The different types of investing options

Getting into investing doesn’t have to be scary, especially when you start to understand how it works. If you take some time to learn and plan, investing can be a smart way to grow your money over time. In the Philippines, there are many different investment options that fit various risk levels and financial goals. In this article, we’ll walk you through some popular investment choices available in the Philippines, breaking them down in a way that’s easy to follow and understand.

Stocks: Investing in Companies

When you buy stocks, or shares, you own a small part of a company. This means if the company does well and makes profits, the value of your stocks can rise, and you might earn money. On the flip side, if the company doesn’t perform well, the value of your stocks can drop. So, investing in stocks carries more risk than some other options, but it can also bring higher rewards.

• How to Invest: To buy and sell stocks, you’ll typically go through a stockbroker. Nowadays, many brokers have online platforms, which make it simple for you to manage your investments right from your computer or smartphone. First, you need to open a brokerage account, add some funds, and then place your orders.
• Considerations: Before investing, it’s crucial to research the companies you’re considering. Look into their financial health, what their plans are, and trends in their industry. A good strategy is to diversify, which means spreading your money across different stocks and sectors to help manage risks better.
• Example: Investing in well-known Philippine companies like San Miguel Corporation (SMC) or Ayala Corporation (AC) can lead to long-term growth, but also comes with risks related to how well those companies perform and the general market conditions.

Bonds: Lending to the Government or Corporations

Bonds are a way for you to lend money. When you buy a bond, you are lending money to the government or a corporation. In return, they promise to pay you back the original amount you invested at a certain date called the maturity date. You also receive regular interest payments during that time. Bonds are generally seen as safer than stocks because the people or organizations that borrow the money have a legal duty to make these payments.

• How to Invest: You can purchase bonds directly from the government through schemes like Retail Treasury Bonds (RTBs) or buy them from private companies through their bond offerings. You can also invest in bond funds, which are managed investment funds that hold a mix of different bonds. If you’re interested, just ask your bank, like BDO or Metrobank, about the opportunities available.
• Considerations: Be aware that bonds can lose value if interest rates change. Typically, when interest rates go up, bond prices go down, and the opposite is also true. There’s also credit risk—you should check the credit rating of the issuer to know how likely they are to repay the money.
• Example: Buying bonds from the Philippine government tends to be a safe bet, as the interest is paid regularly until the bond matures. On the other hand, corporate bonds can offer better yields, but they do carry a bit more risk.

Mutual Funds: Investing in a Basket of Assets

Mutual funds are a way to pool your money with many other investors to buy a diverse array of assets like stocks and bonds. When you invest in a mutual fund, you let a professional fund manager make investment decisions instead of doing it yourself. This option can be excellent for beginners or those who don’t have time to research individual stocks and bonds.

• How to Invest: You can purchase shares of mutual funds from banks, brokerage firms, or sometimes directly from the fund management company. Not all banks offer them, so check with your bank, like Security Bank or UnionBank, to see what they have.
• Considerations: Keep in mind that mutual funds come with fees, such as management and operational fees. Make sure to look into the mutual fund’s goals, past performance, and costs before investing. Understanding the fund manager’s background can also help you gauge how well the fund might do.
• Example: If you invest in a Philippine equity mutual fund, you’ll get a spread of investments across various stocks. Conversely, a bond mutual fund would focus on fixed-income investments.

Unit Investment Trust Funds (UITFs): Similar to Mutual Funds

UITFs are a lot like mutual funds—they also combine the money from many investors to create a diversified lot of investments. However, UITFs are provided through banks and are regulated by the Bangko Sentral ng Pilipinas (BSP) rather than the Securities and Exchange Commission (SEC). Generally, UITFs may have specific investment goals and often have lower fees than mutual funds.

• How to Invest: You can invest in UITFs by going to your bank. Major banks in the Philippines usually offer several UITFs for different types of investors.
• Considerations: Just like mutual funds, UITFs have fees. Their value can change daily based on the performance of the underlying assets. It’s essential to fully understand the UITF’s investment strategy and risk level before diving in.
• Example: A UITF that invests in money market instruments can provide low-risk options for people who want their money to be safe and accessible. On the other hand, a balanced UITF might invest in both stocks and bonds, mixing growth potential with stability.

Real Estate: Investing in Property

When you invest in real estate, you’re buying physical properties to make money either through rent or by selling them later at a higher price. This includes purchasing homes to rent out, business spaces, or land that could be developed in the future. Real estate is usually less liquid —meaning it can take time to sell compared to other investments—but it can often yield significant returns.

• How to Invest: To invest in real estate, you can work with a real estate agent or buy directly from a developer. Financing through mortgage loans from banks is also common.
• Considerations: Real estate usually requires a large upfront investment and ongoing costs like property taxes, maintenance, and insurance. Location is also key—check how accessible the property is, and what amenities and future developments are nearby, as this can affect its value.
• Example: Buying a condo in Metro Manila and renting it out can bring in regular rental income while the property might also increase in value over the years. Similarly, getting a commercial property in a growing area could see its value soar as developments happen.

Pag-IBIG MP2: Government-Backed Savings Program

The Pag-IBIG MP2 (Modified Pag-IBIG 2) program lets members save more money and earn higher interest than the regular Pag-IBIG savings account. It’s a program backed by the government, making it a relatively safe choice for savings and investment.

• How to Invest: You can join the MP2 program by visiting any Pag-IBIG branch or using their online services. You have several options for contributing funds.
• Considerations: The MP2 program has a five-year locking period. While your money is secure since it earns tax-free dividends, you can’t withdraw until the period ends. Historically, MP2 dividends have been higher than what you’d get from a regular savings account.
• Example: By regularly contributing to the MP2 over five years, you can see your savings compound through dividends, making it an excellent conservative option backed by the government.

Small Business: Investing in Entrepreneurship

Starting your own business or investing in someone else’s can be a fulfilling investment path. While it can be rewarding, it often comes with risks. You need not just money but also the determination and skills to manage a business successfully. The returns can be very rewarding if done right.

• How to Invest: This can vary depending on what kind of business you have in mind. You might need to get loans, write a detailed business plan, and obtain necessary permits and licenses to operate.

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• Considerations: Starting a business is inherently risky. Many fail within their first few years. It’s vital to research the market well, craft a solid business plan, and be ready to put in the necessary hard work.
• Example: Opening a franchise like a coffee shop or launching an online retail store involves initial investments, but if it’s planned properly, they can develop into profitable businesses.

FAQ

References

Bangko Sentral ng Pilipinas (BSP)

Securities and Exchange Commission (SEC)

Pag-IBIG Fund

Philippine Stock Exchange (PSE)

Investing in Bonds (2023). Investopedia.