment professionals, I always ask first where they put their own money. Overwhelmingly, they answer that they are in cash. For some people with enough zeros in their bank accounts, moving money to time deposits can yield an easy gross rate of 5 percent per annum. Clear and simple, this is truly the best time to be in cash or at least to revel in making even your emergency funds grow. Yes, some online banks already scream 5 percent in their text ads and they have been doing this at least for the last three years or so. But have you seen the fine print on those text ads? That 5 percent or even 10 percent is not what it seems. Some of it is only for your incremental deposit; some kick in only when your deposits are in the six digits, and some will activate only when you borrow from them.
2. Buy long-term bonds to lock in higher rates. If you are at that stage where you need regular cash flow from your investments, you can buy 5-year or 7-year bonds and lock in around 7 percent or 8 percent gross return. When inflation goes back down to its historical level of 3 percent, you will benefit from a good return net of inflation. However, do not forget that bonds are volatile too, and can sometimes cause you to lose more money than stocks when markets move against you.
3. Invest in stocks that benefit from economic recovery. Banks, real estate and energy are some of the industry favorites among investment experts as the economy recovers especially in the second half. Real estate investment trusts are out of favor because bond rates are going up, but property stocks, especially those with a steady grip on the overseas workers market with stable cash flow, can be winners. Cheap and undervalued stocks are the in thing these days, which bodes well for those who know how to read financial statements and read the notes that explain secrets that are in plain sight.
4. Buy real estate, if you have enough liquidity.Those who have cash to deploy are snapping up properties even after real estate prices have continued to go up by as much as 250 percent in 2022. The housing backlog and the Philippine demographic story continue to drive demand higher year after year. Now, COVID-19 and the work-from-home movement are new factors that have made home space an essential. Have you noticed that people are now studiously looking at brochures and flyers of developments and townships—documents that used to get thrown out with takeout food packaging? They are not just looking for cheap and accessible homes and condominiums; they are scouting for good-looking spaces for their Zoom meetings. (So, yes, that’s a plus point for Wilcon shares).
5. Consider entrepreneurship. Entrepreneurs who are willing to take big risks and have the time, energy and skill to be a boss and a janitor at the same time may have a chance to earn huge amounts in 2023. Entrepreneurship thought leader Paulo Tibig recently came out with the ninth installment of his annual “Business Ideas” list and some of his most interesting picks for 2023 are: 1) food processing and manufacturing (apparently we love adobo in all forms, including in jars); 2) home and office makeovers; 3) (related to No. 2) bespoke furniture and fit-outs.
The caveat
None of these investment and business ideas will work without a coherent financial plan in place that sets the nonnegotiables. You should maintain minimal consumer debt, one year worth of emergency funds, medical insurance, life insurance if you have dependents, and a financial plan that clarifies how much you need for each life stage.
Funny how for most people, this list looks like something written in doctor’s handwriting; hard to focus on, much more to enforce! But just like driving, once a person starts to commit time to learning them, everything becomes easier.
Now, once that plan is in place, the second step is to have another backup plan. Markets will sometimes disappoint, sometimes give happy surprises. Frothy markets often bring out the survival mode in most of us; good returns make us complacent. But financial plans help navigate all market moods and provide stability to our steps, despite all the holiday whisky. Such is the biggest takeaway from 2022.
Have a better 2023, investors! —CONTRIBUTED INQ