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3-6 months of you salary. Yes, just this much. This is what we call a cash buffer - an amount that should cover your 1.) monthly cash flow needs like paying your utility bills, and any 2.) emergency needs like medicine in case you get sick or if a family member unexpectedly borrows money from you.
You should always have this much liquid amount which is why it is best to put it in the bank.

Anything in excess of this amount would just be a waste to still put in the bank because there are lots of  better performing instruments compared to bank products like savings account and time deposits. Samples of these better performing instruments are stocks, bonds or mutual funds.

To know more about stocks, bonds, and mutual funds, CLICK HERE.

If you are saving up for retirement, putting your money in the bank is not a good idea as the returns from the bank is most usually lower than inflation. That means the money that you have worked hard to save loses its value every year. So if you have retirement savings that you are not planning to use in the short term, might as well invest it.

In what investment to put them in would depend on your risk appetite. There are instruments that can provide guaranteed but minimal return while there are others that can provide big returns but with no guarantee. There is always a profitability and risk tradeoff.

To know more about profitability and risk tradeoff, CLICK HERE.

Don't get too comfortable with putting all your money in the bank. Try to find out more about other investments/instruments. The main selling point if putting your money in the bank is that it provides security and liquidity. If you are looking for "returns", the bank will provide very little of that for you.


I know a lot of people who want to invest but have none to little knowledge about it. Having graduated from business school with enough knowledge on investment concepts and actually investing already, they ask me to talk them through it and give some tips, which I was very willing to do so. And that's when I realized this as a calling of mine - to educated people on investments and financial planning. And in order to reach more people, I created this blog. :)

So to you reader who I assume is very interested in investing thus landing on this blog, below is my first lesson to you. To kickoff your investment plans, you need to first understand 2 very basic concepts in order to manage your expectations regarding investments.

1. TIME VALUE OF MONEY

The value of money does not stay constant, it changes throughout time. It can work against you because of inflation, or it can work to your advantage through investments.

Inflation is the yearly increase in the cost of basic goods. Let's say you put $100 in a bank deposit where it stays there for 5 years. At 5 years, the nominal value of you money did not change, it's still $100. BUT, what did change is the value of the items you can buy with 100$. Before, you could probably buy a full cart of groceries. Now, you can only buy a basket full of groceries.

So if you're someone whose saving money consistently  for retirement and putting it all in a bank, you might not actually be doing yourself a favor since whatever you are saving, it's value would have been brought down significantly by inflation when you retire.

This is why it's very important to invest. By definition, an investment is an instrument where there is an expected amount of return to be gained. There are a myriad samples of investments but there are 3 which are very popular and widely discussed - stocks, bonds and mutual funds.

To know more about stocks bonds and mutual funds, CLICK HERE.

By putting your money in investment instruments, you can beat inflation AND earn additional revenue. If you put $100 in an investment and let it stay there for 5 years, if it's an agressive investment, then it might have already become $150-$250 already.

2. RISK AND PROFITABILITY TRADEOFF

All investments have a tradeoff between profitability and risk. If an investment promises higher returns, the tradeoff is that there is more risk. If it promises, less risk, then the tradeoff is that there is lower returns.

We define risk as the variability of returns. This means that if an investment promises higher returns, there is NO guarantee. The performance of the investment will depend on the market. If the market is bullish (upward trend), then it can earn very high. If the market is bearish (downward trend), then it can earn equally big losses. An example of a high return, high risk investment is stocks.

If the investment promises guaranteed constant return, whether the market is up or down, the tradeoff is that it won't be a high return rate. An example of this is bonds. Bonds offer a fixed rate of return and thus can guarantee you that return even if the market is bearish. But if the market is bullish, you miss out on the potential to earn more. Also, bond rates are generally way lower than what you can potentially earn in stocks.

