The Financially Literate Juan

Like any option out there, Unit Investment Trust Funds (or UITFs) carry some sort of risks and rewards. Legit understanding of these should help you decide whether UITFs are suitable for you or not.

The Good

1. Diversification at a lower cost. In UITFs, your cash will be pooled with others to buy multiple stocks, bonds, or whatever the banks show (or not show) in their prospectus. For example, the portfolio of my BDO Equity Fund includes stocks from SM Investments, Ayala Land, Metro Pacific Investments, PLDT, BPI and Security Bank.

This means that I’m investing (like a boss) with these blue chips for as low as ₱1,500/month. Dope! Meanwhile, if I solo flight and tried to invest by myself in the same companies, ₱1,500 won’t cut it. This amount is just too small. Remember also that if you’re in the long and steady haul, diversification is the way to go. Win-win here.

2. Affordable option. As I detailed my experience in my other blog post, it only cost me ₱11,500 to start my BDO Equity Fund out of scratch. Actually, if you have a BDO account already, you can start with their Easy Investment Plan (EIP) for as low as ₱1,000/month. Opening a UITF account is also easy. Just go to any branch of your preferred bank and talk to the bank officer for details.

3. Professional management. Investing in UITFs means that your cash is managed by a professional fund manager. That guy will be responsible in investing your cash and hopefully, he knows a lot of financial info than you. So if you want to invest in a passive and less hassle way, UITFs may work for you.

4. Security. The Bangko Sentral ng Pilipinas (BSP) monitors these UITFs. That says a lot regarding to the integrity of these funds. Additionally, these banks always maintain its high standards so I believe there’s low chance that they’ll mess up their own investments (~~or maybe not, LOL~~).

The (not so) Bad

1. Lower profit caused by over-diversification. Diversifying is good. But sometimes, having too much may limit the profit of the investors. Since diversification aims to spread the risk and minimize loses, ROI also suffers sometimes. As the saying goes, the same knife cuts bread and fingers.

2. Negative gains. There will be times that the fund value will be very low and sometimes negative. This happens especially for equity funds which are very dependent to the volatile stock market. Fret not, because paper losses don’t mean a thing until you convert them to cash. You just have to wait for the stock market to rise again, as it always does.

3. Very limited control on your money. Once you agreed to the bank’s rules, you are basically letting some financially savvy guy take over your money. The investors don’t have much to say how the pooled money is invested.

4. Fees and Taxes. Someone has to pay those guys in suit, right? No free lunch here. Aside from the annual admin fees (ranges from 1 to 1.5%), there are also fees for early redemption and sales charge. In addition, all UITFs are subjected to 20% withholding tax when you decided to cash in your money.

As a financial newbie, I believe that it is not a good idea to head straight to the stock market armed with nothing but sticks and stones. The financially literate Juan will consider many factors before diving head-on. For me, UITFs are a good starting point for newbie investors who plan to invest in stocks later. Maybe you need a place to park your money for a few years while you’re mastering your mad skills in trading stocks. Why not UITFs?

Again, it’s not the perfect investment (nothing will be), but consider it in your options.

KTHXBYE!

P.S. I’m not an endorser of BDO (nor a paid advertiser). What I share here in my blog is based on my personal experience.

P.P.S. Anyway, here are the links for the UITF products offered by other banks. Enjoy shopping!

BPI

My very first financial decision after building my emergency fund came up in mid-2013. It was to invest in a UITF (which I detailed in this post). That’s the moment when I first dipped my twinkly newbie toes on the metaphorical waters of the financial market (and yeah, I needed to sound fancy). I felt scared and excited at the same time. But looking back now, I still see that this was the best option for me at that time. Today, I’ll be introducing UITFs and why it should be a part of your portfolio too going forward.

What are UITFs

UITF, or Unit Investment Trust Fund, is an investment vehicle offered by banks where your money is pooled with the money from other investors into a single fund. This pool of cash is handled by the “fund manager”, and he will be in charge on what happens to your money. Sounds scary that one guy controls all this money, right? Well, technically, if you put some cash in your saving’s account anyway, you are also allowing the bank to use that money outright for their financial ventures. I’m saying that you’re risking your money into the same ~~banana~~ banking institution, so why not leverage this risk?

Most banks offer different types of UITFs depending on the risk appetite of the investor. They have portfolios containing equities (stocks), fixed income securities (treasury bills and high yield savings accounts), bonds (both government and corporate), or a combination of each. You can check my blog post regarding the different type of UITFs here.

Where are they

UITFs are commodities of banking institutions. Therefore, you should always see them in your banks. That’s not the case most of the time! There are few ads displaying UITFs, which is one of the reasons why the average Juan doesn’t care (or have any idea) about it. Advertisements showing car and housing loans and credit cards dominate the media, and for a good reason. Well, not for us but for the banks (i.e. capitalism).

So anyway, you can approach the banking officer (or manager) in your bank and ask about their UITF products. Hopefully, they can explain to you some detailed information regarding their products.

Why invest in UITFs

The gist is that UITFs offer an easy-to-access and cheap option to diversify your investments with less hassle. Not yet convinced? I wrote a separate entry discussing the pros (and cons)of investing in UITFs.

