Where should I invest for retirement?

Question: Hi, Randell! Good morning! After browsing the net for Filipino personal finance tips, I learned about you. And after reading your articles, I’m very much driven to start investing. I’m already in my 30s and wishing I started earlier. With the multiple investments available, I don’t know where to start. It’d be great if you could help me on this. —John via Facebook

Answer: Hi, John! Thank you for messaging me. I’m sharing your query here on my website because I’m sure many Filipinos can relate to your situation. Many hold off saving for retirement because of the mentality that there are still many years left to save, but as you learned, the best time to invest was yesterday, and the next best time is now. Don’t wait until you’re nearing retirement because investments are meant to be long-term. With that in mind, now we know that we should go for investment vehicles that are more for the long term. So what are these investments?

Property

Real estate is probably the favorite investment of Filipinos. While less than 5 percent of the Philippine population invests in stocks, bonds and mutual funds, 7 in 10 Filipinos own or co-own their homes, according to the Bangko Sentral ng Pilipinas’ Consumer Finance Survey.

Real estate is an advisable investment for retirement because the value of property appreciates through the years. Real estate property isn’t like a time deposit which gives you interest after a year (or less). You won’t make much by selling your property just after 6 or 12 months.

Stocks

Another investment vehicle is stock investing. Stocks are advisable for the long-term because they are risky. This means that the prices of stocks go up and down over a set time period, and you can lose money. One way to decrease your risk and avoid losses is to hold your stocks for the long-term, which makes stocks perfect for retirement. I recommend people to keep their stocks for a minimum of 10 years.

Seeing as you are in your 30s, you have about another 25 more years before you reach retirement age. That’s 20 years more than my suggested 10 years to spread your risk.

Pooled funds

I purposely put pooled funds after stocks because they are closely related. If you want to buy stocks of SM, Ayala or Jollibee, you would have to buy them individually through a stock broker or your online trading platform. With pooled funds, be it a mutual fund or a UITF (unit investment trust fund), you get a group of stocks in one basket or fund. The pooled fund can have SM, Ayala and Jollibee stocks, depending which equities the fund manager buys.

The fund manager does the investing for you. He picks what stocks go into the pooled fund; all you have to do is make an investment deposit and keep track of your investments once or twice a year. It’s also important to know that there are different kinds of pooled funds, there are funds consisted entirely of stocks, others of bonds, while some funds offer a combination of different securities.

For the purpose of retirement, and since you have about 25 years until retirement, a stock or equity-based pooled fund is best for a retirement which is still far away.

VUL

Variable Universal Life Insurance or VUL is a life insurance product that has an investment component similar to a mutual fund or UITF. It is similar to a pooled fund except that it has an insurance component for protection purposes. If you need to build investment values AND you need the benefit of life insurance, this is a convenient instrument for you. However, if you already have enough insurance coverage and you need pure investments only, consider other investments instead.

Cryptocurrency

Some cryptocurrencies, particularly the ones with large capitalization like Bitcoin, Etherium, Cardano, etc., can give you potentially very good capital growth that can come in very handy when you retire. However, since these investments are extremely volatile and relatively new instruments, cryptos are not for everyone.

If you understand how crypto works and you have a very high appetite for risks, you may consider adding them to your portfolio. Even if you claim to have very high risk tolerance and you understand how cryptos work, I would recommend you limit your exposure to them to about 10 to 15 percent of your portfolio, only to be prudent.

With these investments to choose from, you have a clearer idea of where to put your money for retirement. Now the only thing that’s left is to talk to a real estate broker (for property) head to the bank (for UITF pooled funds), a brokerage firm (for stocks and mutual funds), a financial advisor (for VUL) or open a crypto trading account online to fill out your application and open an investment account.

Just remember that there is no such thing as a perfect investment so it is best to diversify. INQ

Randell Tiongson is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 101st RFP program this May 2023. To inquire, e-mail [email protected] or text at 0917-6248110.