There is no perfect instrument that can promise high returns with low risk. If someone promises such to you, be wary! It's either that someone doesn't really understand what he is talking about or it's a scam. If there is such a perfect instrument then we'd all be rich, but were not. A good question to throw at anybody selling you an investment is to ask them how it works; how does it earns money; and how much involvement is required from you?

To know more about how stocks bonds and mutual funds work, CLICK HERE.

Keep these two concepts in mind always as you will encounter them a lot especially when you start investing already. More articles to come so subscribe to this blog now! :)




There are 3 basic instruments when it comes to invesments. On which instrument to invest depends on your investment goals and risk appetite. You need to understand the behavior of each instrument in order to manage your expectations on investment returns and risk.

I have lots of friends who want to know more about these instruments but never could find something online that's easy to understand. And these friends of mine don't have a Finance background so I try to explain these terms in the simplest way I could without being too technical.

Bonds -  lending money to the governemnt or corporation for a fixed time and interest rate.

That's right, it's you lending these big entities money. Why would they ask for your money? Because it would cost them more to borrow from a bank. So instead of borrowing money from a bank that usually has high interest rates, they borrow money from you through bonds. With bonds, they can dictate the interest rate and the duration of the bond and thus they have more control on their costs.

Returns from bonds are fixed since there is a predetermined interest rate.

Investment Goal: Income Generation, Capital Preservation
Income: Interest Income
Examples: Goverment bonds/T-bills, Corporate Bonds
Also referred as: Fixed Income Securities
Risk: Virtually Risk Free to Low Risk

Stocks - buying ownership of a corporation.

A company can be owned by many people. They get ownership through buying stocks. The more stocks you have, the more ownership you have. People who have a significant number of stocks are what we call major stockholders. Usually, if you have more stocks then you have more voting power regarding major decisions of the company.

You earn two ways in investing in stocks. One is through dividends. At the end of the year, if the company has excess earnings, it may declare giving dividends to stockholders. Think of dividends as your share in the company's profits. The more stocks you have, the more share in the earnings you get. Declaration of dividends is not fixed though. A company is not obliged to declare dividends every year. A company may not declare dividends due low earnings or tight cash budget.

The other way to earn from stocks is through capital appreciation. If a company is projected to do well, earn more profits due to an expansion program, then there's higher chance of declaring dividends. People would then want to get hold of this stock, thus increases demand, in turn increases price.

Returns from stocks are volatile. There is no guarantee on returns but returns can be potentially big like 100% return r even higher. However, it can easily go the other way, you can also incur equally big losses.

Investment Goal: Capital Appreciation
Income: Capital Appreciation and Dividends
Also referred as: known as Equities, Shares
Risk: High Risk

Mutal Funds - giving your money to an investment house for them to manage your money for you.

Not all folks have the time to manage their own money. Investing stocks on your own takes time and effort to study the market, the companies, their individual stock performances. With a mutual fund, an investment house does the investing for you. In turn they charge you with management fees. You, as an investor get to dictate which underlying asset you want them to invest your money into - stocks, bonds, or balanced (both stocks and bonds). This is the only decision required from you, everything else will be done by the investment house. For example, if you choose stocks as your underlying investment, then the investment house will be the one to decide which stocks to buy, when to buy, and when to sell. As such, mutual funds are quite passive investments since there is very little to no participation needed from you.

Returns reflect the returns of the underlying asset.

Investment Goal: Same as underlying asset
Income: Same as underlying asset
Examples: Sun Life Prosperity Funds, Philam Strategic Growth Fund, ALFM Growth Fund
Risk: Same as underlying asset

So what do you think is the best investment for you?

Personal Thoughts:
I personally prefer stock mutual funds. I prefer mutual funds since I don’t have the capacity and expertise to manage my investments on my own. I choose stocks as my underlying asset because I accept absorbing risk in exchange for potential higher returns. I can accept risk as of the moment since I don’t have any dependents and no debts so there is no problem with volatile and non-guaranteed returns. 

