I have received numerous emails recently from PISO Ni Juan readers
and one of the most common queries I received is "what is the best investment" that could be advised
for them.
Honestly, there is no one-size fits –all approach when advising for
the best investment for everybody. Each individual have unique profile and
investment goals. This is the reason why an assessment was very important for
each investor through an investor profile questionnaire to determine what
investment is best for the investor given his investment objectives or goals.
To make a little simple for those who intend to invest, I
tried to come up with some criteria on general terms that I suggest may help
you choose the right investment given your personal condition and goals.
These criteria
are the following:
CAPITAL
If you are
planning to invest in capital intensive investments like real estate or a
certain business, you need a large amount of capital. But if you are planning
to build up a retirement fund or just wanted to grow your capital with modest
returns through paper assets, then you can start with smaller sum and tap it up
on a regular basis.
If you are
planning to invest but you don’t have a ready capital yet, paper assets can be
a good investment alternative, too.
These can be
among the following:
- Stock Market – you can invest in the stock market with a little amount of as low as P5,000 pesos. One good program is the Easy Iinvestment Plan (EIP) being offered by Citisec Online, one of the popular stock market brokerage firms today.
- Mutual Fund – some mutual fund companies allow a minimum of at least P5,000 pesos on initial participation. You can add additional participation amount of as low as P1,000 pesos.
- Unit Investment Trust Funds – BDO Easy Investment Plan and BPI Regular Subscription Plan are schemes designed by both banks to allow investors to participate in their UITF investment programs on installment basis.
INVESTMENT OBJECTIVES
Your
investment objectives answers your purpose or goal of investing. Investment goals
can be categorized according to three fundamental features of capital
preservation, current income or capital growth.
- Capital Preservation – your primary goal is to preserve capital and prevent loss in your portfolio. Your portfolio should be invested in the safest short term instruments like certificate of deposits and treasury bills.
- Current Income – your primary goal is stable returns from your investment higher than the traditional term deposits.
- Capital Growth – your investment goal is to maximize capital appreciation or the increase in the value of your investment over the long term. A larger percentage of your portfolio must consist of stock shares or equities.
TIME HORIZON
Time horizon
is the length of time over which your invested money will yield returns. It is
also the time you plan to liquidate your investments.
Time horizon
can be as short as one day in the case of the day trader or years like the time
horizon of a buy-and-hold investor investing for long term gains.
For
aggressive investment vehicles like stocks or equities, the time horizon should be seen on long
term to make up for losses brought about by the fluctuations of the market.
Short term
investments should be invested in conservative type of investment vehicles
because there is little time to make up in case of losses due to market
volatility.
RISK
TOLERANCE
Risk
tolerance is the extent to which an investor is willing to accept more risk in
exchange for possible higher returns. Each individual have different risk
appetite and this largely affect the determination of investment portfolio that
suits each individual.
In terms of
risk tolerance, investors can be of the following type;
- Low – the investor who have low risk tolerance are advised to adopt the conservative strategy of investing. The investor with low risk tolerance seeks capital preservation and is suited for investments in lower risk instruments like treasury bills, certificate of deposits and money market securities.
- Moderate – the investor with moderate risk tolerance seeks a balance between possible higher returns as well as definite income from his investments. A balance mix of equities and bond investments is suited for the investor with this type of risk appetite.
- High – the investor with a high risk tolerance seeks higher possible returns in his investments and is willing to take short term losses in exchange for long term gains. A superior percentage of equities along with a small portion of fixed-income securities are good for this type of investor.
Want to know
your risk tolerance level? Take this quiz HERE!
AGE
Your age,
although, most of the time was overlook, plays a major factor in investing. It
determines how much years you have left before you enjoy the possible returns
of your investments.
If you are
in your twenties to thirties, time is on your side. You have the leverage to
invest in securities with high risks but with high potential earnings over long
term. With still enough years to invest, you can benefit from the stock market’s
long term performance given the short term losses due to market volatility.
If you are
in your forties to fifties, you must consider a balance portfolio of growth and
income investments.
During this stage, most likely, you have certain obligations and
commitments you need to priorities like a college education for your growing
kids. It is the time to be cautious in your investments while you still wanted
a steady flow of income.
If your age
is just a few years near retirement, you are safer for conservative type of
investments like money market securities or certificate of deposits. This will
make you less prone for losses brought by market volatility. Aggressive type of
investment instruments is unlikely since you have limited time to recover in
case of losses.
LIQUIDITY
Liquidity is
the ability of the asset to be bought or sold in the market without substantial
effect in its price or significant loss in value. An asset that can be easily bought or sold in
the market is called a liquid asset.
Most
investors favor liquid assets because it is easier for them to get out of
investment anytime they wanted their investment to convert it into cash.