Philippines has a very low savings rate compared to other Asian countries like Thailand, Malaysia, Indonesia and Singapore. Francisco J. Colayco - a Filipino Chinese businessman and author of the book Making Your Money Work emphasized that there has no savings culture in Philippines only culture of consumption. He further said that savings are very important to the country's development since these are the primary source of investments that can generate more production and employment.
Colayco accentuated that one of the main reasons why most of the Filipinos do not save is they do not know where to put their savings.There are few who actually save but end up putting their money in get-rich-quick schemes, which turn out to be pyramid scams and swindling operations. He also marked the plights of the Overseas Filipino Workers (OFWs), who are sending billions of dollars to their families in the Philippines but most of these remittances went into goods and services. Only a small amount went into savings, which could have been invested in manufacturing or other types of producing industries.
This is the main reason why Francisco J. Colayco wrote the book Making Your Money Work - Pera Mo Palaguin Mo 2. His intention is to share his expertise to the million OFWs around the world, how to save? How to invest? What to invest? Why invest? And where to invest? On this book, he highlighted the basic guideline in investing which is the inflation rate. He said, "All savings that are put away to grow wealth must produce rates that are higher than inflation. Otherwise, you will lose a great deal of money. The money you save will not be enough to buy the same goods you are able to buy today."
He further advised to be careful if someone offers you a guaranteed investment that yields higher than 2 percent per month or 24 percent per year because this may be good for one or two months only. It is very difficult to sustain this high rate for a long period. Below are types of investments which Colayco has classified them into asset classes and the types of options into three categories with his admirable analysis and recommendation namely:
- Lending Investments
- Ownership Investments
- Speculative Investments
Lending Investments are about
- bonds: government bonds and corporate bonds
- bank deposits: savings and time deposits
- and pension plans
In lending investments - the money you invest is given to borrowers as loans. You earn from the interest charged to the borrowers for the use of your money. This is recommended for those who need regular and definite income and those who are 50 years old or older who can take less risk. About the return, he said that it is relatively low for the short-term but exceeds inflation rate inthe long term. And the money you make here is called interest. However, your investments will not automatically increase, so you must make sure that you reinvest your earnings.
Ownership Investments are about
- mutual funds
- unit investments trust funds (UITF)
- real estate
- and own business
In ownership investments - this make you a part owner of the business or company which receives your money. You need to sell before you realize your gains or losses. This type of investment is recommended for younger investors in their 30s to late 40s. The risk is high. You make money if the business or company goes up in value and vice versa. You gain or lose money only when you sell. About the returns, he said if given enough time you will receive the highest return and it is in the form of dividends or capital gains.
Speculative Investments are about
- investment in assets, properties or businesses that may be illegal or at best and it is questionable
- when you engage in gambling activities like lottery and other gambling types
This type of investment usually has vague and incomplete information on how it can generate profit. You hope and take the chance that it will eventually increase in value and give you bigger returns when you sell it. You place a bet or buy a lotto ticket hoping you will win. The risk is very high. About the returns, you earn only if you are able to sell your investment or win more money. Speculation is for the short term only. You expect to cash in - in a very short period like a few months or maybe at most one year.
Francisco J. Colayco said, "Each investment has to be studied in terms of three important criteria namely: Risk, Return and Liquidity. And you will choose investments with returns of 2 to 4 percent above the annual inflation rate. Do not be too attracted by unreasonable high returns. And anything more than 2 percent per month is highly questionable."
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