Wednesday, November 3, 2010

time is an investor's best friend

Most people think that you have to be rich to be an investor. Nothing could be further from the truth. The secret ingredient for turning small amounts of money into considerable wealth is TIME. I would like to share a portion of a fund's prospectus that shows how big a difference starting early can make in one's journey to wealth:

Jack and Jill start working at age 25. Jill immediately starts investing $20 per week into an investment account that earns 7% per annum. Jack wants to enjoy himself a bit first and waits until he is 40 before investing $40 a week into the same fund. They both stop contributing when they retire at age 65. Despite putting in more than what Jill did, Jack actually has less money than Jill. Their end balance is as follows:
Jill: $213,903 (total contribution: $41,600)
Jack: $135,621 (total contribution: $52,000)
And they say math is not interesting. Jill has $78,282 more than Jack even if she invested less than him. The difference is that she started early and time was on her side, allowing compound interest to grow her money more. So the lesson is, start now and start small and let time be on your side.

Tuesday, November 2, 2010

finding extra money

Yippee! Its November and that means next month will be my annual holiday leave. Where else but my home country, the Philippines. Christmas is just different when you're home. I've been setting aside money to splurge for next month, not to mention the pasalubong and Christmas gifts for family and friends. Now this got me thinking on how to find extra money, at least to cover for my plane fare. I was thinking of bringing some stuff which is expensive back there like Billabong board shorts and sell them for a profit. Did this before so I know it works. But I want to try something new like bringing items back from the Philippines and sell them here in Australia. I have yet to research on items which sell here and those which could pass Customs. Mind you, Australia is very strict with quarantine and the entry of plant or animal products in their ports. Then the answer just dropped on my lap when a female co-worker asked me if I can bring jewelry on my return. She even wanted to give me the money now but told her to give it when I'm about to fly. This trading business is exciting and I hope it will result to a substantial profit. But even if it doesn't, the experience will leave very valuable lessons.

Saturday, October 9, 2010

spending = happiness

I watched an interesting documentary about the science of happiness. Of particular interest was the correlation of the degree of happiness a person gets relative to the money he/she spends. Researchers noted that money spent on experiences like going out with family and friends, or traveling to a new place or trying out something new like scuba diving contributes to a much greater and longer lasting sense of happiness and satisfaction compared to money spent on things like clothes or furniture or cars. The researchers also noted that at a certain point, the degree of happiness one gets from acquiring something levels off. Let's say we rate happiness from 0 to 100 and you currently don't have a car. When you buy a used car, you are happiness rate jumps from 0 to 75. Let's say you then buy a brand new car, it jumps to 85 and when you buy a mercedes it jumps to 90. Therefore you keep on spending more money for little increases in the happiness rate compared to the small amount spent for a huge jump in happiness when you bought the used car. I guess this is why some people buy $20,000 bags when you can have a good leather bag for $500 or less. This research put things in perspective. If you know that spending 1000 today for an item that will make you happy for let's say 2 months or so, wouldn't it be better if you invest that 1000 and make it grow?

Tuesday, October 5, 2010

investment check-up

Just as we have annual physical check-ups to maintain good health. We should also check on the performance of our investments and check our savings target as well. My goal is always to save at least 10% of any income that I earn and never to touch that money no matter what. If I want a new gadget or something, I save for that as well. As for emergency fund, I'm aiming for at least 6 months' living costs in a bank account. Finally, I strive to pay all non essential debt. I'm happy to note that everything is in order except for the emergency fund which needs topping up.

As to the performance of my "never touch money pool" for the past 12 months, here they are:
A. Invested in Australia
1. Savings account - 4.5%
2. Retirement account (called superannuation) - 10.1%
B. Invested in the Philippines
1. Savings account - 4.75%
2. Pag-ibig fund account - 5%
3. Mutual fund account - a remarkable 45%

It is very tempting to transfer most of the money into the philippine mutual fund account given the 45% return but I try to stick to the rules of diversification to protect the capital. Just remember to research where to invest. Place your trust in reputable institutions and adjust the allocation as needed. What is my motivation for setting aside a "never touch money pool", its simple; someday I would want to live on interest income without having to work. Happy investing!

Monday, October 4, 2010

Which currency?

Aah! holiday. Today is labor day in Australia. A day for hardworking employees, including foreign workers like me. Its been a year since I posted something on this blog but today would be a good day as any to write whats on my mind.

Lately I've been thinking about what currency should I put my investments in. Currently, I earn most in Australian dollars, which is approaching parity with the US currency. Should I buy US dollars now that they're cheaper to buy or stick with philippine pesos? If I answer yes, then what for? Actually I don't have any use for foreign currency since I'm not engaged in import/export nor do I plan to go to america in the foreseeable future. The thought of investing in US dollars came to me because my uncle kept half of his lifetime investments in that currency. I think he bought dollars in the 60's where the exchange rate is $1=Php5 or something and he's now cashing in with the amazing exchange rate of $1=Php45.

But that was the 20th century and I think we have different factors in play this time. First, I am optimistic with the economic future of the Philippines and therefore the future of its currency. My uncle placed his investments in US dollars because he predicted back then that the peso would lose value relative to it. But at present, I think the peso would gain value relative to it and other currencies. Afterall, when you're at the bottom, there's no way but up. The past trend has actually reflected this from an exchange rate of Php55 during the Estrada presidency to what it is now at Php45. Thre are many factors that influence a currency's value against another. In fact speculators make money out of forex. I could be wrong on this and only time will tell if I have made the right decision. But I trust my instinct and most of all, I trust that the economy of the Philippines will go up. Therefore I would keep half of my investment money in australian dollars and place it here and place the other half in philippine pesos. I just hope they offer more investment options in the future as I currently keep the bulk in mutual funds.