Insurance 101

Sunday, September 2, 2012 View Comments

As financial needs are very specific, life insurance policies have become highly customizable. Below are the points you need to be aware of in order to formulate a policy that can best address your needs. Don't rely soley on what your insurance agent tells you. They earn from commisions and therefore have interests that conflict your's. Review these items before you see an agent so you are knowledgeable of what you are commiting to and the options that are available to you.

Face Amount - the amount you are insured for. This is the minimum amount that will be given to your beneficiaries upon your demise. This is the main and basic component of your life insurance policy.

Premium - the amount you need to pay regularly to be insured. Understandably, the bigger the face amount, the bigger the premium.

Living Benefit - the amount that will be given to you in the event that you are still alive but want to  surrender your policy. This value increases given that you constantly pay your premiums but takes significant time before you break even, usually in the range of 10-20 years.

Death Benefit - the full amount that will be given to your beneficiary. This is comprised of the face amount plus cash value plus dividends.

Paying Period - the number of years you are required to pay premiums.

Insurance policies are usually lifetime to pay. However, there will come a point when your cash value and dividends are big enough to pay premiums for you, in which case, even if you don't pay premiums, your life insurance policy can take care of itself.

Or, you can be upfront with your agent that you only want to pay for a certain period only, let's say 10 years. If so, premiums will be adjusted, usually made bigger, to make sure that in 10 years of paying, your cash value and dividends will be big enough to sustain you policy without paying premiums anymore.

Riders - accessory/add-on protection. When you get a life insurance policy, you are basically insured against death. However, you can also get insured against disability, dismemberment, critical illnesses, etc. through riders. These are accessory protection and cannot be availed on their own. A main policy (life insurance against death) must exist first in order to get riders. These also have associated additional costs that will be added to your premium.

Dividends - bonuses given by an insurance company. These usually depend on the performance of a company thus these are not guaranteed and may or may not be given. And if given, there are no fixed rates.

Dividend Options - options on how to manage dividends. There are several options and below are the basic ones.

1. Dividends to be automatically paid to you in cash
2. Dividends to be kept and accumulate in the safekeeping of the isurance company and in turn, earn you interest 
3. Dividends to be automaticaly used to reduce premuim payments

A lot of people think of life insurance as an expense and thus would rather place their money elsewhere like on savings or investments. However, insurance is indeed very important and an essential part of financial security (to know more about financial security, click here). But insurance usually have very conservative returns and most young people who are unmarried and no children don't see the value in it yet.

Due to this, insurance companies have come up with a new product that would address this issue - variable life insurance.

Variable Life Insurance is an insurance policy with an investment component. A portion of the amount you pay goes to paying the insurance while the leftover portion are invested in mutual funds of your choice - stock, bonds or balanced funds. With the portion that goes to mutual funds, you can build your savings and get good returns that if you keep long enough to accumulate significantly, can serve as your retirement fund or your inheritance to your children.

As with all investments, there is associated risk. The associated risk would be the same risk of the underlying investment. So if you choose stock funds as your choice of mutual fund, then there is bigger risk compare to a bonds mutual fund, but the potential return, is of course bigger with a stock mutual fund. This risk will be shouldered by the policy holder - meaning the insurance company will not guarantee returns and depending on the performance of the market, the returns may be positive or negative (loss).

The advantage of this type of insurance is that it allows you to potentially earn bigger returns due to the investment component, which you don't have in regular life insurance. It is also equally as flexible as traditional life insurance as you can also add riders and dictate paying years. As such, a big chuck of the business insurance companies have is on this product. Almost 70% of life insurance availed nowadays is variable life insurance.

This type of instrument is usually very attractive to young professionals as their willingness to get insurance early would also mean, not only cheaper cost of insurance, but also potential bigger returns to them in the long run. So if you are contemplating to get insurance or not thinking about it at all, try to know more about this instrument first and give it a chance.

Will discuss this product in more detail and with numbers soon.

Invictus by William Ernest Henley

Thursday, February 25, 2010 View Comments

Just watched Invictus directed by Clint Eastwood starring Morgan Freeman and Matt Damon. Great movie!