How it works

In UITFs (and mutual funds), the price of each “share” is called the Net Asset Value per Unit (or NAVPU). This NAVPU is similar to the stock price of a company because both values determine the current price tag of the investment. Every time you put money into your UITFs, the bank automatically calculates how many participating units (financially correct term) you have purchased at that time. When the time comes and you want to withdraw your money, the bank would just multiply the total participating units that you have with the current NAVPU for the day.

For example, if you invested your ₱50,000.00 in the BDO Equity Fund way back in June 2012 when the NAVPU was 319.6591, the fund value of that now should be ₱70,682.52. Of course, this is the gross value and tax is not yet accounted here. That’s an annualized ROI of 7.17%. Super nice!

UITFs are a good place for an average Juan to start his financial journey. Yes, you can find better investments with a higher ROI. But considering that you did it in a semi-passive manner I think it’s a good deal overall. After that, he/she can expand to other investment instruments available elsewhere. And believe me, there’s a ton out there!

Ciao!

Hello guys and gals! Before starting anything, I would like to thank you from the bottom of my heart (sounds cheesy, right?) for the continued support that you show thru reading these next entries. Appreciate the support, everyone!

I know you are itching to ask what is the best investment available now, or the hottest stock and mutual fund to pick. Maybe you’ve got that spare cash from your piggy bank, or from your 13^th month pay this year, or maybe a graduation gift you received from nanay and tatay. Well, hold your horses my dear Juan. I strongly recommend you to stop, and re-evaluate some things first. Why? You have to understand first that any investment comes with a certain amount of risk (whatever the magnitude is). And because risk is involved, it would be smart to avoid betting all the chips we have right now, isn’t it? The financially literate Juan will stash a certain amount of money in a secure place wherein he can use it whenever he opts to. And that money is what we call the Emergency Fund.

As obvious as it may sound, the emergency fund is built for emergency purposes (IKR). Of course, the term emergency can be different for each Juan. In a general sense though, one can qualify emergency as one of the following:

1. Unexpected job loss

2. Getting sick which makes you unable to go to work

The next question is how big should this fund be. Is 5,000 Php enough? Hell, no. How about 50,000 Php? Maybe. Or maybe not. Actually, it depends on the person’s situation. So cliché, I know. But it really varies from person to person. A rough estimate by most financial gurus is 3 to 6 months’ worth of your monthly expenses will suffice as emergency fund. In most cases, this would be enough to weather that storm (i.e. finding that next job or recovering from an illness that stopped you from working).

Personally, I’ve got 5 months’ worth of living expenses stashed. This is the accumulated cash that I have saved when I was a kid, as well as some money that I diligently stashed from my salary as a research assistant. I believe this would be enough to cover the operating expenses (including my monthly investments) if I were to get another job today (in case that I get terminated in my job). Moreover, there are multiple places where to hide your emergency fund. Most people that I know keep them in their savings account. Others put cold cash under their pillows and mattresses. You get the idea. Put it in a place where it is liquid. This means that you’ve got access to it anytime you need it. Just to give you a clue, mine’s placed in my Metrobank savings account. I also don’t have the ATM card of this `cause I prefer passbooks. Just plain old go-to-the-teller-to-withdraw works for me, less temptation to splurge.

Do whatever works for you. At the end of the day, how you build your personal emergency fund depends on you. I can’t stress enough though that you should build this fund first before trying to ~~play with~~ invest your money somewhere else. Like your trusty umbrella, your emergency fund will keep you dry and at ease during those wet and rainy days.

Infograph source: www.canada.ca

Howdy!

We are all interested in learning something about finances and investments, right? Do you want to know where to park that extra cash? Or do you want to find ways to get out of the 8-to-5 routine? Is this just to make you look more financially savvy in front of your friends? Well whatever reasons you have, we gotta jumpstart the engine and begin somewhere. And I believe the time is now! Or not (well it really depends on you, guys).

I created The Financially Literate Juan for the sole purpose of imparting little bits and pieces of financial knowledge to every Juan, especially for those young Pinoys and Pinays who are just starting in their financial adventure. Though a little bit of disclaimer first, I am not claiming that I’m an expert, registered financial adviser or whatever. I can say though that I know a thing or two about investments and finances. Everything that I’ll be writing here is gained from personal experience and diligent (and sometimes borderline obsessed) research.

It is very, very sad (I can’t stress it enough) to see that many Filipinos are struggling just to make ends meet. And it is not because they are not smart, but rather because they are financially illiterate (sorry for the harsh term). I saw these situations personally IRL and these actually happen even to those who have white-collar jobs (e.g. professors, doctors, engineers) which supposedly have higher salaries compared to others. My point is that no one should be financially illiterate especially in this Age of Information. It is also mind boggling to look into the statistics that less than 1% of the Philippine population invests in the stock market. Many are afraid indeed, especially with the things they do not know. What's the solution? Stop cutting corners and be more financially educated. Please do yourself a favor and stop making excuses.

So from here on out, I’ll be blogging things related to personal finances on my own perspective. Hopefully this blog can serve as a starting point for any Juan out there dreaming to get out of the rat race. Whether you just graduated in college, lost in your current finances, or are already financially stable, I really do hope that this blog can help you in one way or another. As Bruce Barton once said, “The most important thing about getting somewhere is starting right where you are”.