Ever get the feeling that you are living until your next paycheck? Do you save but get frustrated that it takes a long time before your savings get bigger? Are you dreaming of that dream house, a car, or travel that you’ve really really wanted but have no ideas yet how to get them? Do you believe that winning the lotto or TV show contests is the only chance for attaining your financial freedom? If you are frustrated as I was back then, read on!
Did you grow up with a deep familiarity with the word SAVE? Like how often did you hear your parents, “Son (or daughter), always learn to save so you can have a good future.” Well, this is so true. Another question, how familiar to you is the word INVEST? Not so? Then it is high time (and hopefully early enough) for you to know about it.
For me, it all started in attending seminars, reading persistent email subscriptions, reading snippets of financial books before it finally got me motivated to increase my financial IQ. Hopefully, reading my post would get you into the bandwagon of future millionaires!
When I learned this, my gosh! I was frustrated! WHY?? Because I wasn’t doing it when I was still much younger! I could have been doing it when I earned my first paycheck and could have grown hundreds of millions much earlier. You wanna know the secret in investing?
The secret is starting early!
Before, my mentality was to earn then spend for stuff that I like and give my contributions to my family. Whatever was left will be my savings. And boy, I had little savings!
Now I know better. I have started to tithe, set a portion for my emergency funds, budget my expenses, setting fund for education and earning passive income by INVESTING while still saving! It was really hard at first (actually it still is), but I know that discipline will take me far.
So first, let me first introduce to you the natural phenomenon for investment richness.
The greatest magic in the world: the Law of Compounding Interest!
What the?? Boring!
Albert Einstein even went to the extent of calling it the 8th wonder of the world! So what is it? If you cringe at math, skip ahead now otherwise, get your math hats ready!
If you had invested Php50 today in a 10% bearing account and instructed someone to remove the interest per year. You will reach your 1 million within 199,990 years! Whoa! I doubt if the world will even remember you by then.
But if you invested Php 50 in a 10% bearing account growing at 10% per year, you will reach 1 million within 127 years! Now we shed a lot of years right? That’s because the interest you’ve accumulated per year compounds itself in the year after and the year next and so forth.
Now you say, “Hey, I want to get my car in in the next 3 years, I won’t live in the next 177 years!” But ask yourself, is Php50 all you’ve got? What other investment instruments do you know about?
You can make this great phenomenon your friend or are you making it your worst enemy? Interests in loans, late payments (or minimum payment) in credit cards, anyone?
Most common LEGAL investment instruments
There are a lot of investment instruments or vehicles in the market today. Most common are these:
- Foreign currencies– investing in gains incurred by current exchange rate. ex. Peso versus Dollar or Euro.
- Government securities– examples are treasury bills wherein you gain from interests in loans from the government. Generally reliable since guaranteed by the Philippine government. Usually, the benchmark of other investment products.
- Corporate bonds– basically you as investor allow loans for a municipal authority or a company in exchange for a fixed interest rate.
- Stock or equity funds– these are shares you invest so you own a portion of a company. Did you read that? You get to be part owner of Ayala or SM or Robinson’s! You get a share of their profits through dividends or market value appreciation.
- Real Estate– investing through price appreciation of your owned real estate property. Some rent it out but if your the one using it, you won’t enjoy the benefits.
- And the good’ ol time deposit and savings account– offered in banks that has almost no risk and allows you a steady interest rate but very low yield (+-1% interest).
Where’s your money now? My best bet is either in time deposit or savings account. It’s the most basic, popular and accessible to most. Well here’s the thing…
Why would you leave and invest your hard earned money only to time deposit or savings account than earn only an average of 1% a year (most times MUCH less) instead if you could invest in other investment products!
Nowadays, there are a lot more investment products being offered. Some are variations of the above.
But please BE WARNED! Always be cautious for scams specially in anything that promises very high returns for low risk and for a short time period. Generally, a rule in investing is:
The higher the return, the higher the risk. The lower the return, the lower the risk.
Mutual Fund and Unit Investment Trust Fund (UITF)
Have you heard of these? Probably yes. In the Philippines, these are the most resounding. Why? Because they too have become popular because of their accessibility with low participation fees.
Basically these are pooling of resources by a fund manager from different like-minded investors to diversify the funds among many investments like the ones above.
One difference in between the two is mutual funds are usually being offered by investment companies while UITFs are by banks. (To learn more UITF vs Mutual Funds)
To be Continued…
Do you want to know how I am investing now? Let me tell you how you can be a multi-millionaire through the stock market (without cringing and shouting, “Risky!”).
Read my next post…
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