Investing for the ordinary Filipino

Financial independence seems to be a big thing nowadays. But how do you achieve it?

I'm sure that more than half of my officemates do not know what I'm talking about here.

It is a common misconception that the terms "Saving" and "Investing" are synonymous with each other. The truth of the matter is that they are vastly different.

Knowing the difference between saving and investing is the key to managing your money. It will help you make more informed choices about financial requirements and needs and actually prevent the unnecessary loss of wealth:

Generally, savings can be best defined as a way of seeking means to preserve the assets that you have built up over time. The problem is that most people don’t realize that you can actually lose money in various conservative saving vehicles. This happens as a result of taxes and inflation.

When saving money, the primary emphasis is on the stability of the principal rather than return potential. While it is true that savings accounts are more predictable and guaranteed to preserve your principle, it doesn’t follow that they are less risky, especially in the long run. But for money that is needed in the short term, savings are probably the best option.

Remember that your money must be able to grow faster than inflation if you are to achieve your long-term financial objectives.

Investing is the key to meeting your long term financial goals and building wealth over the long-haul.

Investing is simply the placement of money into a financial vehicle. The key ideas behind investing are production and growth. By investing, you are putting your money to work for you through compound interest--- this is called passive investment.

To many people, investing seems to involve greater risk to the principal compared to saving, and it does over the short time. Investing is less predictable and more volatile in the short run. However, it also offers greater monetary rewards in the form of higher return potential and an overall increase in purchasing power.

Most investments like bonds, stocks, and mutual funds fluctuate in value. In the short terms, the fluctuations often reflect emotion and psychological reactions rather than the real value of the securities. Because of this, a key for common sense investing is to not be swayed by group-think.

Here are some of the more common investment vehicles on the market today.

1. Government Bonds, Certificates of Deposit, and Money Market
We might as well lump all of these into one group because they are the least risky of all investments. Unfortunately, these 3 investment vehicles pay a lower rate of return than most other investment vehicles. But if you are primarily concerned with preserving your investment capital, these 3 traditionally do well.

2. Corporate bonds
Corporate bonds can offer a better rate of return than government bonds, but of course, they are a bit more risky. The risk here is that the company could become financially unstable, and not be able to pay back the loan that the bond represents. However, a highly rated corporate bond is generally a safe investment.

3. Mutual Funds
Mutual funds are the worst possible investment. The reason for this is because of the management fees involved, as well as the restrictive trading as dictated by each mutual funds prospectus.

4. Stocks. Stock trading is where you can start getting consistent returns of 20% to 100% or more a year. The downside is you can loose your capital easier than in the previous 3 methods, and it takes a more active role on your part to achieve these returns.

Although I have tried using all the investment vehicles mentioned here, most of the ideas written here were taken from my research on the Net
Note that I am not a stock broker. So I would advise everyone to consult first a financial advisor before investing. You need someone who is an expert on money matters.