In the past few decades, more and more Filipinos have become aware of the importance of financial security. After all, there’s no better feeling in the world than being able to rest easy knowing that you have enough finances to cover all your current necessities while also having sufficient money for your long-term goals and for any unexpected emergency.
One of the biggest components of establishing financial security is having a good portfolio of investments that you can rely on to grow your hard-earned cash. An investment, in a nutshell, is the commitment to allocate funds to an asset or capital with the expectation of future returns or profit.
These days, there are numerous investment opportunities available to Filipinos who are young, living life in the fast lane, and have high tolerance for many of the risks involved in investing. Such individuals can very easily decide to park a good portion of their money in high-risk equity mutual funds or to play the numbers and invest directly in individual stocks offered by companies listed in the Philippine Stock Exchange.
However, what if your profile as an investor is one who is conservative and therefore possesses low tolerance for risky investments? What if you’re someone who wants to protect the value of a portion of your wealth while at the same time giving it an opportunity to grow over time? The good news is that there are also numerous financial products that cater to people like you. In this article, we’ll shed light on some of the options available to you.
Opening a Time Deposit Account
Opening a time deposit account as an investment strategy sounds very much like something an old hat Pinoy investor would tell you to do. Nevertheless, it’s actually one of the good options out there for Filipinos who just want to build their wealth gradually while protecting its value at the same time. After all, having a time deposit account allows you to enjoy returns that are much better than what you would get, say, from maintaining a simple savings account, but it’s still a more conservative option compared to other investment options out there.
Time Deposit vs Savings Account
When you open a time deposit account, you’re committing to set aside a certain amount of money for a specific length of time, with the expectation of earning a pre-determined interest on the specified date of maturity. It differs from a normal savings account in that during the period of time specified, the money you deposited cannot be withdrawn without you incurring penalties. Nevertheless, as a depositor, you are typically given the choice of how long to keep your money in deposit, with tenure options lasting anywhere from less than a year to as long as 5 years.
Low Risk and with Guaranteed Gains
When you open a time deposit account, it won’t matter whether you choose a term of maturity that’s short-term or long-term; you are always guaranteed the principal amount plus any earnings on interest. In contrast, other investment products like equity funds and individual stocks tend to be riskier due to their vulnerability to economic downturns and because their performance can depend a lot on the management skills of those overseeing them.
Moreover, unlike a lot of other investment products out there, time deposit accounts are insured up to PHP 500,000 by the Philippine Deposit Insurance Corporation (PDIC). This provides another layer of protection that risk-averse investors will surely appreciate.
At Robinsons Bank, you can open a Peso Time Deposit account with ease by visiting the branch nearest your location and submitting the required documents, namely a filled out account opening form, filled out signature cards, and at least 1 valid photo-bearing identification card.
The minimum placement amount for a short-term time deposit at Robinsons Bank is also very affordable at just PHP 1,000—much lower than what some banks ask as maintaining balance for their savings and checking accounts. While a minimum placement of PHP 50,000 is required for long-term time deposits (1, 3, or 5 years), setting aside this amount cash is actually ideal if your goal is to park your money for a while.
Finally, the withholding tax levied on earnings from a time deposit account is normally set at 20% for deposits with tenures of placement of less than 3 years, but this goes down to 0% for deposits with terms of over 5 years.
Investing in Money Market Instruments
If you’ve looked into investment options in the past, chances are, you’ve already encountered the term “money market instruments.” In summary, the money market is the organized trade in short-term debt instruments, where the borrowers and lenders can borrow and lend money within a specified period of time. Money market investments often mature in one year or even less, which makes them excellent savings vehicles when your goal is to boost returns on the portion of your savings whose value you want to protect—money which you might also want to keep liquid even as it gains a yield.
Conservative and Accessible
Participating in the money market by offering debt instruments to individual investors is a convenient way for companies and financial institutions like banks to gain access to huge sums of money quickly. This money can then be used to finance trade and industry activities, as well as to improve the self-sufficiency and support the cash flows of financial institutions.