I want to share with you this haunting and powerful poem the movie was named after, Invictus, written by British poet William Ernest Henley. This poem is Nelson Madela's favorite and served as one of his greatest inspiration and source of power during his 29 years of prison before his presidency.

When he became President of South Africa, he saw the opportunity in Rugby as a means to unite his racially divided people with adamant belief that the universal language of sport can break the barriers of apartheid. He then meets with South African Rugby Team Captain Francois Peinaar and tasked him for his team to champion the coming Rugby World Cup. As was evident in Francois' expression the hesitation and disbelief in the seemingly impossible task appointed to him, Nelson Madela gave him a hand written copy of Invictus for inspiration.

Invictus
Out of the night that covers me,
Black as the Pit from pole to pole,
I thank whatever gods may be
For my unconquerable soul.

In the fell clutch of circumstance
I have not winced nor cried aloud.
Under the bludgeonings of chance
My head is bloody, but unbowed.

Beyond this place of wrath and tears
Looms but the Horror of the shade,
And yet the menace of the years
Finds, and shall find, me unafraid.

It matters not how strait the gate,
How charged with punishments the scroll.
I am the master of my fate;
I am the captain of my soul.

Truly an evocative piece most famous for its last couple of lines. Just wanted to share this with you hoping it will have the same effect on you as it had with Nelson Mandela, Francois Peinaar and the many more unknown men who have drawn courage and strength from it.  

Here is the theme song from the movie Invictus, 9000 days, performed by Overtone and Yollandi Nortjie, which lyrics was also inspired and some lines even taken from the poem. 9000 days is equivalent to the 27 years Nelson Mandela spent in prison.


There are just those days when it's hard to get out of bed. And don't we all have experienced that nerve wrecking moment when your boss told you not to be late for tomorrow's  very important meeting at 9:00 am and you wake up the next day and it's already 8:45?

If you're late, superiors and peers always assume you're not that serious about your career and we don't want that kind of impression at the workplace. Check out these innovative alarm clocks that'll make sure you get out of bed on time.

1. "Silence" Alarm Clock

It's technically not an alarm clock since it doesn't have an alarm but has something way much better at waking you wake up. Before going to bed, you wear a wireless rubber bracelet with a built-in vibrating device that goes off on your set time. The snooze function is engaged by shaking your hand. However, each successive snooze you desire, more movement is required to engaged it again making you finally wake up from the physical activity. Isn't it brilliant?!

It's still a conceptual alarm clock though so it's not yet available in the market, but we're be definitely waiting for it.

2. SnūzNLūz Wifi Donation Alarm Clock

Here's one that'll make you jump out of bed right away!

Here's how to set it up. Just connect the SnūzNLūz online via cable or wifi. Once connected, select you online banking institution from the list of supported banks (1600 banks are supported). Input your login information. Then select a charity or non-profit organization of your choice from 6,200 supported charitable institutions.

What this alarm clock does is that every time you snooze it, it automatically transfers money from your bank account to your choice of charity. So when you fail to get-up, it actually costs you. That's one hell of a reason to wake up. Cause if you don't, you might go broke! Buy it here.


3. Blowfly Alarm Clock

This alarm clock comes with a flying propeller that is activated on your set time. The siren then begins to wail and the only way to stop it is for your to to get out of bed, find the plastic propeller and put it back on the clock. By the time you stop the siren, you're already awake. Buy it here.


Here's a video demo.



Lastly, we have the...


4. Carpet Alarm Clock

The only way to turn this clock's alarm off (yes, it's still considered a clock because of it's small lcd screen that displays time) is to step on it, therefore physically forcing you to get out from bed and stand. Genius! If you want to make sure you really wake up, place it far from the bed so you'll be forced to walk as well.


These are some inventive stuff we have here. Get one and you'll have no more late days at work! Make that your 1st new year's resolution.

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