Here again is that perennial question, “I have extra cash. Where should I put my money?”
We’ve previously posted a lot of articles like this before, but if you’re looking for another article that will answer this question, don’t worry. We’ll give you another one that provides a comparative pros and cons analysis of various investment products.
Just a disclaimer, though, the “perfect” investment does not exist. That’s because there is no right mix of investments that can suit all people.
Everyone faces unique circumstances and has varying investment goals.
Thus a person has to determine the appropriate portfolio investment mix that will work given his or her financial situation and financial objectives.
Now if you’re ready to evaluate alternative options where you can place your money, read on. We provide below a short description of five (5) investment options where you can invest your money.
Learn and decide which one’s best for you!
1. Government securities
Pros: Examples of government securities are Retail Treasury Bonds, Pag-ibig Housing Bonds, and Treasury Bills (T-Bills). These are relatively safe since they are guaranteed by the Philippine government. They also provide steady and regular income every year. Most of the government securities can be liquidated by selling to other investors or by selling back to banks that offered the product.
Cons: Relatively low interest. Since the investment is guaranteed, the yield is minimal. Although higher than traditional savings and current accounts, interest earnings from government securities may still be lower as compared to other investments.
What to do: Hold some government securities as part of your portfolio. You may want to invest directly in these instruments or join a Mutual Fund or Unit Investment Trust Fund investing in government securities
2. Corporate Bonds
Pros: As fixed income instruments, Corporate Bonds give fixed interest income for a specified number of years. The rate is usually higher than that offered by government securities or bank deposits.
Cons: Bonds come with risk. That means the higher the interest rate offered, the higher the risk as well that the company will default on payments. If the company folds up, it may end up not paying its bond investors. Unlike bank deposits, bonds are not guaranteed by an insurance company like PDIC.
What to do: Put some money in bonds especially if your financial goal is to preserve capital. Hold it for the long term. Choose only bonds with good rating (Read: Easy Guide on How to Invest in Bonds).
3. Mutual Funds, Unit Investment Trust Funds, and Exchange Traded Funds
Pros: Mutual funds, Unit Investment Trust Funds (UITF), and Exchange Traded Funds (ETF) are pooled or collective investment schemes offered by banks and other financial institutions. You benefit from the expertise of fund managers in charge of investing your cash. You need not be concerned with daily fluctuations of asset prices or where to place your money. The investment managers will do that for you.
Cons: Mutual funds and UITF that are invested in stocks may generate capital losses, which means you can lose money. There are no guaranteed returns and there is no insurance for investment loss.
What to do: Decide on an appropriate investment fund that suits your investment objective and risk appetite. Learn more about these investments here:
Pros: Stocks represent your ownership shares in a company. When there is a bull run in the market, stocks perform well. You also earn a lot when you get good stocks during the initial public offering that ultimately rise in price after. In the long run, stocks may outperform bonds in terms of yield.
Cons: Returns generated by stocks are not guaranteed. It is possible to lose your money when investing in stocks.
What to do: Invest only what you can afford to lose. Hold your stock investment for the long term to ride out market price fluctuations. Learn more about stocks here: How to Invest in Stocks (Complete Guide for Filipinos)
5. Real Estate
Pros: Investing in property or real estate is lucrative because the price of a property typically appreciates over time. You can also use it to provide recurring income if you get renters or lessees to rent the property. Land, in particular, is also considered a store of value. That means its price does not usually depreciate over time.
Cons: Real estate is not very liquid and you may be tied to it, because it may not be easy for you to immediately find a buyer, should you need funds. Sometimes the market is down and you may not get a good value for the property if you are forced to sell it. Maintenance costs of the property may also be high.
What to do: When buying real estate, time it right to get a good price for your property. If you are not using it, try to rent it out. Location, location, location of the property is key. If you are getting a condo unit, read here our Tips when Buying a Condo.