Money market instruments are often considered safe and conservative investment products, which is especially helpful when the market is currently experiencing volatilities. They are also very accessible to individual investors, who can participate in the money market by purchasing instruments from financial institutions like Robinsons Bank, mutual fund companies, and institutions offering unit investment trust funds.
Investing in Treasury, Government, and Corporate Bonds
If you’re searching for investment instruments that are less risky than buying equities or shares of stocks but have higher rates of return compared to time deposits and even money market instruments, then consider investing in bonds.
Bonds have a lot in common with money market securities in that—like the latter—bonds are fixed-income debt securities that must be paid back in full to the investor on top of any interest earned. When you buy bonds from a bond issuer, you essentially become a lender, otherwise known as a bondholder. The bonds represents the loan that you lend to the borrower, which, in the Philippines, is typically the Philippine government or a corporate entity. In that sense, bonds could be thought of as IOUs that acknowledge the debt owed to you by the government or by individual companies.
A Variety of Bond Options
In the Philippines, many types of bonds are offered by bond issuers. These include treasury securities like treasury bills, treasury notes, and treasury bonds, which are issued by the Bureau of Treasury; bonds issued by government agencies like the Government Service Insurance System (GSIS), Social Security System (SSS), and the Home Development Mutual Fund (also known as the PAG-IBIG Fund); municipal bonds issued by local government units; and corporate bonds, which are offered by companies based in the Philippines. There are many other bonds besides that you can take advantage of as an investor in the Philippines.
The money borrowed by the government through sovereign bonds are typically used to finance big-ticket government projects, like building important infrastructure or financing education and defense needs. Similarly, the money borrowed through corporate bonds can be used by enterprises to fund costly endeavors that will allow them to earn more profit in the future.
Typically, treasury bonds are auctioned off by the Bureau of Treasury or sold by commercial banks who have been authorized to offer them. Corporate bonds, on the other hand, are usually sold by the companies themselves. Make sure to check these channels should you decide to invest in bonds. You also have the option of investing in bond funds, which are offered and managed by financial institutions as mutual funds or as unit investment trust funds. Bond funds invest in a basket of different bonds, which reduces the risk of loss for investors.
Managing the Risks
As with any other form of investment, bonds are not entirely risk free. For instance, an issuing company can decide to pre-terminate the bond, opting to reimburse the principal much earlier than originally agreed upon. They could also decide to lower the coupon rate—essentially the yield that they will pay the bondholder beyond the par value or face value of the bond.
In a worst-case scenario, a company could become insolvent or go bankrupt. The good news is that, even if such a scenario were to come to pass, the lenders will still be able to get part or all of the money they invested, depending on whether or not the company has enough assets that can be liquidated to pay their obligations to their creditors. Still, such a scenario is very unlikely to happen, especially if the borrower is a longstanding corporate entity with massive financial resources.
The Philippine government, on the other hand, is even more stable and capable of paying its debt obligations, which is why a lot of people favor treasury- and government-issued bonds over corporate bonds.
At Robinsons Bank, you can explore a range of investment products such as sovereign and corporate Peso Bonds and Dollar Bonds, as well as personal management trusts that can be invested in channels you select. These can include securities as varied as treasury notes, retail treasury bonds, corporate bonds, and many others.
One Final Word
As you’ve learned, there are many investment options that you can explore to help you protect the value of your wealth while at the same time providing you a modest gain over time. However, investing purely in low-risk, low-yield instruments is hardly a good investment strategy. This is because while the value of your money is kept intact at face value, you could be dealing with an unseen enemy that actually erodes its real value. This enemy is none other than inflation.
It’s very easy to determine the real value of your investments when inflation is taken into account. If, for example, your investments earned an interest of 1.5% in a year, but the inflation rate for the same year was 4%, then in reality, the value of your money had shrunk by 2.5%. This is why it is a good idea to look into high-yield investment options that you can include as part of a well-thought-out investment portfolio. How much you should allocate for each type of investment product will ultimately depend on your goals, your investment timeframe, and your overall tolerance for risk.