WHY FILIPINOS SHOULD INVEST AND NOT MERELY SAVE
The value of saving has been taught and inculcated to generations of young Filipinos by their elders. That is why the "alkansya" or the piggy bank has been a fixture of many a Filipino child's early possessions.
That alkansya is the chosen repository of monetary gifts from Christmases and birthdays for years. For many children, a visit to the bank to break the alkansya and deposit its contents to a waiting teller is a rite of passage. It marks a coming of age of sorts, an introduction to the real world, a world where pesos, centavos, dollars and euros hold sway. A world where money means power. A world where money can take you places.
Unfortunately, our early forays into the exciting world of money and finance almost always end up where we began...in that bank! We were taught that for as long as we continually and constantly place money in the bank, we would be alright. We were taught that for as long as we regularly plow money into that bank account, the future of our family is safe and secure.
Or so we thought.
We have largely been under an illusion that the absolute value of our money is what matters. For many of us, a one hundred peso bill will always be worth Php100. Forever.
Nothing could be further from the truth.
For it is not the face value of that Php100 bill that really counts. It's the real value of that money that determines how far it could take us. And when we talk about the real value of money, there is this thing called INFLATION that always inevitably creeps up into the discussion.
What is inflation and why is it so vital to any discussion about money? Well inflation refers to the general increase in the price of goods and services over time. There is no escape from inflation. Prices of the food you eat and the services you avail of will always, always rise as time goes by. No price is static. It's as sure as the sun rises and sets each day.
So let's assume that we have an average inflation rate of 4% per year. This simply means that the prices of goods and services tend to increase by 4% each year.
You will be surprised that our Php100 today will be worth only Php96.15 next year. That will be next year's real value because the 4% inflation already took a bite out of our Php100 bill.
How did we for compute it? It's simply Php100 / (1 + 0.04) ^ 1 year
And how much will we need next year to buy Php100 worth of goods today given 4% inflation? It's Php104. It was computed by multiplying Php100 with (1 + 0.04).
So to stay well ahead of inflation, your money should be placed in something that earns it more than 4%.
A typical savings account in the bank will not give you that 4% per year. Heck, it won't even give you 1%. How much? Try 0.25% per year.
A time deposit in the bank will give you a little bit higher than that but won't also reach 4% per year unless you have millions and millions of pesos. Then maybe the bank will give you special consideration. And that's a big maybe.
Since the normal bank accounts will not give you your desired returns, saving is definitely not the answer to compounding and enhancing the earning power of your money.
You should therefore try investing.
As defined by Investopedia, investing is the act of placing or committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
And where do most people invest their money? Many Filipinos place their investible money into stocks, bonds, mutual funds, properties and other businesses.
Please note that by its definition, the income or profit from investing is only an expectation. Therefore, it is not guaranteed. There is the possibility of losing part of your invested money.
But the great thing about investing is that in the long-term, money placed in the right instruments tend to give returns that are way, way above the annual inflation rate.
Because INVESTING enhances your wealth by potentially MULTIPLYING your money over time. SAVING only ADDS up your money. Those of us who took up Math know that Multiplication is a far more powerful tool of increasing the value of numbers than Addition, right?
As such, INVESTING has the power to potentially grow your wealth EXPONENTIALLY. Saving only grows your money INCREMENTALLY.
So now that you know the difference between investing and saving, what are you going to do about it?
I trust that you will do the right thing.
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Edwin T. Bartolome
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Code # 090848
CR # 02-2013-08539
For inquiries and assistance on Personal Finance, Investments, Estate Planning and other Money Matters, you can reach him at:
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Tel. No. 719-3958
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